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MARCH 19.2012

UNTIL RECENTLY, THE word “Africa” rarely appeared in any sentence men-tioning “economic opportunity.” For decades, Africa instead was all but synonymous with “poverty,” “disease” and “dictatorship.”

That mindset is changing, thanks to higher prices for Africa’s vast array of raw materials; a stronger local focus on good governance and fi scal respon-sibility; and enormous investments by China’s state-owned enterprises, hungry for Africa’s minerals. Recovering from an annual growth rate of 1.9 percent dur-ing the global recession, the nations of

sub-Saharan Africa reached 3.8 percent growth in 2010, and 4.3 percent in 2011, according to the World Bank.

“Major companies are coming to us that weren’t interested in Africa in the past,” said Stephen Hayes, president of Washington-based Corporate Council on Africa. “Companies like Microsoft, IBM, Procter & Gamble, Wal-Mart and Cummins all see Africa as a very good opportunity” to tap into Africa’s rising middle class, which amounts to about 120 million consumers, according to the African Development Bank.

Wal-Mart, for example, recently

acquired Massmart, a South African retailer group that owns nine wholesale and retail chains — including 330 stores — that operate in 12 sub-Saharan Afri-can nations, such as Tanzania, Uganda, Nigeria and Ghana. “A lot of African countries are becoming better invest-ment opportunities,” Hayes said.

Stronger commodity prices for the continent’s exports of natural resources, including iron ore, copper and crude oil, are only part of the story. Africa’s recent growth is based on political and economic foundations that are likely to last, supporters of the continent say. “Africa has experienced an amazing renaissance. All but a hand-ful of countries have been pursuing the path toward democracy, respect for the law and even responsible economic policy,” said Stephen Lande, president of Washington-based consultant Man-chester Trade.

Paul Ryberg, president of Wash-ington-based advocacy group African Coalition for Trade, said, “There has been a signifi cant improvement; a lot more democracy, and a lot less mili-tary government. The economic base is small, but it is growing at a high rate.”

Responding to growing demand for ocean services, Greg Howard, chief executive of Cary, N.J.-based non-vessel-operating common carrier CaroTrans, recently announced a new Charleston-to-South Africa less-than-containerload export service. “Africa is becoming a much more important market for us,” Howard said.

CaroTrans has served South Africa for nearly two decades in partnership

“THANK GOD FOR THE CHINESE. THEY

HAVE MADE US MORE AWARE OF AFRICA.”

By Alan M. Field

Africa’s emerging lions offer new opportunities but plenty of challenges

www.joc.com THE JOURNAL OF COMMERCE 23

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with South African NVOCC World Cargo Services. “I see more optimism today,” Howard said. “The toughest part is (behind them), and business there is doing well. It has been a roller-coaster ride.”

With African agribusiness volumes ris-ing, U.S. exporters such as John Deere and Caterpillar are shipping larger volumes of irrigation equipment, tractors and tractor parts used for growing food, not just in south-ern Africa but also in East African nations such as Tanzania and Kenya, Howard said.

Still, the road to prosperity will remain full of twists, turns and delays. Africa’s logistics costs remain high because of its substandard roads and railroads, and fre-quent, often prolonged, power outages. In landlocked Malawi, for example, trans-portation costs amount to 55 percent of the average cost of merchandise. At the Port of Durban, South Africa, Transnet, the gov-ernment-owned port operator, charges an average container vessel $182,151 to dock, more than double the average cost of the world’s top 100 harbors, according to local press reports.

Air connections to Africa still follow colonial-era patterns, often forcing cargo and passengers from East and West Africa to pass through air hubs in Europe rather than fl ying directly to other regions within the continent.

Meanwhile, the U.S. government has fewer resources at its disposal, and U.S. banks can’t afford to plunge quickly into unfamiliar new markets. “There aren’t a lot of banks that are willing to support U.S. investment in Africa. The banks are extremely risk-averse,” Hayes said.

Even in the continent’s wealthiest economy, South Africa, about 39 percent of the population still lives below the poverty line, offi cially $53 a month, while overall unemployment is some 25 percent. Despite progress toward good governance, countries such as Nigeria continue to suffer endemic corruption.

Slowly but surely, however, Africa is upgrading its transportation and logistics infrastructure. In an effort to reduce costs, South Africa in February said government-owned Transnet would invest $39.6 billion in rail and pipeline projects over the next seven years. President Jacob Zuma said the new initiatives would generate thousands of jobs by connecting key inland regions to the sea. Transnet also is expanding the nation’s

ports, including a $2.8 billion investment to modernize Durban.

