Sub-saharan Africa is one of the most dynamic and fastest growing regions in the world. Yet U.S. economic and commercial policy is still looking at its opportunities and drivers through blinders. It excludes the types of U.S. businesses that can best compete on the African market: micro and very small businesses.
Sub-Saharan Africa is leaving America behind
In its 2019 Global Economic Prospects report, released in January 2019, the World Bank forecasts a GDP growth rate in sub-Saharan Africa of 3.4 percent in 2019 and 3.7 percent in 2020. Although expansion in the region’s three largest economies – Angola, Nigeria and South Africa – has been sluggish, as a result of more moderate global trade growth, tightened financing conditions and a stronger U.S. dollar, a number of non-commodity driven countries have pulled ahead and continued to grow at an average rate of over 6%. This dynamic group of countries includes: Ethiopia (7.9%), Rwanda (7.6%), Cote d’Ivoire (7.1%), Senegal (6.5%), and Ghana (6.3%). Compare this to U.S GDP forecast: a slowdown to 2.1% in 2019 and 1.9% in 2020, basically a side effect of the current administration’s trade war.
Both the U.S. and sub-Saharan Africa are undergoing major transformations. However, while U.S. economic path taken since 2017 is unanimously considered by economists as unremarkable and even destructive, the dynamos among the African Lions are successfully attracting global capital through progressive policies aimed at diversifying their economies and growing the middle class.
In the U.S., economic policies have had little impact on the U.S. economy in terms of GDP or employment, protectionist trade policies are harmful, and fiscal policy is a colossal failure. And what gains have been made are not being distributed evenly, with small towns and rural areas continuing to fall behind booming urban dynamos.
Meanwhile, sub-Saharan Africa is on the path to claiming the 21st century. Growth is driven by an increasingly vibrant private sector supported by improved business climate; governance and economic management have improved dramatically in the dynamos; the information technology revolution is truly revolutionizing economic dynamism; the middle class is growing rapidly; and the region has become a major and growing market for consumer goods. In fact, contrary to U.S. protectionist tariff-driven trade policies, Africa is focused on boosting its intra-African trade with the African Continental Free Trade agreement. Brokered by the African Union in March 2018 and signed on by 44 of its 55 member states, the agreement initially requires members to remove tariffs from 90% of goods, allowing free access to commodities, goods and services across the African continent. This could, according to the U.N. Economic Commission for Africa, boost intra-African trade by 52 percent by 2022.
Indeed, as the Brookings Institution report in March 2013 already indicated, Africa definitely matters.
However, not only has the U.S. been slow in seizing the opportunities opening up in Africa. U.S. economic engagement has continued to be more reactive than proactive and, despite the welcomed New Africa Strategy, the focus continues to be limited by blinders that prevent both policy makers and businesses from seeing the enormous commercial and investment opportunities that abound in productive sectors that combine American innovation in technologies and processes with local content.
U.S. economic policy towards Africa is still overwhelmingly focused on natural resources and “big” projects in the infrastructure, energy and telecommunications sectors while sidelining the micro and smaller projects that African markets are demanding in sectors, like logistics and transportation, water and waste management, small-scale agriculture, health and wellness, education, data management, renewable off-grid energy production, banking and financial services, and consumer goods. At the same time, the U.S. government’s obsessive focus on counterterrorism through military force in the region has not only increased distortion of opportunities for U.S. investment and business expansion into Africa and created a bigger-than-life enemy that Africa may not really have. It has been a real drag on parallel policy to attract U.S. business and investment to the region.
The failing U.S. triad for supporting U.S. businesses in Africa
There are three policy initiatives that aim to support U.S. businesses in Africa: 1) the Prosper Africa Initiative, which is a key part of the Trump Administration’s New Africa Strategy presented in December 2018; 2) USAID’s new private sector engagement policy, also launched in December 2018; and 3) the Championing American Business Through Diplomacy Act introduced on March 13, 2019 by House Foreign Affairs Lead Republican Michael McCaul (R-TX). They are all very positive steps forward to enable U.S. businesses to take advantage of the enormous opportunities opening up in sub-Saharan Africa. But as always, the devil will be in the details of how actual support is given to U.S. businesses...and to which ones.
The New Africa Strategy and Prosper Africa
I have written previous articles regarding the New Africa Strategy and the Prosper Africa Initiative. In “What’s the Problem with the New Africa Strategy” (December 2018), I argue that, although a welcomed approach to helping the U.S. step up its game in Africa, the New Africa Strategy fails to provide clear and dedicated support to micro and small U.S. businesses, the most dynamic private sector players in the U.S. economy. I should promote a more balanced understanding of the continent and the opportunities it provides, particularly for micro and small businesses, and facilitate a collective impact model that leverages the power of very small U.S. businesses to make productive investments.
In a more recent article, “Refocus U.S. Business Engagement in Africa” (May 2019), I argue that the Prosper Africa Strategy, which is part of the New Africa Strategy and focused on opening markets for American businesses and enabling the U.S. to regain a competitive foothold in Africa, needs to provide clear and dedicated support to U.S. micro and small business solutions adapted to African needs and demands. My overarching recommendation is that Prosper Africa provide micro and small U.S. businesses with more dedicated funding and support so they can play a greater role in the New Africa Strategy.
This translates into three specific recommendations: 1) counter Chinese economic influence by attracting and supporting a more diversified portfolio of U.S. business investments in Africa, 2) Channel savings from foreign aid to support productive U.S. investments in Africa, and 3) Partner with the private sector (companies of all sizes) for preventive security. The bottom line is thatmicro and very small business are the prime energizers of economic development and growth in both the U.S. and Africa and thus the natural leaders for a new American narrative in Africa. So to prosper in Africa, U.S. economic engagement must be driven by them.
