JULY 2010

Africa Growth Initiative

at BROOKINGS

AGOA AT 10
CHALLENGES AND PROSPECTS
FOR U.S.-AFRICA TRADE AND
INVESTMENT RELATIONS

EMMANUEL ASMAH
STEPHEN N. KARINGI
MWANGI S. KIMENYI
NICK KRAFFT
ZENIA LEWIS
NELIPHER MOYO
JOHN MUTENYO
LAURA PÁEZ
JOHN PAGE
MEKALIA PAULOS
EZRA SURUMA
OLUMIDE TAIWO
CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Consolidating Gains from Africa-U.S. Trade: Post-AGOA Options Beyond 2015 . . . . . . . . 3

Stephen N. Karingi, Mwangi S. Kimenyi, Mekalia Paulos, and Laura Páez

Addressing Uncertainty to Spur Investment in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

John Mutenyo and Nelipher Moyo

AGOA and the African Agricultural Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Emmanuel Asmah and Olumide Taiwo

AGOA and Regional Integration in Africa: A Missed Opportunity . . . . . . . . . . . . . . . . . . 15

Nelipher Moyo and John Page

Improving U.S. Trade Assistance under AGOA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Ezra Suruma and Zenia Lewis

Trade Logistics: AGOA’s Next Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Nick Krafft and John Page
I NTRODUCTION

This year’s Africa Growth and Opportunity Act (AGOA) Forum,

held on August 2-3 in Washington, DC, marks 10 years of trade
and development cooperation between the United States and Af-
rica. With 38 African countries currently receiving preferential
access for imports to the U.S. on over 6,400 products, AGOA
has been a significant step in encouraging African political and
economic reform efforts and promoting greater investment and
growth for Africa. Since AGOA’s inception, exports from eligible
African countries to the U.S. increased from $23 billion in 2000
to $81 billion in 2008.

However, the benefits and impacts of AGOA on African coun-

tries could be even greater. Currently, about 90 percent of Afri-
can exports to the U.S. under AGOA are energy-related products
with 70 percent of total AGOA imports to the U.S. coming from
oil producing countries Angola and Nigeria. There are also legiti-
mate concerns regarding AGOA’s potential expiration in 2015
and what it might mean for countries that depend on AGOA
benefits.

1
 Experts from the Africa Growth Initiative at integration in Africa and how AGOA can
Brookings examine the current AGOA frame- contribute to strengthening regional trading
work and the progress made over the past 10 blocs.
years. They provide recommendations on
how African and U.S. policymakers should Improving U.S. Trade Assistance under
strengthen and extend AGOA in order to re- AGOA. Ezra Suruma and Zenia Lewis tackle
alize greater positive gains. aid for trade issues in the context of AGOA
legislation. They provide recommendations
Consolidating Gains from the Africa-U.S. on how U.S. aid for trade should be better
Trade: Post-AGOA Options Beyond 2015. organized and linked to specific countries and
Mwangi Kimenyi, with Stephen N. Karingi, firms within Africa in order to fully realize
Laura Páez, and Mekalie Paulos review the the potential gains from AGOA.
challenges inherent in the possible expiration
of AGOA preferences in 2015 and what could Trade Logistics: AGOA’s Next Frontier. Nick
happen to U.S.-Africa trade should they not Krafft and John Page examine the supply-side
be extended. constraints that have limited the competi-
tiveness of African exports, despite AGOA
Addressing Uncertainty to Spur Investment preferences. They discuss how the U.S. and
in Africa. John Mutenyo and Nelipher Moyo Africa can work through AGOA channels to
examine the current pitfalls, which have lim- improve trade logistics in Africa.
ited foreign direct investment (FDI) in Africa
under AGOA, and provide policy recommen-
dations to mobilize private investment in all
sectors of African economies.

AGOA and the African Agricultural Sector.

Emmanuel Asmah and Olumide Taiwo inves-
tigate the demand-side constraints affecting
AGOA agricultural exports and discuss the
potential for U.S. and African policymakers
to encourage greater growth in this vital sec-
tor for Africa’s overall development.

AGOA and Regional Integration in Africa:

A Missed Opportunity. Nelipher Moyo and
John Page analyze the importance of regional

2 AGOA AT 10
CONSOLIDATI NG GAI NS
FROM AFRICAU. S.
TRADE
P OSTAGOA OPTIONS
BEYOND 2015 1

STEPHEN N. KARINGI
MWANGI S. KI MENYI
MEKALIA PAULOS
L AURA PÁEZ 2

INTRODUCTION
The Africa Growth and Opportunity Act (AGOA) has been the
centerpiece of U.S. trade with sub-Saharan Africa (SSA). By com-
plementing the Generalized System of Preferences (GSP) market
access, AGOA has opened the U.S. market to over 6,000 products
from 38 AGOA-eligible countries. This has helped to increase
both the volume and diversity of U.S.-SSA trade. Exports from
AGOA countries rose from $23 billion in 2000 to $81 billion in
2008. The non-oil imports’ component of this trade is estimated
to have risen 230 percent by 2008 despite AGOA’s exclusion of
competitive African exports like sugar, peanuts, dairy and tobac-
co. Furthermore, this expansion in African exports occurred even
though the U.S. continues to subsidize agricultural products such
as cotton.

