TRALAC - Trade Law Centre

Uncertainty dogs US-Africa trade

Monday, 11 July 2011

Source: East African Business Week

Over a decade since the African Growth and Opportunity Act (AGOA), was signed into law in May 2000, African countries were given the opportunity to export to the lucrative United States (US) without any limits.

AGOA ruled over US-Africa trade relations since 2000 with some measurable success. Exports to the US increased from US$ 23b in 2000 to USD 81b in 2008, and $64.3b in 2010. During that period, foreign direct investment (FDI) and employment also increased, with over 300 000 new jobs created in Africa.

But despite these highlights, it is often argued that AGOA has not been able to contribute to greater trade diversification, growth and development. The benefits of AGOA have been unevenly distributed across countries and sectors.

About half of the sub-Saharan eligible countries are currently benefiting, and only in a handful of sectors. Africa's inability to diversify trade in agricultural products, which account for less than 1% of AGOA exports is impacting on the trade.

Trade analysts contend that although AGOA was extended to 2015, the uncertainty of AGOA's future has kept required investment levels at bay, leaving little time for Africa to raise its productive capacity and consolidate the gains of this preferential act.

While there are no actual figures, East African Community (EAC) Member States earned about $470 million from exports to the US.

Despite the growth in earnings statistics indicate the region failed to take advantage of the vast opportunities offered under the AGOA.

While some countries like South Africa, Mauritius and Liberia, which only recently exported its first goods under AGOA have something to say, other African countries have not had much success in diversifying their exports to the US market.

Uganda, one of the AGOA eligible countries, identified garments manufacturing firms like Southern Range-Nyanza and Phenix Logistics as one of its strategic interventions.

Government also aided the establishment of Apparel Tri-Star, registered in 2002, to serve as a strategic player in the key US market. But despite the efforts, things did not go well.

By 2006, the company had accumulated massive losses that led to its collapse.

Consequently, Uganda's exports to the US under the AGOA plummeted by over $3 million since 2005 despite Government's $10 million investment embarked on to upscale the sector's performance.

Trade analysts contend that slow production capacity and the industry's lack of attractiveness for investment is contributing to declining exports through AGOA.

Reports from African trade Ministers meeting in Lusaka recently indicated that despite the positive contribution of AGOA to African economies, there remain some challenges that hinder the realisation of its full potential benefits.

Among these challenges are sanitary and phytosanitary requirements, restrictive rules of origin, product specific standards and uncertainty about AGOA's future.

Other challenges were the potential expiration of third-country fabric rule in 2012, weak productive capacity of most African countries, lack of regional value chains and weak competitiveness of African countries.




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