In December, John Bolton, US National Security Advisor, announced the Trump administration’s new Africa strategy, firmly rooting it in US-China global economic rivalry. The policy included a new programme called Prosper Africa to support US investment and commercial engagement in Africa.
Yet, the month-long government shutdown stalled plans on detailing the new programme, and today little has been shared publicly. Given China’s outsized infrastructure financing efforts in African markets and its deepening engagement in new sectors like media and telecommunications, it is essential that US policymakers anchor Prosper Africa in areas of US competitiveness.
Mike Milken, the pioneering American investor, developed a formula rooted in American free market values in the 1960s to describe national prosperity that can help shape the pillars of Prosper Africa. He observed that “prosperity in any society depends on the leveraging effect of financial technology on the sum of human capital, social capital and real assets.”
The Trump Administration should embrace this insight and build Prosper Africa around encouraging US investment and partnerships around the foundational blocks of Mr Milken’s formula — human capital, social capital, and real assets. The following three areas are ones in which US investment can meet major economic development needs in African markets.
1) Focus on education and edtech investments to develop human capital
Mr Milken identifies human capital as the most important ingredient of prosperity, yet Africa’s youth is not receiving the vital education it needs for creating the jobs of both the 20th and 21st centuries. Africa needs to create 18m new jobs each year to accommodate its massive youth population growth, but with less than 25 per cent of African students earning STEM degrees, many are not prepared for market needs.
Public education in African countries, even where good, is accompanied by associated fees, and private education has increasingly emerged as an important element to bridge the education gap in emerging markets.
It is estimated that one out of four, or 66m, African students will be enrolled in private schools by 2021. Private equity firms are actively investing in educational opportunities that take advantage of emerging technologies and internet-based learning to reach a broader audience.
Innovative start-ups like Kenya’s African Management Initiative and Nigeria’s PrepClass are leveraging mobile technology to supplement traditional “bricks and mortar” schooling and increase access to training.
Beyond foundational skills, investors are also looking to higher education. The African Leadership University, a Mauritius-based institution, recently raised $30m in a Series B round to open learning centres across the continent to train college graduates on needed technical and leadership skills.
Greater investments in private education will help solve the skills challenge cited as a major constraint to business expansion, by 41 per cent of employers in Tanzania and 30 per cent in Kenya, for example. A more skilled workforce will enable greater US investment and provide the necessary human capital for US services and tech firms looking to expand on the continent. As part of Prosper Africa, the new US Development Finance Corporation should prioritise investments in PE funds with education investment focus and directly finance companies working in the space.
2) Identify and focus on priority cities to support social capital and competitive innovative clusters
The US has a history of choosing countries to prioritise through the Millennium Challenge Corporation. This focus should be taken down to the city level to capture and build on the opportunity presented by rapid urbanisation and growing business sophistication. Africa will be more than 50 per cent urbanised by 2030 and home to 10 megacities. Prosper Africa should reflect this reality by supporting innovation clusters in key cities like Dar es Salaam, Lagos, Kinshasa, Cairo, Addis Ababa, Lusaka, and Nairobi. In addition to the new USDFC making investments in smart city infrastructure as being suggested by CSIS working group, the administration should also work to give MCC the capacity to do subnational compacts, particularly in large federal countries like Nigeria.
While massive city populations provide opportunity for growth, they also can easily become the source of riots and political opposition. Ensuring cities are modernised to provide adequate goods and services to their citizens will be crucial in the coming decades and American companies are working in the space. IBM has deployed Smart City Challenge Teams to Nairobi, Accra, and Tshwane, South Africa, to find opportunities to tackle a variety of problems from traffic congestion to transforming city services like tax collection.
Harnessing the leading US tech companies such as IBM, Microsoft, Oracle, and Cisco would counter investments from Huawei, and other Chinese companies, in smart city infrastructure.
3) Address capital constraints to unlock real assets
Individuals and businesses in Africa continue to struggle to unlock the market potential of real assets (land, receivables, etc) due to lack of liquidity and working capital. This constraint is evidenced by a lack of mortgage markets and the number of start-ups that have emerged in key markets built on factoring, layaway and consumer financing.
From Wakanow (in which Carlyle invested $40m) on travel costs to PayLater in consumer finance to Allpro for financing school fees, start-ups are stepping into the role that retail banks play in developed markets. Through Prosper Africa, the US can support financial market efficiency and inclusion by building on the work that Thomson Reuters has been doing in land titling and the experiments with blockchain land ownerships systems currently under way in countries such as Ghana.
Additionally, the USDFC should seed funds that specialise in investing in companies that boost working capital and cash availability for Africans whether it be layaway, factoring, or other financial tools.
Despite being nearly 50 years old, Mr Milken’s formula for prosperity holds great insight for how the US can approach African nations with a sustainable and positive value proposition. Africa’s economic development requires both hard and soft infrastructure.
As compared to China, the US brings fundamentally different strengths to the region. With some definition and focus, Prosper Africa has the potential to amplify them for mutual benefit.
