ROADMAP - Prosper-africa-assets.s3.us-gov-east-1.amazonaws
R O A D M A PJanuar y 2021
METHODS AND SCOPEThese findings were made possible through support provided by the Prosper AfricaExecutive Secretariat and the U.S. Agency for International Development, under theterms of Contract No. AID-OAA-C-17-00090. The opinions expressed herein arethose of the authors and do not necessarily reflect the views of the U.S. Government.From March-August 2020, the Roadmap team from McKinsey & Company and theCrossBoundary Group engaged in a collaborative research process, drawing fromdata-driven analysis, in-depth interviews, and interactive workshops with key U.S.Government and private sector stakeholders, think tanks, and other thought leadersto chart a course for strengthening the trade and investment partnership betweenthe United States and Africa. The following recommendations are the outcome of thisresearch process.
ROADMAPKEY TAKEAWAYSThe OpportunityAfrica plays an increasingly important role in the global economy with some of thefastest-growing economies in the world and a young, growing, and rapidly urbanizingpopulation. The United States offers complementary economic opportunities,with a large and affluent consumer base, the world’s deepest capital markets, anda commitment to job creation, transparency, and social responsibility. Increasedeconomic engagement between the United States and Africa would create jobs,advance shared prosperity, and demonstrate the superior value proposition oftransparent markets and private enterprise for driving economic growth.The ChallengeDespite the strong economic opportunity, a core set of constraints limits U.S. tradeand investment flows to Africa, as well as those from Africa to the United States. Themarket incentives of Africa’s large population and potential consumer base can bemuted by Africa’s division into smaller and institutionally different national markets.Some African markets lack transparency, formality, and predictability, and suffer frominsufficient access to modern, reliable, and low cost public goods such as roads, power,and ports. For a U.S. company looking to expand in Africa these factors can add tothe startup costs of new operations and impact the risk/reward calculation that drivesbusiness decisions. African businesses also face challenges trading and investing in theUnited States, including the need to meet U.S. consumer expectations of productquality and supply U.S. buyers with commercial volumes on reliable timetables.Meeting these U.S. market demands requires access to investment and financing.To address these constraints, multiple U.S. Government agencies have developedtools that provide U.S. and African businesses and investors with promotion support,financing, and expertise. However, U.S. and African companies have found it difficult tonavigate these tools, which are not always fit-for-purpose and have not generally keptpace with those of other countries seeking to expand their economic influence withAfrica.
The Road AheadThe U.S. Government’s Prosper Africa initiative is well positioned to address thesechallenges by modernizing and synchronizing the U.S. Government’s trade andinvestment toolkit. In Prosper Africa’s first year (June 2019-May 2020), the U.S.Government supported more than 280 deals to close across more than 30 Africancountries. To build on this momentum, Prosper Africa must continue to focus on twopillars of activity.Facilitate Transactions by aligning all 17 participating Prosper Africaagencies on country and sector priorities and synchronizing the end-to-endcustomer experience.Shape Future Opportunities by encouraging incremental improvementsto Africa’s business enabling environment. To achieve this goal, it will benecessary to address the institutional, infrastructural, and value chain barriershindering two-way trade and investment.Across both of these pillars, Prosper Africa must continue to modernize andsynchronize U.S. Government tools to reduce costs and mitigate risks, respond toprivate sector needs, and compete with those of other state actors in the region.Prosper Africa should expand the eligibility criteria for businesses and investorsto access U.S. Government tools; improve the suitability and efficiency of U.S.Government tools to deliver greater results; and raise awareness of both marketopportunities and the U.S. Government tools that can help businesses and investorsadvance those opportunities. To drive impact, Prosper Africa must also continueto generate private sector interest through a robust strategic communications andprivate sector outreach program.By charting this course, Prosper Africa has the potential to substantially increasetwo-way trade and investment between the United States and Africa—acceleratingeconomic growth, driving job creation, and fostering greater U.S. participation inAfrica’s future.
