AGOA – Africa’s Race to Trade success

By Nawa Mutumweno – Zambia, this year’s hosted AGOA in June, recording impressive strides in foreign direct investment (FDI) despite the credit crunch that ravaged the global economy in 2009.AGOA is the legislation that provides eligible sub-Saharan African countries with the most liberal duty access to the US market of any country with which the US does not have a free trade agreement.

The 2011 gathering in Lusaka marked the tenth year that government officials, business leaders, and civil society from African countries and the United States converged to promote trade, business and investment opportunities that sustain economic development in Africa. The forum was held under the theme: ‘Enhanced Trade Through Competitiveness, Value Addition and Deeper Regional Integration’.

One of the major achievements of the recent forum has been the provision of $120 million over four years to intensify and focus on the work of the USAID-run African Trade Hubs.

“To build on the success of the regional trade hubs in Africa and address supply side constraints, the US government has provided $120 million under the programme dubbed ‘African Competitiveness in Trade Expansion Initiative’ over the four-year period,” said Ron Kirk, US Trade Representative.

The forum also recognized the contribution of women entrepreneurs across the continent through the African Women Entrepreneurship Programme (AWEP), a brainchild of US Secretary of State Hilary Clinton. The US government has pledged $2 million support to this initiative which will be headquartered in Lusaka.

“The African Union should empower women for them to participate in economic development effectively. African women are the hardest working women in the world, yet what they do is not included in the formal economy or measured in the GDP. If African women from Cairo to Cape Town decided to stop work for a week, the economies of Africa would collapse,” Mrs Clinton observed.

Africa is in a strong position to build on export earnings to the US, which have quadrupled from $1 billion to $4 billion in the past decade. Consumer spending in Africa is projected to grow by almost $600 million and GDP by $1 trillion under10 years, Mrs Clinton added.

AGOA member states have also urged the US to relax its restrictive Rules of Origin to promote diversification of exports into its market and support regional integration through value chains. The 37 eligible countries have endorsed the offer by Ethiopia to host the next AGOA Forum in 2013 and Cameroon in 2015.

Many African countries have not performed well in taking advantage of AGOA in the past decade. Reasons for this abound. Domestic supply side constraints and competitiveness challenges are the major hurdles in the race to trade success.

US trade with Africa remains small, accounting for a little more than 1% of total US exports and about only3% of US imports. Oil from countries such as Nigeria and Angola accounted for some 91% of the $44 billion in US imports from AGOA countries in 2010, according to US officials, raising questions about how US trade benefits can be used to encourage more diversification. Non-oil imports under AGOA totaled $4 billion, up 18% from 2009, and included valued-added products such as apparel, footwear, processed agricultural products and manufactured goods.

There is urgent need for targeted technical assistance directed towards businesses and government, to help producers to access the US market through compliance with the stringent US sanitary and phytosanitary standards (SPS), while also enabling Governments to continue creating an enabling environment and infrastructure.

The competitiveness of African products should also be enhanced by targeting logistical and infrastructure limitations through the provision of incentives for export; targeted public intervention is required  for project diversification, branding, advertising, quality improvement and the development of value chains, thereby enhancing value addition on export-oriented products; African governments, business and civil society should speak and act in harmony to achieve maximum benefit and use AGOA as a tool for private sector-based economic development on the continent.

On its part, the US government must provide flexibility with regard to certain rules with a view to not unduly disadvantage African exporters (e.g., trade country export rules).

“In order to enhance market access with the support of the US, AGOA eligible countries should improve their productivity capability, as well as diversify and expand their production base, including that of infrastructure development,” the report from an earlier AGOA mid-tern review meeting reads in part.

Experts at the mid-term review meeting recommended the extension of third-country fabric clause for 10 years and called for America to support Africa on SPS matters.

Most African goods have failed to meet the hygienic standards of the SPS, making the food industry unable to effectively penetrate the US market. With sub-Saharan Africa’s competitive edge being in agriculture, the SPS failure has resulted in less than one percent of African agro goods making inroads in the US.

It is heartening to note that a new proposal dubbed ‘Enterprise for Development: A new Policy Approach towards Africa’ has been put in place to extend AGOA’s exclusive duty and quota-free access to the America market by African goods beyond 2015. Indeed enhanced trade with value addition in the context of regional integration is the preferred direction for the continent. In this regard, COMESA Business Council signed an MoU with the Corporate Council on Africa (CCA) which aims to link businesses in the bloc to the lucrative American market.

Following the Obama administration’s extension of the AGOA initiative to 2025, The African Union (AU) has advised its second phase should focus more on investment than trade in order to further enhance the capacities of AGOA eligible nations.

“Increased trade is one of the fastest ways to expand economic growth, spur development, and reduce poverty across Africa,” Assistant Secretary of State Johnnie Carson, Washington’s top diplomat for Africa, told reporters.

African trade experts should put their heads together to ensure that AGOA eligible countries leap-frog the supply-side constraints by facilitating and reducing customs requirements and procedures as well as establish national focal points. Only then will the AGOA tide flow!

As President Obama observed in his message to the delegates “AGOA should help unleash the growing dynamism of African economies “as it remains the cornerstone of the two continent’s trade and investment relationship.