Will the African Growth and Opportunity Act be renewed?

Will the African Growth and Opportunity Act be renewed?

For many textile workers it is already well past midnight on the Africa Growth and Opportunity Act (AGOA) renewal. Apparel buyers plan nine months to two years ahead so uncertainty as to whether AGOA will renewed before 30 September 2015 means they have already lost business.

“I’ve heard from a few small and medium-sized companies that they have already started to pull out of AGOA factories. This is incredibly unfortunate, because many of those factories were just getting back on their feet after we went through the last-minute AGOA renewal in 2012,” Julia Hughes, President of the United States Fashion Industry Association (USFIA) said.

President Bill Clinton launched AGOA in May 2000 for an initial 8-year period to promote two-way trade and investment between the US and African countries. The AGOA is a unilateral treaty though as the US alone determines who benefits and does not require reciprocal trade benefits from African partners.

Nevertheless, there is something in it for the US. According to the US trade office, American exports to Africa support more than 120,000 US jobs. This is primarily because AGOA has created some 350,000 direct jobs and 1 million indirect jobs in Africa.

In 2013, 70% or $26.8bn of $39 billion worth of total imports from Sub-Saharan Africa (SSA) came in under AGOA rules, almost quadrupling the $7.6 billion created during AGOA’s first full-year in 2001. Although 70% of SSA exports to the US in 2013 were oil-related, non-oil AGOA trade has more than tripled since 2001 with apparel being the major beneficiary. Clothing exports to the US have grown from $355 million in 2001 to $907 million in 2013.

The other major beneficiary of non-oil related trade has been South African exports of vehicles to the US, with vehicle imports seeing strong growth, rising from $289 million in 2001 to nearly $2.2 billion in 2013. These and other more advanced manufactured products come almost exclusively from South Africa.

Imports of products with more widespread origins have grown on a more modest scale. US imports of food and agriculture products, including nuts, fruits, cocoa, sugar, beverages, and tobacco have increased from $136 million to $446 million during the same period.

Angola, Nigeria, South Africa, Chad and Gabon were the top five AGOA beneficiary countries in 2014, but with the oil price collapse in 2015, South Africa could move to the top of the pile.

The top ten AGOA clothing exporters in 2014 were Kenya, Lesotho, Mauritius, Tanzania, Swaziland, Ethiopia, Botswana, Ghana, Malawi and South Africa, but Swaziland is unlikely to be in the Top Ten in 2015 as it has had its AGOA benefits withdrawn.

AGOA renewal has been on the Congressional agenda since 2013, but the increasing partisanship in Congress has held it hostage to domestic politics. The latest fly in the ointment is a war over South African tariffs on American poultry exports to South Africa.

Democrat Senator Chris Coons of Delaware and his Republican counterpart Jonny Isakson of Georgia have asked South Africa to lower tariffs on US poultry imports. Otherwise South Africa could be excluded from AGOA as Swaziland has already been.

Critics of AGOA say the trade incentives have failed to benefit as many African countries as hoped with half the 38 countries eligible for AGOA exporting less than $1 million per year to the US. The program has also come under fire for dropping and adding AGOA-eligible countries on a yearly basis, creating a somewhat risky climate for potential investors.

Others say the greatest barrier in taking full advantage of AGOA is not eligibility, but a lack of trade and power infrastructure in AGOA-eligible countries. That is in part why the US has launched its Power Africa initiative to address some of these constraints.

The clock continues to tick on AGOA renewal as more and more African jobs are put at risk.

About Author

Helmo Preuss

Helmo was the chief economist at Oasis Asset Management and former Economics Editor at a real-time financial news service. He holds degrees in Economics, Economic History and Computer Science.