ROA D M A PFacilitateTransactions Modernize U.S. Governmenttools to better suit U.S. andAfrican business needsShape FutureOpportunities Identify opportunities Generate a pipelineof deal opportunities Align resources Provide hands-on assistance Overcome barriers Offer dedicated transaction support Promote private sector interestSubstantially increased trade and investmentbetween the United States and Africa
TA B L E O FCONTENTSINTRODUCTION7Institutional Barriers15Infrastructure and ValueChain Barriers17THE OPPORTUNITY9THECHALLENGE15Emerging Opportunities inResponse to COVID-1914Risk/RewardImbalance17High TransactionCosts18APPENDIX: HISTORICALAND FUTURE TRENDS29U.S. Exports to Africa29Opportunities for U.S. Businessesand Investors in African Markets9CONCLUSIONU.S. Investment in Africa3128Opportunities for African Businessesand Investors in U.S. Markets12Recommendations for ShapingFuture Opportunities27African Exports to theUnited States36THE ROADAHEADGaps in the U.S.Government Toolkit1920Recommendations forFacilitating Transactions20African Investmentin the United States43
INTRODUCTIONBusinesses and investors in Africa and the United States are natural partners.Africa offers incredible growth, innovation, and opportunity; and the UnitedStates offers the largest capital markets in the world, a commitment to jobcreation and technology transfer, and adherence to the highest standards of quality,transparency, and social responsibility. Despite strong market opportunities, keychallenges have hindered trade and investment between the United States andAfrica, including institutional barriers, infrastructure and value chain barriers, a risk/reward imbalance, and high transaction costs.This is where Prosper Africa comes in. Prosper Africa is a U.S. Government initiativeto substantially increase two-way trade and investment between the United Statesand Africa. The initiative leverages the full suite of U.S. Government trade andinvestment services and resources to help U.S. and African businesses and investorsfind partners, advance opportunities, and close deals. By helping U.S. and Africancompanies do business, Prosper Africa expands markets for goods and serviceson both continents—advancing shared prosperity and security, creating jobs, andleveraging the superior value proposition of transparent markets and privateenterprise for driving economic growth.In Prosper Africa’s first year (June 2019-May 2020), the U.S. Government supportedmore than 280 deals to close across more than 30 African countries. The ProsperAfrica Roadmap makes recommendations for how Prosper Africa can build onthis momentum and deliver even stronger results in its second year and beyond.It unpacks the key opportunities and challenges for increasing two-way trade andinvestment between Africa and the United States, and offers a set of targetedrecommendations for the road ahead.To be successful, Prosper Africa must be designed and implemented in partnershipwith the businesses and investors it aims to support. This is why Prosper Africapartnered with McKinsey & Company and the CrossBoundary Group to developthe Prosper Africa Roadmap. Over the course of five months, the Roadmap teamengaged in a collaborative research process, drawing from data-driven analysis,in-depth interviews, and interactive workshops with key U.S. Government andprivate sector stakeholders, think tanks, and other thought leaders to chart a coursefor strengthening the trade and investment partnership between the United Statesand Africa.7
To ensure a wide range of perspectives, the Roadmap team held individualconsultations and workshops with each of the 17 participating Prosper Africa agencies;interviewed more than 40 U.S. and African firms, ranging from impact-oriented familyoffices to large multinationals; and conducted workshops with key industry groupssuch as the President’s Advisory Council on Doing Business in Africa (PAC-DBIA). Theteam overlaid these findings against a review of more than 100 transactions betweenthe United States and Africa between 2015 and 2020, including in-depth case studiesof past U.S. Government and private sector engagements. They then conducteda forward-looking analysis by evaluating more than 500 “clusters”—promisingsub-sectors or products in specific countries—with strong underlying fundamentalsand growth potential.1 The team prioritized these clusters based on size, attractiveness,and comparative advantage for U.S. businesses and investors.The outcome of this research is a set of targeted recommendations that are not onlyrooted in historical trends and today’s opportunities, but that are also oriented towardthe opportunities of tomorrow.8