In a critical cross-border initiative, a 90-mile railway line will be constructed between South Africa and landlocked Swaziland, and Angola and Mozambique are rebuilding railways destroyed during decades of civil war. And with financial backing from China and India, countries such as Namibia, Botswana, Zambia, Zim-babwe and Malawi are developing new transportation routes.

For U.S. companies, China’s growing profile in Africa is a nagging issue and an

opportunity. “How does the U.S. maintain its competitiveness against highly subsidized Chinese investments and the highly aggres-sive investments from the European Union?” Lande asked. “The Chinese are eating our lunch, and the EU uses unfair trade practices.”

Ryberg added, “The real challenge is the competition from China. It is hard for Amer-ican companies to compete versus Chinese government-subsidized companies.”

According to Standard Bank Group, which is now 20 percent owned by a Chi-nese bank, China’s stock of investment in Africa could rise to $50 billion by 2015 — from about $30 billion in 2009 — and annual bilateral Africa-China trade could reach $300 billion by 2015, twice the $150 billion fi gure recorded in 2010.

For all that, Hayes argued that “China has played a valuable role” by stirring up interest in Africa among U.S. companies. “Thank God for the Chinese. They have made us more aware of Africa.”

“I am not afraid of the Chinese,” Howard said. “They create a tremendous opportu-nity if you are ready for them.” For example, he noted Chinese investors have acquired a lot of the land in Tanzania and Kenya that is being transformed into productive agricul-tural properties with the use of U.S.-made farm equipment.

“The companies planting and harvest-ing in those countries are then exporting that food back to China,” Howard said. In addition to U.S.-made machinery shipped in containerized and breakbulk vessels, those projects use a signifi cant amount of U.S.-made chemicals, pesticides and fertilizers.

Hayes believes it’s impossible for many U.S. companies to compete against China’s state-owned enterprises, which benefi t from Chinese-government subsidies. But, he said, “A lot of Chinese private sector companies can be viable partners” for U.S. companies in Africa.

Officially, China made direct invest-ments of $13 billion in Africa in 2011, but those fi gures don’t include Chinese private sector investors from Hong Kong or Chinese private sector companies operating out of offshore locations.

Another signifi cant challenge involves the fate of the U.S. African Growth and Opportunity Act, which offers tangible incentives for African countries to open their economies and build free markets, by provid-ing duty-free access to the U.S. market. AGOA

Source: U.S. Census Bureau, Foreign Trade Division, www.census.gov

U.S.-AFRICA TRADE

■ Imports and exports, in billions of dollars.

0

20

40

60

80

100

120

'11'10'09'08'07'06'05'04'03'02'01'00

■ U.S. Exports ■ U.S. Imports

Source: PIERS, a division of UBM Global Trade and sister company of The Journal of Commerce, www.piers.com

U.S.-AFRICA CONTAINERIZED TRADE

■ Year-over-year percentage change in annual containerized imports and exports to and from Africa.

-20%

-15%

-10%

-5%

0%

5%

10%

15%

'13'12'11'10'09

● U.S. Exports ● U.S. Imports

FORECAST

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is “the most liberal treatment available to any country or region with which the United States does not have a free trade agreement,” the U.S. Trade Representative’s Offi ce said.

Thanks to AGOA, African apparel exporters enjoyed strong export growth from 2000 until Jan. 1, 2005, when the World Trade Organization’s quotas on apparel imports from China ended. The end of Chinese quotas led to a fl ood of imports of cheap Chinese apparel into the United States. But in the past year or two, African apparel suppliers have taken advantage of rising costs in China and a “record run-up in cotton prices” to increase their share of the U.S. apparel market, Ryberg said. The relatively good news: “Now we (Africa) are barely holding our own” against Asian sup-pliers for U.S. business, he said.

Things could quickly go south for African apparel suppliers, however. AGOA’s “third country fabric” provision is set to expire on Sept. 30 and must be extended if the conti-nent isn’t to lose even those modest gains. Extending the provision is essential, Ryberg explained, because more than 90 percent of apparel made in Africa is produced with at least some non-African fabric. If the duty exemptions aren’t extended to the non-African fabric after September, prices for African-made apparel will rise, and African suppliers no longer will be able to compete on price.

