By Eliot Pence
A lot can happen in a year. This time last year, U.S. businesses and NGOs bemoaned the Obama administration's perceived indifference to Africa. Now, they're trying to find out how to catch the wave of interest. Major new initiatives, including Power Africa and Trade Africa, unveiled during President Obama's first true trip to Africa this summer, as well as a reinvigorated push to renew the African Growth and Opportunity Act fully two years before it's due to expire, have given U.S.-Africa watchers a lot to consider. But what — and when — is enough for U.S. policy in Africa? What more can be done in the year ahead? How do things really shake out for investors, civil society and Africans? Here are three additional areas the Administration should consider as it deepens its commitment to the continent:
1. Invest in Africa's equity and commodity markets. Despite all the interest in Africa's economic growth and investment potential, it's still very hard to invest on the continent. Of its less than 30 stock markets, only a few exchanges really offer modern processes and back-end technology to facilitate daily transactions. As Todd Moss from the Center for Global Development notes in a recent paper, some African exchanges trade less in a whole year than New York does before "their first coffee break." As a result, for institutional investors who need to take large positions or who have fiduciary requirements for daily liquidity, Africa remains almost entirely off-limits. In an era of algorithmic and high-speed trading, Africa's antique market infrastructure is a major barrier to entry for much needed foreign direct investment.
Innovation is perhaps most evident in commodity exchanges. A number of projects in East Africa are taking off — including the East Africa Exchange (EAX), a private initiative founded by Heirs Holdings, Berggruen Holdings and 50 Ventures, which was launched in January this year. The eponymous Eleni LLC, a consultancy focused on developing private exchanges, builds off the rapid success of Ethiopia's commodity exchange and the work of Eleni Gabre-Madhin, its founder. Both efforts build the critical architecture necessary for productivity growth in economies that still remain predominantly agrarian.
2. Disrupt Dodd-Frank. Two obscure sections of the Dodd-Frank Act, 1502 and 1504, concern conflict minerals and transparency in Africa. Despite a lot of fanfare in their passing, Section 1502 has been pilloried by almost everyone since: NGOs, academics and the private sector. DF-1502 requires nearly all of the 5,994 publicly listed companies in the U.S. to scrutinize their supply chain and ensure they don't contribute to the conflict in the Democratic Republic of Congo. According to estimates in a Tulane University study, the cost of implementing the DF-1502 is close to $8 billion. What's more, no clear guidance exists for how to comply, so companies have mostly taken scattered shots in the dark hoping the Securities and Exchange Commission, the end regulator, takes notice. Section 1504, for its part, was remanded by a U.S. District judge in July and sent back to the SEC for further review. Even if well-meaning, the two sections impose unique challenges for investors on the continent, and as others have argued, risk exacerbating the problems they sought to solve.
3. Africa's rising savers. The biggest fallacy in Africa's growth is that its future depends on the rising African consumer. It does, but that's a subplot and the numbers estimating its size range dramatically. And even if Africa's consumers are rising, if its markets remain fragmented its overall affect on foreign investment will be limited (something Trade Africa is hoping to address). More important is the role of Africa's rising savers. The transformation of Africa's institutional investment landscape — public and private pension funds — over the next 10 years will be the most important development for its future growth. American investors should be looking at the institutions that manage these funds and either look to partner with, or raise from them, since most of the same wells in the U.S. will be dry. Sub-Saharan Africa's six biggest pension funds are growing at rapid rates; assets in Tanzania, Uganda and Kenya's pension funds are all growing at over 15 percent year-on-year. As African economies' dependency ratios even out and asset allocation regulations ease, vast opportunities will open up in domestic private investment markets.
Power Africa and Trade Africa tackle critical issues at the heart of the continent's development. Together, they represent the most significant Africa-focused U.S. government policy since the U.S. President's Emergency Plan for AIDS Relief (PEPFAR), a commitment of $15 billion over five years (2003-2008) to fight the global HIV/AIDS pandemic, was passed 10 years ago. With all that has happened in the last year, it is worth considering what more can be done. Rounding out its renewed commitment to the continent by focusing on these three issues would go a long way to ensure a lasting legacy for the Obama administration in Africa.
(Eliot Pence is a Reuters columnist. Opinions are his own)