Foreign Policy In Focus Special Report: U.S. and Africa: Starting Point for a New Policy Framework - Free Market Fundamentalism or Partenship for Development

Special Report
United States and Africa:
Starting Points for a New Policy Framework

Free Market Fundamentalism or Partnership for Development

During the cold war, U.S. policy toward Africa, including aid and economic relationships, was shaped overwhelmingly by competition with the Soviet Union. The leading recipients of U.S. aid between 1962 and 1988 were Ethiopia, Kenya, Liberia, Somalia, Sudan, and Zaire—not at all the list one would choose on the basis of development goals or even in terms of prospects for trade and investment. In 1987, in an effort to define congressional goals for development assistance and in reaction to President Ronald Reagan’s earlier efforts to divert money from African aid, Congress established the Development Fund for Africa (DFA) with the laudable goal of helping “the poor majority of men and women in sub-Saharan Africa to participate in a process of long-term development through economic growth that is equitable, participatory, environmentally sustainable, and self-reliant.” The act also established a minimum level of funding for Africa each year. The DFA, administered as designated funds within AID, began by disbursing $562 million in 1988 and reached over $800 million annually in the early 1990s. However, for FY2000, AID requested only $513 million for the DFA—a rather paltry sum, given the level of need, DFA’s objectives, and the Clinton administration’s rhetoric on Africa.¹²

If implemented, the DFA’s laudable objectives would have revolutionized U.S. development assistance programs. However, in practice, Washington’s cold war allies in Africa, such as Kenya and Zaire, continued to receive much of the assistance.¹³ During the 1990s, with no new strategic framework to replace the cold war mindset, the case for aid lost its anti-Soviet rationale, and supporters of continued or reformed development assistance struggled to find new arguments in a generally skeptical political climate. Curiously, Clinton administration “reformers” within AID chose to drop poverty alleviation (as well as education) as a rationale or “pillar,” arguing that it already underlay what were articulated as the agency’s six new central objectives:

The AID administrator declared that Washington’s two foreign policy goals in Africa were “to accelerate Africa’s integration into the global economy and to combat serious transnational security threats there, including HIV/AIDS and outbreaks of violence.”¹⁴

Without a convincing framework justifying U.S. contributions, the case for investment in African development became difficult to make.

Without a convincing overall framework justifying U.S. contributions to development either worldwide or in Africa, the case for investment in African development became difficult to make. U.S. development aid to Africa declined from $826 million in 1991 to $689 million in 1997. Since 1996, Congress has refused to earmark funds specifically for Africa, leaving the regional allocation of funds to decisions within AID. For 2000, AID requested a mere $305 million (for economic support funds and child survival and disease programs) on top of the $513 million for the DFA.¹⁵

During 1997 and 1998, the lion’s share of the Washington debate about Africa centered on the congressional Africa Growth and Opportunity Act and the parallel presidential initiative for a “Partnership for Economic Growth and Opportunity in Africa.” The act initially emerged from initiatives by liberal Democratic Representative Jim McDermott from Seattle and members of the Congressional Black Caucus (CBC), who portrayed it as a way of getting Africa its share of U.S. trade and investment. It was then sold as a bipartisan plan and developed in conjunction with conservative Republican Representative Phil Crane. Republicans were comfortable in signing on because of the strong emphasis on support for U.S. exports and corporate investment. Sponsors presented initial versions of the act as a “paradigm shift” from aid to trade. And despite endorsements of aid, debt relief, and human rights inserted into later versions of the legislation, the bill’s principal backers continued to assert that their intention was to replace aid with trade and to bring Africa into the mainstream of the world economy by using private capital as the main engine of growth.

Though the act suggested the possibility of future “free-trade” pacts with Africa, its operational provisions were in fact very limited: a regular forum for U.S. cabinet-level officials to meet with their counterparts from selected African countries; $650 million in investment funds allotted by the Overseas Private Investment Corporation (OPIC), which provides insurance for U.S. foreign investments; extending duty-free entry for many African products, including primarily minerals and agricultural products; and elimination of import quotas for African textiles entering the United States. Those African countries and companies already well-placed to compete in a market economy would be given greater access to the U.S. market, and U.S. business with Africa would be facilitated by new contacts and subsidies.

