TRALAC - Trade Law Centre

Africa gearing up to finalize trade bloc while US eyes agreement with Kenya [Cal Chamber]

Tuesday, 23 June 2020 Published: | Susanne T. Stirling

Source: California Chamber

Trade and investment opportunities in Africa are in the spotlight this summer as the African nations prepare for final implementation of their free trade area and the United States looks toward the start of discussions about a free trade agreement with Kenya.

The California Chamber of Commerce is a longtime supporter of stable and sustainable economic growth and development in sub-Saharan Africa

African Continental Free Trade Area

The African Continental Free Trade Area (AfCFTA) originally was due to be implemented on July 1. Once in force, AfCFTA will be the largest free trade area in the world, uniting 1.3 billion people in a $3.4 trillion economic bloc.

It is the culmination of many negotiations held since 2015 among the leaders of the 54 African nations.

AfCFTA Secretary-General Wamkele Mene has postponed the final steps toward the bloc due to COVID-19, but is confident the agreement will go through in time. It will mean that intra-Africa trade will be key to the post-pandemic economic recovery.

The Director-General is hoping to create centers of manufacturing excellence across the continent as an opportunity for investors.

The trade area will begin with cutting tariffs for goods traded within the bloc and then eventually expand into other areas. Intra-African trade is currently only a small portion of all African trade.

According to the International Monetary Fund, eliminating tariffs could boost trade in the region by 15% to 20%. The World Economic Forum estimates AfCFTA will allow the area to generate about $4 trillion for investments and commercial transactions of goods and services.

African Growth and Opportunity Act

The American Apparel & Footwear Association, which represents more than 1,000 name brands, retailers and manufacturers, urged Congress via a June 10 letter to renew the African Growth and Opportunity Act (AGOA) this year for another 10 years as a way to have continued certainty for U.S. investment on the continent-even though the expiration date is five years away.

AGOA-which gives 39 sub-Saharan African countries duty-free access to the U.S. market for thousands of goods-is set to expire in 2025. A 10-year extension now would send positive signals to AGOA member countries as the U.S. starts trade talks with Kenya.

The CalChamber supported the AGOA, which President Bill Clinton signed on May 19, 2000 as part of The Trade and Development Act of 2000.

President George W. Bush signed legislation on July 13, 2004 extending the AGOA from 2008 to 2015. Subsequent legislation has extended the agreement to 2025.

When initially enacted, the AGOA eliminated duties on imports from African nations into the United States if those nations made significant efforts to open their economies.

The Act embodies a trade and investment-centered approach to development. Enactment of the AGOA has stimulated the growth of the African private sector and provided incentives for further reform. The AGOA is aimed at transforming the relationship between the United States and sub-Saharan Africa away from aid dependence to enhanced commerce by providing commercial incentives to encourage bilateral trade.

Since its inception in 2000, AGOA has helped increase U.S. two-way trade with sub-Saharan Africa.

U.S.-Kenya Agreement

On March 17, 2020, following the procedures laid out in the Trade Promotion Authority (TPA), the Trump administration sent a letter to Congress to notify members of the intent to enter into negotiations of a trade agreement with the Republic of Kenya.

A trade agreement between the United States and Kenya would be the first agreement between the U.S. and a sub-Saharan African country. A U.S.-Kenya trade agreement would also complement Africa's regional integration efforts, which include the landmark AfCFTA.

From its location on the eastern coast of Africa, Kenya serves as a gateway to the region and a major commercial hub that can provide opportunities for U.S. consumers, businesses, farmers, ranchers and workers.

Kenya currently receives benefits under the AGOA with the objective of expanding U.S. trade and investment with sub-Saharan Africa, to stimulate economic growth, to encourage economic integration, and to facilitate sub-Saharan Africa's integration into the global economy.

The Trump administration has said repeatedly it hopes its trade deal with Kenya can serve as a template that could be replicated with other countries on the African continent.

Although the first round of virtual FTA negotiations was scheduled for July 6, Kenya has delayed the start of trade negotiations with the United States until Africa's free trade pact takes full effect, Kenyan President Uhuru Kenyatta announced on Thursday, June 18. President Kenyatta's decision sends a signal that pursuing a trade agreement with the United States is not a sign of Kenya moving away from its African trade partners.

U.S.-Kenya Trade

Total U.S.-Kenya two-way trade currently reaches about $1 billion annually. In 2019, the United States exported $391 million worth of goods to Kenya. Chemicals made up the largest percentage of the total at 21.5%. This was followed by transportation equipment at 17% and agricultural products (9.8%) and computer and electronic products (9.7%).

Imports from Kenya into the United States totaled $667 million in 2019. Apparel manufacturing products made up the largest percentage at 68% of the total. The next largest imports were agricultural products (14.3%), minerals and ores (7.9%), and food manufactures (2.9%). (International Trade Administration)

U.S. foreign direct investment (stock) in Kenya stood at $405 million in 2017. (U.S. Trade Representative)

California-Kenya Trade

California is the second largest exporting state to Kenya. In 2019, California exported $38.3 million worth of goods to Kenya. Chemicals made up the largest portion at 21.2% of the total and $8.075 million. This was followed by computer and electronic products with 19.8% and transportation equipment at 17.8%. Special classification provisions also made up 14% of total goods exported.

In 2019, California imported $87.5 million worth of goods from Kenya, 63.4% of which was made up of apparel manufacturing products. This was followed by agricultural products at 27.9%, food manufactures at 4.9%, and reimports at 0.9%. In 2019, California was also the second largest state importing Kenyan goods. (International Trade Administration)

Agenda 2063

All the initiatives above dovetail with Agenda 2063, Africa's blueprint and master plan for transforming itself into the global powerhouse of the future.

Agenda 2063 has been described as 'a concrete manifestation of the pan-African drive for unity, self-determination, freedom, progress and collective prosperity pursued under Pan-Africanism and African Renaissance.'

In affirming their commitment to Agenda 2063, African leaders called for refocusing and reprioritizing Africa's agenda from the struggle against apartheid and the attainment of political independence for the continent, to inclusive social and economic development, continental and regional integration, democratic governance, and peace and security, among other issues aimed at repositioning Africa to becoming a dominant player in the global arena.

CalChamber Position

The CalChamber believes that it is in the mutual economic interests of the United States and sub-Saharan Africa to promote stable and sustainable economic growth and development in sub-Saharan Africa, and that this growth depends in large measure upon the development of a receptive environment for trade and investment.

The CalChamber is supportive of the United States seeking to facilitate market-led economic growth in, and thereby the social and economic development of, the countries of sub-Saharan Africa.

In particular, the CalChamber is supportive of the United States seeking to assist sub-Saharan African countries, and the private sector in those countries, to achieve economic self-reliance.

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