The increase in trade has been accompanied by increased U.S.

foreign direct investment (FDI) flows to Africa. From 2001 to
2007, U.S. FDI to Africa rose by 52 percent to $13.8 billion.
In employment gains, estimates show that AGOA related trade
and investments created over 300,000 new jobs in Africa during

3
 its first nine years. While an average of over Preference margin erosion and losing export
30,000 new jobs every year might look mod- trade: The 7.7 percent preference margin af-
est, this performance is noteworthy when forded by AGOA and the addition of 541 ag-
compared to the jobless character of some of ricultural products to the 519 products that
the recent rapid growth experienced in some are already eligible for preferences under the
of the African countries. U.S. GSP have yielded considerable benefits.
There is evidence that some African countries
Yet, AGOA’s achievements mask two impor- have managed to diversify their exports, cre-
tant issues. First, the benefits have been un- ate jobs and attract FDI as a result of AGOA.
even in both product and country diversity. Intra-African and South-South trade have
Second, uncertainty regarding AGOA’s future deepened as a result of the preference mar-
could make it difficult for the gains, though gins supported by liberal rules of origin, espe-
uneven, to be sustained through long-term cially in textiles and apparel. During the time
investments and the creation of new regional that AGOA preferences have been in place,
value chains with the potential to deepen in- there have been increased local private sector
tra-African trade. A large number of studies investments directed at exploiting the oppor-
show that the largest share of U.S. imports tunities afforded by AGOA. But the firms set
from Africa continues to be oil and other en- up to exploit AGOA have not fully matured
ergy products. The diversification benefits of nor are they internationally competitive. As
AGOA have been limited to a few countries empirical research shows, firms take time to
that have been able to take advantage of the mature just as economic transformation does
preferential market access to export non-oil not occur overnight. Termination of AGOA
products, with textiles and apparels dominat- preferences implies that the SSA countries
ing this diversification drive. currently benefiting from AGOA preferences
would lose part if not all of their U.S. market
CHALLENGES OF A POST share to competitors from other developing
AGOA FRAMEWORK countries.

What are the main challenges for Africa

FDI diversion and specialization: Under-
posed by the expiration of AGOA prefer-
standably, the debate on AGOA has focused
ences? What could be expected beyond 2015
primarily on trade performance. However,
if AGOA is not renewed? How would Af-
it misses an important but limited contribu-
rica fare under such a scenario? The tem-
tion from AGOA, the diversification gains
porary, unilateral and conditional nature of
from U.S.- and non-U.S. investments. Such
AGOA makes these questions pertinent and
gains have been realized in automobile and
the answers should be assessed in the light of
transport-related exports from South Africa,
AGOA’s achievements.

4 AGOA AT 10
the utilization of existing capacity in the tex- renewal of AGOA or a definite phase-out of
tile sector in Kenya, and the emergence of this trade preference scheme. Both scenarios
the textile industry in Lesotho, Mauritius, require serious analysis since they each have
Ghana and Madagascar. Opportunities like significant implications for Africa’s future.
these could be lost in a post-AGOA future.
Beyond Africa losing future FDI, the expiring An extension of AGOA beyond 2015: If
of AGOA preferences could easily strip pre- AGOA is extended beyond 2015, several is-
vious investments in sectors such as textiles sues need to be addressed in order to improve
and apparel where location was primarily de- participation from more African countries.
termined by the market access opportunities The initiative would require reforms and ac-
from AGOA. The experience of the Carib- companying measures to address the current
bean Basin Initiative is telling with Caribbean concentration of benefits to a limited num-
countries witnessing a dismantling of their ber of countries and products. An improved
nascent textile industries due to exposure to AGOA should help re-orient FDI to more sec-
NAFTA and Chinese competition. tors as opposed to the current bias that targets
primarily textiles, apparel and oil sectors. A
Employment loss and reversals in gender renewed AGOA should be made more inclu-
equality gains: Poverty reduction remains the sive, accessible and permanent. This could
ultimate objective of AGOA. Some progress be achieved if AGOA’s renewal addresses the
has been made through job creation associ- following key issues which severely determine
ated with AGOA. In addition, AGOA has U.S. market access for Africa’s exports:
also helped tackle inequality in African coun-
tries by creating more employment opportu- • Compliance with standards in sanitary
nities, especially for women. There has cer- and phyto-sanitary measures
tainly been a human development dimension
to AGOA’s achievements. Thus, immediate • Elimination of supply-side constraints
consequences of an AGOA phase-out could
include large job losses and a reversal in gains • Diversification of exports
made in reducing poverty.
• Sectoral carve-outs for national treatments
and most-favored nation treatments.
POST2015: POSSIBLE
SCENARIOS FOR AGOA’S In particular, while the U.S. explores the pos-
FUTURE sibility of extending preferential schemes to
In 2015, Africa will be faced with two scenar- other developing countries, U.S. aid for trade
ios in its relationship with the United States: a could help African countries exploit poten-