Figure 4

Composition of Long-term Debt
in Sub-Saharan Africa
(1998)

fig4.gif (2776 bytes)

Source: World Bank, Global Development Finance 1999, Analysis and Summary Tables (Washington DC: The World Bank Group, March 30, 1999).

During the 1998 legislative session, U.S. companies with interests in Africa joined with African ambassadors, the Clinton administration, and congressional backers in lobbying passionately for the bill. But resistance also grew both from critics who opposed the bill’s simplistic promarket bias and from textile-state representatives who argued that import quota reductions would hurt U.S. manufacturers. Both the Congressional Black Caucus and nongovernmental Africa advocacy groups were split roughly into three camps in response to the bill, with views ranging from passionate support to adamant opposition to more nuanced positions that offered several amendments. Many of those who supported the bill did so because they hoped it would help Africa get a larger slice of the global market by promoting “equal opportunity” among exporting nations. Opponents saw little benefit for ordinary Africans in the bill and feared considerable damage from its emphasis on strict free market macroeconomic policies.

The vehemence of the debate can only be understood as contention related to broader symbolic issues. For many proponents, the main intent was to counter Africa’s marginalization by rejecting the “aid seen as welfare” model and insisting on Africa’s incorporation into the current economic mainstream through expanded trade and investment. But most opponents rejected that mainstream model as damaging to African grassroots interests and long-term development prospects. “Structural adjustment” packages imposing similar policies have a mixed record at best in promoting economic growth, and they exact a high price from ordinary citizens in the form of cutbacks of government programs and a rising cost of living. Yet the critique, for the most part, failed to acknowledge that passage of this particular bill would add little to the pressures already felt by African countries from internationally imposed structural adjustment programs, the conditionality of bilateral aid programs, and Africa’s lack of competitive clout in the world marketplace. As CBC Chairperson Maxine Waters commented in floor debate, both proponents and opponents should recognize that this bill is neither “the best thing” nor “the worst thing” that could happen to Africa.

Private capital is not going to make the necessary investments in education, health care, clean and accessible water, electricity, roads, ports, airports, etc.; such infrastructure requires government planning and development cooperation from international agencies.

In 1999, the level of debate advanced somewhat with the introduction of the alternate HOPE for Africa Act by Representative Jesse Jackson, Jr. This act calls on the U.S. to cancel all its bilateral debt with sub-Saharan African countries and to urge that the IMF and World Bank cancel Africa’s multilateral debts without any linkage to structural adjustment programs. It therefore provides a positive vehicle behind which critics of the Growth and Opportunity Act can rally. Still the fact that there continues to be division within the Congressional Black Caucus and within the Africa advocacy community has left the fate of both bills in limbo. Neither bill provides a viable comprehensive framework for expansion of mutually beneficial U.S.-African economic relations. Thus, although congressional support for additional debt reduction is growing in response to public pressure, the chance of successful action even on this unifying issue has been reduced by the lack of coordination between different congressional initiatives.

Although Africa clearly does need more trade and investment, the real issues are what type of trade and what actions are needed to attract capital. The recipe prescribed by free market fundamentalism is simple: remove trade barriers, offer incentives to foreign investors, and greatly reduce the role of government in regulating the economy, and economic growth will follow. Critics, however, argue that sustainable and equitable economic growth requires that production be geared for local and regional consumption, not simply for overseas export markets; that locally-owned industries and enterprises must be supported; and that substantial new investments are needed in both human and physical infrastructure. The reality is that private capital is not going to make the necessary investments in education, health care, clean and accessible water, electricity, roads, ports, airports, etc.; such infrastructure requires government planning and development cooperation from international agencies.

Instead of debating “trade versus aid,” those concerned with building a prosperous and stable Africa should be debating what mix of public and private investment in which sectors can best build an economic environment for sustainable and equitable growth. In order to change its situation, Africa must be able to build physical and institutional infrastructure, invest in its human resources, and break out of dependence on unprocessed exports. International investments, hungry for the highest and quickest profit margins, are not well-matched for such long-term objectives, but they can—if carefully screened—help African governments raise revenue to finance some public efforts.

