Trump effect on Africa
15 November 2016
We can only speculate as to what extent the Donald Trump administration could affect the African continent. However, we believe the two main areas of concern based on Trump’s election rhetoric are foreign trade and US foreign assistance (US aid). Trump has openly voiced his unhappiness with both overseas aid and existing trade deals.
Could AGOA be cancelled under Trump?
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 African Growth and Opportunity Act (AGOA) was only around US$4.5bn, representing just 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 lobbying 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 as illustrated in Figure 1. The trade balance is now only slightly weighted in favour of AGOA countries.
Our view is therefore that it is very unlikely that AGOA will be cancelled under a Trump administration as there would be little direct benefit for the US in doing so. On the other hand, the AGOA treaty is very beneficial to sub-Saharan Africa with the leading exporters to the US illustrated in Figure 2. In the event that trade under AGOA is reduced, it could be argued that this would incentivise increased intra-Africa trade which would be very positive for the continent as a whole.
Removal/reduction of US foreign assistance to Africa (US aid)
The US intends to spend a total of US$34bn on foreign assistance in FY2017 of which 21% is planned to go to Africa. This is 0.2% of the FY2017 US budget which means any removal or reduction of aid to Africa would save the US very little should Trump decide to target this expenditure. In addition, part of this foreign assistance supports US business. For example, Egypt receives US$1.5bn in foreign assistance of which 90% is spent on ‘Peace and Security’ where Egypt’s military equipment is largely bought from the US.
US aid means far more for Africa than it does for the US. The following table illustrates foreign assistance for 2016 as a percentage of nominal government consumption for some large African countries as well as the key budgetary areas that it is destined for.
Source: Economic Intelligence Unit, foreignassistance.gov
The concern is that Trump has in the past tweeted his disapproval of the foreign assistance US sends to Africa as illustrated:
His view may be changing however. At a rally in New Hampshire, Trump was asked whether he would double the number of people receiving AIDS/HIV treatment by 2020 to which he replied: “Yes, I believe so strongly in that, and we’re going to lead the way”. PEPFAR (The United States President’s Emergency Plan for Aids Relief) forms part of the foreign assistance which the US supplies to Africa.
This suggests that a Trump presidency will still support certain types of aid such as health which makes up a large portion of Africa’s financial assistance from the US as shown in Figure 3. In addition, although foreign assistance does not always get directed in the best possible direction and could also fall foul of corruption, financial aid has evolved from direct budgetary support to specific projects which has resulted in increased accountability.
We therefore believe US aid to Africa will continue, although a gradual reduction in Africa’s dependence on US foreign assistance would most likely be positive for the continent over the longer-term.
In conclusion, although Donald Trump has been vocal in his disapproval of existing trade deals and US aid, 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.