MAKING THE US â€“ AFRICA PARTNERSHIP A REALITY: WHICHWAY FOR AFRICA By Ben Kangwa On April 15, 2011, Minister of Commerce, Trade and Industry, Felix Mutati was among a panel of experts at the Brookings Institute in Washington DC that took part in a discussion hosted by the Africa Growth initiative and the Corporate Council on Africa (CCA). The other two panelists were Assistant US Trade Representative Florizelle Liser and the President of the Corporate Council on Africa (CCA) Stephen Hayes.The discussions were anchored by Professor Mwangi Kimenyi, the Executive Director of the African Growth Initiative at Brookings Institution. In May 2000,US former President Bill Clinton signed the African Growth and Opportunity Act (AGOA) with the goal of opening trade markets and investment between the United States and Africa on quota free and duty free basis. Since its implementation AGOA has increased investment and trade between the two continents and has led to job creation in Africa. He said evidence of this was the creation of around 300,000 jobs between 2001 and 2010 as a direct result of AGOA preferences Minister Mutati explained that the number of Africans impacted by AGOA Preferences was about 10 million people, by virtue of them being integrated into various regional value chains. He said the Act had played a critical role for economic growth in many African countries and generated unprecedented investment interest in Africa.
Ms. Liser, Mutati, Hayes and Prof Kimenyi. Pic by Paul Morigi. However AGOAâ€™s potential expiration in 2015 has raised many concerned about the future of trade between the US and Africa if the Act is not renewed. He also referred to the impending expiration of the of the Third (3rd) Country fabric which is scheduled to expire in September 2012, stressing that the expiration had potential devastating impact on textile producing countries such as Lesotho. To illustrate this trend,, he said in the first two years of AGOA certification, Lesotho experienced a 36 percent increase in employment from 29,000 to 45,000 due to the establishment of new companies seeking to take advantage of the AGOA preferences. He added that most of these companies set up operations in textiles, clothing and footwear sectors that tend to be labour intensive and female worker friendly/ He said though not envisaged, AGOA in Lesotho had not only fostered new investments and employment, but also helped empower women by affording them access to a regular income. He also gave statistics with regards to leading US imports from AGOA eligible countries and stated that energy related products account for more than 90 percent of imports valued at US$30 billion, followed by transportation equipment valued at $1.4 billion, accounting for 4.2 percent, textiles and apparel valued at $918 million accounted for 2.7 percent, minerals and metals valued at $413 million accounted for 1.2 percent. These statistics, he said, portrayed the fact that diversification still remained an enduring challenge for Sub Saharan Africa. Mr. Mutati also gave some specific examples of AGOA success stories with regards to flow of Foreign Direct Investment (FDI) such as in Malawi where AGOA has led to FDI in two garment factories by European and Taiwanese companies, creating at least 4,350 jobs. It was estimated that total employment would increase by 10,000 leading to a total of 20,000 workers. In Mauritius, FDI worth $78 million took place and that prospects of Asian and European companies building cotton-yarn spinning mills were strong. He said in Senegal, a leading Senegalese apparel and textiles company planned to enter into a partnership with a US textile manufacturer and a Malaysian firm to export to the US with a potential creation of 1,000 jobs while in
Cape Verde, a fish processing company was acquired by a US company and two new Portuguese investments in the garment industry were announced. Another success story was in South Africa where the establishment of a new $100 million clothing facility by Malay investors was expected to employ 13,000 workers. He said despite the good intentions of the AGOA legislation, expectations from AGOA eligible countries had been characterized with uncertainty, unpredictability and a sense of unequal partnership noting that AGOA’s temporary nature discouraged long term investment in the last ten years as investors have had a difficulty in recouping capital prior to the expiry of the Act in 2015. It was against this background that Minister Mutati observed the need for the United States of America and eligible countries in Sub-Saharan Africa to begin working at developing an effective exit strategy out of AGOA because the original architects of the AGOA process never meant it to last forever. He said,” AGOA from an African perspective should not be treated as a permanent feature. We do not want AGOA to be extended permanently, because it is our belief that competitiveness will not be assisted by extension of AGOA on a permanent basis. “So we agree with you that we are not looking for permanence. But what we do not agree is that we need to remove the uncertainty that surrounds the current tenure of AGOA. Because that will act against the motivation of investment, particularly investment from the US into Africa and vice versa,” adding, “So 2015 for us appears alarming. So we need to do something about that.” Mr. Mutati stated that Africans were of the belief that Africa would not remain permanently poor or permanently uncompetitive. It was for this reason, he said, that the message from Africans to the USA was very clear that AGOA was one of the several tools that can assist Africans in creating jobs and wealth for Africa. The Minister further discussed the disparity between the generally negative image of Africa in the Western Media and the positive aspects of the continent’s reality. He said Africa had been grappling with negative perception of hopelessness and despair .
