AGOA: The US–Africa trade dilemma

Has the Africa Growth and Op­por­tu­nity Act run its course?

Africa Renewal - - Contents - By John Nji­raini

It may seem counter-in­tu­itive to imag­ine that Africa could make con­trac­tual de­mands on the United States. Yet, there is ev­i­dence that in re­cent times Africa has be­come more as­sertive with a new­found con­fi­dence. In fact, it ap­pears the con­ti­nent is at a point in his­tory where it no longer needs the beg­ging bowl when­ever its lead­ers visit Western cap­i­tals.

This sense of con­fi­dence was on full dis­play when Africa’s lead­ers con­verged on Wash­ing­ton DC for the US-Africa Lead­ers’ Sum­mit in Au­gust 2014. Kenya’s Pres­i­dent Uhuru Keny­atta, rep­re­sent­ing the views of the 50 African lead­ers, clearly pro­jected the new face of Africa’s diplo­matic acu­men by as­sert­ing that “it is good to see the US is wak­ing up to the re­al­i­ties of the po­ten­tials of Africa just as China did a long time ago.”

Un­like in the past when such a sum­mit would have pro­vided a fo­rum for lec­tures to Africa on democ­racy and hu­man rights, this time around it was about mu­tual part­ner­ships, deals, trade and in­vest­ments. “We want to build gen­uine part­ner­ships that cre­ate jobs and op­por­tu­ni­ties for all our peo­ples and that un­leash the next era of African growth,” Pres­i­dent Barack Obama said.

For the US, cre­at­ing “gen­uine part­ner­ships” with Africa is com­ing rather late. In fact, ac­cord­ing to an­a­lysts, the US is now in a sprint to catch up to oth­ers ex­ploit­ing Africa’s eco­nomic po­ten­tial. With China deeply en­trenched in the con­ti­nent, Europe try­ing to safe­guard its in­ter­ests and In­dia and Ja­pan mak­ing ma­jor in­roads, the US stands to be an out­sider in a con­ti­nent poised to be­come one of the lead­ers in global eco­nomic growth in the com­ing years. Al­ready Africa is home to most of the world’s fastest grow­ing economies.

“Africa of­fers im­mense op­por­tu­ni­ties in terms of abun­dant nat­u­ral re­sources, new tech­nolo­gies, in­vest­ments, ac­cess to po­ten­tial mar­kets, and new types of con­sumers. Although the US has been rel­a­tively slow to re­act to th­ese dy­nam­ics, host­ing the sum­mit was a sign that it can no longer stay on the side­lines,” said Em­manuel Nnadozie, the Ex­ec­u­tive Sec­re­tary of the African Ca­pac­ity Build­ing Foun­da­tion based in Harare, Zim­babwe.

One way the US is seek­ing to deepen its in­ter­ests in Africa is by en­cour­ag­ing its multi-bil­lion dol­lar com­pa­nies to invest in the con­ti­nent. In­deed, dur­ing the sum­mit, new deals worth $14 bil­lion in ar­eas like clean en­ergy, avi­a­tion, bank­ing and con­struc­tion were signed be­tween var­i­ous African na­tions and US multi­na­tion­als. The US gov­ern­ment also com­mit­ted to pro­vid­ing $7

bil­lion in new fi­nanc­ing to pro­mote trade and in­vest­ment with the con­ti­nent.

The Amer­i­can deals, how­ever, of­fer lit­tle cheer to a con­ti­nent that seeks im­me­di­ate im­pact in job cre­ation, poverty erad­i­ca­tion, mar­kets for its pro­duce and di­rect con­tri­bu­tion to the econ­omy. This is be­cause it will take years for the ben­e­fits of the deals to be felt. On this ba­sis, some African lead­ers con­tend that the Africa Growth and Op­por­tu­nity Act (AGOA — a US law en­acted in 2000 un­der which Africa can ex­port cer­tain goods to the US duty-free) is the best op­tion in deep­en­ing trade be­tween the con­ti­nent and the US.

Amer­ica Prom­ise

The prob­lem, how­ever, is that Africa ab­hors the uncer­tain­ties of the treaty, and its lim­it­ing struc­tures. “We want to deepen our en­gage­ment with AGOA but this can only be achieved if we elim­i­nate the uncer­tain­ties and if it is broad­ened,” ob­served Kenya’s In­dus­tri­al­i­sa­tion Cab­i­net Sec­re­tary Adan Mo­hammed.

