Trade and investment are important components of economic growth and job creation for African countries, in addition to being a source of income.⁽²⁾ The past 10 years have seen immense growth rates in 17 African countries. Sub-Saharan Africa (SSA), however, is still struggling to reap the benefits of global trade and investment trends. In 1980, sub-Saharan Africa accounted for 6% of global world trade. By 1998, this value had dropped to 2%.⁽³⁾ In 2010, this value was estimated at 3.2% of global trade.⁽⁴⁾ Likewise, foreign direct investment (FDI) to the SSA region remains a small fraction of world FDI flows. Recently, however, this trend seems to be reversing.⁽⁵⁾

According to the World Bank, many African economies are expected to be among the world’s fastest-growing economies in 2012. Ghana, Liberia, Nigeria, Ethiopia, the Democratic Republic of the Congo (DRC) to mention a few, are the countries that are expected to champion change on the continent in terms of economic growth.⁽⁶⁾ The International Monetary Fund (IMF) projects that the SSA region will grow in real terms by 5.4% in 2012 and 5.3% in 2013.⁽⁷⁾

In the year 2000, The Economist referred to Africa as “the hopeless continent” citing the civil war in Sierra Leone, the famine in Ethiopia and the political conflict in Zimbabwe.⁽⁸⁾ Just over 10 years later, in the summer of 2011, the Horn of Africa, which includes Kenya, Somalia, Ethiopia and Djibouti, was struck with the worst droughts in 60 years.⁽⁹⁾ In the case of Somalia, the ongoing civil war depleted food supplies and the drought had disastrous effects on the already war-torn country.⁽¹⁰⁾ It is estimated that millions of Somalis have died from malnutrition-related illnesses and millions are in need of aid. The United Nations, using scientific criteria for causes of death and malnutrition rates, declared a famine in the region.⁽¹¹⁾ Despite these factors, and the continent still being plagued by poverty, with half of its population living on less than US$ 2.00 a day, Africa is now believed to be a continent with enormous potential for growth.⁽¹²⁾

SSA has seen strong economic growth despite the weak global economic environment.⁽¹³⁾ In 2011, regional output increased by 5%. The improved domestic conditions have, over the years, also contributed to solid trend growth in low-income countries.⁽¹⁴⁾

This paper investigates the role that American trade and investment has had on the continent, specifically the African Growth and Opportunities Act (AGOA), by assessing the impact on SSA. Case studies on the Southern African Development Community (SADC) as well as the East African Community (EAC) will highlight the impact of AGOA on the continent. This is necessary to discuss how inter-governmental organisations within SSA are attempting to boost trade exports. An overall assessment of the achievements of AGOA, over the past 10 years, will bring attention to the efforts that have contributed to Africa’s long-term growth.

US trade and investment relations under AGOA

In 1993, the United States (US) sought to improve and increase its economic presence within SSA.⁽¹⁵⁾ Congress passed legislation that allowed the president of the US, at the time Bill Clinton, to develop a policy for Africa addressing development, investment, debt relief ⁽¹⁶⁾ and preferential duty-free access to the American markets for approximately 6,400 product lines from sub-Saharan Africa.⁽¹⁷⁾

In 2000, the US Congress approved AGOA as part of the Trade and Development Act of 2000.⁽¹⁸⁾ In 2002, AGOA was amended to increase market access for products from SSA.⁽¹⁹⁾ The legislation was also designed to stimulate light manufacturing in SSA, with the intention of contributing to job creation, poverty reduction and greater industrialisation.⁽²⁰⁾

In 2003, the George Bush Administration began free-trade negotiations with the Southern African Customs Union (SACU). In 2004, further amendments were made, extending benefits beyond the original deadline and explicating certain provisions.⁽²¹⁾ The legislations also provided directives for the president, regarding investment initiatives and technical assistance.⁽²²⁾

In 2010, it was estimated that US trade with SSA accounted for 1% to 2% of total world trade.⁽²³⁾ Under AGOA, preferential treatment is given to imports from eligible countries that pursue political and economic reforms.⁽²⁴⁾ AGOA offers eligible SSA countries tangible incentives to continue efforts to open up their economies and build free markets.⁽²⁵⁾ Currently, 40 countries in SSA are eligible to receive AGOA benefits.⁽²⁶⁾ Under the Act, African countries have been granted tariff-free access to US markets.⁽²⁷⁾ In its current configuration, AGAO is meant to expire in 2015.

