Attending to the African Growth and Opportunity Act

As the Trump administration continues to press the renegotiation of trade agreements around the globe, there is one critical agreement that has so far received little attention — the African Growth and Opportunity Act, or AGOA. While ignorance and disinterest towards African economic issues is hardly novel, this lack of attention is curious because of the significant investment opportunity that AGOA presents US investors and the ability it affords the US government to hedge China’s growing influence in the region. After all, buoying the economy and countering Chinese economic influence are two of the defining economic aspects of the Trump presidency thus far. With a pending trip to Togo in the coming days, AGOA may soon get its due attention. Hopefully, that attention is positive as the below assessment illustrates the importance of AGOA to the African continent.
Commodity dependence, limited manufacturing infrastructure, and lack of access to global markets are just a few factors that explain why a preponderance of the world’s least developed countries are located within Sub-Saharan Africa. The post-colonial era saw little long-term economic change in these nations, many of which remain economically underdeveloped decades after independence. One way the United States has been successful in remedying this economic stagnation is through AGOA, which has increased trade with a number of Sub-Saharan African countries since its implementation. The primary focus of AGOA is to integrate these countries into the global economy, encourage U.S.-African partnerships rather than dependency on aid donors, and decrease economic volatility through diversification and independence from commodity based exports. The notion that Sub-Saharan African economies that increase their exports are more attractive to foreign investors, allowing those economies to diversify — spurring economic growth — is the underpinning of the legislation. The bottom-up aspect of trade, in contrast to the typical top-down approach of aid, has not evenly benefited all Sub-Saharan African countries, nor has it been a universal solution for the economic ills of the countries it has benefited. However, data suggests that the legislation is achieving its goals: sustainable growth and diversification.
Construct of AGOA
In May 2000 Congress authorized AGOA with the intent of fostering export-led growth and economic development in sub-Saharan Africa and improving the economic relationship that the region has with the U.S.[1] Government agencies that have roles in this effort include USAID, the Assistant U.S. Trade Representative for Africa (AUSTRA), the Overseas Private Investment Corporation (OPIC), the Export-Import Bank (Ex-Im), the U.S. and Foreign Commercial Service (USFCS), and the Trade and Development Agency (TDA).[2] The AGOA legislation is defined as: “a non-reciprocal trade preference program that provides duty-free treatment to U.S. imports of certain products from eligible sub-Saharan African countries.[3]” AGOAs framework has been adjusted on a number of occasions since 2000 to ensure that it continues to meet its objectives. To increase African exports, AGOA expanded the list of products Sub-Saharan African countries may export to the U.S. under the Generalized System of Preferences (GSP), expanding from 4,600 items to over 6,400 items.[4] This expansion allows many Sub-Saharan African countries to sell locally produced products, that they maintain a comparative advantage in, to the U.S. duty-free and tariff free.
Since AGOA is trying to incorporate some of the world’s least developed countries into the global economy, in the belief that greater economic opportunities will translate to increased domestic stability and global integration, strict eligibility criteria were introduced with the program. To be eligible for AGOA preferences, countries must have or be making progress towards the following: “market-based economies; the rule of law and political pluralism; elimination of barriers to U.S. trade and investment; protection of intellectual property; efforts to combat corruption; policies to reduce poverty, increasing availability of health care and educational opportunities; protection of human rights and worker rights; and elimination of certain child labor practices.”[5] Embedded within the eligibility requirements is U.S. foreign policy goals like democratization and globalization. To ensure that these goals are met, the President reviews the list of countries receiving AGOA benefits every year; and countries not meeting the eligibility requirements are denied access to AGOA.
