Promoting U.S. Investment in Sub-Saharan Africa

R. Hendrickson

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137365446
• Topic: Politics & International Relations
• Subtopic: European Politics
• Index: Politics & International Relations

Addressing an under-studied aspect of U.S. foreign policy towards sub-Saharan Africa, Hendrickson provides a critical historical analysis of institutions designed to promote private investment in the region. She draws attention to the interaction between strategic factors, domestic interests, and the ideas used to achieve consensus on policy.

1

Introduction

For decades the Western media has portrayed Africa primarily through the lenses of poverty and insecurity but now the region is suddenly being portrayed as the new land of opportunity. This really began with China taking a strong interest in the region as it sought markets and resources to fuel its growth. In Africa there is heated debate over the growing role of diverse Chinese actors in Africa and a great deal of analysis to determine how Chinese activities and impact vary from those of Western external powers who wielded great influence during the twentieth century (for example, Kitissou 2007; Manji and Marks 2007), but China is only one of many countries showing a stronger interest in economic opportunities in Africa. In the United States there is anxiety about the possibility of losing out to competitors in Africa, so American lawmakers are stepping up efforts to compete in a region of the world that has historically been relegated to last place in the United States’ global order of strategic priorities. Lost in the rhetoric about ‘leveling the playing field’ and the superior value of US investment in Africa is the fact that the United States has long been one of the key investors in Africa. While US global leadership in the neoliberal turn, associated with its promotion of free trade and liberal economic reform through the international financial institutions (IFIs), is well known, the nature of government involvement in the promotion of private investment in Africa has received less attention. This may be because US investment in Africa comprises only 1 per cent of its global investment and it remains largely focused on the oil and minerals sectors; however, the United States’ role as investor and as a powerful actor in global governance of investment has a great impact on the political economies of African countries and merits closer study.

US policy toward Sub-Saharan Africa has historically been shaped by strategic, economic and humanitarian concerns (Nielsen 1969; Dickson 1985; Herbst 1992; Gordon et al. 1998; Hentz 2005). During the Cold War, the effort to contain the spread of communism and maintain access to key resources structured relations and in more recent years, access to Africa’s oil and concerns about the spread of terrorist cells continue to influence resource flows. Nevertheless, both state and private actors have always pursued economic interests in Africa. Since World War II, the United States has developed a network of agencies and policies to promote private investors’ interests in developing regions. It has also developed Africa-specific economic policies, which are primarily carried out by the network of development assistance agencies.

Although the resources devoted to promoting private investment were not large, the level of activity in relation to Africa is surprising because for a long time the African region was portrayed as of little strategic interest to the United States. It is also interesting that active US governmental involvement in promoting private commercial activities is at odds with the increasing efforts to encourage African countries to minimize the role of the state in their own economies. Although there was consensus within the US government on the value of the market system, there has always been debate over development assistance priorities in relation to ideological differences over the most effective way to stimulate economic growth.

This book explores why the United States has invested in governmental efforts designed to increase private American investment in Africa, in the context of its larger economic policies, for the primary purpose of describing an underexplored aspect of US–African relations and secondarily to provide an explanation for why and when we see continuity and change. It also aims to shed light on two issues of interest in international political economy: the changing role of US leadership in the global economy and the role government policies play in promoting economic growth. Because the study of economic policy toward Africa has been subsumed within the analysis of strategic interests in the region, interesting continuities and moments of adjustment in policies related to investment have been hidden. At the intersection between foreign policy analysis and international political economy, the argument draws attention to the dynamic interaction of several factors that determine US foreign economic policy: systemic conditions, domestic interests and institutions, and the ideas used by actors at the domestic and international levels. While global economic and security conditions constrain or provide opportunities for new policies, domestic political actors and alliances use ideas about the role of US investment to justify policy change or continuity.