The AGOA regulations stipulate that AGOA beneficiaries will be chosen on an annual basis within SSA. Furthermore, under AGOA, the Secretary of Commerce is expected to monitor AGOA imports, in order to account for any surges (however, over the past 11 years, such an instance has not occurred).⁽²⁸⁾

Countries are deemed eligible to receive the benefits of AGOA when they have been determined to have established, or are making continual strides toward: (i) establishing market-based economies; (ii) securing the rule of law and political pluralism; (iii) eliminating barriers to US trade and investment; (iv) protection of intellectual property; (v) sustained efforts to combat corruption; (vi) policies to reduce poverty; (vii) increasing availability of health care and educational opportunities; (viii) the protection of human rights and worker rights; and (ix) the elimination of certain child labour practices.⁽²⁹⁾ The overall response by African countries to these criteria has been positive. It is also understood that whilst all these measures may not all have been achieved fully, progress is being made towards achieving these principles. As a result, AGOA can be seen to be well-structured, supporting the development of regional value chains.⁽³⁰⁾

Presently, the Barack Obama Administration supports the renewal of AGOA after 2015. It is hoped that there will be a smooth transition between the current and future AGOA.⁽³¹⁾ Secretary of State, Hilary Clinton, reassured African countries, including South Africa, that continuing AGOA was a key part of President Obama’s new Africa policy and a key pillar towards promoting sustainable growth.⁽³²⁾

Ultimately, the American Congress is responsible for any amendments to AGOA, the terms of which will be taken into consideration prior to 2015.⁽³³⁾ The 2012 AGOA forum held on 14 to 15 June 2012,⁽³⁴⁾ was used as a platform to discuss some of Africa’s main questions such as: How to develop infrastructure to improve global competitiveness, how to improve the business climate for investment and trade and how to improve effective regulation of key infrastructure to promote investment in infrastructure so SSA states can effectively utilise AGOA?⁽³⁵⁾

The SADC and AGOA

In Southern Africa, the Southern African Development Community (SADC) complements the role of the African Union (AU), with the aim of furthering socio-economic development and securing political cooperation. SADC is comprised of 15 Member States: Angola, Botswana, the DRC, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, Zimbabwe, South Africa, Seychelles and Madagascar.  In addition, five SADC countries, namely Botswana, Lesotho, Namibia, South Africa and Swaziland, are gathered in SACU.

Within the developed world, engagement between Government and the business community allows for any obstacles to trade to be identified and addressed.⁽³⁶⁾ According to Gregory Simpkins, there is much mistrust and a lack of mutual understanding for the same processes to be established in Africa. Furthermore, African executive and legislative branches do not function in the same manner as American bodies; as a result, these factors are not conducive to establishing a productive export industry.⁽³⁷⁾

Foreign trade plays an important role in the economies of SADC Member States and the trade data on SADC countries reveals a number of interesting features. Within small countries like Lesotho and Swaziland, trade is a much more important component of gross domestic product (GDP) compared to larger countries, such as South Africa.⁽³⁸⁾

Research has shown that exports for countries such as Angola, Botswana, the DRC, Namibia, South Africa and Zambia are mainly dominated by oil or mineral exports. In these economies, the oil and mining industry plays a significant role as major foreign exchange earners and are a source of inputs to industrial development.⁽³⁹⁾

It must be stated that, despite being capital intensive sectors, oil and mining sectors generate employment opportunities both directly and indirectly through linkages to other supply and input sectors of the economy.⁽⁴⁰⁾ In general, the bulk of imports from SADC countries are intermediate and capital goods, as only South Africa has the capacity to produce such goods.⁽⁴¹⁾

Within the SADC region, agriculture’s economic and social importance goes far beyond trade.⁽⁴²⁾ Most SADC countries are still heavily reliant on a limited number of agricultural commodities for their export earnings and socio-economic stability.⁽⁴³⁾ Even though provisions have been made to boost economic trade, countries such as Zambia, which also export agricultural produce like peas, beans, grains vegetables and other farm produce to the US, have failed to sustainably boost export earnings in these sectors.⁽⁴⁴⁾

Within the SADC region, several countries have expressed concerns over the renewal of AGOA after 2015. The South African Minister of Trade and Industry, Rob Davies, has indicated that the South African Government “would like to see a rollover, an extension of AGOA for a reasonable period of time, along more or less the architecture of AGOA at the moment.”⁽⁴⁵⁾ The US is a significant investor in South Africa, with about 600 US companies operating in the country ⁽⁴⁶⁾ and AGOA offers unilateral trade arrangements in addition to establishing a framework for partnership in the realm of trade and investment.⁽⁴⁷⁾