Despite AGOA being “a noncontroversial issue supported by everyone” in Congress, politics could get in the way of extending the provision, Ryberg said. Single-vehicle bills “rarely move forward” in Congress today, and the recent authorizations extend-ing Trade Adjustment Assistance and the Generalized System of Preferences were appended to the U.S. free trade pacts with South Korea (TAA) and Colombia (GSP), rather than approved as separate bills.

The upcoming Customs reauthorization bill would be a logical vehicle for extending the third-country fabric provision, Ryberg said, but “that’s not going to move early enough” to meet the Sept. 30 deadline.

The consequences of such a failure could be dire. “Apparel orders are placed up to nine months in advance, and we (African suppliers) are already losing orders,” Ryberg said. “Once they are gone, those orders are not coming back.”

What to do? Ryberg said the African Coalition for Trade is trying to convince

House leaders to pass the AGOA third-country fabric extension via the suspension of the rules because “it is completely non-controversial.” In pursuing that goal, Ryberg is joining forces with U.S. textile organizations whose members might be threatened by low-cost apparel imports, but view AGOA as no threat to their mem-bers, given the modest scale of African apparel production.

More broadly, although AGOA has helped Africa develop nontraditional mar-kets such as apparel and has created a welcoming environment for foreign invest-ment, AGOA has done those things “behind the scenes,” Lande said. AGOA has “not succeeded in being transformative, in the sense of promoting a whole new range of production opportunities” for African entre-preneurs and workers. Moreover, “a lot of the people who benefi t from these efforts

are our competitors,” including the Chinese and Europeans, he said.

In the fi nal analysis, Africa may have only limited appeal for many multinationals until a concerted effort is made to rebrand the con-tinent positively, Lande said. There are nearly four dozen countries in sub-Saharan Africa, but if just a couple of them generate bad news on a given day, the headlines create the impression the entire continent is in turmoil. Good news about Africa usually gets buried.

As a result, many potential business partners never learn that “most African countries now have good records” and are continuing to make significant improve-ments, Lande said.

Meanwhile, Chinese investors continue to ignore the negative headlines, and pursue the vast opportunities. JOC

Contact Alan M. Field at alanmf1233@verizon.net.

BUILDING BRIDGES THROUGH THE MCCFOUNDED IN 2004, the Millennium Challenge Corp. is

funded by the U.S. government, but it’s a truly international

development assistance agency.

“All contracts for grants are internationally bid, and are open to all U.S. companies,” said

Jonathan Saiger, the MCC’s senior director of infrastructure for East and South Africa. Their

common denominator: MCC-sponsored projects support local policies and programs aimed at

achieving sustainable economic growth and poverty reduction. Of the MCC’s 23 signed “com-

pacts” — multiyear agreements with eligible countries — 13 are with African countries, spanning

the continent and totaling nearly $5.5 billion.

The diverse projects are tailored to the needs and capabilities of each country. In Ghana,

for example, the MCC’s $547 million compact recently completed one of that country’s most

signifi cant infrastructure projects: a critical section of the N1 highway, which connects Ghana’s

international airport and its two deep-water seaports (Tema and Takoradi) with its key agricul-

tural production zones.

Other MCC projects in Ghana created more than 1,200 farmer-based organizations, training

more than 66,000 farmers in commercial agriculture; and spent $6 million for the Tamale water

extension project, which supplied safe drinking water to 18 communities by eradicating the

Guinea Worm and other water-related infectious diseases.

“It is one of the most creative programs since the Marshall Plan,” said Stephen Hayes, presi-

dent of the Corporate Council on Africa.

Before a country can become eligible for an MCC compact, it must “demonstrate a commit-

ment to just and democratic governance, investments in its people, and economic freedom as

measured by different policy indicators.”

Beyond its expertise in managing specifi c projects, the MCC helps recipient countries defi ne

and manage key processes so they become sustainable over the long-term, and the lessons

learned on specifi c projects are transferrable to other projects in the future.

“MCC is effective in fi ghting poverty,” said Stephen Lande, president of Washington-based

consultant Manchester Trade. No one disagrees with that view, but “its objectives should be

broadened to provide a stronger role for the private sector.” MCC is the only program that gives

out money overseas but doesn’t involve any requirements to buy U.S. products. “MCC should

take into account U.S. commercial interests,” Lande added.

While praising MCC for its achievements, some observers argue its focus on meeting the

needs of specifi c countries — rather than working across regions — limits its effectiveness at a time

when Africa needs to build a cost-effective transportation and logistics infrastructure that pays

no respect to the irrational borders so often imposed on Africa during the colonial era.

— Alan M. Field

S CC

al

en to all U.S. companies,” said

and South Africa. Their