U.S.-Africa Trade Relations Under Trump
The outcome of the United States general election has generated anxiety globally particularly regarding trade deals between the U.S. and other global markets. Many world leaders are on edge over Trump’s position on trade which seems to favor protectionism, having repeatedly expressed interest to cancel or at least renegotiate some of the free trade deals across the globe.
One of such concerns is the U.S.-Africa commercial relationship going forward. Africa has enjoyed preferential treatment in terms of trade policies and other support under the last three administrations. However, based on the views of the President-elect, Donald Trump on Africa, there is agitation that some programs and policies that favor the continent may suffer setback during his administration.
Going by pre-election statements, it is expected that if the continued existence of an agreement as vital as NAFTA is uncertain, then the continuity of a scheme like AGOA, a non-reciprocal trade preference for eligible countries in sub-Saharan Africa (SSA), is even more threatened.
While it is rather early to speculate whether Donald Trump would execute all his campaign promises to the letter, one clear message is, Trump presidency is a wakeup call to African leaders that no opportunity is limitless.
The good news for Africa is that the continent has tremendous opportunity and potential in a way that it would be in the best interest of the U.S. not to downplay the importance of this market. The president-elect promised to grow the U.S. economy and reduce its deficits. Boosting two-way trade and investment is a major path to economic growth and creating an environment that supports export is critical to this agenda.
Africa offers extraordinary opportunity and to put the much reiterated potential in perspective, Mckinsey Global Institute’s 2016 report on the continent revealed a current consumer and business spending strength of $4 trillion broken down as $1.4 trillion for household consumption and $2.6 trillion for business spending. The institute has also projected that household consumption would grow to $2.1 trillion while business spending would increase to $3.5 trillion by 2025 offering a total of $5.6 trillion in spending capacity by 2025.
This prediction is not complex. It is evident in the continent’s profile and even if the figures are overstated, they are not by so much. Africa has a young and expanding population, currently over one-billion people and the United Nations projects that Africa population will double to 2.5 billion by 2050. The region is experiencing rapid urbanization and a growing middle class but manufacturing and industrialization is low, so the continent is still largely dependent on imports of consumer goods.
Fortunately, the realization that Africa is the next frontier is gathering global momentum as many developed and emerging economies are racing to the continent to secure a first-mover advantage. This presents an alternative lifeline to Africa in case its relationship with the U.S. under the incoming government encounters turbulence.
With rising production costs in Asia and the market fast approaching maturity, Africa is becoming an increasingly attractive hub for foreign investors seeing the various economic, political and social reforms that are being implemented across the continent.
In a recent development, the Singaporean government dispatched political delegations to sub-Saharan Africa to pursue long-term trade relations through free trade agreements and investment treaties, particularly with Africa’s emerging regional blocs. For Singapore, a rude awakening was declining and dismal performance in exports worth $8.4 billion to the continent in 2015 compared to China’s export of goods worth $102 billion.
Consequently, Singapore government and its policymakers have labelled Africa a priority area and aggressively pushing to position itself as a strong trade partner having emerged as the largest investor in Africa among Southeast Asian countries in the 2015 UN World Investment Report. Also, the Senior Minister of State at Singapore’s Ministry of Foreign Affairs, Maliki Osman said in an interview with the African Business Magazine “We see Africa as a bright spot because there’s so much potential”.
In a similar move, President Park Geun-hye of South Korea led a business and government delegation to Africa, visiting Ethiopia, Kenya and Uganda and signing deals on health, the environment, aviation, security and double taxation avoidance.
The Japanese Prime Minister, Shinzo Abe led a delegation of more than 80 major Japanese companies to Kenya to attend the sixth summit of the Tokyo International Conference on African Development (TICAD). TICAD is a framework for trade cooperation between Japan and Africa. Japan, being a leading trading partner of Africa has supported Africa’s development in infrastructure, agriculture, health, education and environmental management and at the summit, a $30 billion investment and infrastructural development package was committed. According to the Prime Minister: “This is an investment that has faith in Africa’s future”.
Meanwhile, the European Union also has comprehensive programs to boost trade between the EU and Africa such as the Economic Partnership Agreements and Everything But Arms (EBA) initiative which are instruments of free trade. EBA is an arrangement under which all imports to the EU from least-developed countries are duty-free and quota-free with the exception of arms and armaments. It currently has 49 beneficiaries out of which 34 are African countries.
Right now global trade alliances are emerging and loyalty is being established. U.S. exports to SSA are already on a downward trajectory and the U.S.-Africa total trade needs urgent intervention. Fundamentally, Africa has a unique opportunity and it provides low-hanging fruits for investors. It will definitely benefit the U.S. more to maintain continued commercial ties with this region.
As events unfold and the Trump administration gets down to business, it will be clearer to the team that the U.S. needs Africa for strategic global positioning.
Kemi Arosanyin is a Global Trade contributor; she writes, speaks, and advises on trade and investment in sub-Saharan Africa.