Brac­ing for the post AGOA pe­riod

Lesotho Times - - Opinion & Analysis -

NEXT time you pick up sport­ing gear or a pair of jeans in a US mall, do check the la­bel. It may have been made in Le­sotho, a small, moun­tain­ous and land-locked coun­try com­pletely sur­rounded by South Africa, with a pop­u­la­tion of around two mil­lion.

Le­sotho is a ben­e­fi­ciary of the Africa Growth and Op­por­tu­nity Act (AGOA), which al­lows over 6 400 prod­ucts from eli­gi­ble sub-sa­ha­ran African coun­tries to en­ter the US mar­ket duty-free. The coun­try has made big strides in the gar­ment in­dus­try with US ex­ports es­ti­mated at US$330 mil­lion (about M4.6 bil­lion) in 2015, against US$140 mil­lion in 2000. To­day, ac­cord­ing to the Le­sotho Tex­tile Ex­porters As­so­ci­a­tion, about 80 per­cent of Le­sotho's tex­tile and gar­ment ex­ports go to the US.

With 44,000 em­ploy­ees, the gar­ment in­dus­try is the coun­try’s largest pri­vate sec­tor em­ployer.

There are other ‘Made in Africa’ suc­cess sto­ries that have emerged since AGOA was in­tro­duced in 2000 and ex­tended by 10 years in Septem­ber 2015. Ac­cord­ing to the 2016 AGOA re­port re­leased by the Of­fice of the United States Trade Rep­re­sen­ta­tive, non-oil ex­ports to the United States un­der AGOA nearly tripled from $1.4 bil­lion in 2001 to $4.1 bil­lion in 2015. Au­to­mo­biles from South Africa and ap­parel from Kenya, Le­sotho, Mau­ri­tius, and Swazi­land were the lead­ing ex­ports.

The gains from AGOA are un­de­ni­able, de­spite crit­i­cisms that the agree­ment favours pe­tro­leum prod­ucts and that it ex­cludes some agri­cul­tural prod­ucts in which Africans have a com­par­a­tive ad­van­tage. There have also been con­cerns that the ex­port of Africa’s agri­cul­tural prod­ucts to the United States is made even more dif­fi­cult by com­plex health and food safety reg­u­la­tions. This, how­ever, has not stopped bolder, ex­port-ready, African coun­tries from cap­tur­ing shares in the US mar­ket. In July, for in­stance, Namibia be­came the first African coun­try to be eli­gi­ble to ex­port bone­less (not ground) raw beef prod­ucts to the US.

A key chal­lenge for Africa will be to en­sure its in­dus­tries that have thrived un­der AGOA do not col­lapse, that the thou­sands of jobs cre­ated in the au­to­mo­bile and au­to­mo­bile parts, ap­parel, fruit and nut, co­coa, footwear, and flower in­dus­tries are sus­tained and con­tinue to grow be­yond 2025.

This will de­mand that Africa strength­ens its skills base and ca­pac­ity to com­pete. Fail­ure to do so could see com­peti­tors such as Viet­nam erode its grow­ing mar­ket share in es­pe­cially tex­tiles and ap­parel should the United States rat­ify the Trans-pa­cific Part­ner­ship Agree- ment (TPP).

The US tex­tile and ap­parel mar­ket is es­ti­mated at US$350 bil­lion. Africa, de­spite its large po­ten­tial, sup­plies a pal­try one per­cent of this. A chal­lenge for the con­ti­nent is to use the next nine years up to the end of AGOA in 2025 to build com­pet­i­tive in­dus­tries in the sec­tor. A coun­try that could emerge as a key player is Ethiopia.

A 2015 Mck­in­sey sur­vey of 40 global chief pro­cure­ment of­fi­cers in the ap­parel in­dus­try, for the first time named Ethiopia as a pos­si­ble global sourc­ing des­ti­na­tion. Like with many other African coun­tries, the chal­lenge for Ethiopia is to shift from be­ing of the world’s lead­ing sourc­ing op­tions to be­com­ing a pri­or­ity.

For re­spon­sive coun­tries, AGOA has pro­vided in­valu­able lessons that Africans can use to stim­u­late the growth of their ex­port in­dus­tries and seize mar­ket share else­where. It has also helped en­hance in­tra-African trade by en­abling pro­duc­ers in dif­fer­ent coun­tries to create new value chains that de­liver mu­tual ben­e­fit. Botswana, for in­stance, now ex­ports leather to South Africa where it is pro­cessed into up­hol­stery for lux­ury car ex­ports to the United States.

Mean­while, the African De­vel­op­ment Bank (AFDB) will con­tinue to play its part by build­ing in­fra­struc­ture to im­prove Africa’s com­pet­i­tive­ness in US mar­kets.

This will in­clude pro­mo­tion of re­gional in­te­gra­tion that en­hances trade and skills for greater global com­pet­i­tive­ness.

Equally im­por­tant within Africa is the cre­ation of so­lu­tions for ex­port-ori­ented small and medium en­ter­prise (SME) to help bridge the un­met de­mand for trade fi­nance in Africa, cur­rently es­ti­mated at US$ 120 bil­lion.

Work in this di­rec­tion is al­ready well un­der­way. Es­tab­lished in Fe­bru­ary 2013 the AFDB’S Trade Fi­nance Pro­gram (TFP) has al­ready sup­ported more than 85 do­mes­tic banks in 27 African coun­tries, cat­alyz­ing ap­prox­i­mately US$3.4 bil­lion of trade in vi­tal sec­tors such as agri­cul­ture, man­u­fac­tur­ing and con­struc­tion and en­ergy.

More than 60 per­cent of the trans­ac­tions sup­ported are on ac­count of SMES. Fur­ther­more, the Bank’s em­pha­sis on re­gional value chains in its “In­dus­tri­al­ize Africa” strat­egy rec­og­nizes the op­por­tu­ni­ties that an­chor in- dus­tries in one coun­try can pro­vide to in­dus­tries in neigh­bor­ing coun­tries.

African gov­ern­ments are aware of the chal­lenges. At the Septem­ber 2016 Min­is­te­rial AGOA Fo­rum, African trade min­is­ters recog­nised the ur­gent need to plan ahead.

They com­mit­ted to the cre­ation of a task force to out­line strate­gies for Us-africa trade and in­vest­ment re­la­tions be­yond 2025. This is a good start.

Now, the clock is tick­ing and the bell sig­nal­ing the end of AGOA priv­i­leges will soon res­onate across Africa. We must be ready when it rings.

l Mupo­tola is the Di­rec­tor of the NEPAD Re­gional In­te­gra­tion and Trade De­part­ment at the AFDB.

The TPP would al­low very com­pet­i­tive economies such as Viet­nam to do more busi­ness with the US un­der the same priv­i­leges AGOA ben­e­fi­cia­ries cur­rently re­ceive.

Moono Mupo­tola

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