By George Boateng
Despite its success, will AGOA be renewed after 2025? Most likely not. AGOA is seen by the United States as a stepping stone to a broader trade pact with Sub-Saharan African countries. At the recent World Economic Forum in Kigali, U.S. Trade Representative Michael Froman stressed that African economies have changed since the United States first started offering duty-free access to certain countries under the AGOA, and trade relations need to evolve accordingly, implicitly acknowledging that the United States wants trade pacts with Africa to be bilateral. The global trade environment is changing, most notably with the EU’s preferential trade agreements with African, Caribbean, and Pacific (ACP) countries. These new agreements, called economic partnership agreements, place U.S. firms at a disadvantage by providing European firms access into African markets, while AGOA provides access to the United States without any such reciprocity for U.S. firms. With the Trans-Pacific Partnership (TPP) agreement all-but-ratified, Sub-Saharan African countries must ensure that they are not left out of the future of global trade.
As promising as AGOA may seem, Sub-Saharan African countries have underutilized it. In 2014, only around 1 percent of U.S. imports came from AGOA countries. Most worrying is the fact that petroleum products comprise around 68 percent of all AGOA imports, led by Nigeria and Angola. In 2014, U.S. imports from Sub-Saharan Africa decreased by 32 percent, falling to $26.7 billion, mostly due to a 51 percent decrease in mineral fuel and oil imports. Oil released by hydraulic fracking now accounts for more than half of all U.S. oil output, which has increased U.S. domestic production of light crude oil and reduced its imports of foreign oil. Non-oil and non-mineral exports to the United States under AGOA increased almost fourfold since 2001, albeit to the small sum of $5 billion. This growth rate is too slow and inadequate.
Given that lack of diversity and the issue of fluctuating commodity and oil prices on the world market, the case for diversifying exports is made even stronger. However, that is easier said than done. The reasons beneficiaries haven’t taken greater advantage of AGOA are well-known: Sub-Saharan African countries lack the capacity to meet the strict quantity and supply requirements imposed by U.S. buyers, infrastructural problems like incessant power shortages stifle growth, and most importantly the manufacturing sector across Sub-Saharan Africa is declining. Just 6 percent of all jobs in Africa are in manufacturing, much lower than the global average.
AGOA’s reauthorization included many enhancements that strengthen the program and place the ball in the court of African governments to harness the opportunities provided. One important revision was the focus on the publication of biennial AGOA utilization strategies by African governments, in which each AGOA-eligible country identifies sectors it believes it can be competitive in and how it plans to take advantage of this potential. This is an effective tool to push African countries to determine their comparative advantage and move to remove bottlenecks that impede trade, which can help boost competitiveness in export-led manufacturing on the continent.
Fortunately for African countries, rising wages in China and a rebalancing in Asia away from export-led growth toward domestic and regional consumption-led growth offer opportunities to become more competitive globally and export more. It is also imperative that the African Union moves to ensure African countries develop their own AGOA-utilization strategies to take advantage of AGOA. This will go a long way to developing competiveness in exports regionally and globally. Another important avenue to enhance competitiveness is to deepen regional integration. Increasing market size, removing tariff and non-tariff trade barriers, and allowing free movement of people and goods in Africa could profoundly improve the competitiveness of the region. The push by the Africa Union towards a continental free trade area for Africa by 2017 will be vital towards the realization of a single market for Africa.
The shape of post-2025 U.S.-Africa trade policy looks blurry at best. A post-AGOA framework may focus on a continental free trade zone with reciprocity. Regardless of the shape post-AGOA U.S.-Africa trade policy takes, African countries must act now to position themselves favorably in the global market. The reauthorization of AGOA presents a window of opportunity, but also an urgent call to action. Africa must evolve and be competitive in the global sphere come 2025 or become disadvantaged. To ensure competitiveness after AGOA, African countries must take advantage of the 10-year window of opportunity provided by AGOA to deepen integration and maximize export-led manufacturing.
George Boateng is a Research Analyst at the African Center for Economic Transformation.
This blog was originally published by the Wilson Center.