International Investment

African aspirations, not African leaders, should be the focus of the U.S.-Africa Leaders Summit.

The thousand-page CHIPS bill avoided a new screening procedure for U.S. investments abroad, but it signals how industrial policy will likely be used to discourage American companies from investing in China.

Existing tools might be sufficient, and it's not clear if a new regime makes sense.

Mozambique is at a moment of peak international leverage, but faces significant domestic challenges. 

To succeed in India, U.S. companies need to understand state politics and choose the right local partner. 

If properly harnessed, private capital can help the United States meet global infrastructure needs and compete with China’s Belt and Road Initiative.

Katie Auth is policy director at the Energy for Growth Hub and former deputy coordinator of Power Africa at USAID. Todd Moss is executive director at the Hub and a former deputy assistant secretary of State for African Affairs. Rose Mutiso is research director at the Hub and former senior fellow at the Department of Energy and at the U.S. Senate. The new U.S. Climate Finance Plan aims to double contributions to climate funding for developing countries. A renewed emphasis on emerging economies is good news for the climate, but in presenting support as “protecting the world’s poorest” and helping “communities in need,” the plan reflects old thinking.  Climate finance is not charity to help the vulnerable or an incentive to reduce emissions. It is a rare opportunity to drive innovation and job creation across the world’s poorest economies. Portraying developing countries merely as victims in need of protection shortchanges both them and the window climate policy provides to recast international development, reframe climate justice, and advance U.S. diplomatic, development, and national security goals—particularly on the African continent.  Africa is home to the world’s youngest and fastest growing population, which is increasingly urban and digitally connected. Countries across sub-Saharan Africa need to build economies prosperous and diversified enough to create 12-15 million new jobs each year, and cope with worsening climate impacts. The future of U.S. relations with the continent—and its ability to effectively help address security, migration, and economic challenges there—depend largely on whether it can help catalyze ambitious energy transitions to meet dynamic and evolving needs. China, Russia, and other strategic competitors have already caught on.  Fortunately, the United States has a ready response: Power Africa. The multiagency initiative has bipartisan support and an eight-year track record. But a transformative impact requires taking Power Africa to the next level. To date, U.S. support for African energy has been most successful in catalyzing new (mostly) renewable generation and supporting off-grid solar companies in (mostly) rural areas. Both of these are valuable. But simply doing more of the same will not deliver a prosperous climate-resilient future. Many countries, hindered by limited grid systems, can now generate more power than their systems can absorb. And while off-grid solutions provide great value to certain populations, economy-wide job creation requires far larger-scale systems that can power cities, industry, and digital infrastructure. The Biden administration should strengthen Power Africa and similar programs in Asia and Latin America to meet the climate challenge and support U.S. foreign policy objectives. First, development capital must be focused in the countries where it will have the greatest effect. The U.S. International Development Finance Corporation (DFC), a new agency with a $60 billion war chest, is Power Africa’s main source of capital. The DFC’s current strategy aims to put at least 60% of all projects in low- and lower-middle income countries or in fragile states, and at least $10 billion in the global energy sector by 2025. The DFC could also commit to specific targets in the African energy sector, where additionality and impact are especially high. A development-forward, risk-tolerant approach will ensure that climate finance drives investment not just in more advanced markets like Kenya, Ghana, and South Africa, but in economies where raising capital is hardest—like Niger, Liberia, or Malawi.  Second, in many low-income regions, climate resilience poses the most immediate and severe threat to lives and livelihoods. The U.S. Climate Finance Plan pledges to triple adaptation finance by 2024, but its impact will ultimately depend on whether funds are truly “new and additional.” Resilience programs should consider energy itself as a tool for adaptation. Rising temperatures, for example, require air conditioning and cold storage that depend on abundant reliable electricity. The International Energy Agency expects residential cooling demand in Africa to increase by at least factor a 5 by 2040.  Third, the administration’s plan recognizes that a global energy transition will require more than wind and solar plants. The Department of State is tasked to drive cooperation on energy storage and low-carbon transportation—both critical for emerging economies and a chance to expand opportunities for U.S. firms. The DFC should consider creating a specific early stage venture capital window for new clean energy technologies, just as the DFC’s predecessor agency seeded early private equity funds.  Fourth, the United States must get into the grid game. In most African countries, efforts to bring more renewable power online are hindered by inadequate transmission and distribution. The Millennium Challenge Corporation could scale up grant funds for grid infrastructure (as it did in Senegal), while the DFC could consider replicating the British CDC Group’s promising transmission investment platform. USAID could increase its technical assistance for grid performance and management, and identify early opportunities for DFC to invest in private utility concessions, rural electrification, and utility services companies. Power lines and computer systems may not make for glossy photo-ops, but they are essential building blocks for a clean energy future.  Finally, the United States needs to meet countries where they are. This means less finger wagging, a bit more humility, and a lot more financial support for the ambitious energy transitions African countries themselves have proposed. Many—including Senegal, Ghana, Mozambique, and Nigeria—see their domestic natural gas resources as key to expanding energy supply and shifting away from more carbon-intensive fuels. The U.S. Climate Finance Plan seeks to end international investment in fossil fuels, but acknowledges that “in limited circumstances, there may be a compelling development or national security reason” for continued U.S. support. Those reasons and the framework for evaluating them need to be clear.  For Africans, reliable abundant energy is the foundation for creating decent jobs and tackling climate change—just as it is for Americans. Achieving a clean energy transition will be the preeminent global challenge of the next half century. An ambitious U.S. effort to support this work in Africa and other emerging regions is smart policy for the climate, for national security, and for a prosperous and inclusive global economy.

