Anthony Leung Shing – Protectionism in the US : what it means for Africa

The world continues to wonder what lies ahead as President Donald Trump takes over the White House. The President’s rhetoric claims “America First”, “Buy American, Hire American” have signaled a new wave of US centric economic policies as well as set the tone for an era of isolationism and protectionism.

Since his shock election victory, President’s Trump has had little to say about US policy towards Africa. Whilst Africa does not appear to be high on his agenda, the continent is almost certainly to be impacted by his hardline foreign policy stance. Over the last decade, the US-Africa policy has been geared towards supporting trade and foreign aid as an engine for economic growth in order to promote political stability, humanitarian goals and development. The US-Africa Policy has been minimalist and essentially centered around the continuation of existing initiatives under the Africa Growth and Opportunity Act (‘AGOA’, created under the Clinton administration), Pepfar Aids spending (created under the Bush II administration), Millennium Challenge (created under the Bush II administration), etc. What would a Trump-led shake up of US foreign policy towards Africa look like?

The first insights into how the US-Africa policy may change over the next four years can be observed in the President’s transition team’s questions on US Policy in Africa to the State Department. One area of concern from the US appears to be at falling behind other economic powers in Africa… “How do US Businesses compete with other nations in Africa? Are we losing out to the Chinese?” the team asked. China overtook the US as Africa’s top trade partner in 2009 and, in 2015, Chinese exports to Africa reached USD103bn against USD27bn of US exports (China-Africa Research Initiative, Johns Hopkins University). 

As the focus has been on the US withdrawing from the Trans Pacific Partnership (‘TPP,’ the economic agreement providing 11 Pacific Rim countries duty free access to their exports), AGOA, which was recently renewed until 2025, has largely gone unnoticed. African countries, like Mauritius, may benefit from this in the short to medium term. The TPP posed a serious threat to AGOA as countries such as Vietnam, the US’ second largest supplier of clothing/apparel on a duty-paid basis, would have had duty-free access to the US. The benefits under AGOA have however been limited and the impact on the region has been modest for most countries, with the bulk of exports to the US consisting of petroleum products. The non-reciprocal concessions made under AGOA go against the President’s trade principles and, at some point, will come under scrutiny. The best hope for AGOA is that it remains in place until it expires or, if not, the US may demand African countries to open their markets on a reciprocal basis as a measure to enhance opportunities for American businesses.

In his first weeks in office, the President held talks with many world leaders and, as widely reported in the media, his first call to African leaders was to two prominent presidents, Nigerian Muhammadu Buhari and South African Jacob Zuma to discuss trade relations, combatting terrorism and other issues. There are over six hundred US companies operating in South Africa. Whilst the US may have lost ground in terms of trade flows, it remains the largest investor in Africa in recent years, with its Foreign Direct Investment (FDI) largely dominated by the mining and extractive industries (58% of the FDI stock for the region in 2015, World Investment Report). Mauritius features among the top three destinations for US FDI in Africa and the International Monetary Fund’s Coordinated Direct Investment Survey, released on 13 December 2016, shows that the US is ranked first in terms of direct investment in Mauritius, totaling USD55bn as at 31 December 2015. Given its heavy reliance on FDI from the US, Mauritius remains highly vulnerable to external shocks and volatility from the US.

Operating in emerging markets such as Africa has not been easy for US businesses; regulations such as the Foreign Account Tax Compliance Act, the Dodd-Frank Act, etc. have meant that US businesses are faced with stricter controls, more reporting requirements and a greater need for transparency. For example, in the African context, the Dodd-Frank Act requires US listed companies to report on conflict minerals or provide disclosure on all payments to foreign governments. The cost of doing business in Africa is already hefty. Such regulations are often regarded as punitive, put undue burden on businesses and harm industry competitiveness. Therefore, President Trumps’ latest executive order to scale back the Dodd-Frank Act may be seen as a positive step in reducing the regulatory burden facing US businesses. Deregulation in the US may increase the attractiveness of international financial centers such as Mauritius in channeling investments and deepening the pool of global capital, with opportunities for Africa in the form of new capital investments in industries that had been over-regulated.

However, a complete repeal of the Dodd-Frank Act may be a mistake as the rule has helped to curb corruption and promote stability. A return to the past will impact on accountability in Africa; secrecy breeds corruption and corruption causes instability. Investors in the end lose! The Dodd-Frank Act also has far broader consequences, other than Africa related matters, and today the financial system is a safer place; there is better regulatory oversight, stricter regulations, and more consumer protection. A roll back may lure some financial institutions into riskier businesses and which led to the financial crisis in 2008.

So, what is next for Africa? The President is due to attend the G-7 summit on 26 May, where the focus will be on migration and Africa. This will be an opportunity for the world leaders to discuss ongoing support for Africa growth and development. The Trump administration will finally have the opportunity to focus on Africa. With its protectionist agenda, it is likely that foreign aid flows will be cut while the President’s controversial travel ban targeting three African countries (Libya, Somalia and Sudan) will also be a topic for discussion. However, it remains to be seen whether the President will attach much importance to Africa in his pursuit for economic growth as well as national security interest…