THE OPPORTUNITYAfrica is home to a young, growing, and urbanizing population with rising householdincomes. These demographic trends—alongside increasing digital and mobile access,mass industrialization, and the narrowing of the infrastructure gap—promise to driveinvestment and unlock new trade opportunities for U.S. and African businesses acrossa range of high-potential sectors.Opportunities for U.S. Businesses and Investorsin African MarketsAfrican household consumption is projected to increase to over 2 trillion by 2025,with most of the growth coming from Egypt, Nigeria, and East Africa.2 By 2034,the size of Africa’s working-age population is expected to surpass both India’s andChina’s.3,4The growing working-age population and rising incomes will significantly increasedemand for food, healthcare, education, financial services, and more. Rapiddigitalization is also a significant development that continues to spur the growthof technological hubs acrossthe African continent. Thiswill accelerate mobile moneyutilization. In fact, Sub-SaharanAfrica already holds more than180 million active mobile moneyaccounts—just under 50percent of the global total—andthe prevalence of mobile moneyunlocks business opportunitiesin other sectors. 5 The following graphics identifyhigh-potential sectors that offerpromising opportunities for U.S.businesses and investors.9The digitalization ofAfrica offers the biggesttransformation andset of opportunitiesamongst all Africantrends."—African private sector leader
Figure 1:Opportunities for U.S. investment in AfricaTrendsPotential opportunitiesYoung &growingpopulationAg processing, Edtech, Digital health, Digital streaming entertainmentRapidurbanizationEnergy infrastructure, Transportation infrastructure, Water and sanitationinfrastructure, Ag processing, Telecom infrastructureRisingincomes& householdconsumptionFood & beverage, Quick service restaurants, Services, Apparel retail, Digitalstreaming entertainment, Digital health, Edtech, Fintech, E-commerce marketplaceIncreasingdigital andmobile accessTelecom infrastructure, Data infrastructure, Fintech, Edtech, Digital health,EntertainmentMassindustrializationAg processing, Value-added manufacturingClosinginfrastructuregapEnergy infrastructure, Transportation infrastructure, Water andsanitation infrastructure10
Figure 2:Opportunities for U.S. exports to AfricaTunisiaWheat, CornCrude oil, Petroleum gas,PlasticCentrifuges, Switches, FusesMedical instrumentsAuto parts, Turbo-jets & propellersHuman and animal bloodAlgeriaMilk and creamHuman and animal bloodMoroccoWheat, CornCrude oil, Petroleum gasPesticides, Plastic, Engineering thermoplasticPumps, Centrifuges, Piping appliancesSwitches, Fuses, TractorsMedical instrumentsFreight vehicles, Auto parts,Turbo-jets & propellersHuman and animal bloodEgyptMilk and cream, Wheat, CornCrude oil, Petroleum gasPesticides, Plastic, Engineering thermoplasticPumps, Centrifuges, Piping appliances, Switches, FusesMedical instrumentsMachinery parts, Freight vehicles, Auto parts,Turbo-jets & propellersHuman and animal bloodSomaliaPlasticCrude oilPesticidesCentrifuges, Piping appliances,Electric motorsFreight vehicles, Turbo-jets& propellersEthiopiaSenegalSauces and condimentsLiberiaShipsDemocratic Republic of the CongoCôte d'IvoireSauces and condimentsShipsGhanaWheatPetroleum gasUgandaEthyl alcoholKenyaNigerTurbo-jets & propellersMilk and cream, Wheat, Corn,Sauces and condimentsCrude oil, Petroleum gas,Refined petroleum Scented substances, Pesticides,Plastic, Engineering thermoplastic,PharmaceuticalsPumps, Centrifuges, Switches, Fuses,TractorsMedical instrumentsFreight vehicles, Auto partsHuman and animal bloodTanzaniaNigeriaMilk and cream, Wheat, Corn,VegetablesPetroleum oil (non-crude),Scented substances, Pesticides,PharmaceuticalsPiping appliances, ElectricmotorsMedical instrumentsTurbo-jets & propellersAngolaShipsMotor vehiclesEthyl alcoholWheatNamibiaPoultrySouth AfricaMilk and cream, Wheat, Corn, Vegetables, PoultryDiamonds, Non-Crude oil, Crude oil, Petroleum gasScented substances, Pesticides, Plastic, Engineeringthermoplastic, PharmaceuticalsPumps, Centrifuges, Piping appliances, Switches,Fuses, Tractors, Electric motorsMedical instrumentsMachinery parts, Freight vehicles, Auto parts,Turbo-jets & propellersHuman and animal lresourcesOil &gasApparelMachinery&equipmentMotor vehiclesMedicalsuppliesAutomotives& aerospaceSource: MGI Economics Research, EPAT, UN Comtrade, U.S. Census Bureau, ITC Mac Map, World Bank’s Ease of Doing Business Index11
