30 July 2014

Africa: What Africa Needs to Boost Trade With the U.S.

Photo: The White House
Barack Obama (file photo).

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Ahead of the United States-Africa summit which President Barack Obama is convening next week, southern African trade expert Joshua Setipa outlines what he would say if he was to present Africa's case in Washington.

If I was to go to Washington next week, I would tell the administration that our relationship with the United States is one which we as Africa cherish very much, but that it is one that could use some refinement; that we need to revisit a few issues to make sure that U.S. priorities and U.S. aspirations in this relationship are consistent with Africa's political priorities.

Africa's relations with the United States are of course about more than trade and investment. There are a whole raft of issues of mutual interest - security being just one. But if we are to focus only on trade and investment, I would begin by providing an overview of where we are now.

If you look at the structure of today’s trade relations between the U.S. and Africa, it's primarily dominated by the export of fuel and fuel-related products and - with the exception of South Africa - the volume of manufacturing exports from sub-Saharan Africa to the United States is very limited. So my priority would be to ask the U.S.: how do we address this together? How do we look at ways of remedying this and diversifying Africa’s export basket, because relatively few African countries either export or have the prospect in the future of exporting petroleum products.

Then I would also say to the U.S. that we cannot talk about strengthening our trade relationship without addressing Africa's infrastructure deficit. This infrastructure deficit - transport and logistics-related infrastructure being the obvious example - affects not just U.S.-Africa trade potential but it also continues to undermine intra-African trade potential. It undermines the attainment of one of the key political priorities of Africa, regional integration, which will benefit from improved infrastructure links between countries.

Furthermore, I would reaffirm Africa’s continued support for The U.S.'s African Growth and Opportunity Act (AGOA), the law which extends trade preferences to qualifying African nations, and highlight that it has been a very positive contribution to economic growth - though some countries have benefitted more than others.

Among the key questions for the future that I would propose for joint consideration would be: why has there been limited success in accessing the financing mechanisms that are part of the AGOA framework? How can the U.S. and Africa work jointly to enhance incentives that will enhance U.S. private investments in public infrastructure in Africa? How can the U.S. enhance its support for the efforts already being undertaken by the African Development Bank aimed at mobilizing financial resources for infrastructure finance?

And we should not lose sight of the fact that by infrastructure we are not talking only about the bricks and mortar part, nor the highways and bridges – we are also referring to the “soft” trade facilitation framework issues including customs modernization and so forth. In fact, the U.S. and Africa have an excellent opportunity to enhance their cooperation in the trade facilitation area through the new World Trade Organization (WTO) Agreement on Trade Facilitation concluded at the Bali WTO ministerial conference in December 2013.

Unless infrastructure continues to remain a priority in this relationship, and new and innovative financing ideas come into play, we cannot talk about enhancing or broadening the U.S.-Africa trade relationship. Africa’s political and economic priority is regional integration, trade is a key element of this priority and it therefore goes without saying that Africa’s relationships with strategic partners like the U.S. will be judged on how they have supported the achievement of this priority.

After infrastructure, my next priority would be agriculture. For example, you have 34 countries in Africa that are competitive in the production of cotton, yet this potential continues to be undermined by U.S. subsidies for their cotton producers. We need to address this in a more meaningful manner than has been done to date. The WTO Doha Round of trade talks still presents the best opportunity to address this issue and therefore the U.S. should reassure Africa of its commitment towards concluding the Doha Round.

There is a positive story emerging from the Western Cape in South Africa: the success of the citrus industry in growing its exports to the U.S. This is a demonstration of what can be achieved through dedicated cooperation to improve the capacity of African farmers to export to the U.S.

This support has focused primarily in improving the capacity of South African farmers to comply with, among others, American health and safety standards - the “sanitary and phytosanitary” requirements which need to be met to sell products to U.S. consumers. This experience can serve as a model for the rest of Africa so that more African farmers access the U.S. agriculture market. At present the reality is that the average sub-Saharan African farmer does not have the capacity to comply with these kinds of requirements.

