Economic stagnation continues in sub-Saharan Africa region; U.S. know-how can help develop productive capabilities

Economic expansion in the United States is approaching the two-year mark, and recovery is well underway in Europe and Japan. Yet Africa is still awaiting the start of its own sustained rebound, which is threatened even before it begins by the specter of rising global interest rates. If the pace of world recovery moderates in the months to come, resumption of economic growth in Africa could be further delayed.

The world recession of 1981-82 was particularly damaging to Africa's fragile economies. Slack demand for tropical commodities and industrial raw materials constrained foreign exchange earnings, while mounting foreign debt placed additional pressure on the region's meager reserves. Although the Sub-Saharan countries account for only about 10 percent of total developing country debt, the debt service burden on individual countries is often overwhelming due to the small size of most African economies.

Chronic balance-of-payments deficits forced the Sub-Saharan countries to turn increasingly to the International Monetary Fund (IMF) for assistance. Cumulative use of IMF credit in the region reached the equivalent of $6.2 billion by last spring, nearly a threefold increase since 1981.

Africa's recovery has been further hampered by structural problems, principally that of agricultural production. Even in the best of times, food supply and demand are delicately balanced in Africa, and high population growth rates and killer drought have combined to place additional pressure on the farm sector. Some governments have pursued inappropriate agricultural policies, which further depress output by depriving farmers of productive incentives. War and civil unrest have also taken a heavy toll in some areas. The U.N. Food and Agricultural Organization has designated 24 Sub-Saharan African countries as facing severe food deficit conditions.

The recent trend of U.S. trade with Africa clearly underlines the region's economic crisis. Total trade contracted 35 percent between 1981 and 1983, five times the rate of decline of U.S. global trade. U.S. exporters have been hurt particularly by the high dollar exchange rate, which has priced their goods beyond the reach of many of Africa's capital-scarce economies.

The United States continues to run a large trade deficit with Sub-Saharan Africa, providing a powerful growth stimulus to the region. The cumulative deficit totals $40 billion since 1980, but the benefit has accrued overwhelmingly to Africa's oil-exporting nations. In the first half of 1984, when U.S. imports from Sub-Saharan Africa surged 21 percent above the same period a year ago, only a handful of African countries reaped the reward, specifically those which exported oil or minerals to the recovering U.S. market. Meanwhile, the stimulus of Africa's trade surplus with the United States has been partially offset by high interest rates. Each 1 percent increase in global interest rates adds nearly $4 billion to the debt service costs of the developing countries.

Africa's economic dilemma poses special challenges for foreign business enterprises, which the U.S. government is endeavoring to address. Despite the region's troubles, business opportunities exist, and these are being expanded by the economic support mechanisms which the United States is constructing in Africa.

The U.S. Generalized System of Preferences (GSP) is one form of assistance. The GSP program extends to developing countries the opportunity to earn dollars by selling a wide range of products duty free in the United States. Last year the African countries exported $181 million worth of goods to the United States under GSP. Congress is now considering renewal of the program, which is due to expire in early 1985.

Official development assistance provides direct financial support to the African countries. U.S. bilateral economic aid to Africa will exceed $1 billion in fiscal 1985, in a broad array of programs. The funds shore up Africa's tottering economies, while they often provide expended sales opportunities for U.S. exporters. Nearly $260 million is proposed for Commodity Import Programs (CIPs) in nine African countries. CIPs are a form of nonproject assistance which makes dollars available for the importation of essential commodities from U.S. suppliers.

The United States, already Africa's leading supplier of emergency food aid, increased its food assistance to the drought-sttricken region by $90 million this year. A further $60 million increase is budgeted for fiscal 1985.

Under the African Economic Policy Initiative, a special $500 million five-year appropriation has been requested to help selected African countries undertake policy reforms which promote private initiative and growth. Seventy-five million dollars would be expanded during fiscal 1985.

The U.S. private sector can be a powerful tool in Africa's development by providing capital and productive know-how for self-sustaining growth. The future of the U.S. commercial relationship with Africa rests on our ability to hlep the region develop its own productive capabilities.

The U.S. government is working to facilitate that process through a network of bilateral investment treaties with selected countries. The treaties foster the flow of investment to Africa by guaranteeing investor rights, standards of treatment, and a dispute settlement mechanism. The treaties would apply not only to equity investments but also to technical service arrangements and other forms of business enterprise. Investment treaties have been signed with Senegal and Zaire, and negotiations have been held with several other African states.

A U.S. government Interagency Group has been established to address issues concerning private sector activities in Africa. Representatives of various U.S. departments and agencies meet periodically to resolve issues of common concern. The Interagency Group is working with U.S. embassy staffs in Africa to devise country-specific strategies to facilitate the flow of U.S. private investment to the region.

These measures will not transform Africa's commercial scene overnight, but they attest to the U.S. government's view that the U.S. private sector can help to improve the future prospects of this important region. The key to success has always been patience and long-term persistence. Now that Africa is suffering economically, that is even more the case.

COPYRIGHT 1984 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group