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 5

 tial gains and consolidate their ability to ac- rocal but also deeper in their scope and level
cess and establish presence in U.S. markets of commitment than the economic partner-
through AGOA. ship agreements. In the event of any of these
scenarios, the African countries must care-
AGOA Phase-out: In case AGOA is not re- fully evaluate the advantages and challenges
newed beyond 2015, three possible scenarios that such agreements portend to their inter-
could shape U.S.-Africa relations. national, regional and national development
objectives.
A first scenario might entail the U.S. deepen-
ing the implementation of the bilateral invest- As the AGOA Forum meets in Washington
ment treaties (BITs), trade and investment this year, it is an opportune time to reflect on
framework agreements (TIFAs) and trade and the achievements of this landmark legislation
investment development cooperation agree- after 10 years. But even more important, the
ments (TIDCAs). The challenge with this sce- forum should deliberate on the future of the
nario is that not all African countries have U.S.-Africa trade and investment relationship.
BITs, TIFAs or TIDCAs with the U.S. And if Some policy issues that we consider impor-
these countries decide to work on those agree- tant for discussion should include the issue
ments individually, they might be faced with of AGOA’s certainty beyond 2015; the need
challenges such compliance with environmen- to better link U.S. Aid for trade programmes
tal and labor standards as experienced by the to AGOA’s identified constraints; simplifying
central American countries when engaging in AGOA’s rules of origin so as to catalyze na-
bilateral negotiations with the U.S. tional and regional diversification and new
regional value chains in other sectors such as
The second scenario might comprise of the U.S. agro-processing; and a focus on enhancing the
seeking to consolidate gains through BITs, TI- regional dimension of the AGOA framework.
FAs and TIDCAs at a sub-regional level. This
would demand greater coordination among ENDNOTES
the African countries, ideally in the context of
1. This briefing note is based on a longer paper by
the regional economic communities (RECs).
Laura Páez, Stephen Karingi, Mwangi Kimenyi
The experiences and lessons from the eco- and Mekalia Paulos entitled “A Decade (2000-
nomic partnership agreements would be use- 2010) of African-U.S. Trade Under the Afri-
ful here for the African countries. can Growth and Opportunities Act (AGOA):
Challenges, Opportunities and a Framework for
The third scenario could envisage the U.S. Post-AGOA Engagement” prepared under the
seeking bilateral agreements either at country African Trade Policy Centre of the Economic
or sub-regional level that are not only recip-

6 AGOA AT 10
 Commission for Africa for the forthcoming 5th
African Economic Conference in October 2010
organised jointly by African Development Bank
and United Nations Economic Commission for
Africa (UNECA).

2. Stephen Karingi, Laura Páez and Mekalia Pau-

los are staff members of UNECA. Mwangi Ki-
menyi is a Senior Fellow at the Brookings Insti-
tution. The views expressed in this briefing note
are those of the authors and do not necessarily
reflect those of the United Nations or the Brook-
ings Institution.

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 7

 ADDRESSI NG
UNCERTAI NTY TO SPUR
I NVESTMENT I N AFRICA

JOHN MU TENYO
NELIPHER MOYO

The Africa Growth and Opportunity Act (AGOA) has facilitated

a significant increase in trade between the United States and Af-
rica. Exports from AGOA-eligible African countries to the U.S.
increased from $23 billion in 2000 to $81 billion in 2008. While
intended to spur growth in all export sectors, African exports to
the U.S. continue to be dominated by oil and gas, which account
for about 90 percent of all AGOA exports.

It is essential that AGOA preferences benefit all sectors of Afri-

can economies in order to have the intended effect of promot-
ing growth and development. However, a number of constraints
continue to hamper non-oil AGOA exports, including: AGOA’s
short time horizon, potential competition from other developing
countries, and difficulty in mobilizing private investment. It is im-
portant to recognize and address these constraints in order to
help Africa fully capitalize on its potential under AGOA.

SHORT ON TIME
When the law establishing AGOA was enacted in 2000, the duty
free provision was meant to last for only eight years but was later

8
extended to 2015 in July 2004. Similarly, the improving the business environment, the life
apparel agreement was supposed to come and uncertainty of AGOA has undermined
to an end in 2007 but was also extended to such investments.
2012 in December 2006. The underlying as-
sumption behind these timeframes was that
INCREASING COMPETITION
AGOA-eligible commodities were already be-
The elimination of the Multi-fibre Arrange-
ing produced in Africa and so the agreement
ment (MFA) in January 2005 removed the
would simply spur increased production
quota system and opened up the apparel sec-
and exporting. At the inception of AGOA,
tor to competitive market forces. This ex-
Africa’s production capacity was quite low,
posed AGOA apparel-producing countries to
however, and substantial time was necessary
competition from cheaper and larger produc-
to establish the productive capacity and in-
ers from China, India and other East Asian
frastructure to take advantage of the benefits
countries. AGOA apparel exports progres-
of the preference scheme. Many countries re-
sively plummeted from $1.7 billion in 2004
quired foreign investors to build capacity to
to $0.9 billion in 2009.
produce AGOA-eligible products. The eight
year time period in the first AGOA bill was
External competition continues to be a ma-
much too short to attract investors and de-
jor constraint for AGOA apparel producers.
velop production capacity. Similarly, an expi-
AGOA producers now face the risk that the
ration date of 2015 will severely limit current
U.S. government may extend similar benefits
and future investment.
to other developing countries that are already
far more competitive than African countries.
Although AGOA provides incentives for in-
While this has not happened yet, there have
vestors arising from the duty-free market ac-
been proposals by Congress to extend AGOA-
cess, the risk associated with the short and
like benefits to countries such as Cambodia
uncertain life of the law lowers the potential
and Bangladesh. Such a preference scheme
benefits substantially. Investors are concerned
would lead to an erosion of the preferences
about making large investments, such as in
granted to African countries under AGOA.
efficient high-technology processing plants,
In essence, extending benefits to more com-
as they may not recoup their capital before
petitive developing countries that are already
the expiry of AGOA. This is compounded by
claiming a large share of the U.S. export mar-
other barriers that investors already face in
ket would greatly undermine the core objec-
African countries, including infrastructural
tives for which AGOA was enacted.
and institutional weaknesses. While some
African governments have done their part in

