Wal-Mart deal signals growing American business interest in Africa, US official asserts
Posted on June 07, 2011
The decision by Wal-Mart to invest $2.3-billion to buy 51% of JSE-listed retailer Massmart epitomised a growing enthusiasm among US firms for South African and African business prospects, US Assistant Secretary of State for Economic, Energy and Business Affairs Jose Fernandez has argued.
Speaking on 'Africa in the US Policy Landscape' at the Gordon Institute of Business Science, in Johannesburg, on Monday, Fernandez said the US government and American companies were increasingly "eager" to pursue opportunities in Africa, but were also increasingly aware that the competitive pressures were rising, not only from Europe, but also from emerging-market giants such as China, India and Brazil.
Nevertheless, the rise of the African consumer and the emergence of 300-million middle class citizens (albeit many who were at the lower end of that strata and still vulnerable) was beginning to attract US interest from the likes of Wal-Mart, "who are no fools" - the group's foreign revenues had risen from close to zero to 25%.
He acknowledged that having 600 US firms operational in South Africa was "not enough", but said that interest and investment would definitely expand further as Africa grew from a $1.6-trillion gross domestic product (GDP) region to an above $2-trillion GDP region by 2020. And, as the purchasing power of the African consumer grew from the current level of $900-billion to $1.4-trillion over the same period.
That purchasing power was currently being overshadowed by the emphasis given to Africa's natural resources potential. But US figures showed that only 24% of the continent's GDP currently arose from resources, with the balance comprising the wholesale and retail trade, transport, telecoms and manufacturing.
Investors were also conscious of this potential, which was why foreign direct investment had risen from $9-billion in 2000 to $64-billion in 2008.
However, while US investors were "ready" to increase their participation, they also remained concerned about ongoing political instability in some countries, as well as poor governance and corruption, with corruption estimated to be costing the continent $150-billion yearly, or 20% in added costs.
Corruption was, thus a key constraint for US companies, especially small and medium enterprises, which did not have access to the legal resources major enterprises used to set up safeguards.
President Barack Obama's administration was also keen to extend the Africa Growth and Opportunity Act's trade preferences beyond the 2015 cut off, but it was concerned that the legislation was still not attracting the levels of trade anticipated and might, thus, need amending.
Fernandez said the US was also wary of losing relative competitiveness to the likes of the European Union, whose Economic Partnership Agreements with African countries would improve market access for European firms at the expense of US companies. Moreover, it was closely monitoring progress being made in Africa by China, India, Brazil and others.
"Competition is intensifying," he concluded.
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