The United States and Sub-Saharan Africa

Even after African states attained independence,¹ the colonial powers continued to dominate economic relations with African states and African economies were structurally geared toward exporting to Europe and reliant on capital from Europe. After World War II, US foreign policy toward Africa initially fell in step with its European allies, but as African nations achieved independence, the United States gradually developed a more independent foreign policy and established a position of influence in relations with African nations (Dickson 1985; Gibbs 1995). The United States has been a primary source of development assistance and foreign direct investment (FDI)² for Africa since the mid-twentieth century. Most significantly, the opportunities and constraints for African countries in the global economy have been largely structured by global institutions that were created and dominated by the United States and its allies, such as the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank, the lynchpins in a constellation of international economic organizations (M. B. Brown 1996; Mshomba 2000; Bracking 2009). A central aspect of US global economic leadership has been the aggressive promotion of market institutions through both material and ideological means (Rupert 1995; Robinson 1996; Amsden 2007; Sahle 2010). While this may have increased opportunities for American exporters and investors in relation to Africa, it has had a complicated impact on African economies and, as a result, US–Africa relations.

The pursuit of US security interests has clearly had a profound impact on African states, from shoring up strategic allies such as the repressive dictator Joseph Mobutu of Zaire and South Africa’s apartheid regime during the Cold War, to the recent support for the late Meles Zenawi of Ethiopia, the United States’ military ally in the Horn of Africa; however, the programs designed to address poverty and promote liberal markets were also intended to secure US strategic concerns (Kitchen 1983; Jackson 1984; Dickson 1985; Rotberg 1988). Over the years of US involvement in Africa, shifts in global economic and security conditions provided new opportunities for both business and humanitarian actors. Government policies played a large role in shaping the environment for private actors.

One interesting aspect of Africa policy that is fairly consistent and attracts strong bipartisan support is the need to promote investment despite the ongoing debate over development assistance and the appropriate role for the state in the economy. I show how ideas about the ‘right’ of private American actors to economic opportunities in Africa and the assumed progressive nature of their role were used to enable consensus on US economic policy related to investment. The specific nature of the policies was also influenced by the political interaction between domestic actors debating ideas about how to shape development policy.

Research within the field of international political economy elucidates the nature of the institutions that structure Africa’s position in the global economy such as the large literature on the development and impact of the World Bank and the IMF’s structural adjustment programs, the history and impact of the trade and debt regimes and, more recently, the governance of FDI. Each of these regimes has been shaped to a great degree by the neoliberal turn in the global economy though the role of the state is often underestimated (Stopford and Strange 1991; Helleiner and Pickel 2005; Weiss 2012).

The government plays a significant role in promoting and protecting investment and these efforts have great continuity. Given the attention to new investors in Africa, I look at US investment promotion in the context of the United States’ broader economic policy because it is not possible to clearly separate investment promotion from other liberal policies that have an impact on investment opportunities through the establishment of business relations, the investment environment, and economic growth. For this reason, it is also not possible to conclusively quantify the amount of investment promotion and thus I focus on describing policy development and adjustment. In addition to this, some of the key policies addressed were designed to promote investment in all developing regions, so the logic of policy-creation is not Africa-specific; although some programs have been tailored for a region perceived to be the most poor and unreceptive to investment and thus the most worthy of government efforts to change this status. Especially in relation to Africa, much of the investment promotion efforts are within the complex of development assistance. Finally, although I describe some examples of government promotion and point to some key trends in US investments in Africa during each period, presenting a comprehensive picture of US investment in Africa is beyond the scope of this study.³

In recent years, as power has shifted in the global economy, rapidly growing developing countries such as China, India and Brazil have paid more attention to economic relations with Africa, increasing trade and investment, and deepening ‘South–South Cooperation’ (Modi 2011). According to the United Nations Conference on Trade and Development (UNCTAD)’s 2012a World Investment Report, developing country investments in greenfield projects⁴ in Africa exceeded those of developed countries in 2011. Their material power at a global level is still not proportionally represented in international economic organizations; however, the United States is still (for now) the leader in the provision of ‘institutions that promote and safeguard multilateral trade and finance’ (S. S. Brown 2013, 6). In addition to changes in national sources of FDI, however, the investment landscape is also being reshaped by flows of money from private foundations, faith-based organizations, diaspora networks, sovereign investment funds, and illicit networks (Cornelissen et al. 2011; Shaw 2012).