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 9

 DIFFICULT INVESTMENT portant to extend the AGOA time horizon to
CLIMATE allow new exporters the opportunity to take
Private investment, both domestic and for- full advantage of AGOA. This will provide in-
eign, is essential for developing a strong ex- vestors with the market certainty they need to
port base in Africa. Foreign direct investment make long-term investments in Africa.
(FDI) inflows to Africa have increased signifi-
Second, AGOA should be exclusive to Af-
cantly from about $10 billion in 2000 to $88
rica. Firms that have invested to exploit the
billion in 2008. However, the majority of FDI
opportunities accorded by AGOA would be
inflows to Africa are concentrated in oil and
adversely impacted by extending AGOA-like
other mineral resources. In order to develop a
benefits to other developing countries. These
diversified base of exports from Africa, there
firms need more time to engage in exporting
is need for private investment in a diverse
and acquire the capacity to compete in inter-
range of industries. These, however, have to
national markets. The extension of AGOA-
be backed by market availability.
like benefits to other developing countries will
Investors have often cited poor infrastructure, only hamper or even reverse the progress that
corruption, bureaucracy and access to capital has been made to develop Africa’s export sec-
as some of the major constraints to doing busi- tor.
ness in Africa. Working together with African
The U.S. could adopt a more nuanced ap-
policymakers, AGOA should help to stimulate
proach to extending trade preferences to de-
private investment for non-oil exports. This is
veloping countries in other regions by extend-
critical to increasing Africa’s trade capacity.
ing preferences to specific beleaguered sectors
in those countries. Bangladesh exports more
POLICY RECOMMENDATIONS apparel to the United States than all of sub-
Much can be done to address these constraints Saharan Africa combined. Therefore, prefer-
and to help African countries take full advan- ences should be extended to other sectors in
tage of AGOA. First, if the goal of AGOA is Bangladesh that are less developed. This will
to promote lasting growth and development, have the impact of promoting development in
then the AGOA time horizon should be ex- less developed countries worldwide without
tended for a more sizeable period. Recognizing putting African producers out of business.1
that the U.S. Department of Agriculture rule-
making process for new agricultural products The U.S. can also help to stimulate private in-
can take up to three years to process for goods vestment in Africa by offering tax incentives
that are “economically significant,” it is im- to U.S. companies that invest in select non-
oil industries in Africa and export back to the

10 AGOA AT 10
United States. U.S. policymakers should work
with their African counterparts to identify
key potential growth industries that would be
eligible for these tax advantages. The focus
should be on industries that have low produc-
tion capacity at present but have the potential
for stimulating growth.

In turn, African governments should con-

tinue to remove barriers that increase trans-
action costs in Africa by improving regional
infrastructure, reducing corruption, enforcing
property rights, improving governance and
facilitating loans for businesses involved in
export activities.

ENDNOTES
1. Thahane, Timothy. The 2010 AGOA Leaders
Forum. April 26, 2010. Washington, DC.

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 11

 AGOA AND THE AFRICAN
AGRICULTURAL SECTOR
EMMANUEL ASMAH
OLUMIDE TAIWO

The Africa Growth and Opportunity Act (AGOA) is indeed a

laudable development by the U.S. to encourage and support Af-
rican countries pursuing the difficult reforms necessary to create
open markets and growth-oriented economies. African countries
benefiting from AGOA are already diversifying their export bas-
es; nearly all of them have improved significantly in the United
Nations Conference on Trade and Development (UNCTAD) di-
versification index. Furthermore, countries such as Kenya and Le-
sotho have developed their textile and apparel industries, which
have absorbed large amounts of surplus labor and spurred eco-
nomic growth.1

However, export growth under AGOA is predominantly driven

by oil and gas and very little by agricultural products. Data shows
that about 90 percent of all U.S. imports from sub-Saharan Africa
in 2008 are energy-related products. In fact, 70 percent of all U.S.
imports in 2008 are from Nigeria and Angola, which mainly ex-
port oil. While total U.S. imports under AGOA have more than
tripled between 2000 and 2008, the U.S. Department of Agricul-
ture (USDA) reports that U.S. imports of agriculture, fish and for-

12
estry products from sub-Saharan Africa only countries take advantage of opportunities
increased by 49 percent from $568 million in from AGOA. While it is true that African
2001 to $846 million in 2009.2 If this compar- countries need to address the supply-side con-
ison elicits concern, a comparison of AGOA straints facing agriculture, it is also important
agricultural imports to total U.S. agricultural to realize and investigate the demand-side
imports is cause for deeper concern, bearing constraints affecting AGOA agricultural ex-
in mind that these are exports from a group of ports. Some of these constraints include:
38 AGOA eligible countries. In 2008, AGOA
imports represented 1 percent of U.S. imports • U.S. agricultural subsidies have essential-
of agricultural products. Total agricultural ly drowned out any competitive advan-
imports from AGOA countries are reported tage of Africa’s agriculture sector under
to be in the range of $1.2 billion to $1.4 bil- AGOA. With U.S. farmers continuing to
lion per year. About $1 billion of these trans- receive subsidies, African policymakers
actions take place under the existing Most are reminded that subsidizing agriculture
Favored Nations (MFN) framework, leaving not only constitutes government interven-
trade preferences under the General System of tion in markets, but it is also against the
Preferences (GSP) and AGOA to account for spirit of the AGOA reforms. These subsi-
the remaining balance. A further breakdown dies make American agricultural exports
suggests that AGOA agricultural imports ac- cheaper than locally produced products in
count for only about $120 million - 200 mil- AGOA beneficiary countries, ultimately
lion per year and about 85 percent of these destroying the possibility of growth in Af-
originate from South Africa alone. Based on rican smallholder farming.
these accounts, AGOA’s impact on African
agriculture is very limited. Yet, agriculture is • AGOA did not eliminate the quotas which
the sector with the highest potential for pov- existed prior to its enactment. Under the
erty reduction and job creation in Africa. existing framework, exports of sugar, to-
bacco, dairy and beef are constrained by
To put this in context, the agricultural sector country-specific quotas that are based on
employs between 60 and 80 percent of the a country’s share of exports to the U.S.
population in many African countries. There- during a period that long predates AGOA.
fore, promoting growth in this sector should These and other processed agricultural
be an important focus of the periodic reviews products are also exempted from duty-
of AGOA’s performance. An issue of concern free import to the U.S. under AGOA.
is that AGOA has not provided impetus for
transforming smallholder African farms into • African exports to the U.S. still face non-
large-scale enterprises that can help African tariff barriers arising from the export ap-
proval process. For example, exports have

