TRALAC - Trade Law Centre

Africa: Agency uses AGOA to spur trade, investment

Tuesday, 21 July 2009

Source: America.gov (Washington, DC)

The African Growth and Opportunity Act (AGOA) and the U.S. Millennium Challenge Corporation (MCC) are cornerstones of the Obama administration's development policy for Africa because they are complementary and have the potential to stimulate trade and investment across the continent.

Jeri Jensen, MCC's managing director of private-sector initiatives, and Jonathan Bloom, deputy vice president for Africa programs at MCC, described the importance of AGOA and MCC in a recent interview with America.gov as they looked ahead to the 8th Annual AGOA Forum, to be held in Nairobi, Kenya, August 4-6.

The MCC is an innovative and independent U.S. foreign aid agency that is helping lead the fight against global poverty. Created by Congress in January 2004 with strong bipartisan support, MCC is changing the conversation on how best to deliver U.S. foreign assistance by focusing on good policies, country ownership and results.

Jensen said the trade preferences for some African products under AGOA "are really only part of the equation." Companies looking to invest in Africa also look beyond the trade breaks. For trade preferences to be effective, Jensen said, "they must go hand in hand with the infrastructure that a company needs to lower costs, to increase competitiveness, to get [its] goods to market. Most MCC countries have chosen to invest in infrastructure, and that is supportive of the same goals that AGOA is trying to accomplish in terms of increasing Africa's competitiveness in the world."

Currently, 11 of MCC's 18 compact countries are in Africa, with $4.5 billion of its $6.3 billion invested in Africa, Jensen said. A compact is a five-year grant agreement between the Millennium Challenge Corporation and an eligible country to fund specific programs targeted to reduce poverty and stimulate economic growth. MCC also awards smaller grants as part of its threshold program. Currently, MCC has granted $440 million in assistance as part of its poverty-reduction threshold program in Africa and countries worldwide.

Jensen said these "programs combine agribusiness and infrastructure. There is no [other] program that actually does both that I am aware of." Increases in gross domestic product that come from agriculture-related projects, Jensen said, provide twice as much poverty reduction as other types of projects provide.

Jensen estimated that 70 percent of MCC's portfolio is agriculture-related, and many infrastructure programs the agency funds also boost agriculture in some way.

Bloom said MCC only does one thing: poverty reduction through economic growth. "There are lots of other valid purposes for American assistance," he said, "but that is all we do. It is pretty simple to state, but is pretty hard to do. It is focused on generating economic growth in poor countries for poor people in the country -- which in turn benefits the country and along the way the United States."

Bloom said MCC operates on three key principles. First, MCC only works in countries with strong policies supporting a free political system and a sound economic system and that invest in their people. Second, once MCC goes to work in a country, the country designs and owns the program it originated. Third, because results matter, the agency takes measurements before and after the program to create a "disciplined environment in which people want to invest."

MCC is often the largest donor operating in a country, using significant grant funding that can total as high as $700 million, and it is predictable over five years. If a business wants to take advantage of MCC or AGOA, there is certainty that the funds will be there for five years, Jensen said.

Illustrating that point, Bloom cited Ghana and President Obama's visit to the nation July 10-11. The president's message, Bloom said, "was that Ghana has taken a lot of the hard steps toward good governance. That made Ghana eligible as an MCC country in the first round. ... Ghana has built a strong political and economic climate to encourage private investment. The MCC grant to Ghana of $547 million -- which at the time we signed it [in August 2006] was the largest to date -- has a comprehensive set of investments to build on the agriculture value chain and in particular their trade capacity and to attract private investors."

Additionally, Bloom said, MCC is engaged in transport-infrastructure improvement critical for trade -- such as roads in Tanzania that run to the Kenya border and the rehabilitation of important ports in Benin and Cape Verde, "both of which are critical trade hubs for both of those countries." In Mali, he said, MCC is also supporting the rehabilitation of that landlocked country's airport, which is its critical link to the outside world.