U.S.-Sub-Saharan Africa Trade and Investment: Programs and Policy Direction

Order Code RS20063 Updated June 20, 2001 CRS Report for Congress Received through the CRS Web U.S.-Sub-Saharan Africa Trade and Investment: Programs and Policy Direction Lenore Sek Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division Summary U.S. trade with sub-Saharan Africa, like investment, is a small share of U.S. world totals. Several government programs promote U.S. trade and investment through loan guarantees, preferential tariffs for foreign products, credit insurance, and other means, and although these programs assist commercial transactions with sub-Saharan Africa, they are not exclusive to the region. The Clinton Administration took several major initiatives to improve U.S. economic relations with sub-Saharan Africa. In May 2000, the African Growth and Opportunity Act (Title I of P.L. 106-200, the Trade and Development Act of 2000), which offers economic benefits to sub-Saharan countries, was enacted. This report will be updated periodically. In 2000, U.S. imports from sub-Saharan Africa were $23.5 billion, an increase of 67% over the 1999 level of $14.0 billion. Imports from sub-Saharan Africa were 2% of all U.S. imports. U.S. exports in 2000 were $5.9 billion, almost the same as the 1999 level of $5.7 billion. Exports to sub-Saharan were less than 1% of total U.S. exports (see Table 1). The share of total U.S. trade that is conducted with sub-Saharan Africa has declined over the last 5 years. From 1996 to 2000, U.S. imports from sub-Saharan Africa grew at an average annual rate of 11.5%, compared to 11.4% for all U.S. imports, but U.S. exports to sub-Saharan Africa were basically flat, with an average annual growth rate of -0.8%, compared to 5.8% for all U.S. exports. A comparison of U.S. trade with selected regions shows that in 2000, U.S. total trade (exports plus imports) was $20.8 billion with the Central American Common Market (CACM), $29.4 billion with sub-Saharan Africa, $38.4 billion with Mercosur, and $135.3 billion with ASEAN.1 1 Data from U.S. Departments of Commerce and the Treasury, reported in Tariff and Trade Data Web of the U.S. International Trade Commission. Central American Common Market countries are Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Mercosur countries are Argentina, Brazil, Paraguay, and Uruguay. ASEAN countries are Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Burma/Myanmar, Cambodia, and Laos. Congressional Research Service ˜ The Library of Congress CRS-2 Most U.S. trade with sub-Saharan Africa is with only a few countries. In 2000, 87% of U.S. imports from the region came from 4 countries: Nigeria (45% of U.S. imports from the region), South Africa (18%), Angola (15%), and Gabon (9%). Similarly, 64% of U.S. exports to the region went to only 2 countries: South Africa (52% of U.S. exports to the region) and Nigeria (12%). The United States imported mostly basic commodities from the region. The leading imports by far were petroleum and petroleum products, accounting for 74% of imports from the region in 2000, followed by nonferrous metals, apparel and clothing, and iron and steel. Major U.S. exports to the region were aircraft and parts, mining machinery, wheat, general industrial machinery, and road vehicles. As seen with trade, very little U.S. foreign direct investment goes to sub-Saharan Africa. During the year 1999, $1.2 billion in U.S. direct investment, or almost 1% of total U.S. direct investment abroad that year, went to sub-Saharan Africa.2 Major flows of direct investment during 1999 went into South Africa’s finance, insurance and real estate sectors and came out of Nigeria’s petroleum sector. U.S. Programs The U.S. government promotes U.S. trade and investment through preferential tariffs for certain imports of foreign products, support for U.S. sales abroad, assistance to U.S. investors in foreign projects, development assistance, and other programs. These programs are not exclusive to sub-Saharan Africa.3 Under the U.S. Generalized System of Preferences (GSP), designated developing countries may receive duty-free treatment for eligible products that enter the United States.4 In 2000, GSP duty-free imports from sub-Saharan Africa were $3.9 billion, or 18% of U.S. imports from the region. Almost one-fourth of all U.S. duty-free imports under GSP came from sub-Saharan Africa, twice the share in the preceding year. The increase in the sub-Saharan share of GSP imports is probably linked to price increases for crude oil, which accounts for 77% of GSP imports from sub-Saharan Africa. Almost all of that oil comes from Angola. GSP benefits were expanded for sub-Saharan African countries under the African Growth and Opportunity Act (Title I of P.L. 106-200), which was enacted in 1999 (discussed below). The Export-Import (Ex-Im) Bank offers support for the sale of U.S. products in foreign markets. Its programs include (1) guarantees of commercial loans to U.S. exporters; (2) credit insurance against default by a foreign buyer; (3) guarantees of 2 Investment data from U.S. Department of Commerce. Bureau of Economic Analysis. Web site at [http://www.bea.doc.gov/bea/di/dia-ctry.htm]. 