The 4th Africa Growth and Opportunity Act (AGOA) forum was recently concluded in Senegal. Coming on the heels of the need to build a robust trade relation with Africa, the AGOA signed in October 2000 aimed at building on existing US trade programs by simply expanding the (duty free) benefits which was earlier available only under the Generalized System of Preferences (GSP) program. Basically, AGOA intends to ‘liberalize’ trade between the United States. Today there are 37 eligible countries in Africa.
At present duty free access to the US market under AGOA/GSP program is approximately 7,000 product tariff lines. Interestingly, trade figures indicate AGOA has boosted trade between the US and Africa with over $44 billion last year. The US import from the region has also increased by more than 50% between 2000 and 2004. However, only a few countries have taken the opportunities offered by the Act which suggests that more staggering figures could still be recorded in the next few years.
The promulgation of the Act does not mean that eligible countries would benefit. Just like the way Africa has not filled its quota with the EU despite the Lome/Cotonou agreement with the EU. Each country that wants to benefit must not simply fold its arms. Every eligible country must address ways it could benefit greatly from the Act. Take for instance, the apparel data shows only a few countries export apparel to the US under AGOA.
The AGOA which initially covered eight years has been extended till 2015 under the present regime. However, benefiting from AGOA goes beyond merely extending the life-span of the Act. It is imperative that countries aside from meeting eligibility criteria must create conditions for local industries not only to compete but also meet quality standards expected in other markets.
There is still the need to address specific issues which contribute to Africa’s inability to compete or take full advantage offered by AGOA or any other trade agreements. African countries still face huge costs due to distorted standards. Studies have shown that if African countries could meet harmonized international standards, it would increase the region’s export by $2.2 billion. Most of the industries that produce products covered under AGOA still need to be familiar with the requirements and procedures under which their products could best be offered for sale outside their shores.
One of the best avenues to increase quality in standards is for African countries to first of all trade among themselves. It is through this that quality of their products can increase. Aside from that, it would also be helpful in meeting other special requirements like labeling and flame retardant. Nevertheless, the trade volume among African countries is low which clearly indicates Africa barely trade among themselves.
Tariff among African countries is 26.8 % which is four times higher than OECD countries. OECD countries agreed under the Uruguay Round to reduce their tariff by 40%. That of Africa remains unchanged. Take for instance, agriculture export within African countries in 1997 faced average tariff of 33.6 %. Non-agricultural imports within African countries were slammed 20.6 tariffs during the same year under review.
African countries can compete if the region’s products are offered at competitive prices, produce at high capacity and on time delivery of goods when ordered. Business is about making profits and no wise entrepreneur would offer his goods below his production costs and still remain in the same business. But transaction costs in many African countries are high compared to other regions of the world. Many companies generate their power supply, employ private security outfits, supply water and run their transportation because of the collapse of basic infrastructure.
In order to deliver goods timely, there must be efficient transportation systems. Few African countries can boost of efficient rail system for haulage of goods. A good transport system will facilitate the movement of the goods to the necessary points of exportation. Another impediment is lack of credit facilities for Small and Medium sized Enterprises (SMEs) in Africa and lending rates. Access to loans and credit from the financial institutions will go a long way to boost the yearly turn out of the SMEs in Africa.
South Asia and Africa are both poor regions of the world. Interestingly both regions differ in economic paths. With more increased private sector investments, diversification of the economy and low transaction costs, South Asia global exports grew by 133 % between 1991 and 2001 while that of Africa was just 68%.
African countries have much to learn from countries in South Asia which have witnessed astronomical growth in their GDPs. One of such ways is to fortify the private sector, rather than stifling private sector through multiples taxes and various excessive regulations. Across the world the private sector is seen as the engine of the development and the most efficient means to create jobs, prosperity and inject life into the economy.
Trade agreements whether multilateral or bilateral require countries designed for to work assiduously in order to harness the opportunities offered. Merely rejoicing that on the pages of newspapers that one country has been included will never translate to reaping any benefit. Rather the challenges pose by such agreements must be tackled.
- Ayodele & Oluwatuyi are both of the Institute of Public Policy Analysis in Lagos