USAID private sector engagement
USAID’s Private-sector engagement policy focuses on strengthening the agency’s market-based approaches and investment to ensure sustainable development outcomes at scale through enterprise-driven development. It seeks to align private enterprises as co-creators of market-oriented solutions with shared risk and shared reward to lift lives, strengthen communities and accelerate self-reliance. The goal is to end the need for foreign assistance and provide greater opportunities for American businesses and leverage the private sector’s expertise, resources, and investment in addressing development challenges.
This is all fine and well. But while USAID’s policy in the beneficiary country focuses on “Micro, small, medium and large enterprises that operate in the formal and informal sectors”, in the U.S. it aims to raise private philanthropic/social investment and collaborate with those who can bring more resources and work with businesses in ways that unlock private capital capable of meeting challenges at scale. This, of course, mainly benefits big players. They are the ones with the resources but also, more often than not, have an interest in obscuring the role they have played in causing the problem they now, with support from USAID, seek to solve. For example:
Although USAID recognizes that small businesses are vital to the U.S. economy and provide critical resources that contribute to its mission, it has established a mere 11% as the goal for contracting with small businesses as primes and 26.5% for subcontracts.This does not include micro businesses (businesses with less than 10 employees, including the owner) or very small businesses (less than 20 employees). However, it is the latter that have experienced the largest gains in employment since 2015. According to the Small Business and Entrepreneurship Council, businesses with less than 20 employees account for 89% of employer firms in the U.S.
If the goal of USAID’s private sector policy is to provide greater opportunities for American businesses and leverage the private sector’s expertise, wouldn’t it make more sense to set aside at least 40% of its prime contracts and 60% of its subcontracts for micro and very small businesses? After all, their knowledge, experience and expertise is much more relevant to the development of Africa’s private sector, mostly composed of micro and very small companies, than that of what is considered an average small company in the U.S. As per the SBA definition, depending on the sector, a small company can have up to 250 – 1,500 employees or a maximum of $750,000 to as much as $38.5 million in average annual receipts. Most small manufacturing companies with 500 employees or fewer and most non-manufacturing businesses with average annual receipts under $7.5 million qualify as a small business. This is HUGE compared to the average micro and very small business in both the U.S. and Africa!
The Championing American Business through Diplomacy Act
The Championing American Business Through Diplomacy Act aims to bolster U.S. economic and commercial diplomacy to better support U.S. businesses abroad and facilitate greater market access in emerging markets, especially where Chinese commercial competition is strongest (for example, Africa). It focuses on 1) enhancing “partnership integration with the Department of State, Department of Commerce and U.S. diplomatic missions throughout the world” to “counter Chinese commercial competition by promoting U.S. business values that reject high quality standards, transparency, and agility in adapting to the unique demands of individual foreign markets” and 2) rededicating the Foreign Service to support U.S. business.
The proposed creation of an Assistant Secretary of State for Economic and Business Affairs is an interesting one and not a bad idea. Because the responsibilities stated in the bill are already covered and carried out under the responsibility of different agencies (Commerce, Agriculture, USAID, etc.), this new Secretary of State would have the critical role of coordinating them in an effective and efficient manner. Of course, this begs the question of whether these other agencies will allow the new Secretary to coordinate them beyond lip service.
Refocus from BIG to micro
If the primary objective of the Administration’s Africa Strategy is to advance “trade and commercial ties with key African states to increase U.S. and African prosperity” and support self-reliance
then why is policy overwhelmingly focused through the BIG lens? Why do none of the policy documents referred to in this article include any dedicated focus on micro and very small businesses?
Both the Prosper Africa initiative and the Championing American Business through Diplomacy Act specifically mention small and medium sized U.S. businesses as the main beneficiaries. But they fail to mention micro and very small U.S. business, which actually make up 92% of U.S. business and 98% of African businesses.
The big private sector is more often than not the wrong partner for the typically very small private sector businesses leading sub-Saharan Africa’s economic growth. Before embarking on a new project, they rarely, to paraphrase Anand Giriharadas (Winners Take All, 2018), study anything by hanging back, observing and realizing all they don’t know. They prefer to apply established protocols that they believe can be used to solve anything but effectively crowd out other ways of seeing, especially those problems they were instrumental in creating in the first place. The disconnection of big business from location and community abets increased atomization of business and investment in a way that obviates inequality through “interested” generosity and justice. Instead, it promotes a new gospel of wealth “sharing” that makes it easier to talk about poverty or opportunity without actually having to focus on doing less harm. Arsonists do make the best firefighters.
Micro and small U.S. businesses are the best partners to turn the U.S. government’s words into deeds. Frederic Ruiz-Ramón, in his Linkedin comments to my December 19 article “What’s the problem with the New Africa Strategy?, underlines that “An Africa Strategy worthy of the name should indeed be strategic enough to include the most capable players for success – small US businesses with great technologies, knowledge and the flexibility and creativity to succeed in Africa’s complex but profitable markets”.
Yes, indeed. The smallest in both the U.S. and Africa are the biggest drivers of their respective economies.
Micro and very small business are the authentic agents of change and drivers of inclusive, equitable, sustainable, self-reliant development. If the U.S. government truly and sincerely wants to bolster U.S. business competitiveness in Africa, it’s is time for economic policy makers to stop ignoring them.
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