3 For more information on U.S. programs and trade and investment with sub-Saharan Africa, see U.S. International Trade Commission. U.S. Trade and Investment with Sub-Saharan Africa. Investigation No. 332-415. First Annual Report. Publication 3371. December 2000. Web Site at [http://www.usitc.gov/wais/reports/arc/w3371.htm]. Site includes quarterly updated tables. 4 For further information on GSP, see Congressional Research Service. Generalized System of Preferences. CRS Report 97-389, by William H. Cooper. CRS-3 commercial loans to foreign buyers for purchase of U.S. exports; and (4) direct loans to foreign buyers of U.S. exports.5 During fiscal year (FY) 2000, the sub-Saharan market accounted for none of the new Ex-Im Bank authorizations for loans, 3.5% of new authorizations for guarantees, and 2.6% of new authorizations for credit insurance.6 In FY2000, the Ex-Im Bank authorized a total of $326 million for U.S. exports to subSaharan Africa, or 3% of its total authorizations. (It also authorized $402 million for exports to four North African countries.) Among major Ex-Im Bank projects in subSaharan Africa were guarantees for U.S. exports for an oil pipeline from Chad through Cameroon to the Atlantic coast ($200 million), transmitter equipment for the Zimbabwe Broadcasting Corporation ($35 million), and a fiber optic cable system in Mauritius ($28 million).7 Ex-Im Bank programs are available to 47 of the 48 sub-Saharan countries (Sudan is excluded), but program availability varies widely among countries. In FY2000, the Ex-Im Bank provided $1 billion in financing for sales of U.S. HIV/AIDS medicine and equipment in 23 sub-Saharan African countries. It also has an Africa Pilot Program, which offers short-term export credit in 12 countries of sub-Saharan Africa. The Overseas Private Investment Corporation (OPIC) assists U.S. businesses to invest in developing countries, newly emerging democracies, and free market economies. Its main activities are (1) loans and loan guarantees; (2) support for equity funds for U.S. companies that invest overseas; (3) insurance against political risk; and (4) information for U.S. businesses on investment opportunities overseas.8 In FY2000, OPIC provided financing and/or political risk insurance for six projects in sub-Saharan Africa. Projects included $1 million in financing for a micro-lending facility for small businesses in Ghana, $173 million in financing for a methanol plant in Equatorial Guinea, and $1 million in risk insurance for a toothpaste manufacturing facility in Zimbabwe.9 OPIC also offers financing support for regional funds for Africa. Its portfolio distribution, as reported in its FY2000 annual report, was North Africa and the Middle East-4%, sub-Saharan Africa6%, Caribbean and Central America-9%, Europe (including Turkey)-11%, New Independent States-13%, Asia and the Pacific-17%, South America-37%, and worldwide funds-4%. The U.S. Trade and Development Agency (TDA) provides planning assistance for foreign development projects that might offer sales opportunities for U.S. exporters. The TDA reports that expenditures vary from year to year, but it calculates that since FY1981, annual expenditures for the Africa region have averaged $3.3 million, and funding in 5 For information on the Ex-Im Bank, see Congressional Research Service. Export-Import Bank: Background and Legislative Issues. CRS Report 98-568, by James K. Jackson. 6 Calculated by CRS from table “FY 2000 Authorizations by Market” in FY2000 annual report of Ex-Im Bank at [http://www.exim.gov/annrpt/index.html]. 7 Information on Ex-Im Bank programs from the agency Web page at [http://www.exim.gov]. 8 For more information on OPIC, see Congressional Research Service. The Overseas Private Investment Corporation: Background and Legislative Issues. CRS Report 98-567, by James K. Jackson. 9 U.S. Overseas Private Investment Corporation. 