Visit by Kenyan president can open the door to greater African trade, investment

On Thursday, Kenyan President William Ruto will visit Washington, D.C. for a state visit, the first by a Kenyan head of state in two decades. Both Presidents Biden and Ruto have billed this as an important visit to increase bilateral trade and investment.

But this visit and the announcements it will generate likely won’t attract the kind of bipartisan congressional attention and support they need unless both heads of state also address what will be top of many lawmakers’ minds: China and its engagement with Kenya and Africa as a whole.

Last week, the House Select Committee on the Chinese Communist Party held a hearing to discuss the corrosive effect of China’s Belt and Road Initiative and its investments in Africa — and to focus on what the U.S. can do to present itself as a better, more compelling partner.

While the hearing rightly pointed to the need to transition the U.S. relationship with Africa away from one predicated on aid, to one focused on unlocking investment, trade and building infrastructure, U.S. lawmakers will miss the opportunity to truly transform the U.S. partnership with the continent unless we more deliberately engage U.S. multinationals in this process and invite them to be part of the solution.

This decade, many large multinationals have sought to leave or expand beyond China, adopting a “China Plus One” approach that involves diversifying business operations by expanding production or sourcing outside of China. India, Vietnam, Thailand and Malaysia have been key beneficiaries. This approach allows companies to maintain a footprint in China, which is still a major market, while exploring other markets to reduce the risks of dependence on a single country amid rising labor costs and trade tensions.

In contrast, despite some companies like Microsoft, Google, and IBM expanding into Kenya and other African markets, too few U.S. firms have done the same, especially in value-added manufacturing. Western executives often point to perceived high costs of doing business as well as political and financial the primary reasons they don’t invest in the continent. Kenyan President Ruto’s visit could be an opportunity to announce new incentives for them to reverse this trend.

The opportunities for greater U.S. investments should be obvious. By 2050, Kenya and other African countries will see a significant influx of young workers, offering U.S. manufacturers a valuable labor force, and that can often perform the same or superior quality work at a lower cost than what Chinese workers demand. With a population nearing 1.5 billion, projected to reach 2.5 billion, Africa will likely increase its share of global trade and manufacturing, too. This growth will create skilled jobs and increase purchasing power for goods and services, similar to developed economies, creating new markets for American-made goods.

With abundant resources and promising economic growth, particularly in East and West Africa, Africa can also offer American firms an attractive opportunity for market and supply chain diversification. The African Continental Free Trade Area, established in 2018, makes Africa the second-largest free-trade area after the WTO. The continent is also rich in critical and rare earth minerals, which are increasingly essential to Western industries and national security.

Yet too few American companies have seized upon these opportunities, even if companies from many other countries have, particularly those from China. How might Ruto’s visit change that?

First, Biden and Ruto could announce a new set of policies designed to encourage more American multinationals to set up in Africa. This could include tax breaks and subsidies to U.S. companies that establish manufacturing facilities in Africa, particularly in clean energy and high-tech sectors to support existing U.S. consumer demand — and a growing demand from African consumers, too. 

Second, the U.S. could create U.S. government-backed insurance programs to mitigate political and currency exchange rate risks associated with U.S. firms operating in Africa. U.S. agencies like the U.S. International Development Finance Corporation could also offer loan guarantees to incentivize U.S. investment in essential infrastructure projects.

Third, President Biden and African heads of state, beginning with President Ruto, could negotiate favorable trade agreements that reduce tariffs and non-tariff barriers for U.S. exports and imports from African manufacturing facilities. Both sides could facilitate more market access for products manufactured in Africa under the African Growth and Opportunity Act and other preferential trade programs. 

Finally, recently passed legislation including the Inflation Reduction Act of 2022, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act, all create greater opportunities for more U.S.-Africa two-way investment. For example, The Inflation Reduction Act’s tax breaks and the infrastructure bill could become a catalyst to support a clean energy future in the U.S. if more American firms utilized African critical minerals. The CHIPS Act, meanwhile, safeguards the U.S. semiconductor supply chain by fostering partnerships with nations rich in vital minerals.

The time is ripe for a new, bolder partnership between the U.S. and Africa. Biden and Ruto are right to call for a transition away from a relationship built on aid to one that fosters sustainable economic growth and increased trade, seeding the grounds both for a booming manufacturing sector in Africa and a clean energy revolution in the U.S. However, achieving this goal will require a deliberate strategy to entice U.S. multinationals to invest more in the continent. 

Nii Simmonds is a nonresident senior fellow with the Atlantic Council’s GeoTech Center. He has worked for the World Bank Group, International Finance Corporation, and African Development Bank.