Swaziland, an absolute monarchy ⁽⁴⁸⁾ and one of the 165 remaining African monarchies,⁽⁴⁹⁾ has also stressed the importance of AGOA to the economic and social development of the region. The Kingdom of Swaziland has an ailing economy. At present, the Swazi economy is heavily reliant on SACU revenues (in 2011, Swaziland’s disbursements from SACU were slashed by 62% and this ushered in an economic crisis that threatened to topple King Mswati’s rule),⁽⁵⁰⁾ as well as sugar exports, which is indicative of a factor-driven economy. This needs to be corrected by creating more activity within other sectors such as manufacturing, banking and mining.⁽⁵¹⁾ There is also a need to push Swaziland to be an investment-driven economy, to ensure improvement to the standard of living of the Swazi people.⁽⁵²⁾ According to the Vice President of the Federation of the Swaziland Business Community (FESBC), Hezekiel Mabuza, if the American Congress stops AGOA, many jobs would be lost in Swaziland. Mabuza also notes that economic growth would decline as Government’s tax revenues would decrease, impacting social transfers to the population.⁽⁵³⁾

The EAC and AGOA

The EAC is a regional intergovernmental organisation comprising the Republic of Kenya, Uganda, the United Republic of Tanzania, the Republic of Rwanda and the Republic of Burundi.⁽⁵⁴⁾ In the first six months of 2012, EAC countries earned approximately US$ 202 million from exports to the US under AGOA.⁽⁵⁵⁾ Owing to their combined efforts and successes, a new trade and investment partnership has been forged between the EAC and the US.⁽⁵⁶⁾

The EAC began consultation with the US Government on 26 July 2012 with regards to negotiating a Trade and Investment Partnership (TIP) agreement. The negotiations are based on the strategy for sub-Saharan Africa of President Obama’s Administration, which was released on 14 June 2012.⁽⁵⁷⁾ The strategy relies on four key pillars, namely: (i) strengthening democratic institutions; (ii) promoting economic development; (iii) ensuring regional security; and (iv) continuing to improve development assistance initiatives. The strategy makes clear that the focus of the Administration’s plan lies in the first two pillars.⁽⁵⁸⁾

Through the TIP, parties will seek to build on the foundations of the existing trade and investment rapport, including AGOA, in addition to the US-EAC Trade and Investment Framework Agreement (TIFA).⁽⁵⁹⁾ TIFA provides a framework and guidelines for effective communication strategies on identifying barriers to trade and investment between the US and members to TIFA. ⁽⁶⁰⁾ It must be noted that the names of the framework’s agreements change, depending on the region of the globe; however, the aim of these agreements is to improve cooperation and increase opportunities for trade and investment.⁽⁶¹⁾ For each of the regional agreements, TIFA Councils will meet at least once a year at senior levels of Government.⁽⁶²⁾ This is necessary to provide new business opportunities for EAC companies through reducing trade barriers, improving the business climate, encouraging open investment, and enhancing trade.⁽⁶³⁾

The achievements of AGOA to date: SSA exports

The value of products coming into the US has shown strong growth with AGOA beneficiaries exporting US$ 53.8 billion worth of goods to the US in 2011. This is a 21.5% increase in AGOA exports from 2010 and a 500% increase from the US$ 8.15 billion in AGOA exports in 2001.⁽⁶⁴⁾ Mineral fuel and crude oil drove the increase, accounting for 91.6% of AGOA exports in 2011. In addition, 70% of SSA exports to the US have been duty-free under AGOA.⁽⁶⁵⁾

By 2011, 11 years after AGOA was implemented, the number of countries exporting non-petroleum products to the US has expanded to 22. South Africa has remained the largest exporter on the African continent.⁽⁶⁶⁾ Evidence suggests that under AGOA, countries on the ‘margin’ of the global economy, especially in terms of manufacturing, are beginning to actively participate in trade with the US.⁽⁶⁷⁾ In 2011, the AGOA share of total US imports amounted to US$ 2.19 trillion; this represents an overall increase from 0.7% to 2.5%.⁽⁶⁸⁾

Conclusion: The economic successes and the challenges that lie ahead

AGOA has been recognised as a “phenomenal success.”⁽⁶⁹⁾ Though SSA remains a small player in terms of global commerce, accounting for roughly 3.2% of international trade, these strides have improved the continent’s international standing. However, certain regions can be seen to be faring better than others. SADC, in comparison to the EAC, is a much stronger economic powerhouse. In general, over the past few years, export growth has seen a steady increase, allowing African economies to actively participate in trade with the US.

