Voice of business: Valid reasons to continue AGOA
Side by side with critical investment drivers such as competitiveness, political stability, transparency of the regulatory environment and ease of doing business, market size and access remains a huge investment determinant.
Following the country’s re-entry into the global economic arena, South Africa has over the past 19 years forged some plausible mutually beneficial trade agreements with various countries and regional economic blocs around the world.
Then came the African Growth and Opportunity Act (Agoa), a US unilateral trade preference programme signed into law by president Bill Clinton in 2000 for a period of eight years, which was later extended to September 2015.
This act gives qualifying African countries duty-and quota-free access to the US for a range of products.
The overall contribution of Agoa and other preferential trade arrangements with the US to total South African manufacturing gross domestic product was about 3% in 2010. The employment contribution, meanwhile, was estimated at 11%.
There is a debate in the US about Agoa’s extension beyond that date as well as South Africa’s continued participation, because the country is no longer deemed a poor country but a middle-income economy.
The other argument making rounds in US Congressional circles is that South Africa has reciprocal agreements with economic blocs such as the European Union and should therefore have a similar one with the US, as against the non-reciprocal one that Agoa is.
On reciprocity, the South African private sector believes that even though Agoa may not be directly and obviously reciprocal, it is important to commission an in-depth study to identify the mutual benefits of this programme before it is deemed not mutually beneficial.
There is some evidence to the effect that the duty-free importation of some of the Agoa qualifying products provides US importers with a cost advantage, with some being inputs to manufacturing value chains in that country. There is therefore evidence that Agoa also creates jobs in the US and gives its importers some competitive edge.
At present, 98% of South African goods enter the US, the world’s largest economy, duty-free. Agoa accounts for 27% of that total — the balance enters duty-free under a Most Favoured Nation arrangement (58%) and the Generalised System of Preferences (18%). Among individual countries, the US is South Africa’s second-largest export market and the fourth-biggest source of imports.
Investment commitments and expansion, with the resultant job creation, is to a large extent dependent on market access. Ask any investor for their key considerations for investment and markets (size and access) and it will surely be in the top three issues of importance.
Agoa goes a long way in addressing market-related concerns for investors. It is for this reason that, as business, we would like to see Agoa extended with South Africa participating.
Business in South Africa also believes that an extension of Agoa and South Africa’s participation beyond 2015 has synergy with President Barack Obama’s US Strategy Towards Sub-Saharan Africa, launched in June 2012. This is aimed at committing the US to elevate its efforts to spur economic growth, trade and investment in Africa.
It gives effect to the Doing Business in Africa Campaign, the implementation campaign of this strategy, which was launched by the US Department of Commerce in partnership with Business Unity South Africa and the Corporate Council on Africa in November last year.
There is no doubt about it — market access and trade drives investment, job creation and the economy.
Nomaxabiso Majokweni is CEO of Business Unity South Africa
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