1999 Annual Report. [http://www.opic.gov] CRS-4 Africa has been approximately 12% of all TDA expenditures .10 In FY2000, the TDA assisted with 15 projects in 8 sub-Saharan countries. Projects included a $157,000 training grant to the Botswana Department of Civil Aviation for radar data processing, a $149,095 grant for a feasibility study of proposed hydroelectric power plants in Guinea, and a $400,000 grant for a feasibility study of domestic gas utilization in Nigeria. Several other federal programs are important to U.S. trade and investment in subSaharan Africa. The Assistant U.S. Trade Representative for African Affairs has been active in promoting U.S. trade and investment with the region. The U.S. Agency for International Development (USAID) supports foreign economic development projects and administers numerous economic programs in sub-Saharan Africa. In addition to domestic programs, the government participates in multilateral programs through the World Bank, the International Monetary Fund, and the World Trade Organization. Policy Direction Important measures to improve U.S. economic relations with sub-Saharan Africa began in the mid-1990s. In 1994, the Uruguay Round Agreements Act (P.L. 103-465) directed the Administration to develop an Africa trade and development policy and report on this policy to Congress annually for 5 years. In Congress, there was strong bipartisan interest in legislation to enhance African economic growth and to improve U.S.-subSaharan economic relations. This interest was in response to the Administration’s first report and what some Members saw as a lack of real trade policy for Africa. In 1997, President Clinton announced the Partnership for Economic Growth and Opportunity in Africa (Partnership Initiative), which included some proposals Congress was already considering. The Partnership Initiative supported economic reforms in Africa and encouraged closer economic ties between the United States and Africa. In 1998, President Clinton visited Africa, and in 1999, the United States hosted a ministerial meeting between U.S. and African officials. In December 1999, the Administration submitted the last of its five annual reports on Africa trade policy that were required under the Uruguay Round Agreements Act. The report restated the Administration’s support for the Partnership Initiative and for the African Growth and Opportunity Act, which was then under consideration in Congress. The African Growth and Opportunity Act (P.L. 106-200, Title I) was enacted May 18, 2000. It offers trade and other economic benefits to sub-Saharan countries that are committed to economic reform. It establishes annual high-level government meetings and requires a report on the possibility of future free-trade talks. It expands the benefits available under the GSP program by adding to the list of products that can enter duty-free and eliminating some provisions that restricted the levels of goods that could enter dutyfree. It establishes requirements that beneficiary countries have adequate visa systems to protect against transshipment of textiles or apparel. It also establishes positions on subSaharan African affairs in the USTR, the Ex-Im Bank, and OPIC. Officials in sub-Saharan Africa supported passage of the legislation. 10 Information on TDA programs from the agency Web page at [http://www.tda.gov]. CRS-5 Not everyone expects the African Growth and Opportunity Act (AGOA) to lead to improved economic conditions in sub-Saharan Africa or economic benefits for U.S. businesses. Development experts stress that the programs will have little effect unless a country pursues appropriate macroeconomic policies and has a stable financial sector. U.S. textile and apparel producers predict transshipment from non-African countries could occur if the safeguards do not prevent illegal imports.11 At the same time, some observers say that the measure’s rules of origin for apparel are so restrictive, there will be little increase in U.S. imports and few benefits for African producers.12 In May 2001, President Bush submitted a report to Congress on the U.S. trade and investment policy for sub-Saharan Africa and on implementation of AGOA.13 This is the first of eight reports required under section 106 of AGOA. The report states that during the first year of AGOA, 35 sub-Saharan African countries were designated as beneficiary countries, an additional 1,835 products from beneficiary countries were designated for duty-free access, and five countries were designated eligible for apparel benefits (with another eight countries in the process of qualifying).14 It describes implementation efforts by the Administration such as regional and national implementation seminars, an AGOA implementation guide and video, and technical