Improving on AGOA: African Exports to the U.S.

Trade relations between sub-Saharan Africa and the United States, specifically African exports to the United States, must be examined and re-evaluated after the implementation of the African Growth and Opportunity Act (AGOA). In 2000, the U.S. Congress passed this commercial law, which enabled qualifying African countries to receive the benefits of tariff and quota elimination in order to encourage the adoption of free-market economies and boost compliance to American trade ideals. Similar to the existing Generalized System of Preferences (GSP), AGOA extends access for the 39 eligible countries in the region to an additional 7,000 agricultural and material commodities.

What is AGOA?

The Act originally covered an 8-year period from October 2000 to September 2008 and was later extended through 2015. In the past twelve years, AGOA has facilitated the entry of $424 billion of African imports into the American market, prompting President Obama to commit to renewing AGOA beyond 2015. In 2012 alone, African nations participating in AGOA exported nearly $35 billion of goods to the United States. Since 2001, the annual trade between the U.S. and sub-Saharan Africa has more than doubled, increasing from $28.2 billion to $72.3 billion. Clearly, the initiative has promoted positive economic growth in Africa.

Under the leadership of the African Competitiveness Global Initiative, the U.S. Agency for International Development (USAID) established several Trade Hubs, providing assistance to African businesses in various industries to make them more competitive. A number of success stories arose from this program in a variety of commercial sectors, including cosmetics, seafood, jams, baobab powder, handicrafts, and textiles. In fact, many African companies who typically engaged in trade with local markets are now able to export their goods to the U.S. as a direct result of the program.

An analysis of African exports to the U.S. shows a clear dominance of oil and mining products over manufactured goods. Thus, while oil-producing countries are succeeding under this trade paradigm, the majority of African countries are in the process of reflection and strategic restructuring. The market share of non-oil products reaches only $5 billion, a mere fraction of oil products. There are, of course, a variety of exceptions and success stories: apparel in Ethiopia, Botswana, Mauritius, and Lesotho; handicrafts in Ghana; Tanzania, the producer of the cotton tennis outfits promoted by Venus Williams; the widespread success of Walmart and Gap in Southern Africa; and local companies that supply products for large American companies, such as "Gahaya Links" that provides baskets to Macy's. However, AGOA has the potential to substantially boost the economies of sub-Saharan African countries beyond the status quo.

Challenges Ahead

While obtaining a commercial advantage is a positive outcome for some industries and countries, gaining the maximum benefit from AGOA is still a challenge for most African countries. Although there is undeniable economic potential in the African continent (six of the ten fastest growing economies of the past decade are in sub-Saharan Africa), African countries must create a political and economic environment that is conducive to good governance to become competitive. In addition, they must create flexible legislative bodies that are responsive to market demands in terms of quality and quantity. To date, AGOA-eligible countries have developed national strategies without coordinating and integrating their policies with sub-regional organizations such as ECOWAS, SADC, and the EAC. To increase the economic capacity of sub-Saharan African countries and allow entrance into the American market, development must take place at the regional level, using an appropriate value chain approach and a forging a strong alliance between public and private sector stakeholders who can pool their human and financial resources.

This common regional approach has the potential to accelerate the integration of African economies and offers a variety of other advantages, such as raw material quality assurance, improved competitiveness within the international market, enhanced transportation of goods for landlocked countries, increased funding opportunities, reduced constraints related to energy costs, bolstered capacity for innovation, uniform human resources policies, and collaborative approaches to enter the U.S. market.  As an added benefit, intra-regional trade – which now stands at 10-12% of total trade in sub-Saharan Africa – will also be strengthened. Sub-Saharan African countries should also promote specialized regional platforms or areas of development dedicated to AGOA, as well as an effective industrial policy to provide a suitable offer for the U.S. market through public-private partnerships. The African private sector should fully engage in such partnerships.

Springboard for Development

The annual AGOA Forum, therefore, serves as an opportunity to advocate for better economic integration in Africa and to discuss global strategies with U.S. partners in order to use trade as a springboard for development.  It may also encourage American businessmen to invest more in Africa, develop mutually beneficial partnerships, and facilitate the transfer of American technology and expertise to Africa. This strategy may serve as the impetus to incorporate the large and dynamic U.S.-based African diaspora into decision-making and to strengthen women's leadership in the development of value chains, particularly in the agri-business sector, which will serve to increase the impact of US-Africa trade and improve the livelihood of millions of Africans.

In addition to regional and continental approaches to penetrating the U.S. market, sub-Saharan African countries could better use the benefits gained from the petroleum trade by developing and investing in large processing industries.  This would increase economic productivity, particularly in the agri-business sector, and incorporate sustainability, social considerations, and environmental awareness. Such an investment would undoubtedly result in job creation and higher incomes for the continent.

In addition to strengthening trade relations and capacity, sub-Saharan African countries and regional organizations should develop and implement coherent and effective plans to improve infrastructure and energy systems and connect trade with other sectors of the economy to transform the AGOA commercial advantage into a sustainable and tangible reality for Africa.

By Makhtar Thiam, Development Consultant and Former West Africa Trade Hub Office Director, Dakar, Carana Corporation