NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, August 5, 2014

Africa offers US multinationals a compelling trade and investment opportunity thanks to the rapid economic growth rates being experienced across the continent along with burgeoning population growth and increasing urbanisation, according to South African-based Standard Bank.

Economic growth in sub-Saharan Africa has exceeded 5% a year for more than a decade now giving the continent a 4.1% share of global gross domestic product (GDP), up from 3.4% in 2000. By 2050 one in four of the world’s population will reside in Africa with at least 60% of the continent’s people living in urban centres.

“Trade with African economies and investment in Africa offer big rewards but it requires sound local knowledge, strong local partnerships, and a long term view,” said Sim Tshabalala, chief executive of Standard Bank. “In that sense the US plan to revitalise its commercial and trade links with Africa couldn’t come at a more opportune time.”

The renewed US interest in Africa is embodied by President Barack Obama’s Power Africa Initiative which was launched last year and aims to double access to power in six partner countries in sub-Saharan Africa: Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. The US government has committed more than US$7bn in financial support and loan guarantees to the project over the next five years. That commitment has been doubled by the almost 30 private sector partners who have pledged $14.7bn in project finance through direct loans, guarantee facilities, and equity investments for Power Africa.

Nevertheless, the US still has some catching up to do. While the US is a major investor in Africa – particularly in information technology, manufacturing, resources, power, and financial services – trade flows have advanced on a much gentler trajectory.

Although US-Africa trade doubled from about $50bn in the early 2000s to $110bn in 2013 it still lags China whose trade with Africa exceeded $200bn last year. Yet it is precisely China’s emergence as Africa’s largest trading partner which underscores the potential value on the continent for US firms.