ππ°π We Go Show You Road: How Dem Go Cary U.S Investment Enta Africa
When Presido Obama bin start am, Presido Advisory Council on Doing Business in Africa, wey we dey call PAC-DBIA, na better initiative, and e still dey relevant today. Dis body na dem dey give advice to the US presido thru the secretary of commerce on how to boost US business for Africa. Who better to give advice pass some of the ogbonge American companies for the continent?
Di American companies wey dey inside PAC-DBIA sabi the wahala and the better better chances wey dey for doing business for Africa. Plus, many African government wan see more US business for their country. Our partners for the continent no just want do beta business wit US, dem know say most American companies dey create work, epp people get skills and dem dey follow global best business practices, like anti-corruption.
But, we fit ask: Wetin PAC-DBIA don achieve after seven meetings and five reports? After all, when Presido Obama bin set up the committee for 2014, US direct investment for Africa bin dey for all-time highβnearly $69 billion. Seven years later, e don drop to about $45 billion.
Why na?
Africa don see plenty wahala for the last ten years. Ebola, the COVID-19 pandemic, the impact of Russia wey invade Ukraine, debt wahala and the effects of climate change na some of the things wey no gree new investments. War for Ethiopia, Mozambique, the Sahel and recently, Sudan, don also make the investment weather no pure. These wahala no just make people dey fear to invest but e dey take away resources and policy people focus from creating good environment for investments.
Correct Road To Follow π£οΈπ
For the last report, PAC-DBIA talk one important tin about reducing private sector risk. No be lie, financial instruments dey important for shifting some risk go government as companies dey check whether projects go pay inside this global wahala. U.S. International Development Finance Corporation dey play big role to make government-backed loan guarantees available, wey fit shift risk and boost investor confidence. Two types of financial products fit help us. The first one na partial credit guarantee, wey go fulfill some of the borrowerβs debt obligations if e no pay. The second one na risk insurance, wey go protect against money wahala and specified political risks.
Energy sector na one place wey direct loans or guarantees wey US government back go reduce private investment risk for Africa. For world level, na just 14% of direct investment for renewable energy na public money fund. But for Africa, public financing dey play bigger role, as only few projects don manage raise enough private money because of legal, economic, and political risks. Debt na 88% of all public financing for renewable energy from 2010 to 2020. Financial de-risking tools for the energy sector fit bring private sector come table, e go reduce the money wahala for countries wey get plenty debt.
PAC-DBIA report also make another important recommendation, which is to develop infrastructure for every priority sector, like energy and environment, digital and ICT (information and communication technologies), agribusiness and food security, and health. The report highlight the importance of mixed finance and the best way to use U.S. governmentβs resources to develop projects wey go pay and spark the private sector. Africa get some of the highest infrastructure costs for world because of low quality or no infrastructure. For example, for 31 out of 43 sub-Saharan African countries, the cost of bringing in goods na 50% higher than the average for developing countries. But, according to Moodyβs Analytics research and as the African Development Bank quote, Africa get the lowest default rate on infrastructure projects among world regionsβ5.5%β compared to 12.9% in Latin America and 8.8% in Asia. Infrastructure development suppose be top priority for the U.S. government.
Why Commercial Diplomacy Important π€π
For this level, commercial diplomacy fit help fix perceptions and wrong ideas about risk, reduce trade barriers, support foreign procurement, help export transactions, and create better environment for foreign direct investment.
No be small thing, the importance of commercial diplomacy no be here. As Meg Whitman, wey be former business leader and current U.S. ambassador in Kenya, talk last month for high-level business meeting for Nairobi, βWhen I dey as CEOβI go talk trueβI probably dey think of Africa about 1% of the time.β The ambassador’s true talk show say most U.S. business leaders no dey see Africa as target market.
No be lie, the U.S. don increase him support for the private sector in better ways, like creation of the DFC and Prosper Africa and, most recently, Vice President Harrisβ recent visit, to mention few of the better initiatives. But, since Commerce Secretary Penny Pritzker and the DBIA go find fact for Nigeria and Rwanda for 2016, U.S. commerce secretaries don spend only one day for the continent (Wilbur Ross visit Ghana on July 6, 2018, with the advisory group).
We suggest say the secretary of commerce lead a PAC-DBIA trade mission to Africa every year. E no just go show U.S. business leaders say Africa na important market for the American government, but e go be chance to start to do the many better better recommendations wey PAC-DBIA don make since dem start. Plus, strong commercial diplomacy go play important role to make the private sector commitment, wey worth $15.7 billion, wey dem promise at the 2022 Africa Leadersβ Summit become reality and e go reverse the fall in U.S. investment in Africa.