The products themselves are also subject to strict criteria, which have been adjusted in subsequent legislation. The most pressing issue was that of the textile and apparel market. Under the original legislation, textiles and apparels were listed as import sensitive products and not available for duty-free status. Consequently, the initial restrictions put on AGOA exports did not allow Sub-Saharan African countries to export articles that were not wholly developed and produced within their country. However, with the apparel provisions later added to AGOA legislation, Congress authorized certain countries to export third-party apparel items as long as those items met the requirements — namely that the raw materials came from the U.S. The textile and apparel preference program that was implemented enabled many Sub-Saharan African countries to capitalize on their labor force, purchasing fabrics from third-party countries and turning them into marketable products that they then exported to the U.S. This was particularly important for many of the countries in Sub-Saharan Africa whose export economies are not primarily based on petroleum products.
Since many nations in Sub-Saharan Africa lack a knowledgeable business environment it was reasoned that they would be unable to take full advantage of the expanded trade opportunities that AGOA presented. As such, one of AGOAs mandates calls on the U.S. to support AGOA-eligible countries with technical assistance to develop their trade capacity.[6] One approach that the U.S. implemented to help Sub-Saharan African countries build their trade capacity and take advantage of the benefits made available under AGOA is USAIDs African Global Competitiveness Initiative (AGCI). Announced in 2005, the AGCI is designed to assist Sub-Saharan African businesses in increasing their competitiveness and building their capacity so they can leverage the opportunities presented to them under AGOA.[7] Under AGCI experts in trade policy provide technical assistance at USAID regional trade hubs for global competitiveness, which are located in Gaborone, Botswana; Accra, Ghana; Nairobi, Kenya; and Dakar, Senegal.
Assessment
To assess the overall effectiveness of AGOA one must look at the impacts that the legislation has had on the economic integration of Sub-Saharan Africa countries into the global economy; the level of development of U.S.-African partnerships, to include Foreign Direct Investment (FDI), that has been achieved; and the diversification, and subsequent stabilization, of Sub-Saharan African economies as they move away from a reliance on commodity exports. Since these objectives are predicated on increased exports to the U.S. from Sub-Saharan African nations, any study of their effectiveness must look at the net exports from Sub-Saharan African to the U.S. between 2000 and 2013. Additionally, an assessment must take into account external factors that significantly impact the success of the program. For example, the global economic downturn in 2009 can explain why a number of graphs show FDI steadily decreasing during the following years, but the slowly rebounding in 2012. Likewise, local infrastructure deficiencies within particular countries have impacted how many AGOA products the countries have been able to export.
Integration into the global economy significantly impacts a countries ability to diversify and leads to economic stability and foreign investment. Access to global markets gives countries the incentive to identify products that give it a competitive advantage in the global market. Likewise, regional integration helps less developed or geographically isolated countries overcome barriers to trade markets. In a report on Rwanda’s AGOA infrastructure[8], lack of a developed transportation network in the region was listed among the hurdles hindering many landlocked countries from maximizing the benefits from the AGOA. Encouraging regional cooperation and trade agreements can mitigate this, as evidenced by the East African Community’s (EAC) development of a regional AGOA work plan that is designed to help all the EAC member countries maximize the benefits of AGOA trade preferences.[9] This is where the USAID regional trade hubs in Dakar, Accra, Nairobi, and Gaborone have been instrumental in developing intra-regional trade and increasing access to international markets. The U.S. experts on site assist local business owners in expanding their investment portfolios so they can understand and benefit from the opportunities that AGOA trade preferences provide to local business owners.[10]
Overcoming trade barriers through intra-regional cooperation increases access to the global marketplace and improves a country’s appearance to foreign investors who are more likely to invest in markets that appear stable and provide a high likelihood of investment return.
