AGOA: The US - Africa trade dilemma

Has the Africa Growth and Opportunity Act run its course?

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.