NOW IN ENGLISH
ππ°π Guiding the Way: The Route to Channeling U.S Investment into Africa
Initiated by President Obama, the President’s Advisory Council on Doing Business in Africa, also known as PAC-DBIA, is a significant initiative and remains relevant today. This council advises the US President, through the Secretary of Commerce, on how to amplify US business presence in Africa. Who is better to provide this advice than some of the prominent American companies already operating on the continent?
The American companies involved in the PAC-DBIA understand the challenges and potential opportunities in doing business in Africa. Furthermore, many African governments are eager for more US businesses to operate in their countries. Our partners on the continent are not only seeking to do good business with the US; they are aware that most American companies create jobs, help people acquire skills, and adhere to global best business practices, such as anti-corruption.
However, a question arises: What has PAC-DBIA achieved after seven meetings and five reports? After all, when President Obama established the committee in 2014, US direct investment in Africa was at an all-time highβnearly $69 billion. Seven years later, it has dropped to about $45 billion.
Why is this?
Africa has faced numerous challenges over the last decade. The Ebola outbreak, the COVID-19 pandemic, the impact of Russia’s invasion of Ukraine, debt crises, and the effects of climate change are some of the factors that have hindered new investments. Conflicts in Ethiopia, Mozambique, the Sahel, and most recently, Sudan, have also clouded the investment climate. These challenges do not only deter investors, but they also divert resources and the focus of policy makers from creating a favorable investment environment.
The Right Path To Follow π£οΈπ
In its latest report, PAC-DBIA emphasized the importance of reducing private sector risk. Undeniably, financial instruments play a critical role in transferring some risk to the government as companies evaluate whether projects are viable amidst global unrest. The U.S. International Development Finance Corporation plays a significant role in making government-backed loan guarantees available, which can shift risk and boost investor confidence. Two types of financial products can aid this. The first is a partial credit guarantee, which will fulfill some of the borrower’s debt obligations if they default. The second is risk insurance, which provides protection against financial losses and specified political risks.
The energy sector is one area where direct loans or guarantees backed by the US government can minimize private investment risk in Africa. Globally, only 14% of direct investment in renewable energy is publicly funded. But in Africa, public financing plays a larger role, as few projects have managed to raise sufficient private funding due to legal, economic, and political risks. Debt constituted 88% of all public financing for renewable energy from 2010 to 2020. Financial de-risking tools in the energy sector can invite the private sector to the table and alleviate financial concerns for heavily indebted countries.
The PAC-DBIA report also made another crucial recommendation: to develop infrastructure for each priority sector, including energy and the environment, digital and ICT (information and communication technologies), agribusiness and food security, and health. The report underscored the importance of blended finance and the optimal use of U.S. government resources to develop profitable projects and stimulate the private sector. Africa has some of the highest infrastructure costs in the world due to inadequate or absent infrastructure. For instance, in 31 out of 43 sub-Saharan African countries, the cost of importing goods is 50% higher than the average for developing countries. However, according to research by Moody’s Analytics and as quoted by the African Development Bank, Africa has the lowest default rate on infrastructure projects among world regionsβ5.5%β compared to 12.9% in Latin America and 8.8% in Asia. Hence, infrastructure development should be a top priority for the U.S. government.
The Importance of Commercial Diplomacy π€π
On this front, commercial diplomacy can help rectify misconceptions and fears about risk, reduce trade barriers, support foreign procurement, aid export transactions, and create a more favorable environment for foreign direct investment.
The significance of commercial diplomacy cannot be underestimated. As Meg Whitman, former business leader and current U.S. ambassador in Kenya, stated at a high-level business meeting in Nairobi last month, βWhen I was CEOβI’ll be honestβI probably thought about Africa about 1% of the time.β The ambassador’s candor indicates that most U.S. business leaders do not view Africa as a target market.
Indeed, the U.S. has augmented its support for the private sector in several commendable ways, such as the creation of the DFC and Prosper Africa, and most recently, Vice President Harrisβ visit, to name a few of these initiatives. However, since Commerce Secretary Penny Pritzker and the DBIA conducted a fact-finding mission in Nigeria and Rwanda in 2016, U.S. commerce secretaries have spent only one day on the continent (Wilbur Ross visited Ghana on July 6, 2018, with the advisory group).
We propose that the Secretary of Commerce lead a PAC-DBIA trade mission to Africa every year. Not only will this demonstrate to U.S. business leaders that Africa is a critical market for the American government, but it will also be an opportunity to start implementing the many commendable recommendations that PAC-DBIA has made since its inception. Furthermore, robust commercial diplomacy will play a crucial role in ensuring the realization of the private sector commitment of $15.7 billion, pledged at the 2022 Africa Leadersβ Summit, and reversing the decline in U.S. investment in Africa.