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"Extend Agoa benefits" say Experts

Published date:
Tuesday, 20 April 2004

Mozambique, having emerged from years of instability as a result of a protracted civil war in the 1980s and early 1990s, has started making significant progress in recent years. This coincided with a gradual liberalisation of the economy, which is now attracting renewed interest from foreign investors. Foreign direct investment (FDI) inflows have been recorded in a number of sectors, including the financial sector, tourism, construction and manufacturing sectors. However, the country has thus far largely failed to penetrate the largest consumer market in the world – that of the US – despite the preferential market access that Mozambique enjoys under the Generalised System of Preferences (GSP) and now AGOA.

“Mozambique’sAn analysis of Mozambique’s trade with the US shows the country to be a substantial net importer of goods from the US. In 2003, Mozambique’s trade deficit with the US amounted to almost US$ 55mn, with imports exceeding its exports to the US by a factor of 8:1. While Mozambique sources a very wide range of goods from the US (especially wheat and petroleum products), its exports are highly concentrated in just a few sectors of the economy. More importantly, since 2000 (the year of AGOA’s inception), Mozambique’s exports to the US have fallen by two thirds, from US$ 24mn to US$ 8,7mn in 2003. Aggregate imports from the US have increased over that period, although a year-on-year decline of US$ 30mn imports of maize took place over the 2002/2003.

During 2000, Mozambique’s US-bound exports consisted mainly of cashew nuts (US$ 12,7mn) and cane sugar (US$ 10,6mn). Together, these accounted for 95% of the country’s total exports to the US. This vulnerability has since been exposed when 3 years later (2003) exports of cashew nuts to the US had all but dried up to US$ 0,1mn, while cane sugar exports halved to US$ 5,4mn.

But what has AGOA’s impact been on Mozambique? AGOA covers approximately 7,000 tariff line items, of which over 2,000 new line items are “new AGOA” categories. These products did not previously qualify for preferential market access under the GSP, and are where AGOA’s “incremental” benefits lie.

In 2003, altogether 90% of Mozambique’s exports to the US qualified for duty-free access under AGOA, although the majority of these consisted of GSP categories. “New AGOA” exports amounted to US$ 2,5mn, or roughly 30% of the country’s total exports to the US. All fall into the garment categories, being one of the sectors where AGOA has found the most widespread appeal across Africa.

Mozambique’s clothing exports to the US are a direct result of AGOA, and the program’s liberal rules of origin applicable to so-called developing countries. These allow Mozambique to use cheap materials sourced from anywhere in the world, with only the assembly operations having to take place in the country. This special waiver, which is time-bound and destined for expiry in September of this year, now looks likely to be extended by at least a further three years (read an associated news article on the proposed AGOA III legislation’s news archive here).

But despite AGOA’s success in helping the country start export clothing to the US (in 2000, Mozambique exported no clothing items to the US), even here Mozambique continues to be vulnerable. A major concern is the fact that the country’s imports of worn clothing from the US were valued at almost the same as its clothing exports to the US. Articles “donated for relief or charity”, which are very likely to include clothing items, amounted to twice the value of the country’s clothing exports to the US in 2000.

In this sector, Mozambique operates at the lower end of the market, and its exports consist almost solely of cotton T-Shirts (HS product code 61.0910). This is a highly competitive market segment and the country will be challenged by the removal of quotas on textiles and clothing (within the WTO framework) in 2005 and the anticipated consolidation in global supply chains. Already indications are that US buyers are setting their sights firmly on low-cost sources especially in China.

In terms of Mozambique’s future exports to the US uncertain times lie ahead. For a start, the country’s industry must realise that AGOA extends trade preferences far beyond the clothing manufacturing sector, including a vast array of manufactured and agricultural products. Despite the US’ strict sanitary and phyto-sanitary standards with regard to agricultural products, there remain vast opportunities for producers in Africa. Mozambique’s port facilities at Maputo have recently been upgraded and now count among the best in Southern Africa from an infrastructure perspective.

But exporters require more than just a comparative advantage to break into the export market. Trade facilitation plays an increasingly vital role, including customs and other bureaucratic procedures, export finance and risk underwriting, trade advice, efficient port facilities and so forth. These are just some of the issues that policy makers should focus on. As yet, perhaps telling in this regard is Mozambique’s firm placing in the lower half of African countries’ “openness to trade” (a measure of aggregate trade flows in relation to GDP, based on World Development Indicators).

[ Eckart Naumann ]

“AGOA Click here to view a sector profile of Mozambique’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.

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