Jaindi Kisero
4 August 2009
analysis
United States Secretary of State Hillary Clinton will Wednesday open the eighth Agoa forum at the Kenyatta International Conference Centre in Nairobi.
Mrs Clinton's presence signals the level of support and endorsement the new administration of President Barack Obama is according what is by far the most friendly trade deal ever offered by the US to any region of the world.
Known as the Africa Growth and Opportunity Act and introduced by former President Bill Clinton in May 2000, Agoa allows 39 African countries easy access to US markets, especially for textiles.
The forum is an annual event but the choice of Kenya as the host and the high-level US representation reflects a recognition of Kenya's strategic importance as the region's economic linchpin.
The violence in Kenya early last year brought home the realisation just how much this could destabilise the economies of the rest of the region.
Which explains why Washington still approaches diplomatic relations with Nairobi with pragmatism.
Other African countries to host the forum are Ghana, Mauritius and Senegal.
Kenya's position as a major beneficiary of Agoa is also a factor. Although exports to the US are still dominated by oil producing countries like Nigeria and Angola, Kenya has been among the top beneficiaries. Other countries that have made good use of Agoa are Mauritius, Lesotho, Madagascar and Swaziland.
Indeed, the coming into being of Agoa witnessed unprecented growth in the apparel and garment sector in Kenya. At the height of the boom in 2003, the sector employed 37,000 people in 40 factories that exported $249 million goods to the US.The trend was reversed drastically after the end of the Multi Fibre Agreement (MFA), a WTO arrangement that limited the amount of textiles China and India were allowed to export, in January 2005.
The implication of the MFA collapse was that Kenyan garment and apparel exporters could only hold on to market share if they cut costs by a massive 20 per cent.
Operating in an environment of inflexible wages, long delays in clearance of inputs at the port of Mombasa, crippling electricity costs and an unpredictable exchange rate, many were unable to renew contracts with the large US department stores and brands.Today, some of the manufacturers are operating at below 50 per cent capacity.
As the experience in Kenya has shown, Agoa's success has been, at best mixed. Without a doubt, the volume of trade between sub-Saharan Africa and the US has expanded significantly.
US imports from Africa increased by more than 50 per cent from the pre-Agoa 1999 levels. In 2001, the US imported $7.6 billion of duty free goods from Agoa-eligible countries and by 2008 this figure had shot up to over $81 billion.
However, compared to the performance of other regions, it is clear that African countries are yet to fully exploit the Agoa market.In 2008, total apparel imports to the US were valued at $93 billion, with sub-Saharan Africa accounting for a mere $1.1 billion or 1.26 per cent.
In the same year, Bangladesh alone exported $3.5 billion worth of apparel -- more than double the entire sub-Saharan Africa exports.
Real motive
Then there is the fact that African exports under Agoa have been declining in recent years. With US petroleum imports continuing to dominate Agoa trade, critics charge that the real motive for the US was to secure oil and mineral resources from Africa.
This year's Agoa forum comes at a time when African countries are just beginning to grapple with the effects of the international financial crisis.
Because of limited integration with international financial markets, banks in most African countries survived the first round of the crisis as they did not have the toxic debts in their balance sheets and were largely insulated from the crisis.
However, the prognosis now is that African exporters to the US will be hit hard by the lack of effective demand.
One of the issues the Nairobi meeting is expected to tackle is how African exporters can be supported to reduce the impact of the crisis on demand for exports.
Discussions will also centre on what is to be done to move trading cooperation betwen the US and Africa beyond duty-free and quota-free access to US markets.
A new body of opinion is emerging that suggests that trade relations should now focus on competetivesness: how African businesses can be assisted to address the cost of doing business.
The issue of economic linkages also comes up at Agoa fora. For example, booming apparel and garment exports from Africa have not translated into robust cotton farming on the continent.
Academic and reseacher, Prof Mwangi Kimenye, has argued that Agoa had now reached a stage where it must support value addition manufacturing in Africa.
Another burning issue expected to come up for discussion in Nairobi is the question of other trade deals which the US Congress wants to extend to countries such as Cambodia and Bangladesh.
African leaders have expressed fears that millions of dollars invested in Agoa industries could be lost if the deals are extended to countries and regions directly in competition with them.
Under AGOA, the US has the right to unilaterally revoke a country's eligibility to Agoa. Critics argue that the fear of a country losing eligibility was a big disincentive to investors considering that Agoa businesses usually target the US market. "Investors will shy away from making what would otherwise be profitable investments because of the threat of losing market access," says Prof Kimenyi.
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