assistance for customs officials in subSaharan African countries. The report describes other effects of AGOA such as greater communication among ministries in sub-Saharan Africa and between African government officials and the private sector. It asserts that AGOA has been a tool to encourage and support greater African economic and political reform. The Bush Administration stated in its May report that implementation of AGOA was a “priority.” President Bush has set an October date for the first annual meeting of the U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum, a ministerial meeting among high-level U.S. and sub-Saharan African officials of sub-Saharan Africa. As tariffs are lowered on products from sub-Saharan Africa, and U.S. and African officials meet in a more structured forum, economic relations are likely to improve. The full effects of changes under AGOA, however, will not be seen for at least several years. 11 The International Trade Commission (ITC) found that the effect of quota-free and duty-free treatment of U.S. imports of textiles from sub-Saharan Africa would be quite small, but the effect on U.S. imports of apparel would be greater. See ITC. Likely Impact of Providing Quota-Free and Duty-Free Entry to Textiles and Apparel From Sub-Saharan Africa. Publication 3056. September 1997. 103 pgs. with appendices. U.S. apparel manufacturers and the ITC disagree on whether the study adequately addresses possible increases in investment. 12 See Nitschke, Lori. Third World Trade Bill Likely to Have Limited Impact. CQ Weekly. May 6, 2000. Pgs. 1020-1027. 13 USTR. 2001 Comprehensive Report of the President of the United States on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act. A Report Submitted by the President of the United States to the United States Congress. The First of Eight Annual Reports May 2001. (Hereafter called 2001 Comprehensive Report. Located on the USTR web site at: [http://www.ustr.gov/reports/index.shtml]. 14 Information on AGOA is available at [http://www.agoa.gov/]. CRS-6 Table 1. U.S. Trade with Sub-Saharan Africa, 1998-2000 Country Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo (B) Congo (Zaire) Cote d’Ivoire Djibouti Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Niger Nigeria Rwanda Sao Tome & Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe Total U.S. Imports ($ thousand) 1998 1999 2000 2,251,542 2,424,813 3,557,023 3,604 17,830 2,440 19,670 16,895 40,949 597 2,771 2,472 7,658 6,135 7,995 53,348 76,765 155,117 190 111 4,214 2,798 2,896 2,965 7,311 6,911 4,780 822 1,747 3,513 315,420 414,717 509,707 171,561 229,217 212,239 417,637 347,160 383,949 530 110 419 66,642 43,257 154,717 736 486 196 52,278 30,211 28,660 1,268,302 1,519,527 2,208,933 2,043 186 379 144,411 208,637 204,513 115,620 116,948 88,378 173 72 535 98,522 106,415 109,544 100,133 110,826 140,316 25,148 30,280 45,417 71,395 80,233 157,804 60,455 72,462 55,380 3,353 8,899 9,690 393 771 354 271,618 258,933 286,057 25,762 10,322 24,394 51,780 29,687 42,254 1,731 12,121 7,026 4,194,647 4,361,098 10,548,544 3,955 3,686 5,064 678 2,696 513 5,181 9,160 4,231 2,198 5,168 8,097 12,279 10,315 3,824 593 169 443 3,055,477 3,195,065 4,204,199 3,090 57 1,808 25,083 37,884 52,577 31,564 35,381 33,652 2,203 3,170 5,991 15,154 20,256 29,064 47,267 37,661 17,727 127,013 132,789 112,382 13,139,566 14,042,906 23,480,445 U.S. Exports ($ thousand) 1998 1999 2000 354,303 252,173 226,006 43,633 31,292 26,393 35,591 33,403 31,492 16,089 10,892 15,773 4,742 2,646 1,672 75,174 37,044 59,170 9,552 7,537 7,235 4,471 3,727 1,769 3,464 2,687 10,819 613 243 704 92,020 47,046 82,150 34,036 21,087 9,997 151,555 103,981 94,897 20,061 26,726 16,816 86,727 221,147 94,934 25,125 3,870 16,604 88,379 164,656 165,153 62,420 45,360 63,441 9,279 9,602 9,090 223,379 235,121 190,751 65,440 54,571 67,411 950 816 284 199,029 189,126 237,989 1,437 733 866 50,037 44,734 43,226 14,611 106,112 15,453 14,497 7,402 13,708 25,410 29,761 32,046 19,541 25,183 16,155 23,256 39,000 24,346 45,736 33,864 57,981 51,202 195,633 80,227 18,160 18,517 36,190 819,619 628,337 718,474 21,783 47,490 19,050 9,380 510 993 59,175 63,429 81,798 10,021 7,641 7,185 23,463 13,159 18,678 2,697 2,813 4,862 3,626,112 2,582,328 3,084,711 6,790 8,821 16,897 8,197 9,412 67,128 66,867 68,375 44,866 25,482 25,703 10,623 29,795 24,955 27,424 21,618 19,893 19,063 93,090 59,959 53,268 6,694,009 5,568,520 5,925,769 Source: Data from the U.S. Departments of Commerce and the Treasury, reported in Tariff and Trade Data Web of the U.S. International Trade Commission (general imports, Customs value; total exports, fas).