Tareian King is an intern with CFR's Africa Program and a student at the Elisabeth Haub School of Law at Pace University. She is also the founder of Nolafrique, an e-commerce platform that enables artisans in African villages to have global exposure and opportunities for scale up. The African diaspora sends more money to Africa than U.S. foreign aid and foreign direct investment. In 2018, sub-Saharan Africa received $25 billion in development assistance. In that same year, immigrants in the United States sent $46 billion in remittances to their home countries in Africa, out of a total of $150 billion sent from the United States globally. In 2017, $85 million in remittances were sent from the United States to Senegal, the seventh-most of any country (France topped the list with almost $650 million). Remittances are the transfer of money, often by a foreign worker, to an individual in their home country. A closer look at a diaspora neighborhood in New York City helps explain that remittances are not only a form of familial aid but also an important investment vehicle that builds wealth. In Petit Senegal, on 116th street between Lenox Avenue and Frederick Douglass, the sound of English is replaced by Wolof and French. “How are you?” is transformed into “Nanga def” and “ca va?” Wolof is the native language of the Wolof people found in the Gambia, Mauritania, and Senegal. French is the language of francophone West African countries, including Senegal, which are former French colonies. American fashion—such as blue jeans and t-shirts—also disappears. Instead, people are dressed in elaborate, traditional West African textiles and fabrics. In the evening, there are Muslim men sitting outside on the sidewalk with foldable chairs drinking attaya tea, a Senegalese drink consumed after meals and with guests. Petit Senegal, located in the heart of Harlem in Manhattan, is not much different from some neighborhoods in Senegal’s capital, Dakar. The cultural link between Petit Senegal and Senegal underpins an economic one.    Petit Senegal is filled with thriving, tax-paying businesses owned and operated by Burkinabe, Gambians, Ivorians, Malians, and Senegalese, though the majority of businesses are owned and operated by the latter. Import-export businesses, supermarkets, seamstress, tailors, phone repair shops, beauty salons, bakeries, Islamic educational programs, and African goods stores fund the remittances to their respective West African countries. Senegalese immigrants have built a substantial amount of wealth for themselves, but to understand their success requires a look back to Senegal. Dakar’s real estate market grew 256 percent between 1994 and 2020, and business owners in Petit Senegal opted out of investing their profits in a house with a white picket fence in America. Instead, they opted to invest in the profitable real estate market in Dakar. Residents return home during holiday breaks to purchase their land in cash instead of sending the money via wire transfers. Once the land is acquired, they return to Petit Senegal and remittances pay for construction. Profits from these properties in Senegal are then invested in local businesses in Petit Senegal, helping them grow, and the investment cycle in Senegal continues. The goal of most residents in Petit Senegal is to build as many properties in Senegal as they can while they are in America. Mr. Jabel Cisse, a seamstress in Harlem for over twenty-five years, has built two villas and an apartment complex since immigrating to America. Mr. Muhammad Fall, the owner of an import-export business, has built two apartment complexes and is now in the process of building a hotel. While these shops are small, their owners are engaged in international business with Senegal. The people in Petit Senegal selling earrings and soaps and repairing phones are the same individuals financing real estate in Senegal. The $85 million from the United States is about 4 percent of the $2.2 billion Senegal receives as remittances, which together account for 10 percent of Senegalese GDP. One of the sources of that capital, diaspora communities like Petit Senegal, are a natural bridge between the U.S. and their home countries. They know the risks and customs of the market, have local contacts, and know how to invest in their countries in profitable ways. As foreign aid budgets are cut or threatened and immigrants find financial success, remittances have grown in importance; so, too, should the diaspora communities that pay for them.

President Trump has threatened to make U.S. companies leave China. Can he do that?

The recent decision by America's Business Roundtable to abandon its support for shareholder primacy was a long time coming, and reflects a broader shift toward socially conscious investment. Now that the multi-stakeholder model is receiving the attention it deserves, it will be incumbent on governments to create space for it to succeed.