August 22, 2017    5 minute read

Trump and African Economic Development: Unwelcome Curse or Latent Chance?

Ripping the Band-Aid    August 22, 2017    5 minute read

Trump and African Economic Development: Unwelcome Curse or Latent Chance?

For many countries, president Trump, who has consistently insisted on the “America First” strategy during his campaign will hardly be an indication of better trade relations and economic opportunities with their American partners.  While Trump’s presidency seems to have mainly negative impacts on African economic development at first sight,  there are vast emerging chances for a more independent continent.

It was clear from the beginning that Donald Trump taking office in January as the U.S.’s 45th president had major ramifications for Africa’s economies. Trump’s climate-change denying government team with its focus on “America first” will have unavoidable negative effects on African businesses. These negative effects will include to a downsizing or an outright collapse of Obama’s initiatives, like Trade Africa and Doing Business in Africa, which have supported trade efforts and business activities between African nations and the US. Trade Africa was able to double inter-regional trade between countries of the East African Community and increase their exports to the US by 40%.

After Trump has alienated African Muslims with his previous comments and insensitive immigration policy, this will further deteriorate productive exchanges between the US and the African continent. What’s worse, the rise in the dollar following Trump’s promise of a reinvigorated growth in the US, will lead to an outflow of capital from African economies. Paying back old debt and taking out new loans will be more difficult for both African governments and businesses with their depreciated currencies.

Not All Doom and Gloom

While these facts are certainly worrying, the bigger picture for African development under Trump might be less bleak than many assume. Most important for stable economic development is a conflict-free environment, which at first sight seems to be threatened by a cut in funding for the U. S. Institute of Peace that has so far provided security in African regions. However, Trump has simultaneously committed to a continued security-cooperation through AFRICOM to focus on fighting terrorism on the continent, as recent military actions suggest.  Though more combative, the U.S.’s peacekeeping efforts, which is so vital for sustainable economic development, won’t change significantly.  In fact, the US budget proposal aims to increase defense spending by $52bn, with a part of this going to America’s counterterrorism policy in Africa.

There is no denying that Trump’s administration plans to cut foreign aid and development assistance in the future, affecting Obama’s programs like Feed the Future and Power Africa. While this sounds concerning, less money does not always mean worse outcomes. Plenty of robust research by Acemoglu, Johnson and Robinson has shown the importance of effective and inclusive institutions for sustainable economic growth. The good functioning of institutions, however, is all too often undermined by foreign aid as it reinforces old structures and corruption (as vindicated by both Moyo and Easterly).

Less aid might be painful initially, but citizens’ demands for economic opportunities and growth can lead to positive regime changes and constructive institution-building as long as the country’s stability is guaranteed. Fortunately, Trump’s administration considers a strengthening of stabilising forces through AFRICOM. Being sufficiently optimistic, therefore, one can consider Trump’s cut in direct aid a further material incentive for African economies to abandon the substantial dependence on developed countries and to start an economic development path that is self-sustaining.

Trump Administration to Blame?

That this will be the right strategy one can see even more when looking at the developments of American-African trade. Nevertheless, it is not Trump’s new administration which is solely to blame for this. Indeed, there was a wide consensus that Trump’s “America First” prioritisation of the US will mean no good for Africa’s economic development. The African Growth and Opportunity Act (AGOA) that promoted trade and production between the US and Africa seems under threat.  Although African economies were never the direct target of Trump’s protectionism, there appears to exist a fear that higher tariffs on agricultural goods and natural resources will imply lower exports, jobs and slowing economic development.

This does not only ignore the fact that a stronger dollar might increase US imports from African businesses despite potentially higher tariffs. It also disregards the general trend of reduced imports from the United States since the Obama administration. In fact, 2015 was the fourth year in decline for U.S imports from Africa. Whereas imports from Africa were still at $50bn in 2013, they dropped to $35bn in 2014 and have now fallen to around $25 bn in 2015/2016- half of what the US used to import 3 years ago. Irrespective of Trump’s new policies, one has to recognize the bigger picture. There has been a general trend of consistently lower purchases of the two most important African exports: oil and natural resources (diamond, steel and iron), down 50% and 36% respectively in 2015.

Conclusion

This has significant implications. Whereas Trump’s changing policy on business exchanges, foreign aid and trade does not necessarily lead to a deadly shock to African development, it is a big enough incentive for African governments to finally change their strategy on economic development that focuses less on developed countries like the US and more on the continent’s own potential. With the fastest growing economies in the world, regional trade integration is a priority. While the work on the Continental Free Trade Agreement (CFTA) is under way, a prioritisation would definitely be desirable, as Africa currently has the lowest intra-regional trade in the world.

Increasing trade within Africa would not only end the continents pure dependence on developed countries. It would also shift its production and comparative advantage away from the heavy reliance on natural resources towards more sustainable, decentralized business opportunities. Only with a focus on its own internal capacities will Africa be able to have long-lasting economic development in the future. This therefore raises the question if Trump is an unwelcome curse or a latent chance for African development.

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