Monthly Archives: July 2018

How to Trade with Africa–How Everybody Wins

A popular subject among American policymakers, business people, and Africa watchers is US trade policy for Africa. The discussion takes place in the context of the Trump administration’s tough stance on trade around the world, China’s emergence as Africa’s biggest trading partner, and signs that Africa is becoming a more attractive destination for trade and investment.

Let us consider a new approach—one that will promote true economic partnership between the United States and the nations of Africa, and strengthen our geopolitical alliances. We should not only look to increase trade with Africa, but also promote high value exports that play to our competitive strengths and foster growth and prosperity in Africa. Concurrently, US investors are wise to keep a keen eye open for profiting from strengthening companies engaged in African imports.

We are reminded of the urgency of this new approach by a recent opinion piece by Grant Harris, CEO of Harris Africa Partners. (He covers the same subject in a CNBC Africa interview). He discussed the threat by the US Trade Representative to take away from Rwanda some of the benefits of the African Growth and Opportunity Act. The sanction would be in retaliation for increasing tariffs on second hand clothes.

Mr. Harris is right to call the specific threat against Rwanda a mistake. Though the Trump administration is within the letter of the agreement, it is a classic example of “doesn’t mean you should just because you can.” The move against Rwanda is an example of the Trump administration’s simplistic and short sighted approach to trade policy. In their minds, any event that contributes to the trade deficit, no matter how minuscule is to be opposed. It does not matter how destructive this could be to the used clothes business and to Rwanda’s economic development, or to US relationships with Rwanda and other African countries in a similar situation. Meanwhile, the impact on the US economy is negligible.

A smarter policy would be to play a long game that focuses on strengthening partnerships with countries like Rwanda. In the trade context, that means promoting higher value industry—more processing and refining of raw materials, and more manufacturing, where US technology, management know-how, and investment dollars can yield significant long-term returns. This could be an effective strategic approach to competing against China and other leading trading partners with Africa.

Except for labor and raw materials, inputs for these industries will have to be imported, thus creating a market for US exports in industries in which Americans have competitive strength. The equipment and machinery needed to rev up African industry will bring considerably more export revenue, and produce better paying US jobs than the used clothes business.

At the same time we would be smart to encourage the development of African brands and respect the resulting intellectual property. By respecting African IP rights, we can create allies in global trade discussions against those who do not respect the concept of intellectual property.

This is an opportunity to make US equipment, methods, and quality standards the norm among African businesses. The United States can present a different development model from China and other economic rivals who ship large quantities of ready-made apparel into Africa.

The high value model of two-way trade applies to other industries. For example, in agribusiness there is demand for modern American farm equipment. If such equipment is made affordable to small farmers in Africa we can increase farm productivity and food security in Africa and open new export markets for the US.

Playing the long game can help the US build long term economic partnerships that will benefit American as well as African businesses.

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