Overall, SSA has flourished under the terms of AGOA, improving diplomatic ties with the US. What does the future hold post-2015? Hopefully, further investments to African markets. What is most crucial to address, especially within the African setting, is job creation and the implementation of effective and efficient poverty-alleviation strategies as half of Africa’s population still lives on under US$ 2.00 per day.⁽⁷⁰⁾

Only 11 years after AGOA was implemented, the value of products imported by the US from the SSA region has significantly increased. Overall, South Africa remains the largest exporter on the African continent and evidence suggests that under AGOA, countries that are seen to be on the ‘margin’ of the global economy, especially in terms of manufacturing, are steadily and actively participating in trade with the US.⁽⁷¹⁾ So can sub-Saharan Africa become the next economic frontier? If SSA is able to continue its conscientious efforts at advancing economic growth, investment in infrastructure and maintaining political stability, there is no reason to doubt that it can in fact become the next economic frontier, championing economic reforms on an international level.

Written by Sarah Kiggundu ⁽¹⁾

NOTES:

(1) Contact Sarah Kiggundu through Consultancy Africa Intelligence’s Finance and Economy Unit ( finance.economy@consultancyafrica.com) . 
(2) ‘Trade and Investment’, One, 4 September 2012, http://one.org.
(3) Ibid.
(4) Ibid.
(5) Ibid.
(6) Ighobor, K., ‘African economies capture world attention: But huge challenges still lie ahead’, African Renewal Online, August 2012, http://www.un.org.
(7) Jones, V. and Williams, B., ‘U.S. Trade and Investment Relations with sub-Saharan Africa and the African Growth and Opportunity Act’, Congressional Research Service, 6 June 2012, http://www.fas.org.
(8) Ibid.
(9) ‘East African Famine 2011’, The New York Times, 4 September 2012, http://topics.nytimes.com.
(10) Ibid.
(11) Ibid.
(12) Ighobor, K., ‘African economies capture world attention: But huge challenges still lie ahead’, African Renewal Online, August 2012, http://www.un.org.
(13) ‘Regional economic outlook: Sub-Saharan Africa: Sustaining growth amid global Uncertainty’, International Monetary Fund, 2012, http://www.imf.org.
(14) Ibid.      
(15) Jones, V. and Williams, B., ‘U.S. Trade and Investment Relations with sub-Saharan Africa and the African Growth and Opportunity Act’, Congressional Research Service, 6 June 2012, http://www.fas.org.
(16) Ibid.
(17) ‘The African Growth and Opportunity Act’, Economist’s View, 19 June 2012, http://economistsview.typepad.com.
(18) ‘AGOA – Africa Growth and Opportunity Act’, Department of Agriculture, Forestry and Fisheries, Republic of South Africa, 2009, http://www.nda.agric.za.
(19) Langton, D., ‘U.S. trade and investment relationship with sub-Saharan Africa: The African Growth and Opportunity Act and beyond’, Congressional Research Service, 2008, http://fpc.state.gov.
(20) Schneidman, W. and Lewis, Z., ‘The African Growth and Opportunity Act: Looking Back, Looking Forward’, Africa Growth Initiative at Brookings Institute, 2012, http://www.brookings.edu.
(21) Langton, D., ‘U.S. Trade and Investment Relationship with Sub-Saharan Africa: The African Growth and Opportunity Act and Beyond’, Congressional Research Service, 2008, http://fpc.state.gov.
(22) Ibid.
(23) ‘Trade and Investment’, One, 4 September 2012, http://one.org.
(24) Jones, V. and Williams, B., ‘U.S. Trade and Investment Relations with sub-Saharan Africa and the African Growth and Opportunity Act’, Congressional Research Service, 6 June 2012, http://www.fas.org.
(25) AGOA website, http://www.agoa.gov.
(26) ‘AGOA Eligibility Continues in 2012 for 40 African Countries’, IIP Digital, 19 September 2012, http://iipdigital.usembassy.gov.
(27) Setho, L., ‘Uncertainty over SA’s inclusion in AGOA post 2015’, SABC, 6 August 2012, http://www.sabc.co.za.
