Can Obama Deliver American Investment in Africa?

Posted by Frederick Cedoz on Thursday, December 3, 2009 at 11:02pm.

Many high hopes have rested on the shoulders of President Barack Obama following his historic election. Investors and NGOs hoped that the election of America’s first African-American president would bring a renewed spotlight on the tremendous challenges and opportunities throughout the African continent.

It remains to be seen whether having to focus on an unprecedented economic crisis will derail his campaign promises of reforming America’s medical and education systems and building a 21st century energy infrastructure and whether Obama will have any interest in or enough political capital left to begin a program of real strategic engagement on the continent.

Is America Capable of Strategic Engagement?

The U.S. has historically chosen to follow political and economic issues in Africa from a distance, preferring to let former colonial powers wrestle with the tough issues while reserving its engagement for humanitarian projects.

With the collapse of the Soviet Union leaving both an economic and power vacuum, Bill Clinton began a program of engagement with Sub-Saharan Africa’s economic powers like Nigeria and in encouraging passage the Congress of the Africa Growth and Opportunity Act which reduced trade barriers between the U.S. several African countries. In his two trips to Sub-Saharan Africa Clinton warned leaders to be good fiscal stewards of their natural resource wealth going so far to encourage the development of a manufacturing base and increased use of technology in the agriculture sector.

George W. Bush followed on Clinton’s achievements by making two Africa trips and is widely regarded as the U.S. President who did most for the advancement of the African people by bringing American money to bear on myriad social and health problems. Africa activist and U2 front man Bono, no fan of Bush’s other international strategies, was pleases to meet with Bush on many occasions to offer help in reaching the goal of eliminating malaria and offering AIDS treatment to many who need it with the backing of $20 billion in U.S. aid grants.

Now after Barack Obama’s first trip to Sub-Saharan Africa as president and a recent tour de force by Secretary of State Hillary Clinton, it remains to be seen whether the U.S. has the inclination to proffer broader strategic engagement opportunities to partners in Africa. The past decade has seen China assert itself on the continent by engaging in numerous commodity investment opportunities while Russia has reemerged from its post-Soviet slumber to double its official Africa trade in the last half decade.

There is a bit of roadmap for Obama to follow if he’s inclined to look for broader engagement beyond building on Bush and Clinton’s humanitarian successes.

China’s success in securing investment opportunities hasn’t required any magic. Merely showing up with the required interest and capital has been enough to secure many fruitful commodities in the mining and energy sectors. But many African governments, whether they’ll go on record publicly or not, are reported to prefer deeper engagement by the United States within their borders as the ultimate concerns about becoming too dependent on Chinese investment could lead to a repeat of their colonial experience.

Following China’s Investment Lead

The difference in America’s and China’s engagement strategy in Africa hinges on the difference between investment and aid. The Chinese were early to learn from colonial missteps in Africa all of which involved almost a tacit dismissal of the interests of real Africans preferring to suppose that people in European capitals knew what was best. Had they bothered to recognize the inescapable fact that they could no longer hold on to their colonial possessions but could benefit from their years of involvement by developing an investment strategy in Africa, things might be different today.

America would do well to follow China’s lead in this respect: aid is important, but investment is preferred.

Developing a new American approach modeled on China’s strategy over the last decade won’t be easy for all the distractions facing Obama and U.S. policy makers. America’s domestic priorities aren’t the only reason that strategic engagements focused on investment opportunities haven’t taken hold.

While many of China’s investments in Africa have been made by private companies, the fact that they have the political and economic support of the government in Beijing is something that American companies aren’t likely to experience. At least not as openly as the support the Chinese companies receive.

For example, when the recent amnesty between militant groups in the Niger River Delta and the Nigerian government began to show signs of progress, it was announced that a delegation of 60 Chinese companies would be present in Nigeria to attend a trade conference on infrastructure development projects in the Delta.

Without the pro-active support of the U.S. government, American companies will be left fighting for scraps and will not receive the same ancillary political benefits that will inure to the Chinese for being first on the scene.

The Americans, and Canadians and most Europeans - with the notable exception of France’s latest outreach to Nigeria - don’t play by the same rules of engagement. Companies are left to their own devices to determine if an area is safe for its workers and represents the best deployment of risk capital for their shareholders. Chinese companies get significant top down support tied to other strategic multilateral objectives like security agreements, long-term contracts and the like.

So for American companies interested in expanding or initiating their presence in Africa, it would be beneficial to develop a powerful behind the scenes engagement strategy with the Obama administration officials in charge of the President’s Africa agenda. A few well placed words in one of his speeches combined with diplomatic follow up by government officials from the State and Commerce departments could go a long way in convincing the world that America has begun to recognize the strategic importance of developing Sub-Saharan Africa into bona fide, productive members of the community of nations, not merely countries to be viewed as cases for charitable giving.

Which Africa will win out?

All the good intentions of aid groups and investors and even that of the President of the United States cannot guarantee which Africa will emerge over the next several decades: an Africa reflective of the enormous opportunities and problems associated with religious and economic unrest like Nigeria, or one reflective of the new opportunities for rebirth like those represented by Ghana and Angola.

For all its political problems, which energy investors are very familiar with, Nigeria still represents one of the best investment jurisdictions in the world. Making investments there require a different set of risk tolerances to be sure, but where on earth are so many people in need of so many goods and services and have at least some cash to pay for them?

For everything from infrastructure to telecommunications to transportation Nigeria represents an amazing frontier opportunity. Picking winners requires something more than a sharp set of darts or a crystal ball, however. It requires a long-term commitment to an on-the-ground presence to determine who real industry partners are and who the mere hangers on are.

And once you’ve done all that you need to hope that all your efforts aren’t undone by forces outside your control like the seemingly perpetual unrest in the Niger River delta.

This is where a clear engagement strategy by the United States, encouraging competition with the Chinese for investment in resources, could be extremely helpful for investors if it were to be successful in building a real foundation for political stability.

Africa could also turn out more like Ghana or Angola, two vastly different countries who have found their own paths to stability.

These countries have been experiencing growth coupled with relative stability - that’s like hitting the daily double for investors interested in African opportunities.

Ghana, which just had a peaceful transfer of power following a razor thin election which saw Stanford educated John Atta Mills ascend to the presidency, has had several promising offshore oil discoveries in the last year and is preparing for a larger licensing opportunity. Ghana’s strength is in its small size and lack of religious strife. It is also benefitted by its key location in the Gulf of Guinea where it could serve as a regional financial hub for energy and other investments in the area.

Angola, coming off two decades plus of civil war, has been relatively stable in the last couple of years. This stability was brought about through the strong political leadership of the ruling dos Santos family which looks to be well entrenched. These political developments have allowed Angola to increase its daily oil production of 2.1 Mbd to more than that of neighboring Nigeria which is reported to be producing between 1.5-2 Mbd based on insurgent supply disruptions.

Highlighting the progress in driving exploration activity in Angola, state-owned oil company Sonangol recently announced plans to explore the onshore Cabinda region which some estimate could add up to 500,000b/d in new production.

As an example of the understanding of the importance of new African outreach strategies, Russian President Dmitry Medvedev will visit Angola later this summer in an attempt to flex his international energy muscle. Russian firms Rosneft, Lukoil and Gazprom are all actively pursuing new opportunities there.

Africa presents some of the world’s greatest investment opportunities, but in order for Western companies to take advantage of the energy opportunities there a little leadership by President Obama would be very helpful. We’ll know shortly if he’s a global chess player.