Skip to main content

Africa Policy Journal

Topic / Development and Economic Growth

Riding the African Lions

A man in a freshly pressed Calvin Klein suit, sporting Aviator sunglasses, stands on the corner of a busy street cradling his laptop case and yelling over the din into his Blackberry.  Moments later he gets into his new Honda and races away.  This could be an observation made on the streets of New York or San Francisco, but it’s not.  It’s a scene taking place right now in cities across Africa, from Lagos to Luanda.

The lion is starting to roar.With over 313 million middle class consumers across the continent it is time for America’s business people to heed this call and get serious about investment in Africa.  At a time when the American government is seeking innovative approaches to job creation, as well as a counterbalance to the rising economic power of China, it need look no further than at the charging pace of growth taking place in the cradle of civilization. The US government must assume the lead in encouraging American commercial interests to take advantage of the opportunities offered by development on the African continent.Specifically, the government must spearhead this effort by allaying investor fears of the political risks to investment through the negotiation of bilateral investment treaties(BITs) with African countries.

The Afro-skeptic may try to avoid Africa’s economic lions, claiming that these countries are not yet stable enough to welcome American businesses.  But this mentality denies the trends of good governance, economic reform and peace prevailing across the vast majority of Africa. The Afro-skeptic may also question the lack of strong judiciaries to enforce contracts or defend American companies against corruption or other untoward practices.  Though this argument has validity, there are protections that can be instituted:  the United States can sign BITs with African counterparts.

The BIT is an agreement that sets terms and conditions for foreign direct investment.  Germany and Pakistan negotiated the world’s first BIT back in 1959; President Reagan authorized the first negotiation of US BITs in 1981.  The US Trade Representative’s Office describes the BIT as an instrument designed, “to protect investment abroad in countries where investor rights are not already protected”by treating private investment in an “open, transparent, and non-discriminatory way.”US BITs protect American investments from expropriation without compensation, ensure that American businesses are treated no less favorably than any other foreign investors,and allow for unrestricted transfer of capital to the host country and back to the United States.

Perhaps most reassuring to investors is that in the case of a dispute,the US’s BIT language allows American companies to take host governments to an international court or arbitration tribunal, instead of relying on potentially biased or weak domestic courts.  In August 2011, a tribunal in The Hague awarded $96 million to Chevron for several unsettled commercial claims between Texaco, which Chevron bought, and the Ecuadorian government.  Because of the US-Ecuador BIT, the case was settled in the Netherlands and not in Ecuador where the veracity of the Ecuadorian judicial system lay at the very heart of the case.

If the US wants to capitalize on the rising strength of these lions, then it is woefully unprotected.  Currently, the US has only signed nine BITs in Africa, which means that it is losing the international race to secure investment in the world’s last major emerging market.  In comparison, China has signed 31 BITs, while the major EU players France, UK, and Germany have 22, 24, and a staggering 44, respectively, of their African relations covered by BITs.  Even India, the latecomer to the African market, has signed 13 BITs—most within the past three years!  For the US, signing more BITs would make a strategic complement to the African Growth and Opportunity Act (AGOA), which gives African exporters preferential treatment in the United States’ markets.  BITs will help expand American presence in Africa and grow jobs in the fertile African soil.

There’s no wonder why the Chinese, Indians and Europeans have been trying to harness the power of the lions:  with nearly 1 billion people, Africa rivals the largest of the world’s other emerging markets and its growth has become increasingly diversified.  Though oil still makes up the largest component of Africa’s exports, there has been substantial development in agriculture, telecoms, construction, real estate, financial services, and tourism.  Nigeria is one of the world’s fastest growing telecom markets, but instead of market penetration by Verizon or AT&T, it is South Africa’s MTN that, as Nigeria’s largest foreign telecoms investor,has been making hundreds of millions in profits per year.Instead of the streets of Nairobi and Lilongwe being crammed with Ford F-150s they are fast filling up with Geelys and Tatas.   Despite the construction bust in the US,millions of middle and upper class Africans are in desperate need of upgrades to housing, as well as commercial centers in which to buy their iPhones, Nikes, and Abercrombie & Fitch shorts.  No one knows how to make a mall the way America does, yet it’s the Chinese who dominate the construction industry in Africa.

Not only will signing more BITs put us on track to compete with China, India, and the EU, they will also spur jobs in both Africa and America.Only in the past few years did the Chinese displace the US as Africa’s primary trading partner; today, the Chinese engage in $120 billion worth of trade in Sub-Saharan Africa alone.  Relieving the risks associated with working in the emerging markets of Africa through the negotiation of bilateral investment treaties is the best way to get American companies and entrepreneurs riding the backs of these speeding lions.