Is AGOA working for Africa? William Gumede is Associate Professor, School of Governance, University of the Witwatersrand, Johannesburg; and the author of South Africa in BRICS: Salvation or Ruination Introduction Has the Africa Growth and Opportunity Act (AGOA), a US law passed in 2000, to help African countries export some products quota-free and duty-free to the US, substantially benefited African economies? If AGOA has not benefited African countries, what can they do to make it work better for them? African critics have increasingly charged that AGOA has disproportionally benefited US exporters, companies from emerging markets such as China, who use the act to send their products to the US through Africa and that act have not help expand its manufacturing sector. The United Nations Commission for Africa (UNECA) rightly concluded that although that trade flows between the Africa and the US have grown nearly threefold over the period since AGOA have been in place, and that 70% of this rising trade is because of AGOA. However, UNECA concluded ‘these flows still do not reflect the natural symbiosis that should exist between the world’s largest economy, and the world’s fastest growing region’. Newly elected US President Donald Trump has vowed to adopt an ‘America First’ trade policy and may renegotiate all foreign trade deals. This means that AGOA, which includes 39 African countries in trade with the US, may also be open for review. President Barack Obama in June 2015 renewed AGOA for another 10 years before it was about to expire in September 2015. Then President Bill Clinton steered the original 2000 AGOA bill to give trade preferences to over 6,400 African products. AGOA rules of origin too lenient, US subsidies undermine African products A research paper published by the Centre for the Study of African Economies at Oxford University have reported that Chinese textile companies, for example, set up in Africa and send their products from Africa to the US, under the guise that the products were made in Africa, and in so doing get free access to US markets. Africans have little input in the assembly of such Chinese products, neither is much value-added to African economies. This practice is called transhipment. AGOA officially prohibits the practise and any non-African company found to have done so by US authorities are banned for 5 years from exporting their products to the US under the AGOA framework. The rule of origin provision of AGOA states that African exporters must either source certain inputs for their products locally or from the US. However, AGOA is very lenient about rules of origin – how much value should take place at the African country from a product is exported to the US - of products that can access the US market. Both the World Bank and International Monetary Fund have criticised AGOA for excluding key African products and for providing subsidies to US companies deemed to be under threat from African competition under AGOA. When President Obama in June 2015 renewed AGOA, the renewal was accompanied by another bill which extended protection to US workers from foreign trade. The US subsidized its agriculture sector, for example, cotton – which many African countries export. Former US Trade Representative Ron Kirk for example said that the US could only cut some agriculture subsidies, such as cotton, as part of larger agreements, which would have large developing country economies such as Brazil, China and India, also agree to open their markets to the same products. What Africa need from trade deals A core requirement for Africa, if the continent wants to achieve a higher quality, more equitable growth, is for countries to add value to the raw materials it extracts and to diversify into manufacturing and services. This will create more jobs for Africans, and result in more equitable and sustainable growth rates, and generate more wealth for African economies. Africa has been prevented from doing this since the end of colonialism and the Cold War by industrial nations which have erected high trade barriers to products have been transformed from raw materials to manufactured products – which means value has been added, coming from Africa. However, raw materials from Africa usually do not have the same high tariff barriers in industrial countries. African economies have suffered, with lost wealth, jobs and economic growth, because African countries continue to export raw materials to both industrial and developing countries, while these countries export manufactured and beneficiated products to Africa. The latter create jobs and are more valued, yet are ironically often made from the cheap African raw materials, exported back to Africa as a more expensive finished product. Some emerging powers, China and Brazil, are even transplanting their manufactured goods from their home base to Africa. The success of any trade deal between Africa and other industrial or emerging market therefore is based on whether Africans can export, or develop home-grown value-added manufacturing, to be exported to these countries; and whether these industrial and emerging market countries will such value-added and beneficiated products coming from Africa. Most African countries export raw materials, whether oil or metals, or an agricultural product. AGOA currently favour African raw materials for easy entry into the US and restricts African manufactured or value-added products. African countries desperately need policy space to come up with their own independent policies. Currently, most developing and African economies do not have the policy independence to adopt unorthodox economic policies to stimulate their own economies – lest they face a backlash from the markets, foreign investors and Western governments. Only if African countries have the space to decide what policies to pursue can they, what United Nations Conference on Trade and Development (UNCTAD) Secretary-General Supachai Panitchpakdi calls, turn their economic gains into ‘real productive capacity’. Trade deals with partners