Can africans review the terms of agoa?

Recently the US Secretary of State Hillary Clinton was in Nairobi, Kenya to attend another AGOA Forum, as part of her tour of parts of the African continent. One renowned academic and political commentator in East Africa was quoted in an interview with the media saying African countries “should negotiate and review the terms of AGOA” on the grounds that the Act had not benefitted Africans.

Recently the US Secretary of State Hillary Clinton was in Nairobi, Kenya to attend another AGOA Forum, as part of her tour of parts of the African continent. One renowned academic and political commentator in East Africa was quoted in an interview with the media saying African countries “should negotiate and review the terms of AGOA” on the grounds that the Act had not benefitted Africans.

The good academic argued the Africans had only supplied labour to foreign owned businesses which had relocated to Africa in order to benefit from the preferential treatment accorded AGOA eligible countries particularly those in sub Saharan African. Because Africans had not benefitted from AGOA, the gentleman argued that better terms had to be negotiated.

The African Growth Opportunity Act (AGOA) was approved by US Congress and authorised by President Bill Clinton in May 2000 “to assist the economies of sub Saharan Africa to improve the economic relations between the United States and the region”.

The Act authorised the US president to determine on an annual basis which sub Saharan countries would be eligible and one criterion was “to improve labour rights and movement toward a market economy”.

The Act provided trade preference for quota and duty-free into the US for certain goods (1,800 items) under the AGOA-generalised system of preference in addition to 4,600 available to non-AGOA items.

The Act seemed a generous overture to sub Saharan Africa, Uganda’s president Yoweri Museveni referred to it as, “the only act of friendship by the United States of America towards Africa in the last 300 years”.

In fact, a few years later, the EU created their high sounding but empty, “Everything But Arms” trade policy towards sub-Saharan Africa. The AGOA Act has been reviewed under AGOA II and AGOA III which extended the provisions of the Act to 2015.

Initially, some gains were made in trade under AGOA; by 2002 Lesotho was projecting investments worth $ 120 million, Madagascar projected investments worth $ 113 million and 43,000 jobs,  Kenya projected 50,000 jobs directly and 150,000 indirectly and employment in the textile sector in Swaziland increased from 17,000 jobs in 1999 to 40,000 in 2002.

In Uganda, Tri-star recruited 1,000 employees in one drive.  However it later transpired that most of the textile exports from sub Saharan Africa were in fact activities of crafty Indian, Bangladesh and Chinese business people who labelled their apparels “made in Kenya” etc and transhipped their products through Africa with no tangible benefits to the local economies.
With the expiry in January 2005, of the thirty years (1974-2004) Multi Fibre Agreement (MFA) otherwise called Agreement on Textile and Clothing (ATC), which imposed quotas on the  amount of textiles developing countries could export to the developed countries, there was no need for  transhipments through Africa and soon textile shipments from sub-Saharan Africa were no more.

Factories in Lesotho, Uganda and Swaziland closed.

Cotton which many people had grown for example in western and eastern Uganda was left to rot in fields because the “investors” were not interested in processing cotton into apparels but the label “Made in Uganda”, in fact Bangladesh textile exports increased by $500 million in 2006 due to the expiry of Multi Fibre Agreement. 

By 2007, mainly primary products were sold under AGOA; majorly oil from Angola and Nigeria which accounts for 80% of US imports from Africa and did not call for preferential treatment anyway.

Many AGOA eligible countries either did not have anything to trade, or had no benefits under the preferential treatment, Burundi for example although qualified for AGOA in 2006 exported nothing for the said year. From 1999 when US imports to Rwanda increased significantly there was a trade deficit of $10 million in 2002.

Trade between sub-Saharan Africa and the USA particularly agro-products has been and will continue to be hampered by both logistical and stringent “quality requirements” many times geared towards protecting domestic producers in the US.

Much of the increase in US-sub Saharan trade (28% in 2008 worth $102 billion,(with South Africa getting a $10 billion cut through its “diverse” trade and a surplus of $2 billion) would have continued even without AGOA.

Can Africans propose and win new terms under AGOA? Is it in power of Africans to make the reviews? Every year an AGOA forum is held; in Washington every other year and in an AGOA eligible country the other year and so far four African countries have hosted the Forum the latest being the recent one in Kenya in 2009, but with no major headways.

AGOA was initiated by the Americans to serve their interests and not Africans and since the former were not party to its creation, they cannot do much to make changes.

And even if there were reviews, there would not be many benefits because many countries have not widened their lists of exports, improved their production methods nor added value to their products.

Although AGOA may not have benefitted majority of African countries as was envisaged, the change China has shown towards Africa since the signing of AGOA, is of interest to any observer.

The successful series of China-Africa Forum initiated by China in 2000 (after  which China scrapped tariffs on 190 products from 28 of the least developed countries of Africa) have been increasingly attracting more attention, attendance and the figures show why; its trade with Africa increased from US $10.6 billion in 2000 to US $106 billion in 2008; up 45.1%  mainly in oil products from a year earlier (trade between the US and sub-Saharan Africa was US $ 104 billion in 2008); in 2003 China overtook Japan as the world’s second biggest consumer of petroleum products, which may explain the former’s interest in African petroleum products.

In 2008 China had a trade deficit of US $ 5.16 billion with Africa compared to a surplus of US $ 940 million in 2007.

In 2008, China imported products worth US$ 56 billion, an increase of 54% from Africa and exported products worth US $ 50.8 billion an increase of 36.3%. The number of African countries with which China had more than US $ 1 billion in trade increased from 14 in 2007 to 20 in 2008.

In the first 10 months of 2005, Chinese companies invested a total of US $ 175 million in Africa. Recently China’s Zonghui Mining Group signed a US $ 3.6 billion copper agreement with Zambia. Industrial and Commercial Bank of China (ICBC) bought 20% shares in Standard Bank of South Africa for a whooping US $ 5.6 billion.

The Chinese are not alone in their “scramble” for African resources; Indian Bharti Airtel bid US $ 23 billion for a stake in South African MTN, Brazil is offering technology and know how to boost food and bio-fuel production, Koreans and Arabs are leasing land and the visit of Russian president Dmitry Medvedev visit to parts of Africa shows the interest in Africa.
As someone put it “Africa’s policymakers prefer a more multilateral approach, with a number of development partners and a number of options open to them”  and today the challenge African leaders face is to identify areas where their countries enjoy relative advantages, put emphasis in developing these areas and choose trading partners that offer the best partnership.

Reviewing and renegotiating AGOA (even if it were possible or created better terms) will not benefit sub-Saharan Africa anymore than it has already done.

It would help African policy makers to remember that there is not much magnanimity in commerce or trade but what makes economic sense.