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Where Barack Obama treads, US business plans to follow

Where Barack Obama treads, US business plans to follow
Published date:
Thursday, 23 July 2015
Katrina Manson

Barack Obama's first visit to Kenya as US president is not only significant because of his family roots. When the son of a Kenyan economist steps foot in east Africa this weekend, a core aim will be to boost American business across Africa.

Oil, aid and security still dominate the US relationship with Africa, but American business is waking up to the chance to tap into world-beating growth rates.

“Major American companies and funds are realising that the opportunities in Africa are significant — particularly given growth rates that are shaping the continent,” said Donald Gips, co-chair of the Africa Business initiative at the US Chamber of Commerce, who is attending the events in Nairobi.

“These are largely new markets for the US and the visit [from Mr Obama] is a very big step: US business will follow in the wake of it.”

US investment in Africa is slowly picking up. In the past three years, the US private equity giants Carlyle, KKR and TPG have announced their first forays into the continent, investing in a variety of projects. A plethora of American corporates, from GE to Google, have also boosted their African presence, with many choosing Nairobi as their hub.

So far, the cornerstone of US trade relations with the continent has been the African Growth and Opportunity Act (Agoa), which has permitted tariff-free imports of African-made products since 2000. But it has floundered under Mr Obama. The total value of US imports from Africa fell to $14.2bn last year, down 47 per cent on 2013. Only 31 per cent is non-oil, and even that is down 10 per cent on 2013.

Nearing the end of his second term, Mr Obama is now trying broaden business relations, and many people hope last month’s 10-year Agoa extension will give nascent African manufacturing a new foothold.

“We need to grow faster and we need more investment; we need more trade, and we need more infrastructure. So I think the focus on economic trade and infrastructure by this administration is spot on,” said Amadou Sy, a senior fellow at the Brookings Institution’s Africa Growth Initiative.

Textile exports to the US — led by Kenya, under Agoa — are expected to be the chief non-oil beneficiaries of the extension. Last year, Kenyan apparel exports to the US reached a record $385m and accounted for 40,000 jobs. The country is targeting $1bn in exports and 100,000 jobs within three years.

Jas Bedi, chairman of the African Cotton and Textile Industries Federation, says Agoa’s renewal, which is longer than previous four-year extensions, marks a huge chance for Africa.

“This is the first time we’ve got a 10-year window to the finish line: you wouldn’t justify large investments in the value chain because of the [previous] four-year window,” he said. “We can see a lot of investment coming in the region now as a result.”

Mr Bedi is investing in a third textile factory thanks to the lengthy deal extension, employing 2,000 workers to take advantage of duty-free exports of usually heavily taxed polyester, on top of the 800 he already employs in Kenya. “It’s all because of Agoa,” he said.

But African exports remain relatively tiny. Under Agoa, the continent’s apparel exports to the US total less than $1bn, compared with $23bn from Bangladesh, where 4.3m people are employed in the sector.

There are fears that US efforts to negotiate similar preferential trade deals with competitors will erode the continent’s key tax advantage in apparel and other beleaguered industries.

For example Vietnam, which has a much more developed textile industry than Kenya, is seeking a free-trade agreement with the US under the 12-country Trans-Pacific Partnership scheme which, according to Mr Bedi, could undermine African production.

African business leaders are nonetheless hoping that Mr Obama’s historic weekend trip to east Africa’s twin economic powerhouses, Kenya and Ethiopia, signals growing US interest in Africa’s most promising economies.

“I would like to see even more American investors coming to take up some of the many opportunities in different sectors,” said Moses Ikiara, head of the Kenya Investment Authority, citing openings in ports, roads, rail and electricity generation as well as Kenya’s ailing tourism sector.


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