Seamless and Transforming

Let it be “seamless” is the Obama administration’s party line on the renewal of the African Growth and Opportunity Act before it expires in 2015. President Obama’s new US Trade Representative, Michael Froman, wants to add another word to the talking points: “transformative”.

How the act might be made more so will be debated at the 12th annual AGOA Forum, which gets under way in Addis Ababa on Friday. Mr Froman will launch a review of 13-year-old law and how it might be updated to reflect new realities.

In 2000, the Economist was calling Africa “The Hopeless Continent”. Now it contains six or seven of the world’s fastest growing economies.

China, whose best-known contribution to Africa back then was an aging railway line across Tanzania and Zambia, today has a massive footprint throughout the continent, with India, Malaysia – the largest foreign investor in Africa last year — Brazil, Turkey and others seriously in the mix. The BRICs have become the BRICS.

The EU, Africa’s largest trading partner, is replacing its own version of AGOA’s one-sided trade preferences with Economic Partnership Agreements (EPAs) requiring reciprocal access to African markets for EU exports. Africans themselves hope to launch a continent-wide free trade area (CFTA) by 2017.

The quenching of America’s thirst for imported energy by domestic production and efficiencies is another fact not foreseen in 2000. Declining US oil imports from Nigeria and Angola have underlined that AGOA has been less than transformative in stimulating and diversifying value-added African exports.

Strip out hydrocarbons, and South Africa, the region’s richest and most advanced economy, is exposed as the only African country with the capacity thus far to make full use of US trade preferences.

In the first five months of this year, US imports of products other than oil and gas from the 39 sub-Saharan countries presently qualifying for AGOA had a customs value of just over $5 billion. Of that, SA accounted for $3.6 billion, including $1 billion worth of Mercedes Benzes and BMW’s.

There is pressure in some quarters to graduate South Africa from AGOA. The Obama administration is using this to focus Pretoria’s mind on complaints from US companies that SA’s free trade agreement with the EU is hurting them in the SA market.

Happily, it is also recognised that SA has to be one of the anchors if, like Assistant USTR for Africa Florie Liser, you want to promote regional integration and Africa’s deeper inclusion in global value chains.

As Ms Liser made clear at a pre-AGOA Forum briefing, cars built for export to the US with leather seats sourced from Botswana and carpets woven in Lesotho were a perfect example of what a revamped AGOA had to make happen if it was to meet her boss’s transformative test. “That’s what we’re looking forward to.”

For how long should AGOA be extended? Some, including Rosa Whitaker, Ms Liser’s predecessor and a driving force behind the original AGOA, argue indefinitely. Africa’s ambassadors to Washington, including SA’s Ebrahim Rasool, issued a joint statement last week asking for 10 years.

Ms Liser, while not committing the administration to a time frame, said an open-ended arrangement would reduce incentives for African exporters to make themselves more competitive. It would also weaken Washington’s leverage on African governments to give US exporters the same level of market access they are already giving the Europeans.

That was not calculated to please the ambassadors. They felt AGOA’s renewal was “not the appropriate platform” to deal with such issues. “The focus of the current conversation…should remain on expeditious reauthorization of AGOA and ways to maximize (its) benefits…”

Former deputy assistant secretary of state for Africa Witney Schneidman argued on Capitol Hill last week for an interim five-year extension to give time for a full review given how radically things had changed since 2000. Ms Liser did not disagree.

There is a case to be made for the US not rushing into a “seamless” and indefinite renewal but rather keeping its options open.

Things are still changing. The US-EU FTA negotiations now under way could have significant implications for Africa, with some hoping the US will persuade the EU to hold fire on its EPA’s with Africa regions which are supposed be finalized next year, at least until a continental FTA is in place.

What will really transform African economies will be “thinner” borders and greater intraregional trade. Helping that happen should perhaps be the main focus of a renewed AGOA.

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