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 13

 to meet sanitary standards. However, the ment Program (CAADP). In addition, export
problem is not that these standards are quotas to the U.S. predating AGOA should be
unattainable, but that the process of ap- eliminated and AGOA’s doors should be open
proval is cumbersome and time consuming to all African agricultural products. Finally, as
for African exporters. These complaints part of its trade capacity building program in
are coming not only from newcomers to Africa, the USDA should work toward sim-
the exporting business in Africa, but also plifying the export approval process while at
from those that have already been regu- the same time maintaining health and safety
larly exporting similar items to European standards.
markets.
ENDNOTES
As U.S. representatives and delegations from 1. UNCTAD Handbook of Statistics, 2009.
African countries meet to review AGOA at
10 years and to develop new strategies, it is 2. U.S. Department of Agriculture - Foreign Agri-
imperative that they keep the agricultural is- cultural Service.
sues on the front burner. The lack of a sup-
portive environment for agriculture in Africa
in terms of infrastructure and high-quality
inputs and seeds is part of the reason why
the continent’s agricultural products are not
competitive. African governments should cer-
tainly invest more to support their local ag-
ricultural industries in these areas. However,
the U.S. also bears part of the blame. African
governments expect the U.S. to eliminate or
reduce subsidies for American farmers. The
U.S. should also make strong efforts to diver-
sify its investments in Africa in ways that sup-
port the continent’s agricultural sector rather
than strictly focusing on the oil sector. With-
in the framework of AGOA, the U.S. could
provide incentives for the American agro-in-
dustry to invest in Africa’s agricultural sec-
tor. This can be done in partnership with the
New Partnership for Africa’s Development’s
Comprehensive African Agriculture Develop-

14 AGOA AT 10
AGOA AN D REGIONAL
I NTEGRATION I N
AFRICA
A MISSED OPP ORTUNITY
BEYOND 2015

NELIPHER MOYO
JOHN PAGE

True to its name, the Africa Growth and Opportunity Act has
created a number of opportunities for Africa that would not oth-
erwise exist, but it is in danger of missing a critical opportunity.
AGOA can do more to support the meaningful integration of
Africa’s economies. Without effective regional integration Africa
simply cannot compete in the global market for manufactures,
traded services—such as tourism and IT-based services—and high
value added agriculture. The region’s ability to create high paying
jobs and sustain growth depends on these industries. Integrating
locally to compete globally is fundamental to Africa’s long-term
economic success.

WHY IS REGIONAL INTEGRATION SO

IMPORTANT FOR AFRICA?
The continent’s economies are small, both in population and eco-
nomic size. Moreover, 40 percent of Africans live in countries
without effective access to the sea, compared with 4 percent of
the world’s population. Many countries’ ability to trade depends
significantly on relationships and agreements with neighboring
countries whose roads and ports are necessary for trade. Today,

15
 transport and power links between countries where regional value chains have grown to
are limited, and poorly performing institu- serve global markets, in Africa there is little
tions—such as regulation of commerce and “production sharing” among countries. Trade
customs—raise the cost of trade logistics. among African countries in intermediate
Transportation costs in Africa can be as high goods and components is low and therefore
as 77 percent of a product’s export value. there is little pressure from the private sector
for effective infrastructure and institutions to
Despite the overwhelming economic logic and support regional trade.
the political rhetoric in favor of tighter region-
al ties, Africa has had relatively little success In some ways, AGOA is well structured to
in forming effective regional groupings. Take support the development of regional value
the case of the Common Market for Eastern chains. Its rules of origin allow beneficiary
and Southern Africa (COMESA), a regional countries to qualify for the minimum local
economic grouping that spans from Cairo to input/processing requirements of using inputs
the Cape, encompassing 19 member states from other AGOA beneficiaries. Intermedi-
with a population of 430 million. This is a po- ate inputs and components purchased from
tential regional market of significant size and Uganda for example can “count” as part of
diversity, but COMESA is a “common mar- the local inputs of a Kenyan firm exporting
ket” in name only. In fact, it has not achieved to the United States. In textiles and clothing,
free trade among its members, movements of the third-party fabric allowances have made
people across its borders remain problematic, it easier for AGOA countries to procure low-
and it is a long way from integrating its fi- cost inputs from one another.
nancial markets. With a few exceptions, no-
tably the East African Common Market and But AGOA’s eligibility criteria work in the op-
the Southern African Development Commu- posite direction. Eligibility is determined on a
nity (SADC), Africa’s other regional economic country by country basis and the U.S. presi-
groups have similar problems. dent conducts annual reviews to determine
whether or not a country meets the eligibility
criteria. Countries can be eligible one year and
HOW CAN AGOA HELP?
not eligible the next. This process has resulted
Mainly by encouraging the development of in nine countries being added to AGOA and
regional value chains. One of the reasons why seven removed since 2002.
regional integration initiatives in Africa have
shown so little dynamism is that the business Under the current system, the removal of a
community sees few opportunities in cross- country from AGOA has ripple effects on
border trade with neighbors. Unlike Asia trading partner countries, as their inputs are