Opportunities for African Businesses andInvestors in U.S. MarketsThe U.S. economy provides ample opportunities to African businesses and investors,including a large, affluent, and growing consumer base; the world’s deepest capitalmarkets; high levels of research and development spending; an educated workforce;and a supportive business environment with strong rule of law and property rightsprotections. Despite decreased U.S. demand for African exports in some sectors,such as oil and gas, demand continues to grow in other sectors, such as apparel andmachinery. For about 40 Sub-Saharan African countries, the U.S. Government’s AfricanGrowth and Opportunity Act (AGOA) provides eligible countries with duty-free accessto the U.S. market. This duty-free access applies to more than 1,800 products, includingvalue-added agricultural and manufactured goods.Figure 3:Opportunities for African investment in the United States90% 80%74of African FDI flows toU.S. from 2015-19 arecaptured in top 3 sectorsof these flows are capturedfrom 6 South African companiesAfrican companies invested inU.S. from 2003-2020, out of total 101,000 African companiesinvesting globally95% of African investmentin U.S. from 2015-19comes from South AfricaSource: MGI Economics Research, FDI Trend Atlas, FDIMarkets, UNCTAD, Dealogic, IMFSouth Africa12
mFigure 4:Figure 3:Opportunitiesfor Africanto the StatesU.SOpportunitiesfor Africanexportsexportsto the UnitedTunisiaEgyptCollectors itemsOlive OilEnginepartsTunisiaCollectors itemsOlive oilLibyaMoroccoEngine partsSaltIron, Phosphoric acidPolyethers& Olive OilFish Polyethers & polyestersFertilizerCitrus FruitOlive oilEngineFishpartsCrude oilLibyaCrude oilCollectors itemsSaltFertilizers, Nitrogenous fertilizersEgyptDress clothing, PolyethersCollectors itemspolyesters, Knitted clothingSaltRefined petroleumFertilizers, NitrogenousfertilizersSweatersDress clothing,Polyethers andMen’sshirtspolyesters, Knitted clothingT-shirtsSweaters AluminumMen’s partsAlgeria Nitrogenous fertilizersIronRefined petroleumNitrogenous h alrubberrubberCashewsCashewsCôte d'IvoireCôterubberd'IvoireNaturalNatural CocoabeansNigeriaNigeriaCrudeCrudeoil ndaUgandaVanillaCoffeeGhanaGhanaNatural rubberNatural tsCameroonCameroonCocoa pasteCocoa pasteKenyaSlag, TitaniumSlag, TitaniumNuts NutsKnittedKnittedclothing,clothing,DressDress clothing eeand teaand teaMalawiNutsAngolaAngolaCrude oilZambiaMalawiNutsPrecious stonesCrude oilMauritiusMen’s shirtsFishMadagascarNamibiaDiamondsPrecious Men’s shirtsMozambiqueFoodproductsNaturalresourcesOil & gasMadagascarTitaniumVanillaMen’s shirtsPlatinum, Diamonds, Slag, Titanium, Iron, CarbideCollectors itemsSouth AfricaFertilizersPlatinum, Diamonds, Slag, Titanium, Iron, CarbideNuts, SaltLesothoPolyethers & polyestersCollectors itemsDress clothing, Knitted thoT-shirtsCentrifuges Nuts, SaltDress clothing,knitted clothingCitrus fruit Polyethers & polyestersSweatersFerroalloys AutomobilesHydrocarbonsT-shirtsAluminumEngine partsCentrifugesCitrus FruitFerroalloysHydrocarbonsEngine partsApparelMachineryMotor vehicles& equipmentNOTE: Tourism was not counted as an export but is an opportunity in many countries Source: MGI Economics Research, U.S. Census Bureau, ITC Trade Map, EPAT; FDI Trend AtlasMachinery & Motor vehiclesApparelChemicalsOil & gasMiscFoodNaturalequipmentproducts resources13
Emerging Opportunities in Response toCOVID-19While COVID-19 has brought serious economic challenges, new two-way trade andinvestment opportunities are also emerging in response to the pandemic, especiallyin key sectors where the U.S. private sector both has a competitive advantage and iswell positioned to have a positive social impact across the African continent.Healthcare: Healthcare systems across Africa are already a focus for international developmentpartners and national governments. Official creditors had mobilized 57 billion for Africa by April2020 for health, poverty alleviation, and economic development, but an estimated 44 billion morewas needed by the end of the year, according to the World Bank Group and the InternationalMonetary Fund.6E-Commerce: Before the crisis, e-commerce was predicted to capture up to 10 percent of retailsales by 2025, a trend that COVID-19 could accelerate given lockdowns and social distancingmeasures.7Manufacturing: The COVID-19 crisis has exposed the vulnerability of global supply chainsand the need to develop critical manufacturing capabilities regionally. On the African continent,increasing regionally-sourced goods by 5 to 10 percent could add 10–20 billion to the continent’smanufacturing output.8 To meet internal demand for pharmaceuticals without depending onexternal suppliers, countries can accelerate the adoption of the Pharmaceutical Manufacturing Planof Africa and the establishment of an African Medicine Agency, as set out by the African Union.9Digital government services: Many governments across the continent are considering workingwith telecommunications and technology companies to share anonymized data on vulnerablepopulations’ location, movement, and payments, given how prevalent mobile phones have becomein parts of Africa. Countries with existing e-
The Road Ahead The U.S. Government’s Prosper Africa initiative is well positioned to address these challenges by modernizing and synchronizing the U.S. Government’s trade and investment toolkit. In Prosper Africa’s first year (June 2019-May 2020), the U.S. Government supported more than 280 deals to close across more than 30 African .
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