TRALAC - Trade Law Centre

AGOA Creating New Jobs and Investment in South Africa

Tuesday, 12 February 2002

Source: US Mission to the EU

Washington -- When U.S. Trade Representative (USTR) Robert Zoellick visits South Africa in the middle of February he will find a flurry of new jobs and investment, created in part by the African Growth and Opportunity Act (AGOA), a landmark U.S.-African economic partnership forged with 34 sub-Saharan nations.

Meant to spur the flagging economies of reforming African nations through export-led growth, AGOA was passed by Congress with wide bipartisan support. Its favorable trade provisions, which generally allow duty-free access to U.S. markets for a range of products, including textiles, began to be implemented last year by several countries, including South Africa.

Since AGOA became law in May 2000, the U.S. Embassy in South Africa has conducted a wide-ranging outreach program of briefings and seminars about it for South African government officials, members of parliament, labor unions, and business representatives.

According to a document recently provided by the U.S. Mission in Pretoria, which is monitoring the progress of AGOA in South Africa, the trade bill is "creating new trade and investment. It is generating jobs and bringing new prosperity" to South Africa.

The proof of AGOA's effectiveness lies in figures compiled by the U.S. International Trade Commission (USITC) and used by the embassy in its review. The embassy review found that the value of the AGOA-eligible products exported from South Africa to the United States during the first 11 months of 2001 totaled $371 million. The business sectors benefiting from AGOA include agriculture, vehicle manufacturing, and apparel.

The review emphasized that products from those sectors make up 9 percent of the total South African exports to the United States and "are growing quickly as a percentage of overall trade."

South Africa's long neglected entrance into the U.S. drinks market is on the rise thanks to AGOA, the review shows.

KWV is a major international wine and grape concentrate producer based in the Western Cape. It has faced intense competition in the United States from other wine-exporting countries. As a result of AGOA's elimination of duties, KWV is now more competitive in the United States and is expanding its exports. KWV set up a marketing company in New York and is very satisfied with their newfound success in the U.S. wine market.

The overall export to the United States of South African wines -- renowned for their quality and low price -- increased from $9.7 million to 10.2 million for January to November 2001; $3.1 million's worth was exported under AGOA provisions.

In the agricultural sector, the embassy review found that canned fruit exports to the U.S. market also rose. During the period from January to November 2001 the value of canned pears went to $2.6 million from $390,000. In addition, the exports of preserved or canned citrus fruit increased from zero to $80,000.

New food export products were introduced into the U.S. market during that same period that included pimentos, prepared or preserved, $20,200; artichokes, prepared or preserved, $11,600; and ice cream products, $397,000.

Exports of apparel have been a special success story for AGOA, the review noted, with "South African companies having scored impressive results with shipments" to the United States.

Pointing out that the value of apparel exported under the AGOA provisions amounted to $28 million during the January to November 2000 period, the embassy document stated, "This implies that AGOA duty-free treatment is being claimed for only 17 percent of the total South African apparel exports to the United States."

The review goes on to say that South African apparel exporters "are very positive about the impact of AGOA. They are impressed with the size of the U.S. market and describe new contracts as larger than normal." At the same time, "they note that the dramatic increases in exports to the United States have not come at the expense of their exports to the EU [European Union]."

In addition, "South Africa's textile manufacturers are also seeing benefits from AGOA and a possibility of supplying textiles for the region." For example, South African exports of fabric to Mauritius "have dramatically increased as a result of Mauritian clothing producers buying fabric here."

A South African agriculture service company, OTK, is buying a cotton gin in Uganda to supply South African spinners with raw materials to fully exploit AGOA opportunities.

In addition, exploratory discussions have taken place among clothing industry executives in South Africa and their counterparts in Kenya, Nigeria, and Mauritius "in order to help develop a regional bloc that will be more attractive to international players. AGOA has been a catalyst for this."

The result, the embassy document notes, is that "South African manufacturers are expanding their production capacity to fill many of these orders." An example here is Frame Textiles, South Africa's largest textile manufacturer, which invested 80 million Rand during 2001 to take advantage of AGOA's favorable trade benefits.

The review mentioned other South African cases that highlight the effects of AGOA:

-- "Trufruco: Former police detective Tokki de Beers started his company in 1994 and in 1998 opened his own factory in Wellington in the Western Cape. A year ago his company had four employees. Today it has 45. In early 2001, Trufruco teamed up with Sunsweet Growers Inc. of Yuba City, California. Sunsweet is selling sugar-free fruit bars produced by Trufruco in the United States and the U.K. De Beers is looking at buying a new U.S.-produced packaging machine to more than triple his capacity from 80 bars per minute to 300 and increase his exports, including to new international markets.

-- Dynamic Commodities: South African businessman Andy Varty makes a specialty ice cream in coconut shells and other fruit cases. Under AGOA, the U.S. government eliminated the 20 percent tariff duty on his product and he was able to land a contract with Sam's Club. Varty says the contract would not have happened without AGOA. He has exported more than $300,000 worth of ice cream to the United States and expects more orders.

-- Kingsgate Clothing: Ebrahim Parak of Kingsgate Clothing in Durban received the first AGOA apparel visa (export permit) issued in South Africa in late March 2001. Although he had been exporting men's shirts to the United States before AGOA, his orders have shot up substantially in the past year now that his customers do not have to pay 20 percent import duty. Parak is very excited about the benefits AGOA is providing his own business.

G) Solz Sandals: Solz is a small business, owned by Marieta van Heerden, that manufactures sports sandals. Because of the large duty benefit under AGOA for shoes, van Heerden has won a number of orders to export her products to the United States."

According to the U.S. Embassy review, AGOA has also had a favorable impact on the South African government. It has helped strengthen the nation's customs service by requiring that it implement a permit or visa system for apparel. Representatives of the South African textile and clothing industry say that South African Customs has improved its overall enforcement as the result f AGOA requirements and U.S. Customs training.