16 AGOA AT 10
no longer AGOA eligible. AGOA has no ior of their non-compliant regional trading
mechanism to offset trading partner losses or partners. One option is to allow a non-com-
otherwise lessen the shock when an AGOA pliant country to continue to provide eligible
country is removed. This has the unintended inputs to the AGOA eligible countries within
consequence of discouraging regional supply the regional group, but restrict direct exports
chains in favor of one that is wholly sourced from the non-compliant country to the U.S.
in a single country. Investors are likely to be Another, as in the case of Madagascar, is to
apprehensive about creating regional supply allow a country declared ineligible to con-
chains if it is unclear whether certain inputs tinue to export goods that contain a specified
will disqualify their product from one year to amount of inputs from AGOA eligible coun-
the next. tries in the regional group under a transitional
arrangement. If the country continues to vio-
The case of Madagascar is illustrative. Mad- late AGOA eligibility rules, preferences would
agascar’s budding apparel sector uses denim be gradually removed but at a clear and pre-
fabric from Lesotho, zippers from Swaziland, dictable rate for investors.
and cotton yarn from Zambia, Mauritius and
South Africa. Despite significant protest from AGOA could provide a further boost to re-
the private sector, Madagascar was removed gional integration by establishing clear eligi-
from AGOA in January 2010 due to an un- bility criteria for qualified regional trading
democratic change of government. While the blocs, based on progress in trade and finan-
response to Madagascar’s coup may have cial integration and including them as nego-
been appropriate, removing Madagascar tiating partners. In the case of Madagascar,
from AGOA not only punishes Madagascar, for example, negotiations with the Southern
but it also punishes the country’s five regional Africa Development Community (to which all
trading partners, who are all AGOA benefi- six countries belong) on a phase out of pref-
ciaries. erences for goods with substantial regional
content, could have helped to minimize the
It is possible to restrict eligibility for AGOA to losses to the five remaining AGOA beneficiary
countries that follow principles of good gov- countries from the removal of Madagascar. In
ernance and AGOA’s rules while at the same addition to reducing regional losses, such ne-
time reducing the uncertainty faced by inves- gotiations would also strengthen the role and
tors interested in developing regional value relevance of the SADC Secretariat.
chains. To do so, the AGOA rules of origin
will need to be modified to ensure that AGOA
eligible countries that are part of regional
trading blocs are not punished for the behav-

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 17

 I MPROVI NG U. S . TRADE
ASSISTANCE UN DER
AGOA
EZRA SURUMA
ZENIA LEWIS

Since the implementation of the Africa Growth and Opportu-

nity Act (AGOA), aggregate trade between the United States and
AGOA-eligible countries has nearly quadrupled. Exports to the
U.S. from AGOA countries have increased from $23 billion in
2000 to a peak of $81 billion in 2008, according to the U.S. In-
ternational Trade Commission. However, the majority of these
exports are energy related—primarily oil and gas.1 AGOA can
have more significant effects in stimulating local production in
Africa if it emphasizes building the capacity of small and medi-
um enterprises (SMEs) through trade assistance, providing more
country-level and firm-specific resources and assistance, enhanc-
ing support for competitive trade financing, and formalizing joint
cooperation between African AGOA countries.

In the past, U.S. aid for trade has addressed a broad range of eco-
nomic development issues. For example, aid for trade has includ-
ed financing improvements in infrastructure, modernization of
the regulatory framework, introduction of new technology, and
the overall enhancement of the investment climate. The United
States Agency for International Development (USAID) has been

18
one of the leading agencies in providing trade cording to the USAID Trade Capacity Build-
capacity building (TCB) assistance in at least ing database. The U.S. makes significant con-
110 nations all over the world. This effort is tributions to trade capacity building broadly
significant and has undoubtedly increased the through the Millennium Challenge Corpora-
capacity of many developing nations to en- tion, and USAID also implements the Africa
gage in trade negotiations, improve business Global Competitiveness Initiative (AGCI) to
regulations, deepen the financial sector, and help promote export competitiveness of Afri-
attract foreign direct investment to become can enterprises. The aims of this initiative are
more competitive. diverse and include improving the business
and regulatory environment for trade and
However, aid for trade has also been interpret- investment, providing knowledge and skills,
ed to cover so many aspects of the economy helping with access to financial services, and
that it does not specifically address problems infrastructure investment. The AGCI has
facing firms that are attempting to break into opened four regional global competitiveness
AGOA trade. Increased technical assistance hubs managed by USAID regional missions in
and aid focused on the production chain are western, southern and eastern/central Africa
integral in the short and medium term. Firm- to provide information and technical assis-
specific training, capacity building, trade fi- tance. The hubs are providing much needed
nancing, and the linking of potential African trade assistance in their regions. However, in-
exporters with financial institutions and po- creasing the presence of trade assistance sup-
tential U.S. importers should be intensified port at an individual country level could in-
if the AGOA framework is to succeed in en- crease the benefits to AGOA countries. While
abling SMEs to trade more successfully with it would not be necessary to have a hub type
the United States. Such initiatives are particu- resource in every AGOA country, having a
larly important to those African countries that formal point of contact within a specific na-
have lagged in utilizing AGOA preferences. tion to inform firms on available trade assis-
tance resources would be useful.
INCREASED COUNTRY LEVEL
SUPPORT FIRMSPECIFIC ASSISTANCE
Although the U.S. has made some strides in More assistance to African firms is desperate-
this direction, more efforts and resources ly needed for AGOA to be considered success-
are needed to effectively reach all the AGOA ful. In Uganda, efforts to increase textile ex-
countries. From 2001-2009, the United States ports to the United States have been minimal
provided over $3.3 billion in trade capacity despite numerous incentives and unwavering
building assistance to sub-Saharan Africa, ac- support by the Uganda government to ex-

