Economy

Why the US is Wrong to Always Push Liberalisation in Africa

Unhindered by any larger scheme to ‘open up’ African markets, China has shown itself to be a more useful partner for countries looking to create domestic productive capacity

Barack Obama greets audience members after a speech in Nairobi, Kenya, on Monday. Credit: Peter Souza, White House

Barack Obama greets audience members after a speech in Nairobi, Kenya, on Monday. Credit: Peter Souza, White House

Many of the commentators on President Barack Obama’s visit to Kenya and Ethiopia have tended to overstate the degree to which the trip marks a significant shift in US economic policy in Africa. While the gesture certainly signals a transformation in the administration’s perception of the importance of strengthening US trade ties in Africa, the overarching economic strategy it now seeks to employ is far from novel.

In an effort to counteract growing criticisms that the US continues to lag far behind Africa’s leading trading partners, the Obama administration has rolled out several important recent initiatives to increase the US’s presence on the continent. The Power Africa initiative launched in 2013, for example, is off to a good start, aiming to bring electricity to 60 million African households and businesses. It has helped provide partial financing and technical assistance to existing national plans to develop one of the continent’s largest wind farms in Kenya, natural gas power plants in Nigeria and Ghana, and a geothermal plant in Ethiopia.

Initiatives like Power Africa are certainly a step in the right direction, demonstrating that the US’s economic strategy in Africa has shifted from the outdated donor-recipient model towards one based on local initiative and mutual partnership. But a closer look reveals that the programme, with its combination of policy reform nudges and spurts of private capital investment, differs little from the liberalising agenda – a strategy intended to open up local markets and scale down national governance structures – that has dominated American policy in Africa for decades.

Stunted by foreign competition

Irrespective of what little employment opportunities they might create and the financing they might provide, initiatives like Power Africa are unable to tackle the overarching obstacles to development in Africa – weak local industry and lack of diversification. Indeed, these two issues are intimately related, as the growth of ‘stepping-stone’ sectors such as petty manufacturing – famously the catalyst for take-off in many south east Asian economies – combined with good governance, can often support the growth of other important sectors, such as banking. When the growth of such industries is stunted by foreign competition, the amount of capital available within the country for financing the diversification of the economy slowly dries up, as foreign stake-holders usually have little interest in the types of long-term projects necessary to bring about such diversification.

Coupled with an overall economic policy that works to significantly further weaken local industries by opening them up to the global economy before they are ready to withstand international competition, initiatives like Power Africa ultimately make it much more difficult for local actors to contribute to the diversification and strengthening of their local economies. In short, so long as they are embedded within the background of this larger overall thrust of US economic policy in Africa, initiatives like Power Africa, particularly in the face of more favourable Chinese alternatives, will soon fade into irrelevance.

Indeed, in contrast to the mainstream view in the US, there is something to be learned from the Chinese approach to development in certain countries. To say the least, China’s role in Africa has been controversial – and critics are right to point out that Chinese businesses do often negotiate unbalanced deals, unfairly maximising their profits at the detriment of local communities, whenever they have been able to get away with it. But, on the other hand, commentators have overwhelmingly failed to acknowledge that in those countries with a strong enough government to leverage a favourable deal, Chinese investors are playing a positive role in the development of industry, infrastructure, and importantly, human capital.

China’s role

For example, China’s involvement in Ethiopia, currently the fastest growing economy in Africa, is particularly intensive. Chinese companies have played crucial roles in large-scale investment projects such as the building of the new African Union headquarters, the new Addis Ababa Metro rail-system, and the national telecom network. In addition, Chinese businesses are investing heavily in local industries, perhaps best exemplified by the Huajian shoe factory on the outskirts of the Ethiopian capital, which employs more than three thousand workers, out of which an astonishing 96% are locals.

Unhindered by any larger scheme to ‘open up’ the Ethiopian market, and governed by a mutually beneficial Bilateral Investment Treaty, Chinese economic policy in Ethiopia, and the enormous influx of capital it has engendered, has been an enormous help in tackling precisely the aforementioned hurdles of weak local industries and an undiversified economy.

Of course, not all locals view Chinese investment, and the associated growing pains of development, in a positive light. However, many of the misconceptions about Chinese firms could be addressed through better public relations, transparency, and safeguards against corruption. In short, China is not an angel nor a demon. Where local governance is weak, China takes advantage (as in Angola). But in the case of Kenya, and perhaps more so Ethiopia, where governance is fairly strong, China is undoubtedly party to two mutually beneficial relationships.

Moreover, China’s role in strengthening countries like Ethiopia, and laying the foundation for a healthy long-term economic and political relationship, will only become increasingly lucrative as the latter becomes more and more prosperous, and thus more inclined to slowly open up the economy as it finds the chances of its industries being able to compete internationally are at an adequate level.

As implied by the above, liberalisation is by no means inherently ‘bad.’ To the contrary, in developed nations with strong local industries capable of competing internationally, it can greatly help sharpen the efficiency of the local economy, forcing it to focus on what it does well and shed what others do better. The problem with the current US economic policy in Africa, however, is that it is pushing the cart before the horse, advocating the liberalisation of economies that are not yet internally stable, let alone capable of competing internationally. In other words, liberalisation ought to be seen as the outcome of development, and not its catalyst.

Accordingly, the restructuring of US economic policy around this principle would be of much greater value to Kenya, Ethiopia and the African continent at large than a presidential visit ever could. If the US continues to uphold liberalisation as a one-size-fits-all solution to development, it will soon find itself outcompeted and largely irrelevant as a major economic partner in Africa – a huge missed opportunity for Americans and Africans alike.

Meena Oberdick is a senior pre-law student at Columbia University. She has a year of professional experience working in the field of human rights law.  

Abel Araya is a senior pre-law student at Columbia University. Born in Ethiopia and raised in Sweden, Abel has a keen interest in contributing towards the development of his home country.

  • Stan

    Great read, Meena & Abel. There is an urgent necessity for both the US, Europe and China to change their attitudes towards Africa (in terms of development and aid in particular…) and to start viewing African countries as equal partners on a global scale. Before advocating liberalisation (US) or providing ‘tied aid’ (China), there must be internal stabilising – both economic and political – of many African countries. Support from outside needs to support not the outside, but what Africans want to achieve themselves. The US is pushing for a larger plan of liberalisation and opening up African economies, and China, while beneficial in its partnerships to a certain extent, cares little about institution-building and the rule of law. These essential elements must be supported by trading partners, but need to be ensured by the new African elite.

  • Yusuph Mkangara

    Great article. I definitely agree that real change must come at the policy level. The article is undoubtedly clear in advocating for leaving a one-size fits all model. I would have loved to see the plenty of examples where such a liberalization model is not necessarily best, but because of the gov’t’s extreme overreach, more appropriate. I am thinking about Tanzania where the gov’t refuses to open up despite showing itself incapable of handling the national issues. I think it’s definitely a case by case scenario, and on this I agree with your argument.