Sub-Saharan African countries, as they’ve become integrated into the global economy, have also seen an increase in FDI from the United States, Europe, and Asia. Historically, a majority of the FDI in Sub-Saharan Africa surrounded the resource and energy sectors of the economy. [11] Data from the U.S. International Trade Commission (USITC) suggests that this pattern is changing, noting that during the period from 2007–2012 FDI moved away from resource based projects and began to focus investments in the services and manufacturing. Between 2000 and 2012 natural resources constituted less than a third of Africa’s GDP growth, while service sector growth was becoming a significant contributor to GDP growth.[12] Some market observers have criticized the short-term authorizations of AGOA, claiming that they undermine FDI. They argue that AGOAs uncertain future makes long-term investment returns unpredictable, making foreign investors hesitant to finance in a market that is reliant on a program that may disappear. To develop and sustain economic growth, investment in the private sector is critical. This underscores the importance to extending benefits to AGOA beneficiaries past the September 2015 expiration.
While overall trade and integration have increased since AGOA, petroleum based products still account for the majority of exports and, subsequently, account for the largest portion of FDI. Not surprisingly, this is also where the loudest criticism of AGOA legislation is the persistent reliance on petroleum exports. According to the latest information from AGOA, oil exports from Nigeria, Angola, Chad and the Republic of Congo constitute the largest contribution towards AGOA-eligible trade,[13] with apparel products amounting to about 2%.[14] According to critics, this reliance undermines one of the core objectives of AGOA — economic diversification. Countries that are too heavily reliant on a single commodity are subject to the volatility of the international markets. Additionally, reliance on petroleum products has historically not translated into benefits for people outside of the actual petroleum industry. So, while Nigeria benefits from oil exports, the economy is not diversifying and not encouraging new business opportunities. In contrast, a country like Rwanda that does not have oil deposits has diversified their economy and can now withstand the ups and downs of the international market. In response to this criticism, Rosa Whitaker the first U.S. Assistant Trade Representative for Africa has said “there’s no trade initiative that can change the paradigm that oil is the major export from Africa in 10 years.”[15] Therefore, while AGOA has fallen short of diversifying many of the economies in Sub-Saharan Africa, it has introduced ideas and encouraged diversification through its trade hubs and forums. Considering that it takes years, if not decades, to overhaul economies, the lack of diversification is not necessarily a failing of AGOA, rather it’s provides reason for its continuation. Many Sub-Saharan African business owners and investors from Europe and the U.S. are calling for AGOA to be turned into a permanent trade agreement to ensure the benefits remain.
Considering the strengths and weaknesses of AGOA legislation it becomes apparent that the program, while not addressing every issue that its architects had hoped for, overall has achieved much since its inception. AGOA products now account for 70 percent the value of U.S. imports from Sub-Saharan Africa[16]. The latest data available from the Office of U.S. Trade Representative shows that U.S. AGOA imports for 2012 totaled $34.9 billion, a fourfold increase over 2001 and that non-oil imports — apparel and textiles, vehicles and parts, and fruits and nuts — were $4.8 billion in 2012, a threefold increase from 2001.[17] Therefore, while petroleum continues to dominate AGOA exports from Sub-Saharan Africa, data suggests that the reliance is decreasing and that other sectors are beginning to benefit. Similar data refutes the argument that AGOA preferences are only benefiting a small group of Sub-Saharan African countries. While Nigeria, Angola, and South Africa account for over 70 percent of AGOA imports, with Chad and Gabon providing another 10 percent, other countries — the Republic of Congo, Lesotho, Kenya, Mauritius, and Cameroon — are increasingly benefiting under AGOA.[18]A report commissioned by the U.S. International Trade Commission found that several Sub-Saharan African countries are developing regional integration through USAIDs trade hubs; export diversification; and developing value added products to implement into their national economic development plans.[19] The report suggests that just because petroleum makes up a majority of the exports under AGOA, it does not necessarily follow that non-petroleum exporters have not benefited under AGOA. As evidence, the report goes on to cite Burundi, Ethiopia, and Zambia as examples of countries whose national export strategies are being designed to take advantage of opportunities made available through AGOA.
