Nearly ten years old, the African Growth and Opportunity Act (AGOA) continues to be the cornerstone of commercial and economic relations between the United States and sub-Saharan Africa.
This was affirmed at the AGOA Forum in Nairobi this month by ministers from 40 African countries, the high-level U.S. delegation adroitly led by Secretary of State Hillary Clinton and hundreds of representatives from the private sector and civil society.
Participants in the Nairobi forum also agreed that AGOA’s promise is not fully realized.
High Hopes
When AGOA was signed into law by President Bill Clinton in May 2000 there were great expectations. These only increased as President George W. Bush extended the law three times.
The legislation positioned trade to be as important to economic development as traditional assistance. There was a belief that AGOA would be a stimulus for a ramping up of light manufacturing on the continent, a precursor to more industrial and value-added production.
American companies were also expected to take advantage of sharply reduced tariffs and duties on 6,500 products and to increase investments on the continent.
Equally important, African governments warmly welcomed the prospect of closer commercial ties with the U.S. and the opportunity to move away from donor handouts.
While trade relations between the U.S and Africa have grown fourfold in the period leading up to 2008, non-oil trade accounts for just five percent of the $105 billion trade. Only 50 of the 6,500 exempted AGOA categories have been utilized, and the trend line is not positive given the global economic downturn.
In short, the stimulus to light manufacturing and business development has been minimal, at best.
Mixed Scorecard
True, AGOA has scored important accomplishments. In Lesotho today, more people work in the private than in the public sector due to the legislation. Apparel with labels that say “Made in Kenya” or in Swaziland or Madagascar, can be found in American stores next to apparel manufactured in Poland, Mexico and Canada. This could be a powerful boost for Africa’s image if sustained.
But the reality is that only a handful of African countries benefit from AGOA, and American companies outside the extractive sectors have not rushed to take advantage of lowered tariffs and duties.
Strengthening the Framework
So how do we make AGOA more relevant? Here are some suggestions.
Congress should reduce to zero the tax on repatriated earnings from investments by U.S. companies in manufacturing, agricultural, alternative energy and infrastructure projects that foster job creation and skills training.
Not only would this respond to a persistent appeal by African governments for greater U.S. investment but it would lower the risk and increase the return to American companies. It would also level the playing field, as many European companies already enjoy such incentives. The cost of the incentive to the U.S. would be minimal, less than our aid program in Rwanda.
A second suggestion would be to extend AGOA for another ten years, past its current expiration date of 2015. The importance of long and secure investment and trade horizons cannot be underestimated.
Thirdly, the Obama administration should help strengthen the capacity of Africa’s private sector by increasing significantly its investment in business training services and credit facilities. Without a stronger private sector, American companies will not have the strong commercial partners they need, and African companies will not be able to exploit their natural advantage in export diversification and local market expansion.
Africa’s Role
AGOA formalized a partnership with African governments who have a critical role to play in generating benefits from the program.
Simply put, these governments have to do more to improve their competitiveness. In the World Bank’s annual ease of doing business report, for example, the average ranking of African countries is 138 out of 181 countries. Corruption, bureaucratic bottlenecks and barriers to regional trade, among other impediments, have to be addressed more assiduously.
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Finally, there has been a persistent appeal by a number of African governments for the U.S. to reduce trade barriers to cotton, sugar, peanuts and other agricultural products.
On this, U.S. Trade Representative Ron Kirk was correct when, at the AGOA Forum, he called on African governments to help conclude the Doha Round of world trade talks so that these barriers can be reduced, not just by the U.S. but also by the European Union and every other country, of which there are many, which retains costly barriers to the importation of African products.
AGOA remains as relevant as ever to Africa’s development prospects. All stakeholders, however, have to increase their efforts if AGOA’s genuine potential is to be achieved.
