AGOA, decoding for a successful 2025 closure
In September 2015, president Obama renewed the African Growth and Opportunity Act (“AGOA 5”) for an additional 10-year bringing its closure to 2025. AGOA has drawn mixed results and a successful 2025 closure will need a change of recipe both from the US and African countries. How can African countries therefore change their game, decode and achieve a successful 2025 closure?
AGOA extends the US Generalized System of Preferences (GSP) to Sub-Saharan African (SSA) countries and allow them to export around 7,000 products to the US with no duties or customs.
A SSA country becomes eligible when it complies with a set of criteria that runs from sound economic rules to credible poverty reduction policies implemented.
The results of 15 years of AGOA’s trading are mixed. AGOA is believed to have created 300,000 jobs in Africa and 120,000 in the US. 480 billions USD worth of commodities were exported under the program with a 10% increase per year in export since its inception in 2000.
Despite those bright achievements, the objectives of the program were not fully achieved. The three key objectives of AGOA for African countries were: diversification of SSA economies, increased access to the US market, and consolidation of sound economic policies.
Though many SSA countries have embarked on structural reforms [1] and the overall trade volume of SSA countries to US increased on AGOA’s watch, the diversification objective was not fully achieved. 90% of AGOA’s export was on a single product out of the 7,000 listed: OIL. In addition 90% of the non-oil products were exported from only 3 countries out of the 39 listed: South Africa, Nigeria and Angola. The identification of the causes of the diversification failure is critical.
To that end the finding of strategies that will help SSA countries take full advantage of AGOA is paramount in bringing a successful 2025 closure.
Three ingredients may help achieve a successful 2025 closure: an increase in the private sector lead over national AGOA task forces, a better integration of AGOA into countries’ national comprehensive development plan, and a rather sub-regional approach that will contrast with the current national individualistic one.
Few SSA countries have set up an AGOA task force (e.g. Cote d’Ivoire[2] ) or committee and give out few seats to industries associations in those AGOA committees. The private sector is at the heart of AGOA as the private sector drives the production and the export of a country. There is the need to have AGOA committees not only implemented across SSA countries but also driven by the private sector. In that line awareness campaigns [3] are needed in bringing AGOA opportunities to all at a national level and in each country.
In addition to the private sector drive, an integration of AGOA to countries’ national emergence and development plans is a key ingredient. Many African countries are currently forging their “emergence” plans following the Abidjan declaration on African countries’ emergence [4] and AGOA should be taken into account in setting reforms trajectories, policies target, strategic sectors, target markets, and structural transformation paths in those plans.
Beyond the emergence plan integration, SSA countries need to embrace AGOA not as a national issue but as a sub-regional issue. AGOA committees should move to regional levels with planned specialization at country levels and based on countries’ competitive advantage [5]. Thus an ECOWAS’ (West African Countries’ Economic Union) AGOA committee could take the lead of the existing individual 15 national committees at country level. Such a committee could identify and advise Cote d’Ivoire in farm producing Cola based on their advantage in producing the Nitida Cola and Nigeria in processing to Cola powder with cross stake ventures.
Could “AGOA 5” bring a successful 2025 closure? The answer is yes, though with a new recipe and SSA countries’ policy makers may use the three AGOA 5 decoding’s tools: private sector lead, integration to emergence plan, and sub-regional task forces. SSA countries will then have diversified economies, sound economic environment, and increased share in international trade. That is a wish SSA’s policy makers can bring to pass.
- Notes / references
[1] Ackah, C., & Morrissey, O. (2005). Trade policy and performance in sub-Saharan Africa since the 1980s (No. 05/13). CREDIT Research Paper Business, D., & Design, D. B. (2012). Doing Business. The World Bank. 2012a. http://www.doingbusiness.org/about—us
[2] http://www.apex-ci.org/fr/activites/agoa.html
[5] Smith, A. (1937). An Inquiry into the Nature and Causes of the Wealth of Nations
Guest submission by Samuel Mathey, Ph.D. [This email address is being protected from spambots. You need JavaScript enabled to view it.]
Dr. Mathey is professor of economics, strategy and management. He holds a Ph.D. in Economics from the University of Delaware, an MBA from the Ohio State University, and a Masters in Econometrics and Monetary Economics.
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