AGOA – As Trade Grows, Africa Prospers
On July 18 and 19, U.S. and African leaders met in Ghana for the sixth African Growth and Opportunities Act (AGOA) Forum in Ghana. The theme of 2007 event was “As Trade Grows, Africa Prospers: Optimizing Benefits Under AGOA.”
AGOA is a series of trade and investment policies towards sub-Saharan Africa, that is reducing barriers to trade, increasing exports, creating jobs and expanding economic opportunities for Africans. Specifically, AGOA provides trade preferences to 38 sub-Saharan African countries that are making progress in economic, legal and human rights reforms. Under AGOA, eligible countries can export almost any product to the United States duty-free – nearly 6,500 products from apparel to automobiles, footwear to fruit. AGOA exporters receive duty free treatment on 98 percent of their exports. In addition, AGOA also provides a framework for technical assistance to help countries to take advantage of these preferences and expand their exports to the U.S. market.
Has AGOA helped African countries to integrate themselves into the global economy? While AGOA has played an important role in increasing exports from many African countries, the full benefits to Africa have not yet been fully realized.
Africa’s total exports to the United States have increased rapidly. In 2006, the 38 AGOA countries were collectively the 6th largest U.S. supplier, after Germany and before the United Kingdom. Last year AGOA exports increased 19 percent.
The United States accounts for more than 29 percent of exports from sub-Saharan Africa, the largest single country share of all of Africa’s trade partners. The U.S. share of exports from sub-Saharan Africa rose by 43 percent between 1999 and 2005, while the European Union’s share declined by 24 percent. China’s share of exports from sub-Saharan Africa has been increasing rapidly, growing by over 250 percent from 1999 to 2005, and is the second largest single-country share after the United States.
For the first four months of 2007, oil accounted for nearly 82 percent of America’s total imports from AGOA countries. Precious metals accounted for another 7 percent. Thus, manufactured and agricultural goods made up approximately10 percent of African exports under the AGOA regime.
In addition to the oil producing countries, South Africa is clearly the biggest beneficiary of AGOA’s free trade regime. For example, for the first four months of this year, South Africa’s exports of machinery to the U.S. accounted for USD 180 million of AGOA’s total 186 million in the same category. While these statistics suggest that additional trade capacity building and investment are required in many AGOA countries, one cannot but be impressed by South African exporter’s superb export performance in the U.S. market.
Last year, South Africa increased export sales to the United States by 28 percent. The most recent data (Jan-May) show growth at 26 percent, compared to the same period in the previous year. Precious stones and metals increased 48 percent. Machinery expanded 46 percent. Mineral fuel and Nickel products grew 251 percent and 154 percent, respectively.
South Africa’s booming exports to the U.S. stand in contrast to the inability of many other African countries to take full advantage of free access to the U.S. market. Lack of investment and lack of capacity hinder many African countries from exporting more.
Therefore, in addition to fighting HIV/AIDS, trade capacity building is a major focus of the U.S. bilateral and multilateral aid programs. For example, in 2007, the Millennium Challenge Corporation (MCC) will distribute USD 2.5 billion in untied infrastructure building support to sub-Saharan countries.
At the recent G-8 Summit in Germany, President Bush announced two additional programs that will promote trade and economic development. The African Financial Sector Initiative will address gaps that African companies face, mobilizing domestic and foreign investment. President Bush also announced that USD 525 million would be spent over five years to expand education assistance for children in the poorest countries.
Despite enormous development challenges, Africa has recently enjoyed a period of rapid and sustained economic growth over recent years. This recent economic progress has been the result of sound changes of economic policy, improved governance and investments in key social sectors undertaken in the last decade. Initiatives such as NEPAD will lead to the institutionalization of many of these positive trends.
Further integration into the global supply chain, free trade and increased investment will set the stage for continued growth and broadening prosperity – both for Africa and the United States.
