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January 20, 2019

US-Africa trade dilemma: Has the African Growth and Opportunity Act run its course?

RENEWED PUSH: Kenyan Cabinet secretaries Amina Mohammed (Foreign Affairs and International Trade), Phyllis Kandie (EAC Affairs, Commerce and Tourism) and Adan Mohamed (Industrialisation) when they attended an AGOA meeting during the US-Africa Leaders Summit in Washington DC in August 2014. Photo/FILE
RENEWED PUSH: Kenyan Cabinet secretaries Amina Mohammed (Foreign Affairs and International Trade), Phyllis Kandie (EAC Affairs, Commerce and Tourism) and Adan Mohamed (Industrialisation) when they attended an AGOA meeting during the US-Africa Leaders Summit in Washington DC in August 2014. Photo/FILE

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 new-found confidence.

In fact, it appears the continent is at a point in history where its leaders no longer need the 'begging bowl' whenever they visit Western countries.

This sense of confidence was on full display when African leaders converged in Washington DC for the US-Africa Leaders’ Summit last August. Kenya’s President Uhuru Kenyatta, representing the views of 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 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,” US President Barack Obama said.

For USA, creating “genuine partnerships” with Africa is coming rather late. According to analysts, the US is now in a sprint to catch up with others in 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 like an outsider in a continent poised to become one of the global economic growth drivers in 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, 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.

However, the American deals 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 African Growth and Opportunity Act — 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.


American promise

The problem though 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 $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 per cent  came from just three countries – Nigeria (47 per cent), Angola (19 per cent) and South Africa (13 per cent). US exports were similarly concentrated, with those same three countries receiving 68 per cent of the $20.3 billion that came into the continent in 2011.

“Utilisation 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 USA's 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,” Froman said.

For instance, the insignificant non-oil AGOA trade, which increased marginally from $1.4 billion in 2001 to $5 billion in 2013, justifies why 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,” Froman said.

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 on September 20. 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 impulsive 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 Garments, which has operations in Lesotho and Kenya, employs about 13,000 people.

In 2012, apparel accounted for 17 per cent of all non-oil exports under AGOA. 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.

However, 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 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.

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