The economic rise of Sub-Saharan Africa

After two decades of economic stagnation, the Sub-Saharan Africa region started to grow more quickly in the mid-1990s; by 2013, Sub-Saharan Africa was the second fastest growing region in the world with several countries – Sierra Leone, Niger, Cote d’Ivoire, Liberia, Ethiopia, Burkina Faso, and Rwanda – among the fastest growing in the world (World Bank 2013). For much of the first decade of this century, the regional growth rate averaged 6 per cent despite a brief drop after the financial crisis of 2008. In March of 2013, the Economist magazine recounted the pitying fascination some African bourgeoisie felt for the struggling nations of Greece and Spain. In many cases political reforms have accompanied economic reforms. By 2010 democracy was firmly instituted in 20 African countries and most African countries had held competitive elections; although many countries have also experienced reversals in democratization (Diamond and Plattner 2010). Especially since the 1990s civil society movements seeking social and economic justice have proliferated across the continent (Bond 2005).

Poverty, defined as the proportion of people living on less than US$1.25 a day, has fallen from 58 per cent in 1996 to 48.5 per cent in 2010 but there is great variation across countries. Although resource-rich countries grew faster, poverty declined more in resource-poor countries (World Bank 2013, 14–15). The region also has one of the highest levels of inequality, which can reduce the impact of economic growth on poverty reduction (Ravallion and Chen 2007).

Almost all African countries have struggled to attract global capital to diversify their economies. In recent years, the region has attracted its highest levels of FDI; despite a small dip after 2008, FDI reached a peak of almost US$35 billion in 2011. Throughout the twentieth century, most FDI went into the extractive sectors, producing profits for foreign investors and a local elite with little economic spillover (Moss et al. 2005). Portfolio investment in Africa has also increased as new stock markets have been set up across the continent (Moss 2003). These flows to Africa must be addressed in the context of the calculations of Global Financial Integrity that over the last 30 years, between US$850 billion and US$1.8 trillion may have been taken out of Africa and laundered through corporate transfer pricing, corruption, and criminal trade (Kar and Cartwright-Smith 2010). According to Raymond Baker, the Director of Global Financial Integrity, the only way to address the loss of this potential capital for African development is to crackdown on the ‘shadow financial system’ (Baker 2012).

Capital is needed for infrastructure to ensure transportation and power supply, health provision through well-staffed and supplied hospital and clinics, agriculture, manufacturing to enable diversification of economies, and education. Domestic sources of capital are key but given economic globalization, FDI (a significant portion of which is actually diaspora money) is certain to play a big role. So the questions of where the FDI will come from and how that will affect the governance of FDI are interesting because this will ultimately determine the impact of FDI on African economies.

In this book, I look primarily at US investment, exclusively in Sub-Saharan Africa. This regional focus, rather than addressing the entire continent, is determined by the fact that for much of the period I explore, US policies in relation to Sub-Saharan Africa were discussed and determined distinctly from other regions and often from North Africa. (From this point forward I will use the term Africa to refer to Sub-Saharan Africa.)

An analytically eclectic approach to understanding US foreign economic policy

The theoretical framework is designed to clarify the interaction between systemic and domestic factors and to point to the role of ideas in the development of US economic policy related to FDI in Africa and to shed light on the impact over time both on investment in Africa and on African countries’ options in the global economy. The specific policies that developed to enable private investors seeking economic opportunities cannot be explained simply by looking at state interests or the outcome of interactions between domestic actors. The policies were created in specific strategic contexts, within which ideas about the national interests were articulated and debated by government officials, business interests, union representatives, academics, and nongovernmental organizations (NGOs). Private investors consistently called for government assistance to address the perceived risks of investing in Africa. Government officials portrayed increased trade and investment relations as beneficial to US strategic interests. At times interest groups successfully pressured for attention to the environmental and social impact of these policies. Shared public and private interests, as expressed in shared ideas about the US role in Africa, enabled continuity in efforts to promote capitalist economic development; but the role of commercial assistance in development policy varied in relation to the interaction between Republicans and Democrats in their debates over the role of government and the efficacy of aid, as well as the influences of private actors on the debate over the development needs of African countries. Partisan and private voices were in turn influenced by strategic concerns and opportunities.

