The rug beneath the Summit

Mbongeni Mguni | Monday July 31, 2023 15:58

Trade and Industry minister, Mmusi Kgafela, is closely following the progress towards renewing the African Growth and Opportunities Act (AGOA), the trade arrangement between the US and over 30 sub-Saharan African countries which provides relaxed access to the American market.

In December, Kgafela, his fellow ministers from Africa and senior officials were in Washington DC for the US Africa Leaders’ Summit where they met with various US authorities including members of Congress, raising the issue of AGOA’s expiry next year and the need for early commitments on renewal.

Recently in Gaborone, at the US Africa Business Summit, Kgafela and his counterparts from the region again met with representatives of the US government, with no clear indication of a commitment to renew or what the new AGOA, if renewed, would look like.

“Indications are that the appetite to renew is very high on their end,” Kgafela told Mmegi on the sidelines of the recent four-day Summit.

“When they speak, they express that, but there’s always a caveat to say it’s dependent on Congress.

“It doesn’t seem to us that Congress is against it and we have never heard any voice from Congress to that effect.

“Everyone who speaks to us says it looks like it will be done.

“Maybe there could be others who are resisting but they are not telling us.

“We have not heard of those and so we have only heard that prospects are there.”

As the more than 1,300 delegates including major US institutional investors representing assets of $2.3 trillion, engaged in Gaborone, any deal-making or leads were, consciously or not, based on whether AGOA will be renewed and if it is, what animal it will turn out to be.

Essentially, as explained by the Atlantic Council’s non-resident senior fellow, Frannie Léautier, the 23-year old AGOA lies at the heart of trade relations between Africa and the US. The Atlantic Council is a nonpartisan organisation championing US leadership and engagement in the world.

“AGOA has been the cornerstone of the US Africa relationship.

“With it expiring in 2025, policymakers must decide what the basis of US Africa trade going forward should be,” Léautier said at the Summit.

From Washington DC last December, reports emerged that legislators in the US were pushing for a greener AGOA, one where significant changes would be made that better uphold the Environmental, Social and Governance (ESG) principles. AGOA, as a legislation, gives the American president the discretion to shape the engagement the US wants with Africa, an authority leaders have exercised previously to boot some countries out of the trade deal for human rights and governance violations amongst others.

The new trade deal is likely to take matters further, looking at sustainable sourcing activities in African countries, including both environmental and social impacts, as well as closer scrutiny of labour, fair wage and gender-related concerns.

Already, insiders have cautioned Botswana that its planned beef and leather exports to the US could be scrutinised as environmentally unfriendly if the free range cattle involved are found to be contributing in any way to deforestation.

What this all means for the delegates at the US Africa Business Summit is that while they may have sealed arrangements for partnerships here in Gaborone, if any of those deals involve exports to the US, the new AGOA may pull the rug from under their feet.

Kgafela expects the new AGOA to prominently feature issues of ESG.

“Even when we went there (Washington DC) to have a discussion with the congressmen and women, they spoke but they had their concerns about the environment,” he told Mmegi at the Gaborone Summit.

“The thing of the just energy transition and our insistence on using fossil fuels for some time longer, seemed to rub them the wrong way.

“It could be a consideration to take into account on whether they are renewing or not.”

Besides the question of renewal or what the new AGOA will look like, the deals and dealmakers at the Summit also have to contend with the uncertainty brought about by the lack of clarity on when a deal will be reached for a new AGOA. For many delegates, simply being in the dark about the timing of a renewal is to some extent worse than being informed the AGOA is off or on.

Lesotho, one of Africa’s top exporters under AGOA, is especially running out of patience with the uncertainty. At the Summit, the mountain kingdom’s trade minister, Mokhethi Shelile, was emphatic about the need to create more certainty around the trade deal. Lesotho’s textile sector, its main AGOA export, employs about 25,000 people, mainly young semi-skilled women who are a key employment demographic.

“This is about people’s lives, how they take their children to school, and the reason they wake up every morning.

“That’s the impact of AGOA.

“AGOA changed the culture as we had women who had never worked before and now under the trade deal, they have jobs.

“The 2015 renewal of AGOA was very messy and done right at the end.

“Our priority this time is immediate renewal, right now.

“We don’t have time,” she said.

Shelile said whatever regulatory overhaul US authorities want to make to AGOA can wait. The confirmation of renewal and a new deal should come first, she said.

“Let’s talk about doing things that are important first. Renew it first then let’s talk about doing things differently after that,” she said.

One of the reasons the US could be taking its time studying the arguments for a new AGOA, appears to be data showing the trade deal’s gross underutilisation by African states over the years. According to research published at the Summit by the Atlantic Council, sub-Saharan Africa’s share of US imports have been sliding over the years, sinking to five percent from more than 20%. While part of this fall has been linked to fluctuating oil prices, sub-Saharan Africa has generally battled to trade across the 6,000 product lines offered by AGOA.

“Many have used it a little bit, but few have used it fully,” Léautier said.

“The exports have been focussed on a few products which makes them those countries vulnerable in that area.”

Botswana is amongst countries that have battled to fully utilise AGOA and for the same reasons as much of the rest of the continent. In fact, a report by a US agency in April found that Botswana is one of three countries on the continent with the lowest exports under AGOA, with the country’s utilisation rate of the trade arrangement falling from 100% to zero in the last decade.

From a peak of P1.8 billion in 2008, AGOA exports by local firms have been plummeting over the years as key exporting sectors such as textiles and garments have struggled with a plethora of issues. While the US remains a highly lucrative market for local textile players, issues such as scale, capacity, distance, costs, high competition for the American market, and government reluctance to keep extending incentives for local producers, led to the closure of some factories and relocation by others.

According to Mmegi’s research, the last exports from Botswana under AGOA occurred in 2019 and consisted of wooden ornaments worth about $3,500. The last textile exports under AGOA from Botswana were in 2017 and consisted of women’s garments worth about $970,000.

Government, working with the US, has since revised its AGOA strategy and is placing a focus on supporting the exports of meat and meat products, natural/indigenous products, handicrafts, jewellery, and semi-precious stones.

The country is slowing reopening its market channels to the US, with KGK Diamonds this year making a historic sale of diamond jewellery direct into the American market.

The Atlantic Council in fact says even with the under-utilisation, AGOA should be renewed for at least 10-years “as soon as possible” for both Africa and the US’ strategic interest.

“Doing so could allow African economies to capitalise on efforts to diversify supply chains away from China, supporting US strategic interests and a more resilient global economy.

“Support to countries and firms in Africa is needed to ensure that the benefits of AGOA in fuelling long-term development are achieved. There is a need for stronger capacity building to translate AGOA eligibility into utilization and real export capacity.

“To realise the benefits of AGOA for long-term development, African governments should rapidly develop and regularly update realistic national AGOA strategies and embed them in their economic planning and public investment,” the Council said in a report circulated at the Summit.

In Washington DC, African ministers and officials pressed the US for a December 2023 deadline for AGOA negotiations.

In the aftermath of the Gaborone Summit, the behind-the-scenes horse-trading continues to ensure that the momentum for greater trade and investment between two sides is not smothered by the politics and bureaucracy of AGOA.