The need to elim­i­nate uncer­tain­ties and en­hance the treaty was one of the key de­mands African lead­ers tabled at the sum­mit. Though AGOA has been de­scribed as the cor­ner­stone of US trade pol­icy with Africa — in­creas­ing non-oil ex­ports from Africa to $53.8 bil­lion from US $8.1 bil­lion over 10 years — its im­pact and ben­e­fits have been min­i­mal. Apart from oil, tex­tiles, man­u­fac­tur­ing and ar­ti­facts, very few other sec­tors have ben­e­fited from the treaty that al­lows duty-free en­try into the US mar­ket for some 6,000 prod­ucts.

Worse still, just a hand­ful of coun­tries dom­i­nate trade un­der AGOA. In 2011, for in­stance, all ex­ports from Africa to the US to­talled $79 bil­lion. No­tably, almost 80% came from just three coun­tries – Nige­ria (47%), An­gola (19%) and South Africa (13%). US ex­ports were sim­i­larly con­cen­trated, with those same three coun­tries re­ceiv­ing 68% of the $20.3 bil­lion that came into the con­ti­nent in 2011. “The uti­liza­tion of AGOA priv­i­leges has been sub-op­ti­mal, with only seven out of 39 African coun­tries be­ing able to mean­ing­fully take ad­van­tage of the op­por­tu­nity availed by the treaty,” noted Eras­tus Mwen­cha, deputy chair­per­son of the African Union Com­mis­sion.

US Trade Rep­re­sen­ta­tive Michael Fro­man ad­mit­ted that the dis­crep­an­cies have not suf­fi­ciently pro­jected US com­mit­ment to a trade part­ner­ship with Africa. “De­spite the con­crete ben­e­fits that AGOA has brought to both of our con­ti­nents, it is clear that more can and must be done,” Mr. Fro­man ob­served. For in­stance, the in­signif­i­cant non-oil AGOA trade that in­creased marginally from $1.4 bil­lion in 2001 to $5 bil­lion in 2013 is a jus­ti­fi­ca­tion that the treaty re­quires struc­tural ad­just­ments. “While we are see­ing coun­tries start­ing to branch out and use AGOA for more prod­ucts, there is still much room to grow in non-oil, man­u­fac­tured and value-added prod­ucts,” he added.

For this to hap­pen, Pres­i­dent Obama and the US Congress must be will­ing to bite the bul­let. First, the US gov­ern­ment has few op­tions but to ex­tend the AGOA treaty when it ex­pires in Septem­ber 2015. More im­por­tantly, African lead­ers are call­ing for a long-term ex­ten­sion to elim­i­nate the uncer­tain­ties that shroud the treaty. They ar­gue that it is only by ex­tend­ing the treaty by a min­i­mum of 15 years that in­vestors will feel com­fort­able in­vest­ing in the con­ti­nent be­cause they will have am­ple time to re­coup their in­vest­ments.

The AGOA Dilemma

Ac­cord­ing to He­man Boodia, vice pres­i­dent of New Wide Gar­ments Ethiopia, the knee­jerk ex­ten­sion of AGOA for only five years has made it nearly im­pos­si­ble for in­vestors to plan for the long term. “It takes at least two years for in­vestors in the tex­tile in­dus­try to get re­turns. That is why we need the AGOA ex­tended for at least 15 years,” he said, adding that fail­ure by the US Congress to ex­tend the treaty could be cat­a­strophic to the con­ti­nent in terms of job losses. New Wide, which has op­er­a­tions in Le­sotho and Kenya, em­ploys about 13,000 peo­ple.

In 2012, ap­parel ac­counted for 17% of non-oil AGOA ex­ports. It is also the most di­ver­si­fied sec­tor in terms of the num­ber of ben­e­fi­ciary coun­tries. In Kenya alone, the gar­ment and ap­parel in­dus­try within the ex­port pro­cess­ing zones em­ploys about 40,000 peo­ple.

While ex­tend­ing the treaty will safe­guard th­ese jobs and cre­ate many more, there is a feel­ing in the con­ti­nent that AGOA re­quires sig­nif­i­cant changes to open up the US mar­ket to more non-oil and non-ap­parel ex­ports.

One sec­tor that is in des­per­ate need of new mar­kets is the food and agri­cul­ture sec­tor. But ac­cess­ing the US agri­cul­ture mar­ket un­der AGOA is ex­tremely dif­fi­cult. Apart from the is­sue of stan­dards, the US is de­ter­mined to pro­tect its farm­ers through sub­si­dies. Cur­rently, the value of agri­cul­tural ex­ports to the US stands at $520.8 mil­lion. Ac­cord­ing to Mr. Mwen­cha, the US can help Africa’s agri­cul­tural sec­tor by al­low­ing duty-free ac­cess of pro­duce cur­rently ex­cluded from AGOA, such as sugar, to­bacco and cot­ton.

World Bank/John Hogg

The Shin­ing Cen­tury Tex­tile company in Maseru, Le­sotho.

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