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Will Donald Trump’s new administration negatively affect Africa?

19 January 2017 Kathy Davey, Ashburton Investments
Kathy Davey, Africa Portfolio Manager at Ashburton Investments.

Kathy Davey, Africa Portfolio Manager at Ashburton Investments.

The South African Reserve Bank governor, Lesetja Kganyago, was asked at Davos what he thought about the new wave of protectionism that is a potential threat to global trade. He reiterated what we all know, which is that there is no clear US policy yet, so we can only really speculate based on tweets and rhetoric to date. The governor also pointed out that any significant change to the AGOA (African Growth and Opportunity Act) agreement that reduces the benefits to African countries is the key concern for the continent’s trade with the world’s largest economy.

Although vocal on existing trade deals, Trump has mentioned very little with respect to his stance on trade with Africa. Perhaps this is because in 2015, non-oil and gas trade into the US under the AGOA agreement was only around US$4.5bn, representing just 0.2% of the United States’ total global trade and hence very insignificant for the country.

AGOA is a trade agreement with the US which allows 38 eligible sub-Saharan African countries to export thousands of different products to the US duty-free. This treaty was recently renewed and expires in 2025. Trump’s concern with US trade deals is rooted in the notion that these deals may be detrimental to American jobs. However, it’s not generally thought that AGOA has led to any significant jobs losses in the US and the agreement has not been a focus of lobby groups.

Although Africa previously had a trade surplus with the US under AGOA, as a result of declining oil prices and falling oil and gas products exported to the US from Africa, the trade gap has closed significantly and the trade balance is now only slightly weighted in favour of AGOA countries.

So, although one can only speculate on what the policies of a Trump administration might be, the facts suggest that it is very unlikely that AGOA will be cancelled as there would be little direct benefit for the US in doing so. This is what informs our view. On the other hand, the AGOA treaty is very beneficial to sub-Saharan Africa and especially the larger economies of Nigeria, South Africa and Angola. Even in the event that the benefits under AGOA are reduced, we believe that this would incentivise increased intra-Africa trade, which would offset the lower trade with the US somewhat, and also be very positive for the future growth of the continent.

In conclusion, although Donald Trump has been vocal in his disapproval of existing trade deals, we believe that the benefits to the US of removing or significantly reducing those related to Africa are so small that the status quo is likely to be largely maintained. This underpins our outlook for strong growth on the continent over (at least) the next five years.

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