What do you think of the recent start of negotiations between the US and Kenya on a free trade agreement?
The US recently began negotiations on a free trade agreement with Kenya. This negotiation is a transformation. The so-called “drunkard doesn't mean alcohol”. At the beginning of the negotiations, Africa was not the White House administration's top priority in formulating a new business plan — this approach was more like a countermeasure to counter China's commercial, security, and geopolitical influence in Africa; rather than a proactive measure to fully implement initiatives such as “Prosper Africa” and “America's Strategy for Africa.” These initiatives, put forward in 2018 and 2019, represent America's strategy to win in Africa, and were originally intended to promote mutual interests between the two sides. Since the end of the Cold War, the United States has implemented a strong long-term philanthropic and socio-economic development policy through the African Development Fund, the Millennium Challenge Corporation (MCC), and the US President's Emergency Assistance Program (PEPFAR). Over the past decade, although the US has generally strengthened its economic connectivity with the African continent, the process has been tortuous, and it can be said that there have been few results. Looking at it, although the COVID-19 pandemic has caused huge losses to global trade, the total trade volume between the US and Africa in 2019 was US$31.3 billion, according to data from the US Foreign Trade Census Bureau (Jan-Jul). In the same period of 2020, this figure was only $12.7 billion. A successful trade deal would be the latest step to revitalize bilateral relations, as the US Trade Representative said, “The two countries recognize that the agreement between the two countries may serve as a model for other agreements in Africa.”
America's renewed strength in the close bilateral relationship between the US and Africa may create an economic lifeblood — particularly during times of financial instability and uncertainty; the COVID-19 pandemic is the most obvious example. The relationship between China and its African partners is complex and not without controversy. From a certain perspective, it can be seen that China's loan practices exist, and many cases show that China's aid has been and will continue to be inextricably linked to purchases of Chinese companies and state-owned enterprises (SOEs). In contrast, the US has provided hundreds of millions of dollars of contracts to Chinese companies under the MCC agreement, and US companies are unheard of, or have few records of, implementing projects similar to Chinese aid. China's flagship global development strategy “Belt and Road” has invested $1 trillion in about 70 countries/regions. Despite the COVID-19 pandemic, the Sino-US trade war, Hong Kong security laws, and the decline in global trade, the relationship between China and Africa can help mitigate the impact on the economy.
At the beginning of June this year, China stated at the China-Africa summit that the first topic in the fight against COVID-19 is “mask diplomacy.” The Alibaba Foundation has led the donation of personal protective equipment to several African countries. As a major global supplier of personal protective equipment throughout Africa and beyond, Alibaba's regular business can also benefit from it. Chinese-led infrastructure construction has also played a role in the delivery of supplementary health care. Insufficient electricity generation is a long-standing problem faced by many African countries and must be increased in order to use new equipment. The main Chinese partners in this field in Africa are China National Petroleum Corporation (CNPC) and Sinopec. While hospitals, warehouses, and manufacturing centers are being built, roads must also be built. Companies involved in this task include China Civil Engineering and Construction Corporation (CCECC), which received a $6.68 billion order in 2018 to complete Nigeria's Lagos-Kano standard railway. Supported by sufficient capital and full cooperation, the efforts of Chinese partners in healthcare and supporting industries have not only provided long-lasting sustainable products and services to the African market, but also provided considerable rewards for themselves. Chinese companies have also been paying close attention to the development of infrastructure projects related to the African Continental Free Trade Agreement.
However, this bilateral relationship is not flawless either. China's development initiatives and aid in Africa are also a demonstration of its “soft power.” In development, the Chinese government can use this channel to increase its influence. As a partner in infrastructure construction in Africa, the Chinese government will provide loans through institutions such as the Export-Import Bank of China, which may account for 85% of the total financing amount. The terms tied to the loan usually include a Chinese company leading the project, and the equipment used can only come from China, etc. Contrary to popular belief, locals enjoy the benefits of job creation. However, as engagement increases, some major issues are emerging. For African partners, much of the infrastructure construction involves unfavorable financial, technical, and environmental terms. The Chinese state-owned enterprise that eventually establishes the proposed infrastructure is usually the same company that makes the assessment. Critics point out that development under this model is not worth the price of the project (essentially a loan), and that these projects do not require the latest technology. Through this process, China's economic benefits are cyclical and growing. Export credit is the loan mechanism it relies on, and China is also often criticized for questionable loans to developing countries. China's subsequent impact on debtors' future actions is also linked to criticism of this “soft power” approach.
How can Africa adjust this imbalance? Ofordeme Columba Nduka (Ofordeme Columba Nduka), head of project industrialization at Schneider Electric (Schneider Electric), attended university in China and developed projects in Nigeria with Chinese partners. He believes funding is a critical first step. “African governments need to renegotiate contract terms, including procurement of services or equipment locally. “Better conditions will greatly facilitate African participation of relevant practitioners in these projects; dependency on Chinese capital means that this will not happen,” he explained. When asked if local labor laws are helpful, Colomba said that although it is a good thing to hire more Africans, people believe that “one Chinese worker can eventually handle the workload of four African workers.” China's state-owned enterprises send many migrant workers to a more valuable work environment than the locals. Chinese immigrants work 7 days a week, while African locals work 5 days a week. Thanks to China's funding, they can set terms and reap most of the economic benefits. Capital investment, along with stronger public and private leadership, may be the first step in building these high-growth industries among African peers to remedy this imbalance.
How should the US develop relationships with African countries? Despite opinions on China-Africa relations, overall, these benefits have been fully acknowledged. Part of the reason for this advantage is that China's perspective on building long-term relationships is different from America's short-term vision and trading methods. Deborah Brautigam, Bernard L. Schwartz professor of political economy, and director of the China-Africa Research Program at the Johns Hopkins School of Advanced International Studies, described American companies as seeing “risks while China sees opportunities.” She pointed out that the US Department of Commerce has not received significant financial aid through government actions overseas like Chinese state-owned enterprises. (State-owned enterprise). Government aid to mitigate risk will change their prospects and concerns.
If the free trade agreement with Kenya succeeds, the US can continue to implement its declarations with other countries. With the help of the government clearing the way through numerous trade agreements and other actions, the US business community can be led by private sector entities to support a worthwhile bottom-up investment approach. Compared to China's top-down approach, this approach has enabled America's participation to circumvent too much criticism of the government. Driven by longer-term relationship building and cultural competitiveness, the United States can enjoy valuable benefits in seeking further contact with the African continent as an equal partner. In this regard, the US can learn from the Chinese who value building long-term relationships. However, in terms of long-term philanthropy and socio-economic development, China can follow the US approach and invest in much-needed social sectors (such as health and education) rather than high-profile, capital investment/construction projects that serve its own interests. That being said, although many infrastructure projects are indeed beneficial to the lives of African people, it is essential that China and Chinese enterprises carry out sustainable development in Africa and understand and bear negative externalities such as environmental pollution. President Trump sometimes conveys mixed messages about his views on African countries. At the end of the day, what African countries want is respect, not devaluation. Contrary to popular belief, more partners are welcome, and as Professor Brotigam said, “African countries have no need or want to choose between the US and China.” The opportunity is there, and business in Africa is open.
The author would like to thank Mr. Obakhela Kankhwende, Global Research Advisor at Momentum Advisors. He studied business analysis at Fordham University's Gabelli School of Business and helped with the research and contributed to this article.
Source: Kevin Chen Kaifeng Chen