Conclusion
A full assessment illustrates that the design and execution of AGOA is capable of reaching its objectives and the 2015 long-term renewal of the legislation solidified gains and encourage increased FDI. Therefore, while AGOA has not fully achieved the objectives of global integration and diversification, data suggests that it has helped non-traditional sectors grow and has the potential to decrease economic volatility. However, if independence from petroleum-based exports is to be truly achieved much work has to be done to ensure that the improvements in global integration and diversification are sustainable. Governments from AGOA-eligible countries must continue to work closely with businesses to identify and develop products that will give their country a comparative advantage in the global market. Additionally, these governments must create business environments that encourage export, so they can continue the diversification of their economies. Understanding that the burden to exploit AGOA preferences and develop a marketable product falls on beneficiary countries offers a counter argument to those who purport that AGOA has not properly assessed the needs of Sub-Saharan African countries; and, therefore, cannot achieve the goals that the legislation proposed. It remains to be seen whether the changes achieved so far will have a systemic change on the economies of Sub-Saharan Africa.
[1] Brock R. Williams, “African Growth and Opportunity Act (AGOA): Background and Reauthorization” (Congressional Research Report, Congressional Research Service, 2013), 1. https://www.fas.org/sgp/crs/row/R43173.pdf.
[2] Vivian C. Jones, “U.S. Trade and Investment Relationship with Sub-Saharan Africa: The African Growth and Opportunity Act” (Congressional Research Report, Congressional Research Service, 2012), 1. http://fpc.state.gov/documents/organization/128835.pdf.
[3] Brock R. Williams, “African Growth and Opportunity Act (AGOA): Background and Reauthorization” (Congressional Research Report, Congressional Research Service, 2013), 1. https://www.fas.org/sgp/crs/row/R43173.pdf.
[4] International Trade Administration, Department of Commerce, http://trade.gov/agoa/legislation/index.asp.
[5] Ibid.
[6] Vivian C. Jones, “U.S. Trade and Investment Relationship with Sub-Saharan Africa: The African Growth and Opportunity Act” (Congressional Research Report, Congressional Research Service, 2012), 19. http://fpc.state.gov/documents/organization/128835.pdf.
[7] Chemonics, Chemonics, International Inc., http://www.chemonics.com/OurWork/OurProjects/Pages/Competitiveness%20and%20Trade%20Expansion.aspx.
[8] The New Times, The New Times Rwanda, http://www.newtimes.co.rw/news/index.php?i=15029&a=55018.
[9] U.S. Trade Hub East Africa, USAID, http://www.competeafrica.org.
[10] U.S. Trade Hub Southern Africa, USAID, http://www.satradehub.org/index.php?option=com_moofaq&view=category&id=2&Itemid=33.
[11] U.S. International Trade Commission, AGOA: Trade and Investment Performance Overview (Washington, DC: USITC, 2014), 27.
http://www.usitc.gov/publications/332/pub4461.pdf
[12] Ibid., 27.
[13] African Growth and Opportunity Act, AGOA, http://agoa.info/data/trade.html.
[14] Vivian C. Jones, “U.S. Trade and Investment Relationship with Sub-Saharan Africa: The African Growth and Opportunity Act” (Congressional Research Report, Congressional Research Service, 2012), 24. http://fpc.state.gov/documents/organization/128835.pdf.
[15] West Africa Trade Hub, USAID, http://www.watradehub.com/activities/tradewinds/aug10/agoa-phenomenal-success.
[16] U.S. International Trade Commission, AGOA: Trade and Investment Performance Overview (Washington, DC: USITC, 2014), 46.
http://www.usitc.gov/publications/332/pub4461.pdf.
[17] Office of the U.S. Trade Representative, Executive Office of the President, http://www.ustr.gov/countries-regions/africa.
[18] U.S. International Trade Commission, AGOA: Trade and Investment Performance Overview (Washington, DC: USITC, 2014), 61, 54. http://www.usitc.gov/publications/332/pub4461.pdf.
[19] Ibid.,1.
