Beyond AGOA: Building a Bigger Africa Policy

The United States’ commercial relationship with the continent needs a reset. No major U.S. trade and investment policy has been written since the Africa Growth and Opportunity Act (AGOA) nearly 25 years ago, and none appear imminent. The programs that exist are a grab bag of grant giving, trade missions, and digital deal rooms. While the U.S. government cannot and should not be driving U.S. investment, it has an important role in encouraging it. Tweaking its institutions to emphasize speed, risk tolerance, decentralization and empowerment offers different entry points for a stale economic partnership.

The U.S.-Africa Leaders’ Summit in Washington, D.C. last December was the most significant gathering of U.S. and African leaders in a decade. It was an opportunity to steer a new course: away from the Sturm und Drang of Trump years and toward a bigger relationship—one that lays out a multi-decade vision for why the continent matters, how it can advance U.S. interests, and where those interests coincide with the continent’s young population. While the summit was successful in convening leaders, the true measure of success lies within the strengthening of U.S.-Africa commercial ties. As Ambassador Johnnie Carson works to implement the promises made during the summit, now is the time for the Biden administration to think boldly—as it has done in domestic policy.

How the United States Can Move beyond AGOA

Moving beyond AGOA won’t require new institutions or programs, but it will require those that exist to act faster, think bigger and commit to doing more than what they have done in the past in areas where they might have less relevant experience—such as in defense, trade, capital markets and digital ecosystem building. The first, and most relevant place to start, is the Development Finance Cooperation (DFC).

1. Disrupt the development finance institution.

There are few institutions better situated to enhance commercial collaboration between Africa and the United States than the DFC. But if it is to compete with China’s much larger Belt and Road Initiative (BRI), it needs to compete on speed and risk. Until it is prepared to lose money, it will not take on enough risk. That the DFC is profitable, neutral and risk-averse is a policy failure. Its staff will continue to think (erroneously) that their job is to make good investment decisions—which is demonstrably not what the agency should be good at, nor what its staff are resourced to do. It should make catalytic investments that crowd in capital, not crowd out. Its staff should be incentivized to do more, faster and especially at the earliest stages of firm formation.

2. Make subnational assistance and trade privileges a thing.

Most assistance funds and trade privileges have to be granted to national institutions. This should change. The Millennium Challenge Corporation’s (MCC) partnering mandate, like many of Washington’s development institutions, should include the ability to provide direct funding for subnational entities, like Katanga, a province of the Democratic Republic of Congo, which is larger than most African countries, and Lagos, a city whose stability and growth matter immensely to the continent writ large. Similarly, any future reauthorization of AGOA should allow subnational entities access to the same privileges—cities, regions or special economic zones­—even if the country do not qualify. South Africa is a good case in point. The country does not belong in AGOA for a variety of reasons (not least its misalignment with U.S. foreign policy goals), but the Western Cape, the only province controlled by the opposition, should not suffer the consequences of a nearsighted national governing party. Offering trade privileges to one province rather than another and sending funds directly to subnational leaders will irk national governments, but refusing it outright might be more damaging to them.

3. Build and expand local capital markets.

The United States’ greatest asset is its massive institutional investment community. China’s ability to deploy capital through state-owned entities far exceeds anything the United States could consider through its own institutions, but the United States’ pension funds, endowments, and institutional investors deploy trillions of dollars into global equities every day. Africa needs more listed companies for those pension funds to invest in—the frontier and emerging market index funds simply do not offer the kind of risk allocation and exposure some portfolios want. To do that it needs more capital markets (or at least assistance in getting them in “listable” condition, something U.S. institutions and assistance would be well suited to do).

4. Create a small- and medium-sized construction fund to compete with China and Turkey.

Africa is urbanizing at an alarmingly fast rate, nearly twice the rate of China. According to the African Development Bank, over 500 million people will move into Africa’s cities in the next 35 years. The gradual pullback of Chinese BRI investment on the continent over the past 12 months has opened a space for indigenous contractors to build a resume of projects. According to a recent Yale study on African cities, the number of buildings within a city grows with population by roughly one extra building for every 2.6 people. The majority are small residential buildings—68.5 percent of the buildings are less than 50 square meters—meaning much of the infrastructure development for Africa’s future cities can be built by small- to medium-sized construction firms (not state-owned Chinese entities). Urbanization has had a tremendous effect on increased productivity. It has reduced transaction costs and increased access to more educational, medical and sanitation facilities. But if the rate of investment in urban infrastructure lags behind urban population growth, the benefits can be reversed swiftly. Most assistance and aid tends to focus on rural regions or agricultural land development projects. The DFC and Export–Import Bank of the United States should establish a construction fund that bundles investments and capital expenditure financing alongside local contractors, city officials, and administrators who are looking at the urbanization problem differently.

5. Invest in defense.

The commodification of critical technologies and growth in emerging market defense contractors, like Turkey’s Bayraktar, has transformed how warfare is waged. As countries like Turkey, China, and Russia look for export markets for their national defense contractors, the United States may find itself unfamiliar with local capacity for warfare, and thus ill equipped to influence it. Turkish-made loitering munitions, used in 2020 by Libya’s National Unity Government, may have been the first recorded use of a completely self-directed airborne weapon on the battlefield in Africa. More recent examples of advanced weaponry have shown up in Ethiopia (2021) and Sudan (2023), the latter country being of active interest to Russia’s Wagner group, which has been supplying the RSF with surface-to-air missiles for several years. Adding to its already robust training and capacity building activities on the continent, the defense department would do well to add a broader set of commercial collaborators to Defense Security Cooperation Agency’s list of partners (beyond countries like Egypt, whose alignment with U.S. foreign policy objectives is questionable).

6. Reform the PAC-DBIA.

The President’s Advisory Council on Doing Business in Africa (PAC-DBIA) was established by the Obama administration to “[encourage] U.S. companies to trade with and invest in Africa” and it appointed 15 senior business leaders to advance the cause. But what has the PAC-DBIA accomplished in the nearly 10 years since it was set up? As others have noted, since the council was established, U.S. investment on the continent has decreased 30 percent and several of the founding members have either exited the continent (Carlyle Group’s Africa fund was shut down a year after the council was established) or dramatically downsized their growth (AAR, GE), or worse, been mired in corruption charges (McKinsey). A far greater emphasis should be placed on encouraging U.S. digital firms to invest not just in providing the bandwidth, but developing the consumer platforms that emerge. President Biden’s new Digital Transformation with Africa (DTA) initiative, won’t have much to say when Chinese companies, such as Transsion, lock in consumers by providing cheap phones and preinstalling super apps, such as PalmPay and OPay, which already have tens of millions of installs.

As the Biden administration works to implement the promises made during the U.S.-Africa Leaders’ Summit, officials have an opportunity to completely rethink some of the core tenants of U.S.-Africa policy. If policy is personnel, a good place to start might be to support the next generation of “go-to” diplomats that are empowered to look at key relationships differently and eliminate contradictions and inconsistencies when they find them. One shining example is Reuben Brigety, the current U.S. ambassador to South Africa, who recently called out South Africa’s government for its duplicity in selling weapons to the Russians. The appointment of Johnnie Carson, a four-time ambassador, three-time retiree, and much respected and admired Africa hand, as the lead in charge of implementing the commitments made at last December’s summit, suggests a different vision. Experience and “knowing what works” are critical, but so too is knowing when what has worked won’t work anymore.

Eliot Pence is a senior associate (non-resident) with the Africa Program at the Center for Strategic and International Studies in Washington, D.C.