Bilateral US policies have done little to help reorient African economies toward a sustainable mode of economic development that is characterized by economic diversification and food security rather than resource exploitation and overreliance on exports. Even efforts to enable local production in Africa were often designed to boost market opportunities for US exporters; however, genuine contributions to sustainable development were made along the way, especially in the realm of health (Moss 2007, 137). From the very beginning of efforts to promote investment, poverty reduction was a concern but there were never sufficient resources allocated to programs and sectors that addressed more structural needs. The developmental potential of US economic policy has been undermined by security concerns, rigid ideological approaches to economic policy, frequent shifts in development policies, agricultural and labor protectionism, and inconsistent attention to non-extractive sectors.

Promotion of rapid liberal economic change under pressure from the West has been blamed in part for the stagnation of the 1980s and 1990s with some placing emphasis on the failure of African governments to implement reforms and others on the inadequacy of neoclassical economic theory to address African countries’ political challenges and the obstacles they face in the global economy (Lewis 1996). The IFIs have gradually reformed their conditionalities but there is still resistance, in African countries, to the degree of external control and lack of faith in the consultation process (Thomas 2004). Improved macroeconomic conditions in many countries have contributed to the recent increase in FDI, but the power of African countries in the global economy is limited in many ways: in their ability to bargain for significant societal returns to investments; in the infrastructure necessary to attract more diversified investment; in their representation in key international organizations such as the IMF, World Bank, and WTO; in their battle against Northern agricultural subsidies; and in their ability to limit capital flight. The global debate has been renewed over the role of the state in the economy and the role of global governance mechanisms; but the United States continues to incorporate rigid neoliberal conditions in its economic policies toward Africa. Its position on global governance of investment is evolving; however, transnational governance holds both promise and risk. Its legitimacy may depend on the development of more democratic means of decision-making (Hanson et al. 2012, 10).

Developing countries have become larger investors employing significant amounts of state resources and providing an alternative model for development. Although Western countries still dominate rulemaking in international trade and finance, developing countries are mounting significant challenges especially in the trade regime. NGOs, bolstered at times by social movements or allied with politicians, are helping to transform the global economic landscape by finding mechanisms to promote debt relief, sustainable development, environmental protection, labor rights, consultation with local stakeholders, efforts to undermine corruption, and accountability and transparency. American corporations have played a role in establishing and promoting best business practices, carrying out training, and creating jobs; but they also have a legacy of corruption, deception, and environmental destruction. One important research concern is exploring the extent to which new investors follow the strengthening environmental and social norms (Campbell 2009; Frynas 2009), but it is important to keep in mind that these values are also challenged by the very competitive nature of attracting investment in a capitalist global economy. Sustainable growth in Africa is dependent not only on increased capital but also on the nature of the rules that govern the transparency of capital flows and the employment of capital.

Plan of the book

Chapter 2 develops an analytic framework for understanding continuity and change in US economic policy toward Africa. Rather than focusing exclusively on domestic-level interactions between government officials and interest groups, I point to the role of systemic factors in shaping the changing context for US perceptions of interests in Africa. I also point to the way that ideas were used by political actors to develop and maintain support for essentially mercantilist policies.

Chapters 2–5 analyze the evolution of US efforts to promote investment in Africa in relation t...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables
• Acknowledgments
• List of Abbreviations
• 1. Introduction
• 2. Understanding Promotion of Investment in Africa
• 3. The Cold War and the Creation of Institutions Promoting Private Investment
• 4. Global Economic Competition in the Post–Cold War Era
• 5. George W. Bush and Africa in the New Millennium
• 6. The Obama Administration in a Multipolar World
• 7. Africa and Transformation in the Global Economy
• Notes
• Bibliography
• Index