Wednesday, July 21, 2010

How Africa Can Help To Solve US Unemployment Problems

The U.S economy lost another 125,000 non-farm jobs in June.  Unemployment figures are slightly below 10%.  This translates to between 26 million to 30 million able-bodied Americans that are seriously looking for work. The Obama stimulus will be running out later this year, and congress does not seem in any mood to renew it. It seems to me that we are stumped on what to do to resolve this stubborn unemployment problem.

Some advocates like Paul Krugman, New York Times columnist and Nobel prize winner thinks we need more stimulus or else, “we may enter a period of deflation and chronic unemployment where the new unemployment norm is around 8%,”. I think the new norm may actually be more like 9-9.5%.

The Obama administration launched its export initiative in March to double U.S. exports over the next five years. This is where Africa can come to the US rescue in terms of exports.

Domestic consumption may not solve the U.S. unemployment problem this time because the American consumer has now discovered that they need to save.

Our traditional export markets like Europe and Asia may not be enough either.  That leaves us with creating capacities in African countries where the market exists to absorb American exports for the next 50 years, just like Europe did for the last 50.

The United States built Europe, we Japan and Korea. U.S exports several billion dollars worth of products to these countries, while exports to Africa are very small.   

If the U.S. had not made the effort to build, nurture, and support those three economic powers after the war, it is unlikely we could look up to them to absorb the amount of exports they absorb from our economy.

That is exactly why the U.S. needs to help build the African economy.

Africa is the new frontier in consumption growth over the next 50 years. The population will exceed 1 billion people, and the economy will be over $1trillion strong. According to the author of Africa Rising, “50-150 million Africans are classified as economic elites with spending power similar to our working class citizens in the west”  “There are 350-500 million people in the African aspiration classes from households with stable jobs”    These consumers will demand the same products that American consumers demanded over the last 50 years, like housing, appliances, automobiles, and infrastructures.  The question is how do we merge our needs with the African consumer for mutual benefits?

According to a Washington Post article, “Why U.S. needs Africa, “ the author, Paul Kagame, stated, “The United States has committed less to African markets than the emerging economies of Asia have; China guarantees nearly 30 times more in loans for investment in Africa than the United States does. Africa’s needs are so great that there is ample room for both U.S. and Chinese investment. Increased U.S. investment in Africa would translate into more opportunities for U.S. companies, with high potential for profit flowing back to the U.S. economy.”

For example, Nigeria has a population of 150 million, projected to grow to 300 in the next thirty years. Currently, Nigeria generates less than 5,000 megawatts of electricity. Nigeria needs a minimum of 100,000 megawatts.  The US has the manpower and equipment to build both the power plants and the grids to power Nigeria.  At the rate of $1million per mega watt, the US can line up an export market of $100 billion immediately by helping Nigerians to find a solution to their power problem over the next ten years.  This will create thousands of jobs both in the US and Nigeria. With a stable power supply, the Nigerian economy can grow at a minimum rate of 8-12% per year. This will lead to a middle class that will demand more American products. According to the Nigerian minister of Agriculture, Nigeria needs a minimum of 2 million agricultural tractors. Nigeria also needs to build a minimum of 2 million homes per year for the next 30 years to accommodate their citizens. Therefore, if a company like John Deer were to establish an assembly plant in Nigeria, all the engines will come from the U.S. Jobs will be created in both countries. We can extend this process over several industries and create tax incentives for companies that can create a minimum of 10 new jobs that depends on a partnership that creates jobs in both countries where the goods are partly assembled in Nigeria and the raw materials comes from the U.S.

Every consumer and industrial product is in short supply in Nigeria, and by extension Africa.  According to the Wall Street Journal article, David Rubenstein, co-founder and managing director of Carlyle Group, stated that “he expects economic growth in Africa to outpace every other region over the next decade.”

So rather than rely on the same old trade partners, congress and the Obama administration needs to work together and create tax incentives that can open new export markets in the fast growing and emerging African market.

  Toyin Dawodu is the Managing partner of  Capital Investment Group, a California based Diversified Investment Company focused on Infrastructure development in Africa.