USTR Public Hearing: Trade and Investment in Africa - Jim Kolbe Testimony
Mr. Ambassador, Mr. Chairman, Members of the Committee:
It is a great pleasure to appear today for this public hearing on the topic of trade and investment opportunities in Africa. The subject is very timely. Africa, at long last, is getting some of the attention it deserves from economists, policy makers and—most importantly—from the commercial and investment sectors in the developed world.
Six of the ten fastest growing economies in the world are to be found in Africa. The explosion of technology in communications, while occurring world-wide has been more pronounced and rapid in Africa than any other part of the globe. More people in the past decade have emerged from poverty and into the middle class in Africa than any other continent or country with the exception of China. Trade among members of the new Tripartite Free Trade Area (TFTA) has increased from $2.3 billion annually in 1994 to $36 billion in 2014—a twelve fold increase in twenty years.
And yet, the potential for development on the African continent remains largely unrealized. Seventy percent of Africa has either inadequate or no electric power. Africa’s trade total accounts for only 3% of all world trade. Within the African continent, intra-regional trade has increased from 7% to 25% during the last twenty years, but remains substantially below that of Europe at 70% or Asia at 50%. Breaking this figure down further, we find that 14% of all imports in Africa come from other countries on the continent, while just 10% of exports go to continental neighbors. In short, we find that Africa’s trade is a woefully small share of the world’s trade, and that most of it finds its way to and from Europe and Asia—not to other African countries.
A major step toward improving African trade and investment took place this past year with the ten year extension of AGOA—the African Growth and Opportunities Act. After seemingly countless starts and stops and short term extensions—too short to be useful in making long term investment decisions—the preference act was both extended for a meaningful period and the coverage significantly expanded. The European Union had already expanded their preferences. These dual actions will help spur significant investment in Africa with a commensurate increase in two way trade.
Within Africa, an even more encouraging development has been the Tripartite Free Trade Area, or TFTA. TFTA is a planned free trade area that would integrate the members of three regional economic communities—the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community, known as SADC. The TFTA, when fully implemented, would link 26 countries from Egypt in the north to South Africa at the southern tip of the continent. Its objective in the first place would be the elimination of tariffs and non-essential barriers to trade. Promotion of trade in services would follow more gradually. Other objectives would go beyond trade as that term might be narrowly defined, to include investment promotion and free movement of business persons between countries.
While this represents a hopeful development, especially since it is internally generated and not resulting from intervention by the developed countries of Europe or the United States, it also highlights the need for more internally generated reforms. Set alongside the small amount of intra-continental trade previously referred to, it suggests that far more can be done by African countries themselves.
The hard truth is that there is a growing disillusionment in Congress and in the business community for preference programs, a sentiment not altogether unwarranted. AGOA may represent a major opening for trade an investment on the African continent, but there has to be a reciprocal showing from the other side. The quality of governance matters—tackling corruption, a competitive procurement process, transparency, an independent judiciary and adherence to the rule of law, the quality of the work force—these all matter to a business thinking of making a major investment in Africa.
This brings me to the main point of my remarks. As important as preference programs may be, as helpful as foreign assistance can be in bringing about infrastructure developments, I am convinced that the most important objective of our assistance program in Africa must be the facilitation of internal reforms. A simple thing such as developing a uniform Letter of Credit can greatly facilitate trade. Reforms that focus on internet access, enforcement and arbitration of contracts, simplifying customs forms and regulations, and reducing petty corruption are likely to do more for trade and development than all our trade preference programs or infrastructure development.
I remember a visit to Tanzania a few years ago and learning about the difficulties in exporting fresh cut flowers from Tanzania to Europe. Because they lacked adequate air cargo facilities in Tanzania, much of the product crossed the border to Kenya for shipping from the Nairobi airport. But because of the endless paperwork and inadequate staffing, Tanzanian exporters were experiencing on average a 24 hour additional shipping time to cross the border into Kenya. Translated into remaining freshness once the flowers reached their end market, the result was a significant increase in spoilage.
Congress and the administration are to be congratulated on the extension of AGOA—the longest period of continuous preferences since AGOA was first adopted. Now we should turn our attention to the details of making it work. The impetus will have to come from the African country themselves. But we can help if we re-focus our assistance from promoting more preference programs to assisting African countries in removing the regulatory and non-tariff barriers which constitute the biggest impediment to trade and investment on the continent.
Thank you Mr. Chairman.