It has been a decade since the African Growth and Opportunity Act (AGOA) was enacted, enhancing sub-Saharan Africa’s access to the U.S. market by removing import duties on thousands of products.  Its impact is clear: exports from AGOA-eligible countries have grown over 300%, from $21.5 billion in 2000 to $86.1 billion in 2008.

 

 

Perhaps more so than any other policy structure in place, AGOA demonstrates the maxim that “trade is aid.” It has created over 300,000 jobs, chiefly in sectors like apparel that benefit women. 

 

“Export expansion is critically important to Africa’s development,” said Rosa Whitaker, who developed and implemented AGOA as former Assistant U.S. Trade Representative for Africa. “World Bank research indicates that if Africa had maintained the share of global trade it achieved during the 1980’s, it could have generated an additional $100 billion dollars per year – more than the region received in annual aid flows from all sources during this period.”

 

At this year’s annual AGOA forum, stakeholders discussed the way forward for US-Africa trade. Themed “AGOA at 10: New Strategies for a Changing World,” the forum took place August 2-6 in Washington, DC, and Kansas City, with participation from senior trade officials from 38 African countries as well as members of the private sector from the US and Africa.

 

A close assessment of AGOA’s benefits so far produces a mixed verdict. Though the statistics are impressive, the extent to which AGOA has benefited sub-Saharan Africa varies considerably across countries, and depends on a variety of factors. 

 

 

In the pantheon of AGOA success stories, Lesotho offers a particularly striking example: its apparel exports have increased from $140 million in 2000 to nearly $350 million in 2008. It is now sub-Saharan Africa’s largest exporter of apparel to the U.S.

 

“Thanks to AGOA, Lesotho was able to attract foreign investment into its small existing textile and apparel sectors, including a $120 million denim fabric mill, further integrating Lesotho into the global marketplace,” said David Mohlomi Rantekoa, Ambassador of Lesotho to the U.S., at the U.S. Congress’ ceremony to commemorate the tenth anniversary of AGOA’s enactment in May.

 

AGOA has played an instrumental role in stimulating the economy of this tiny, landlocked country, where it is estimated that five people depend on the salary of one worker. With over 39,000 workers, the apparel sector is the country’s largest formal employer.

 

In stark contrast to the success of countries like Lesotho, some African nations have a long way to go before achieving their full export potential under AGOA. It has scarcely registered on the radar of businesses in Gabon, for instance. Statistics indicate that no Gabonese companies currently take advantage of AGOA, except for subsidiaries of multinational oil companies.

 

At a recent Trade Hub-organized AGOA workshop in Gabon, speakers underscored the need to develop sectors in which Gabon has a comparative advantage, such as processed wood, home décor, and sustainable fish and seafood.

 

In an article on the workshop, the Gabonese newspaper L’Union lamented the fact that Gabonese businesses are mired “in a kind of lethargy” when it comes to benefiting from AGOA, especially when compared to countries like Ghana and Cameroon.

 

“Everything remains to be done,” said Françoise Assengone Obame, Gabon’s Minister of State for Finance,  in the L’Union article. She called for a concrete national strategy to stimulate national export growth under AGOA.

 

“While AGOA permits duty and quota-free entry into the U.S. market, AGOA-eligible countries must define and implement their own export strategies based on their comparative advantages,” said Abou Fall, AGOA Services Manager at the Trade Hub. “They must also set up the right steering mechanisms and incentives to draw in investments, and promote exports.”

 

“Governments from AGOA-eligible countries must, in a dialogue with the private sector, identify sectors where they have some comparative advantage, and create a set of incentives and an enabling environment to stimulate exports.”

 

The example of Lesotho could offer some lessons to other African countries seeking to develop a strategy to revitalize exports. Its apparel sector experienced export growth despite facing many of the same challenges as countries whose exports have failed to take off under AGOA. These include poor infrastructure, political instability, bureaucratic inefficiency, and costly access to finance.

 

Lesotho has not always been successful. In 2004, the apparel sector was booming: it employed 53,000 people and exported $456 million worth of garments. But when the World Trade Organization reduced textile quotas worldwide the following year, economic powerhouses like China and India began to export in greater volumes, rendering African countries far less competitive.

 

Lesotho’s only remaining advantage was its duty-free status. Six apparel companies shut their doors and 6,000 people lost their jobs. The government reacted decisively by zero tax rating exporters and instigating meetings with producers every two weeks to discuss potential improvements to the manufacturing environment.

 

“Because of the government saying, ‘Talk to me about the problems,’ it attracted 9,000 additional jobs,” said Hanna Amichia, the Trade Hub’s apparel sector coordinator. 

 

Success in export growth does not come easily. Lesotho demonstrated that it takes adequate financing, a high volume of orders, product quality, satisfactory delivery times and appropriate pricing – not to mention a good deal of determination, grit and perseverance, Amichia said.

 

“You’ve got to be radically different in the way you do business,” when approaching the question of export growth compared to local market activities, she said.

 

“A decade has gone by and it has become evident that the Ghanaian export sector faces challenges in capacities and quality,” said Marjorie Abdin, vice president of the Federation of Associations of Ghanaian Exporters (FAGE), at the AGOA Policy Dialogue in Accra in July. “Production, technical and financial capacities are low across the board in every sector. And unless these weaknesses are addressed, Ghana’s response to the AGOA incentive will continue to be disappointing.”

 

FAGE suggests that, as the Ghanaian government drafts an AGOA export strategy, it should focus on production of fruits and vegetables in order to create the greatest immediate impact on poverty alleviation and employment. 

 

“Value addition should be an important component” of investing in horticulture, said Abdin. 

 

Anthony Flahn, coordinator of Liberia’s AGOA Resource Center in Monrovia, said that failure to satisfy international standards is a main reason that exports have scarcely contributed to Liberia’s development since AGOA’s enactment.

 

“Liberia is recovering economically,” said Flahn. “AGOA has been and continues to be advertised by the Liberia Chamber of Commerce, but there are challenges in terms of capacity to meet export standards, such as efficient SPS [sanitary and phytosanitary] institutions, certification boards, research institutes, laboratories, and export boards.”

 

Efforts to create awareness have long been underway across West Africa. To help companies benefit from AGOA, the Trade Hub has helped establish AGOA Resource Centers (ARCs) in 15 West African countries.

 

Though AGOA has proved largely successful as a tool of development policy, its future remains in question. 

 

AGOA’s limited timeline – it is due to expire in 2015, with key apparel provisions expiring in 2012 – fails to provide the certainty needed for expanded investment and trade flows. Whitaker said that a decision regarding AGOA’s lifespan must also be reached soon, lest African economies suffer.

 

“Sourcing and investment decisions are made years in advance,” said Whitaker. “Therefore, delay or doubt regarding AGOA’s renewal may cause significant job loss and decreased export revenues in Africa.”

 

AGOA was designed to promote both trade and investment as tools of economic development. While many African countries have experienced export gains, the investment response from U.S. businesses has fallen short. This is due in part to AGOA’s failure to include tax incentives for U.S. companies, said Whitaker.

 

Considered as a whole, AGOA has been a significant success. Improving its impact is now the focus of trade policymakers from around the world. Ultimately, the Act has created hundreds of thousands of jobs – a sure way to alleviate poverty.