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 19

 port-oriented firms attempting to break into aging and sanitary standards. In addition to
the U.S. market. For example, Uganda grows U.S government assistance for private African
high-quality cotton but lacks the capacity to firms, encouraging development financial in-
produce apparel for the U.S. market. Ugan- stitutions to do much more to extend short- to
dan firms have attempted to export apparel to medium-term financing to such firms would
the United States using both locally produced help African businesses take advantage of the
and imported fabric. The production based AGOA opportunity. This could be done by
on imported fabric has yielded disappointing injecting additional resources into regional fi-
results mainly because of the additional costs nancial institutions such as the African Export
of transporting ready-made fabric from out- Import Bank, the African Development Bank,
side. Production based on domestic fabric is the Preferential Trade Area (PTA) Bank and
more promising since it requires lower trans- the East African Development Bank so they
portation costs. It is possible that in the zeal can provide more trade finance to African ex-
to benefit from AGOA some African nations porters. Currently, the financing available to
may have moved too fast without thoroughly African SMEs is very expensive compared to
analyzing the feasibility of the proposed ven- what is available in the advanced economies,
tures. However, their subsequent difficulties and high capital costs weaken these firms’
show that these African countries need trade capacities to compete. An important aspect
assistance that goes beyond improvements in of trade assistance should therefore include
infrastructure and the business environment competitive trade financing. As the situation
to break into the U.S. market. Providing more stands today, trade financing is often expen-
firm-specific trade assistance and resources sive or nonexistent. Many would-be exporters
would increase the success of emerging sec- find that African banks are unwilling or un-
tors like Uganda’s apparel industry. able to extend the magnitude of the financing
required to engage in exports to the United
States.
COMPETITIVE TRADE
FINANCING
Similar appeals for trade assistance could be JOINT COOPERATION IN
made for other sectors, such as non-tradi- TRADE ASSISTANCE
tional exports in the agricultural sector. For It may be that a joint coordinating body, such
instance, firms attempting to transition from as a secretariat of both the African Union and
the export of raw coffee beans to processed United States, could assist in organizing trade
coffee have faced innumerable problems of assistance and accelerating AGOA trade. Such
raising capital for market research, marketing a secretariat could work to both unify AGOA
to importers in the U.S., and meeting pack- countries and provide additional oversight

20 AGOA AT 10
assistance for AGOA implementation in sub-
Saharan Africa. However, it is important that
this secretariat be free to act without excessive
restraint by either the U.S. or African coun-
tries. This would expand and guide the efforts
of the USAID regional hubs where African ex-
porters could go to obtain financial, technical
and market advice and assistance on how to
export to the United States. An examination
of the effectiveness of the institutions that are
available to assist African exporters could be
done as a prelude to the establishment of a
formal AGOA coordination secretariat in Af-
rica.

For the time being, the full potential of

AGOA will remain unexploited. The reality
on the ground is that the capacity and capa-
bility of African producers to reach the U.S.
market remains negligible compared to that
of other continents. If AGOA is to change this
situation, then trade assistance will have to go
much further than it has so far.

ENDNOTES
1. In 2008, around 90 percent of all U.S. purchases
from AGOA countries were oil imports.

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 21

 TRADE LO GISTICS
AGOA’S NEXT FRONTIER

NICK KRAFFT
JOHN PAGE

The Africa Growth and Opportunity Act (AGOA) is now 10

years old. While it has scored some successes—in particular 13
percent average yearly growth of apparel exports to $914 mil-
lion1—it has failed to spur broad-based export growth and di-
versification. Excluding petroleum products, automobiles (which
are solely driven by South Africa) and apparel, Africa’s manufac-
tured exports to the United States under AGOA have grown at
only 7.5 percent per year. Without South Africa and these three
products, AGOA countries exported only $47 million of manu-
factured goods to America in 2009.

This anemic performance is not a result of AGOA’s rules of ori-

gin—which even for textiles and clothing—are relatively gener-
ous. Rather, the constraints to more robust export growth under
AGOA have come from the supply side. African firms find it hard
to compete even with generous preferences.

