Local entrepreneurs miss AGOA train
Isaac Pinielo | Friday November 18, 2016 14:42
While numerous efforts have been made to motivate businesses in Botswana to take advantage of this programme, recent findings point to the lack of awareness on AGOA and the requirements of the United States (US) market. Throughout the years, Botswana exported two commodity items to the US, textiles and stone or glass, which is predominately diamonds.
Despite the duty-free, quota-free benefits accorded under AGOA, coupled with the third-country fabric (TCF) provision, Botswana’s textile or apparel exports to the US are said to have not increased over the years.
“In fact, textile exports actually fell by 15% between 2009 and 2015 with the largest decline being in 2013,” says George Makore, a consultant tasked to develop an AGOA national response strategy.
At the peak of Botswana’s exports under AGOA, the country had over 10 companies exporting to the US, but currently, only one apparel company, Carraparel Botswana, has been consistently exporting significant volumes under this facility, although it has significantly scaled down operations to about 300 employees from a total workforce of 1,200 employees during its peak.
Of the over 10 textile and apparel firms that operated from Botswana, some companies have shifted focus towards South Africa, others have closed down while others have relocated.
Makore reiterated that Botswana’s AGOA exports have not increased beyond 2012 levels dropping from a peak of $17 million in 2011 to $8 million in 2015.
Textiles and apparel have been Botswana’s main AGOA beneficiary sector, constituting between 90% to 100% of total AGOA exports.
In 2011, jewellery (stones and glass) exports were over $1.5 million. This sector has shown some potential under AGOA. While average AGOA exports from sub-Saharan Africa constitute 45% to 50% of total exports to the US, Botswana’s is less than four percent from 2013 to date.
However, Makore believes that Botswana has a lot of positives to build on in its efforts to increase utilisation of AGOA, which accords duty-free access into the US for qualifying exports from eligible sub-Saharan African countries.
He said it is imperative that Botswana increases utilisation of the trade preference programme since it has comparative advantage.
Comparative advantage is the ability of a country to produce a good or service at a lower opportunity cost than competitors.
“The main sources of comparative advantage for a country include climate and natural resources, relative abundance of labour and capital, technology, institutions and external economies, import controls, and increasing returns and division of labour,” Makore said.
Among the factors that give Botswana advantage are a well-established financial sector, availability of natural resources such as land, minerals and wildlife, central location of the country in SADC, which makes it accessible to a market of more than 200 million people in the region, access to markets, political and macro-economic stability, absence of foreign exchange controls, and availability of business development and promotion services.
In addition, the country’s commitment to sound fiscal policy and economic freedom, low rate of taxation when compared to many countries, potential for beneficiation of minerals and other primary products, preferential trade agreements that provide duty-free, quota-free market access into countries such as the US and the European Union (EU), are also other factors that give the country an upper hand.
Early this year, the Minister of Investment, Trade and Industry was quoted as saying that through the AGOA utilisation strategy, Botswana would be able to explore and develop potential sectors to expand exports and be competitive in the US markets and the rest of the world.
Meanwhile, Makore said there are several sectors that have been identified as priority sectors that could be developed to increase exports to the US under AGOA. These sectors include handicrafts (arts and crafts) sector, horticulture and the agro-processing sector, jewellery and semi-precious stones sector, leather and leather products sector, natural (indigenous) products sector, meat and meat products sector, and textiles or apparel sector.
According to the guidelines, for a product to qualify for AGOA duty-free treatment it has to be included in the list of generalised system of preferences (GSP)-eligible articles, or included in the list of new AGOA products, or be a qualifying apparel or textile item.
The product must also be imported into the US directly from an AGOA beneficiary country or pass through another country in a sealed container and addressed to a location in the US. Furthermore, Makore identified certain factors that limit Botswana from effectively utilising the AGOA facility. These include limited skilled labour, low levels of technological innovation, lack of economies of scale, high-cost and unreliable energy.
In addition, poor infrastructure, especially transport and non-tariff barriers (NTBs) such as cumbersome administrative regulations and customs procedures negatively impact the competitiveness of most products from the country.
Makore said the overarching challenges that Botswana needs to address to improve its utilisation of the AGOA preferential programme are inadequate awareness, insufficient investment from the US, high cost of production and transport, poor competitiveness, and compliance with US regulations.