He noted that in the last ten years, negative media coverage of Africa had slowly brought down the level of investment in Africa. He observed that the pattern of images from the negative media coverage had left an impression that Africa was not a place to do business. The Minister also said that in the 37 countries that are AGOA eligible countries, positive reforms were being implemented. He quoted the 2010 ‘Ease of Doing Business’ World Bank Report that gave examples of Rwanda and Zambia as being among the top ten reformers Mr. Mutati said the AGOA eligible countries remained confident that the future of Africa deeply lay in its people and in the Small Medium Enterprises (SMEs). He concluded his presentation with these remarks,”As we commute to Lusaka in June, we want to demonstrate as Africans that the key drivers of our economies are the SMEs. We want to use that message to the US government that we can begin the process of simplification in order to access the US market.” In his presentation, President of the Corporate Council on Africa, Mr. Stephen Hayes stated that the African Growth and Opportunity Act (AGOA) is a “cornerstone” of US Africa Policy, placing Africa among a significant priority of the United States. Mr. Hayes said AGOA had been an effective tool for some countries and less effective tool for others. He said AGOA provides an opportunity for the United States of America to work with Africans to develop Africa in line with their wishes and also to help Africa develop in terms of America’s social, economic and political policy. The CCA President also called on the United States to further develop its USAfrica trade relationship beyond AGOA to include development of Africa’s private sector. He noted that there was an opportunity for linking small and medium sized enterprises in the United States and Africa, adding that that there was a death of these enterprises in most African countries. “You cannot develop a strong middle class and a stable economy and a stable country without broader middle class,” he said. “You need that to have that as a tax base. You also cannot develop a tax base on that unless there are jobs and businesses that can provide that. So, the development of a viable private sector is of the highest importance.”
He noted that development of a regionally focused viable infrastructure was also critical to any significant economic development citing railroads in the region that must be of the same gauge to facilitate the trading of goods and materials across borders and regional integration of infrastructure, tax base and customs so goods can move freely and quickly. Assistant US Trade Representative Ms. Florizelle Liser focused her presentation on myths and misconceptions about AGOA that it only targets oil, that its product coverage is insufficient and that its standards are too stringent. She emphasized that petroleum products are covered by AGOA and are the leading products imported under AGOA. She explained that it was not surprising because oil was Sub Saharan Africa’s leading export to the entire world. “It is duiable and AGOA covers almost all dutable products, so it only follows that oil would be the leading import under the program,” she noted. She was quick to state that Oil had never been the major focus of AGOA, but to promote new nontraditional and value added exports from Africa like apparel, footwear, processed agricultural products and manufactured goods. According to Ms. Liser, the second myth was that AGOA’s product coverage is insufficient. She explained that AGOA almost covers everything and that the list of products that AGOA does not cover is short mostly composed of non-apparel textile products like pillows and bedding. On agricultural goods, she said AGOA covers everything except the few products such as tobacco and sugar, subject to tariff-rate quotas. In reaction to the third myth that AGOA eligibility standards are wrong, either too stringent or too relaxed, she responded by stating that 37 of the 48 AGOA eligible countries in Sub Saharan Africa are now benefiting from AGOA Preferences She however acknowledged that some AGOA eligible countries had lost their eligibility as a result of governance issues, but cited others that regained eligibility when they restored democratic rule. The last myth on the Assistant US Trade Representative was the nontariff barriers that are alleged to have stifled AGOA Trade. She said US imports from Africa certainly had to meet US standards, including sanitary and phytosanitary measures for many agricultural products.
She explained that these were the same standards that imports from all US trading partners and domestic stakeholders “must meet to protect food safety, animal and plant life and health.” She observed that the four US Agency for International Development (USAID) trade hubs in Nairobi, Gaberone, Dakar and Accra were training African exporters to meet these standards. As she wound up her presentation she emphasized that the goal of AGOA, passed by Congress in 2000, was to help African countries in order for them to become more competitive in the US market adding that “it is not a technical assistance program and is not designed to address infrastructure problems and other such trade constraints.” She closed her presentation by stating ,”While AGOA has not yet realized its full potential, there is no question that it has indeed made a difference. By any measure,” she told her audience,” we have seen a significant expansion and diversification in the products that Africa exports to the United Sates under AGOA.” As Zambia prepares to host the AGOA Forum in June this year, the Brookings discussion provided the panelists a chance to examine a number of key issues as AGOA’s current authorization expires in 2015 and as the special third country fabric provision for AGOA apparel ends in September 2012. Panelists agreed that the uncertainty surrounding the legislation’s duty free, quota free benefits would expire was bad for Africa’s economic outlook. Minister of Commerce, Trade and Industry, Hon. Felix Mutati reiterated that AGOA was not meant to be permanent and that it would be cardinal for African eligible countries to envisage an exit strategy in a timely manner. Corporate Council on Africa (CCA) President, Mr. Steven Hayes focused his attention on AGOA as a pivotal economic development program which stands as a cornerstone of US-Africa policy while Assistant US Trade Representative Ms. Florizelle Liser in her talk emphasized the many myths about AGOA for example that it targets oil and that its product coverage is insufficient and that its standards are too stringent.