Agriculture and food security has been identified a key priority by the U.S. in its policy towards Africa and this summit provides an opportunity to review progress and to identify new ideas to enhance the effectiveness of cooperation in this sector.

Unless agriculture is addressed in a more meaningful manner, its potential to drive African economic empowerment will continue to be undermined. And the reality is that addressing challenges to the potential of the African agricultural sector is not limited only to market access. There is a whole range of issues which require attention just as urgently, including access to finance and improving market information flows and trade finance.

Considering the potential contribution of agriculture to growing the trade relationship - and the number of Africans who depend on agriculture for a livelihood - if we were to address these issues in a focused and sustainable manner, we could realize our mutual objective of delivering real and sustainable economic empowerment to African farmers. So agriculture cannot be left out - it has be part and parcel of the future of this relationship.

Then there is a whole range of other issues and concerns around AGOA that need to be addressed. It is fair to begin by recalling that in the U.S., unlike most democracies, regulation of trade is constitutionally vested in Congress, so the authority to conclude international trade agreements lies not with the administration but with Congress. So the administration will work with Congress to push for a stronger relationship but at the end of the day it is not within their mandate to make the final decision.

Despite this limitation, I would say to the administration: apart from South Africa, quite a number of other countries also have been able through AGOA to increase their exports into the U.S., mainly in the form of clothing and textiles. So how do we ensure that that is not threatened by all the other processes that are running parallel to this relationship?

Within the WTO, the Doha Round process continuously seeks to drive tariffs downwards, eventually eroding the competitive edge that AGOA gives to beneficiaries.

You also have other bilateral processes that the U.S. is party to: the Trans-Pacific Partnership, for example, which will give significant preferential access to countries like Vietnam and possibly Cambodia. This will present African clothing and textile exporters with the challenge of competing with countries that are more competitive and much closer to the U.S. market than they are.

For example, the case of my own country Lesotho, which is considered one of AGOA’s success stories, it takes around 25 days to ship a container from Maseru to the U.S., compared with around 14 days from Vietnam to the west coast of the U.S.

Also, continued investment and growth for this sector in Lesotho is very much dependent on continued AGOA preferential access, which includes flexible rules of origin provisions. There are currently around 34,000 employees in this sector, making it the biggest in our economy. Any disruption to it will have a devastating social impact.

But we also need to look at AGOA more broadly. Africa needs not just a simple extension of the law beyond its expiry in 2015 – we need a more comprehensive revision that includes an extension of at least 15 years.

This has a direct bearing on investment flows into countries benefiting from AGOA; if an investor is to make investment decisions on the basis of guaranteed duty-free, quota-free market access to the U.S., a much longer time frame than five years would be of clear benefit.

Finally on AGOA, we need also to say to the U.S.: let's work together in the WTO to make sure that AGOA is compatible with the WTO rules and that it is not open to the threats and challenges that it currently faces, while at the same time respecting the fact that there are other developing countries that are also seeking to enhance their trade relations with the U.S.

To conclude my intervention, I would re-emphasize that to build a durable, long-lasting and mutually beneficial trade relationship, the critical issues which need to be addressed as a matter of priority are: access to finance; financing for infrastructure; real, targeted financing and support for agriculture, particularly for smaller farmers; and also how we can provide incentives for U.S. corporations to invest in the sectors other than oil and gas to ensure that the growth we are both seeking to achieve is broad-based and sustainable.

I would round up by reminding the United States that everything it does with or in Africa has to be consistent with the continental economic and political priority of achieving full regional integration. Through enhanced regional integration, the full potential of this trade relationship will be realized.

Joshua Setipa is a former chief executive officer of the Lesotho National Development Corporation. This column was developed from a presentation he made to a roundtable on the summit organized by the South African Institute of International Affairs and the Graduate School of Business at the University of Cape Town.

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