(28) Schneidman, W. and Lewis, Z., ‘The African Growth and Opportunity Act: Looking back, looking forward’, Brookings Institute, 2012, http://www.brookings.edu.
(29) ‘Country Eligibility’, AGOA, 5 September 2012, http://www.agoa.gov.
(30) Moyo, N. and Page, J., ‘AGOA and Regional Integration in Africa: A missed opportunity beyond 2015’, 2010, Brookings Institute, http://www.brookings.edu.
(31) ‘Briefing on US trade and investment policy in Africa and the upcoming AGOA forum’, US Department of State, 13 June 2012, http://www.state.gov.
(32) Fabricius, P., ‘SA’s AGOA future is uncertain’, The Post, 12 August 2012, http://www.thepost.co.za.
(33) ‘Briefing on US trade and investment policy in Africa and the upcoming AGOA forum’, US Department of State, 13 June 2012, http://www.state.gov.
(34) ‘US sub-Saharan Africa trade and economic cooperation: 2012 AGOA forum’, US Department of State, 5 September 2012, http://www.state.gov.
(35) ‘Briefing on US trade and investment policy in Africa and the upcoming AGOA forum’, US Department of State, 13 June 2012, http://www.state.gov.
(36) Simpkins, G., ‘Why hasn’t AGOA worked better for Africa?’, Africa Rising 21st Century, 21 March 2011, http://africarising2010.blogspot.com.
(37) Ibid.
(38) ‘Chapter 2: Socio-Economic Situation in SADC’, SADC, 10 September 2012, http://www.sadc.int.
(39) Ibid.
(40) Ibid.
(41) Ibid.
(42) ‘Overview of the regional EPA negotiations: SADC-EU Economic Partnership Agreement’, European Centre for Development Policy Management, 2006, http://www.ecdpm.org.
(43) Ibid.
(44) ‘Zambia: The AGOA initiative has been a failure in Zambia’, All Africa, 2 March 2007, http://allafrica.com.
(45) ‘SA wants an extension of African Growth Act’, South African Government News Agency, 3 August 2012, http://www.sanews.gov.za.
(46) Ibid.
(47) Páez, L., et al., ‘A decade of African-US trade under the African Growth Opportunities Act (AGOA): Challenges, opportunities and a framework for post-AGOA engagement’, African Development Bank, 2010, http://www.afdb.org.
(48) ‘Absolute Monarchy’, Wikipedia, 20 September 2012, http://en.wikipedia.org.
(49) ‘Monarchies in Africa’, Wikipedia, 19 September 2012, http://en.wikipedia.org.
(50) ‘A gift for a King’, Southern Africa Report, 26 January 2012, http://www.southernafricareport.com.
(51) ‘Investor Road Map 2012’, Swazi Observer, 19 June 2012, http://www.observer.org.sz.
(52) Ibid.
(53) ‘Business community worried about post-2015 AGOA’, Times of Swaziland, 16 August 2012, http://www.times.co.sz.
(54) ‘The East African Community’, EAC, 5 September 2012, http://www.eac.int.
(55) Muwanga, D., ‘East Africa: EAC earns US$ 202 million from AGOA exports’, East African Business Week, 9 July 2012, http://allafrica.com.
(56) ‘EAC signs new trade agreement with the United States’, IWACU, 3 July 2012, http://www.iwacu-burundi.org.
(57) ‘EAC-US begin discussion on trade and investment partnership’, 26 July 2012, Arusha, Tanzania’, Trade Promotion Through Research, Analysis and Awareness Creation, 27 July 2012, http://cartercentre.blogspot.com.
(58) Ibid.
(59) Ibid.
(60) ‘Trade and Investment Framework Agreements’, Office of the United States Trade Representative, 19 September 2012, http://www.ustr.gov.
(61) Ibid.
(62) Ibid.
(63) ‘EAC strikes a new trade agreement with the US’, Uganda National Chamber of Commerce and Industry, 11 July 2012, http://www.chamberuganda.com.
(64) Schneidman, W. and Lewis, Z., ‘The African Growth and Opportunity Act: Looking back, looking forward’, Brookings Institute, 2012, http://www.brookings.edu.
(65) Ibid.
(66) Ibid.
(67) Ibid.
(68) Schneidman, W. and Lewis, Z., ‘The African Growth and Opportunity Act: Looking back, looking forward’, Brookings Institute, 2012, http://www.brookings.edu.
(69) Lamport, J., ‘AGOA is a phenomenal success’, West Africa Trade Hub, 8 August 2010, http://www.watradehub.com.
(70) Ighobor, K, ‘African economies capture world attention: But huge challenges still lie ahead’, African Renewal Online, August 2012, http://www.un.org.
(71) Ibid.