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US-Africa summit

Hilke Fischer / ngAugust 1, 2014

Economic interests are set to dominate the US-Africa summit in Washington. Many African economies are growing, but how can ordinary people benefit long-term?

An African textile worker
Image: picture-alliance/dpa

As African economies enter a period of robust growth, investors see Africa as a continent of opportunity and untapped potential after decades in the doldrums.

The numbers too are convincing, washing away any doubt about the strength of African economies, which collectively grew by 4 percent last year.

International organizations expect growth of 5 percent this year and 5.7 percent in 2015, fueled by a billion consumers spending more than $600 billion a year, enormous oil and gas reserves no shortage of arable land.

No doubt it was thanks to these facts and figures that US President Barack Obama initiated a US-Africa summit to be held in Washington, D.C.
"The hopes and aspirations for many of the 50-odd countries from Africa making this trip are very much about economic ties, how to have a closer relationship with the US," said Ayo Johnson, a Sierra Leonean journalist who lives in the UK. "Africans are seeing this as a unique opportunity whereby they can choose among investors."

A Kenyan coffee harvester
Relying on raw materials like coffee for growth is not sustainableImage: TONY KARUMBA/AFP/Getty Images

Expectations are high on both sides, said Johnson, who also founded the news site, "Viewpoint Africa."

Historically, China has been largely unchallenged when it comes to investing in Africa. Chinese investors pour money into building new roads, exporting consumer goods and buying raw materials.

Raw materials a boon

Behind the rapid growth in many African countries are their plentiful, valuable natural resources. Prices for oil and precious metals are high, as are those for cocoa, coffee and tea.

And unlike the headline-grabbing dictators that have driven their countries into abject poverty, many African governments have managed their economies well in the last few years - and seen tangible results.

"In the mid-1990s, 60 percent of the population in Africa lived on less than $1 a day," said Stephen Klasen, a professor for development economics at the University of Göttingen.

Progress has been made and some wealth has even trickled down to the poor, but in countries like Nigeria, which has seen phenomenal growth because of its oil reserves, the gap between rich and poor is still staggering.

It depends where the wealth is coming from, Klasen said. Raw materials like oil and gas are controlled by a handful of people.

"That means fewer jobs and less of a trickle down," he said. "Other resources such as coffee and cocoa beans yield more benefits for more people."

US President Barack Obama in Tanzania
Obama wants to foster closer economic ties with AfricaImage: Reuters

No growth without manufacturing

If prices for cocoa and coffee fall, Africa's fortunes could quickly change. An economy whose success hinges on returns from raw materials is very rarely successful in the long run.

Botswana is, of course, the exception to that rule, where the population is small and the diamond reserves seemingly endless.

Nearly every other African economy is focused on creating sustainable jobs for their ever-growing populations.

Those jobs are usually in manufacturing. Ethiopia and Kenya, for instance, have already headed down the road of industrialization and encouraged global players like the fashion chain H&M to set up shop there.

The US is playing a crucial role in this process, Klasen said. In 2000, Washington passed the "Africa Growth and Opportunity Act," giving African countries preferential access to the US market by, for example, exempting industrial products made in Africa from customs duties.

"It means a lot of companies have moved production for the US market to Africa, including many from Asia," Klasen said.

There is a similar agreement between the EU and Africa on paper, but it is far more restrictive. Firms are unable to import fabrics from China, outsource manufacturing to Ethiopia and expect to get preferential access to the EU market.

Set to expire in 2015, the "Africa Growth and Opportunity Act" will be on the agenda in Washington. An extension is likely as it would be an important step for many African nations toward sustainable growth.