Question

1. Why do you think Africa has lagged in the establishment of regional (intra-continental) trading blocs? Why are African countries more likely to trade with Europe, the U.S., and China than they are to trade with each other?
2. Evaluate the respective roles of the U.S. and China in fostering foreign direct investment in Africa. Does one country seem to have an edge over the other in terms of leveraging foreign direct investment potential in Africa? Why? What implications does foreign direct investment leadership have for future African development and for future leverage in the global economy by the U.S. and China?
3. What will African countries need to do to make regional integration and other future trade and/or investment initiatives successful? What are the likely impediments that will be encountered?

Answer 1

There are a number of shortcomings limiting trade: non-tariffs barriers, red tape and insufficient infrastructure. Tariff barriers remain high outside areas covered by the agreements in the African continent. Enhancing trade integration between African countries could yield large economic gains. Further, a large part of cross-border trade between African countries is informal. This informal trade either avoids customs or is not recorded. Informal trade is also relatively difficult to measure. Complying with these regulations represents a cost for traders and they are willing to avoid them by skipping the customs controls. Reducing tariffs should help formalize some of this informal trade. Some experts suggest giving specific support to informal traders like access to simplified trade regimes to tide over the obstacles mainly procedural and infrastructural preventing informal traders from operating within the official framework.

Chinese engagement in the region is primarily concerned with natural resource extraction, infrastructure development which is in contrast to the US' focus on higher-technology trade and services aimed at promoting democracy, good governance, and human development. African governments generally welcome engagement with China, as it brings them political legitimacy and contributes to their economic development. Although China and the US are not strategic rivals in Africa, but greater American commercial engagement in African markets could generate competition that would both benefit African countries and advance U.S. interests.

China modified its Africa policy and pledged to create more local jobs, transfer more technology, and improve working conditions as demanded by the African public. Therefore, the best way for US to promote a change in Chinese policy toward Africa is not to pressure China directly, but rather to do more to promote democracy, accountability, and transparency. Similarly, the United States should promote greater private investment in Africa. Competition from American industry will force Chinese enterprises to offer better deals to African governments and private partners, as well as drive Chinese firms to be more socially responsible and generate greater benefits for the communities in which they operate.