Figure 5

Trends in U.S. Aid to Sub-Saharan Africa

U.S. assistance to sub-Saharan Africa reached a peak in 1985 when global competition with the Soviet Union was at a high point.
Bilateral economic assistance for the region in 1999-2000 is close to the 1990 low.
The United States, once the second-leading development aid donor to sub-Saharan Africa after France, has fallen to fourth place, behind France, Germany, and Japan.

Source: Raymond W. Copson, "Africa: U.S. Foreign Assistance Issues," CRS Issue Brief for Congress, August 19, 1999, posted at: http://www.cnie.org/nle/econ-51.html.

The urgent need for public investment in health, education, and the advancement of women in Africa—by international as well as African institutions—is not a question of “aid/welfare.” These are not only goals of development but also essential prerequisites for economic advance. Drastic cuts in African government budgets, such as cutbacks in free public health services, not only impose suffering but also delay the building of social capital, which is one of the requirements for a productive work force. HIV/AIDS alone, a December 1998 UN report estimated, affects more than 10% of the adult population in nine African countries. Malaria, WHO estimates, can retard income growth by as much as 12% in many African countries. Such issues, it is clear, will not be addressed by the economic marketplace. With a focus squarely on such substantive issues, one could debate whether the U.S. is contributing its fair share of investment, what policies are most appropriate to advance the goals of improved health, education, and gender equality, and what roles U.S. public and private institutions might play.

The U.S. does, through AID’s six main objectives (cited above), address many of these issues not only with rhetoric but also in programs. But there are legitimate issues concerning the quality and size of American aid. Among developed countries, the U.S. provides the lowest percentage of its central government budget for development assistance (0.81% in 1996) and the lowest as a percentage of GNP (0.08%).¹⁶ AID, for instance, provides over $200 million annually to assist with African health issues, as well as additional sums through the Center for Disease Control, WHO, and other agencies. The total, however, falls far short of what would constitute a contribution commensurate with U.S. resources and mutual interests. If Washington were serious about responding to the scale of Africa’s various health crises and addressing the handicap that health problems pose for development, top U.S. officials would lobby for massive increases in funding and would broadly publicize that 67% of people worldwide living with HIV/AIDS are in Africa and 83% of global deaths from AIDS are in Africa. Not only is AIDS damaging the continent’s prospects for development but as these statistics reveal a disproportionate number of Africans are dying from AIDS—an indication that treatment remains woefully inadequate.

Many issues need to be considered in order to develop guidelines for U.S. economic relations with Africa that transcend private sector boosterism. The following three starting points illustrate how to shift the debate away from the pros and cons of private financing to the more substantive issues of investment (public and private) in what activities, on what terms, and for whose benefit.

A disproportionate number of Africans are dying from AIDS—an indication that treatment remains woefully inadequate.

Investment: Africa needs more diversified investment beyond the traditional concentration in the extractive industries. Moreover, investments in those sectors must become more environmentally sustainable. All investments need to be managed/regulated by African institutions and governments accountable to their people.

Currently, with the exception of a more diversified relationship with South Africa, U.S. imports from Africa and U.S. investments are both heavily concentrated in the oil sector. In 1996, 71% of U.S. imports from sub-Saharan Africa were energy-related. That same year, oil producers Nigeria and Angola ranked 26th and 34th worldwide in the value of their total imports to the U.S. (ahead of South Africa at 38th) while oil producers Algeria and Gabon ranked 40th and 44th respectively. In certain cases, environmental groups and prodemocracy activists have succeeded in raising questions about the behavior of international oil corporations—for example, their support for the military dictatorship in Nigeria, their responsibility for environmental damage, and the proposed investment by a consortium including Exxon in the new Chad/Cameroon project. But neither the general issue of social responsibility in the oil industry nor the development implications of investment revenues accruing to unaccountable governments has been systematically addressed in any policy forum.