that restrict African countries abilities to come up with their own policies undermine their individual development. AGOA puts restriction on the type of economic policies African countries, who are beneficiaries of it, can pursue. AGOA is only available for African countries that have adopted a set of countries policies – or are making progress doing so, of country policies that are approved by the US. These include having established market-based economies, reduce their trade barriers for US companies and protect US intellectual property. Unpacking the US-Africa trade AGOA has since its inception contributed to a 78% increase in overall trade between Africa and the US. Even with AGOA, China surpassed the US as Africa’s biggest trading partner in 2009. At the end of 2013 China-Africa trade was US$210 billion, while US-Africa trade was US$63 billion. Furthermore, the devil is in the detail of US-Africa trade. US imports from AGOA beneficiary represent only 1% of total US imports. Energy accounts for 88% of exports from Africa to the US through AGOA, with oil accounting for 68% of AGOA imports in 2014. However, oil imports from Africa to the US have actually declined overall by 80% since 2011. African exports to the US of natural resources such as crude oil, precious metals and oil seeds have grown under AGOA, while manufactured products such as high-skilled apparel, computer machinery, consumer electronics and motor vehicles have declined. World Bank Group President Jim Yong Kim emphasised the challenge for Africa under AGOA, saying rightly that the continent should focus on developing light manufacturing sectors, which would boost industrialisation, export diversification and job creation. The African countries that have oil and gas dominate the exports under AGOA to the US. Figures from the US International Trade Commission showed that almost 90% of products traded under AGOA went to four countries: South Africa, Nigeria, Angola and Gabon. African agricultural products may not face high tariff barriers under AGOA, but they face sophisticated, complex and multiple health and safety rules in the US, which effectively translates into high tariff barriers. If one excludes South African exports, the second largest imports from Africa to the US under AGOA are textiles and apparel. A recent study by the US Congress Research Service showed that African countries which export significant textile and apparel to the US, the AGOA trade has not been able to move the African production from low-skill apparel production to higher skill manufactured products. Kenya’s President Uhuru Kenyatta said African efforts to diversify their exports to the US away from energy have not been ‘fully realised’. Too few African countries that are part of the AGOA deal actually utilises it. For example, in 2014, only 7 out of the 39 African countries that form part of the deal actually utilised it. US opposes African calls for more access to US markets to products African countries produce The US under the Obama administration have opposed African countries requests to have more African products securing access to US markets under AGOA; instead, arguing that African countries should better use current provisions of AGOA – that is, try to expand the exports of products to the US already listed under AGOA. Kirk said “the answer is not expanding the list of AGOA products”, but “increasing the utilisation of AGOA”. Yet, Africa needs access to US markets for more of the products they produce as well as expanding the exports of products currently listed under AGOA. Many of Africa’s key agricultural products are not included in AGOA or face restrictions - for example sugar, cotton, leaf tobacco and peanuts. Many of Africa’s light manufacturing products also face restrictions. What should African countries do? To be beneficial for Africa, trade deals for African countries must be integrated into their individual national long-term industrialisation plans. The problem is that most African countries do not have national long-term industrialisation plans. African countries need to firstly adopt coherent, integrated and practical long-term industrialisation programs, currently lacking in most African countries. Collectively, African countries must ensure that AGOA - and all other continent-wide trade deals - must be integrated into Africa’s own home-grown industrialisation policies, such as the Corridor Infrastructure Build Program. South African Trade and Industry Minister Rob Davies puts the challenge to Africa: “African countries should also ensure that there is alignment between AGOA and their development integration agenda, focus on their industrialisation and preserve policy space aimed at enhancing efforts to diversify their exports base and integrate supply chains so as to take advantage of market access opportunities under AGOA.” African countries need to diversify the products they produce. They need to add value to current oil, metals and agricultural products they produce. But African countries must also diversify their trade with other developing and industrial countries. African countries must trade more with each other. African countries should also use AGOA better to trade with each other and create regional value chains. UNECA pointed out how before Madagascar lost its AGOA eligibility, it had sought inputs for its garment from other sub-Saharan African countries: Zambia supplied cotton, Lesotho and Mauritius supplied fabrics and zippers came from Swaziland. Kenyan leader Uhuru Kenyatta said African countries face “enormous challenges such as lack of competitiveness, supply capacity constraints, weak infrastructure base, low flow of private investments from the US, lack of access to finance, and low technical capacity”. African countries will have to deal with such challenges with greater resolve.
Both the World Bank and International Monetary Fund have criticised AGOA for excluding key African products and for providing subsidies to US companies deemed to be under threat from African competition under AGOA