Africa’s lack of competitiveness does not come primarily from the

inefficiency of its workers, managers or capital equipment. In a se-
ries of careful plant-level studies, the World Bank has shown that

22
with their lower wages, African enterprises product. This specialization can boost learn-
can compete with Chinese and Indian firms in ing, both in terms of manufacturing process-
factory floor costs in some product lines, such es and supply chain management. However,
as garments and other simple manufactured trade in tasks also amplifies the importance of
goods.2 Africa’s major supply side constraint trade logistics. In task-based production, high
is actually in trade logistics, which determine shares of intermediates in final output mag-
the cost of getting goods to and from the fac- nify the effect of changes in logistics costs on
tory gate. African countries have among the value added and profit margins. Countries at
highest trading costs in the world. the final stages in the production chain of a
task-traded good are unlikely to be competi-
Trade logistics have become an increasingly tive if their trade costs on imported interme-
large obstacle to African trade performance diates are high, and countries hoping to enter
because of a profound change in the nature of upstream in a global value chain cannot af-
international trade that has taken place in the ford to have high trade costs for their exports.
last quarter century: the explosion of “trade Beyond these direct costs, the predictability
in tasks.” In some manufacturing activities, a and reliability of supply chains are increas-
production process can be decomposed into a ingly important in a world of just-in-time pro-
series of steps or tasks. As transport and co- duction sharing.
ordination costs have fallen in many parts of
the world, it has become efficient to produce As the disappointing AGOA export totals
different steps in the process in different coun- show, Africa has mostly missed the task-based
tries. Task-based production has expanded industrial revolution, largely because of poor
dramatically in the past 25 years. From 1986- trade logistics. In 2010, the World Bank as-
1990, imported intermediates constituted 12 sessed the trade logistics performance—from
percent of total global manufacturing output customs procedures, transport costs and in-
and 26 percent of total intermediate inputs. frastructure quality to the ability to track and
By 1996-2000, these figures had risen to 18 trace shipments, timeliness and the compe-
percent and 44 percent respectively. Globally, tence of the domestic logistics industry—of
the import intensity of export production rose 150 countries. Not surprisingly, OECD and
from about 67 percent in 1986-1990 to 78 other high-income countries lead the league
percent in 1996-2000.3 table of logistics performance. At the other
extreme low-income, landlocked countries,
For countries that have failed to industrialize, especially in Africa, score the worst. As a re-
task-based production is a potential lifeline. It gion, Africa has the poorest overall trade lo-
is easier to specialize in a single task than in gistics performance.4 Infrastructure deficien-
the entire range of tasks needed to produce a cies interact with poor public institutions and

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 23

 lack of competition among service providers AGOA can help improve the “software” of
to create a vicious circle of constraints to the trade logistics by sharpening the focus of U.S.
efficient movement of goods and services. At technical assistance. As another essay in this
the firm level, this translates into a substantial report notes, U.S. trade capacity building as-
“export tax” on value added. One set of esti- sistance to sub-Saharan Africa has totaled
mates for Kenya, Tanzania and Uganda places over $3.3 billion from 2001-2009, with over
the average cost of trade logistics at the equiv- $700 million in 2009 alone. However, these
alent of a tax of between 25 and 40 percent resources are spread across a wide range of
on value added.5 capacity building efforts and have not led to
major reductions in trade costs.6 To spur ad-
Clearly, AGOA cannot and should not at- ministrative and institutional changes, AGOA
tempt to address Africa’s infrastructure con- can also open up a dialogue on how key ad-
straints, but—through the regular meetings ministrative and regulatory reforms designed
of it members and its role in the U.S. aid ar- to lower trade costs should enter into its eligi-
chitecture—it can become an important lobby bility criteria.
for increased attention and funding from the
international donor community. It can also For landlocked countries, both the physical
promote innovative ideas for public-private and institutional constraints to efficient logis-
partnerships to increase infrastructure invest- tics are compounded by the need to depend
ment and improve operating efficiency. on neighboring countries for access to mar-
kets. Regional integration arrangements that
While infrastructure is important, institutions focus on lowering trade friction for member
and the regulatory environment are equally countries will enhance their competitiveness.
important. Customs reform and moderniza- As noted in a separate contribution to this set
tion is a largely unfinished agenda in Africa, of essays, AGOA can do more to promote ef-
and even where countries have implemented a fective regional integration.
customs modernization program, the coordi-
nation of border procedures between customs Without greater attention and resources to
and other agencies (responsible say, for health lower the costs of trade, African countries will
and safety standards) remains an important fail to capitalize on AGOA’s generous prefer-
constraint. Reform of logistics services mar- ences and rules of origin. AGOA has done
kets, especially transport regulations, is also reasonably well on preferences; its next fron-
high on the agenda for reform. tier should be trade logistics.

24 AGOA AT 10
ENDNOTES
1. Many of these gains were realized in the first
half of the decade, before the elimination of the
Multi-Fibre Arrangement eroded some of the
original gains in recent years.

2. Eifert, B., Gelb, A., and Ramachandran, V.

(2005). “Business Environment and Compara-
tive Advantage in Africa: Evidence from the
Investment Climate.” Washington, DC: World
Bank.

3. UNIDO (2009). “Industrial Development Re-

port 2009.” Vienna: UNIDO.

4. World Bank (2010) “Connecting to Compete

2010: Trade Logistics in the Global Economy
- The Logistics Performance Index and its Indica-
tors,” Washington, DC: The World Bank.

5. Morrissey, O. (2004). “Trade Policy & Trans-

port Costs: How EU Aid Can Promote Export
Growth in East Africa.” London: DFID EC-
PREP.

6. USAID Trade Capacity Building Database.

AFRICA GROWTH INITIATIVE | GLOBAL ECONOMY AND DEVELOPMENT 25

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Washington, DC 20036
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www.brookings.edu/africagrowth