Communications: The U.S. should promote telecommunications expansion (not simply privatization) and should support creative initiatives for serving disadvantaged communities.

The expansion of telecommunications—and Internet connections in particular—provides a significant opportunity for Africa to reduce its disadvantages in the world economy. At the simplest level, a telephone connection from a remote village to the national capital may enable a farmer to keep up with crop prices and improve her bargaining position with traders. Yet Africa still lags far behind in terms of telecommunications links. Outside South Africa, most countries in the continent have less than one main telephone line per hundred people, as compared to over 50 in most advanced industrial countries. Telephone connections and even internet connectivity are growing very rapidly, however. Almost all African countries have some internet email connection, and the number of internet host computers on the continent is growing at more than 85% a year.

It does not take a free market enthusiast to see that bureaucratic government monopolies with years-long waiting lists for access to phone service are one obstacle to faster growth in the telecommunications sector. Yet unregulated privatization would certainly lead to foreign companies serving only the most profitable markets and accelerating inequality of access. The upcountry peasant farmer would still not have a phone connection to the capital. The International Telecommunications Union (ITU), meeting at Africa Telecom 1998 in Johannesburg, cited the need to include universal access as a goal in the regulatory framework. Citing the South African experience, the ITU noted that companies can be required to provide public telephones and to serve disadvantaged communities and rural areas.¹⁷

Even with the limited investments to date, new electronic technologies are creating new opportunities for collaboration, both within Africa’s regions and at a continental level, by lowering the cost of long-distance communication. This trend also facilitates more direct communication and collaboration between Africa and the rest of the world. With strategic thinking about the best ways to make such tools serve grassroots African advancement, these new technologies may enable Africa to leapfrog some barriers to advancement.

Debt Cancellation: The U.S. should move toward acceptance of African demands for debt cancellation, including delinking of such cancellation programs from onerous structural adjustment programs.

Outside South Africa, most countries in the continent have less than one main telephone line per hundred people, as compared to over 50 in most advanced industrial countries.

After several years of the World Bank’s Heavily Indebted Poor Countries (HIPC) Initiative, which includes 31 African countries, it is clear that the program is having only a marginal impact in reducing Africa’s debt burden, which cripples the continent’s chances for significant economic growth. Beginning shortly after World War II, the allies lowered Germany’s debt payments to less than 3.5% of export earnings, which was deemed to be the maximum sustainable level for that war-torn country. Yet even after Mozambique’s debt relief plan goes into effect in 1999, the country will still pay more than 11% (or $100 million) of its annual export earnings to service its debt. Debt service-to-export ratios for Africa’s regions range from a high of 30% in West Africa to 12.1% in southern Africa.¹⁸

Sub-Saharan Africa’s debt includes about $4.5 billion in bilateral debt to the U.S. out of a total long-term debt of $179.1 billion; another $54.8 billion is owed to multilateral institutions such as the World Bank and the IMF. Yet only $8.2 billion is being spent on the entire HIPC debt reduction program, a figure dwarfed by the $50 billion in bailout packages given by the World Bank and the IMF in 1998 alone for Russia, Brazil, and several other countries.¹⁹

More generally, over the last few years, voices both inside and outside the African continent have begun to articulate alternatives to the U.S. model of free market fundamentalism. Rather than a single alternative perspective, there are now many proposals with different starting points than the vaunted “Washington Consensus.” Some World Bank officials, for example, advocate poverty-reduction as a coequal goal with economic growth. Many grassroots and other more radical critics call for an end to structural adjustment conditionalities, for debt cancellation for the poorest countries, and for bottom-up development projects. In a variety of international forums, there are active debates about what policies and what mix of private, state, and nongovernmental actions can best promote development. The U.S. should join these debates rather than assuming that it has all the answers.

Figure 8
Life Expectancy and Infant Mortality
Region	Life Expectancy	Infant Mortality (deaths per thousand)
North America	76.2	9
Sub-Saharan Africa	49.9	97
Source: United Nations Commission on Population and Development, World Demographic Trends 1990-1995, as reported by the Secretary-General, February 1997.