By. Jacob Smith
DOI: 10.57912/27913350
Africa is a cornucopia of economic opportunity. According to the African Development Bank, 11 African countries, at the time of writing, are in the top 20 fastest-growing global economies. Africa’s population is currently 1.48 billion people and is projected to reach 2.5 billion by 2050, which would comprise more than 25 percent of the world’s population. This share is projected to reach close to 40 percent by 2100, a higher proportion of the world population that India and China currently have combined. With the growing African diaspora in the U.S. and Europe included in these totals, nearly half of the world’s consumers by the end of the century could be African. No one knows the needs and problems facing this consumer base better than Africans do. The U.S. can help Africa and itself by entering this market vis-a-vis individual entrepreneurs. By attaching itself to this soon to be highly sought after demographic, the U.S. can not only strengthen its economic position, but empower the African continent to do profitable, free, and fair business.
Despite these statistics, U.S. foreign direct investment (FDI) in Africa has been tepid at best. Of the $5.39 trillion of foreign direct investment in the fiscal year of 2023, $10 billion went to the continent of Africa. This figure decreased in both 2021 and 2022. For reference, $246 billion of foreign direct investment in 2023 went to Luxembourg alone. Additionally, nearly 80% of this $10 billion went to South Africa and Mauritius respectively, leaving very little for fast growing sub-Saharan countries like Nigeria and Kenya. Venture capital investments in Africa have been lukewarm recently as well. Investments totaled $4.8 billion in 2022, about 40% of which came from the U.S. with about 60% of African startups being incorporated in the United States. However, venture capital investments in Africa in the first six months of 2024 dropped over 65% compared to the same period in 2023, with the rising cost of money inciting increased caution from investors. While it would be ostentatious to consider the U.S. government to be a massive venture capital firm, there are certainly profits and opportunities that the U.S. government and U.S. based venture capitalists are leaving on the table in the continent of Africa in both the public and private sectors.
This lack of government investment is increasingly salient considering China’s initiatives on the continent in recent years. As of December 2023, 44 of 54 African countries were a part of the Belt and Road Initiative, an initiative that has invested 2.5 times more in African infrastructure development than all Western countries combined. Chinese FDI in Africa in 2023 was more than four times greater than that of the United States. However, the way China has lent money to Africa has often come under terms that make the loans difficult to repay. Through this “debt trap diplomacy,” China can exercise a great level of influence over the conduct of these countries’ dignitaries, regardless of whether the promised projects have been realized.
Perhaps even more impactful than creating economic prosperity is buttressing the entrepreneurial culture that already exists among so many Africans. Aid packages and FDI tend to perpetuate the association between bureaucracy and economic progress while undervaluing the power of the individual in the private sector. Bloated bureaucracies have long handicapped African economies. Strongmen took advantage of this and often made strategic appointments to government positions to preserve their legitimacy. Bureaucracies and governments were thus a means to preserve legitimacy through client-patron networks rather than provide goods and services such as education, healthcare, and economic infrastructure.
Many cite Africa’s lack of these amenities or bureaucratic corruption as an insurmountable risk and choose not to invest. However, it is worth noting that risk associated with investment is not unique to Africa. Choosing to invest in individuals rather than sending dead aid mitigates this risk. Rather than indulging in flashy infrastructure projects, investors and foreign governments can choose to support persons seeking to create market sustaining innovations, which in time will pull in elements of infrastructure that are not yet evident. Empowering entrepreneurial individuals bypasses vague platitudes such as corruption and lack of infrastructure that have deterred investment in Africa for far too long.
One example of such an initiative that emphasizes the individual rather than the institution is a fund launched by USAID for farmers and small and medium enterprises (SMEs) in Kenya. Totaling about $5.5 million (equivalent to about 0.000001% of current U.S. FDI), the money from this initiative has helped finance over 700 projects. The projects align with USAID’s core mandate of supporting private-sector development in Africa, a key strategic priority of the U.S. government. Kenya is an ideal location to experiment with a program such as this, that targets entrepreneurs, farmers, and small businesses. With its recent designation as a major non-NATO ally and relative ease of doing business, Kenya can serve as an integral stepping stone in expanding similar programs across the region and into different industries.
Another example of an initiative undertaken by the U.S. government that empowers individuals is the Academy for Women Entrepreneurs (AWE) program in the Democratic Republic of Congo (DRC). Launched in 2023 by the U.S. Department of State, the AWE DRC program is specifically designed to address the unique needs of female entrepreneurs in the DRC, equipping them with the knowledge, networks, and access to resources necessary to thrive in a competitive market. The AWE does this by focusing on established, enterprising women entrepreneurs, allowing them to scale their businesses, increase profitability, and create jobs in their communities. Empowering women entrepreneurs can simultaneously drive economic growth and reduce gender inequality. Furthermore, investment in human capital will bear greater importance as the population continues to grow. Even ample financial investment will not be enough to bridge the gap if investment in human capital is neglected.
Private sector investment and innovation can bring improvement to infrastructure and quality of living, the very objective sought by bottomless aid packages and public sector investment in the first place. In The Prosperity Paradox, the late Clayton Christensen, Efosa Ojomo, and Karen Dillon explore why this is often true. Foreign aid packages often “pushresources into poor countries to help them begin their march toward prosperity”. These resources can include wells, roads, toilets, or increased access to education or vocational training. Conversely, innovation and entrepreneurship can “pull in necessary resources…, ensure that a ready market is waiting,” and lead to “sustainable prosperity”.
Toloram is a wonderful example of how innovation can pull in the necessary elements to deliver their primary product, instant noodles, to their consumers. They began selling noodles in Nigeria in 1988 when the country was still under military rule and only about half of the population had access to safe water. When they shifted noodle production to Nigeria in 1995, they had to “pull infrastructure such as electricity, waste management, and water treatment into [their] operations.” Through their innovation and entrepreneurship, they created a market that could sustain this infrastructure. This growth prompted Kellogg’s to buy half of their distribution operations in Nigeria for $450 million in 2015 and commission a $17 million cereal manufacturing plant in 2017. Tolaram is also currently building a $1.5 billion deep-sea port in Lagos State. Had Tolaram chosen to “invest only when the circumstances were right, or when the situation on the ground improved,” they probably would not have been able to achieve their meteoric levels of growth: “36% year-over-year growth, 17 years in a row”.
While there is a relative lack of U.S. investment in the continent of Africa, it is important to remember that money invested does not translate proportionally to lives impacted. Increasing FDI in Africa while neglecting investment in human capital will continue to underwhelm. Too much of the money that makes it into Africa is simply enabling bureaucratic clientelism rather than empowering aspiring entrepreneurs. If the U.S. wishes to see an Africa that is prosperous and espouses liberal democratic mores, it should seek to invest in individual entrepreneurs first, especially African women and mothers. The Academy of Women Entrepreneurs DRC Program and USAID initiatives in Kenya to support SMEs are wonderful examples of ways in which the U.S. has sought to invest in African entrepreneurs. The United States should seek to expand these existing initiatives, as well as the creation of similar programs, perhaps formatted in a manner like the Diversity Visa. Utilizing an application process or a lottery that rewards recipients with both funding and training will enable them to create and execute scalable business models, finance loans, and empower others around them. Such a program would be accessible at the local level, increasing entrepreneurial engagement and inciting an ideological shift that sees prosperity as an agentive and entrepreneurial initiative rather than a bureaucratic imposition. By empowering individual entrepreneurs and SMEs through increased foreign and human capital investment, the U.S. can help to reinforce a culture of and cultivate a belief in the power of entrepreneurship in Africa, thus creating a more peaceful and equitable world.
Comments