AFRICA is in danger of losing its preferential trade access to the US. South Africa — the continent’s biggest non-oil beneficiary of the African Growth and Opportunity Act (Agoa) — should be alarmed and take the lead in advocating for Agoa’s survival. But in my conversations with South African business people, I detect little sense of urgency. Indeed, there is often an assumption that Agoa’s extension is a foregone conclusion.
Ten years after Agoa was passed, opinion in US policy circles appears to be quietly coalescing around the idea that it has failed to deliver on its aim to grow Africa’s manufacturing sector. Just last month, Bruce Wharton, the US deputy assistant secretary of state for Africa, warned that while the Obama administration would like to see Agoa continue, “it’s going to take a concerted effort to persuade people in this country that Agoa remains a good investment for the US”.
Agoa’s expiration, along with eliminating the comparative advantage enjoyed by Africa’s nascent manufacturers, would deal a devastating blow to key South African manufacturing sectors, most notably the automotive sector, while setting back SA’s efforts to put its economy on a job-creating growth path.
In 2009, SA exported automotive and transportation equipment worth more than 1bn to the US under Agoa, and 2bn in 2008 before the full weight of the global recession was felt. One in four dollars SA earned through exports to the US was transportation related. Altogether, these exports contribute significantly to a sector that accounts for more than 10% of SA’s manufacturing base and provides jobs for about 200000 workers.
Between 2000 (the year Agoa was enacted) and 2006, the National Association of Automobile Manufacturers of SA estimated that industry giants such as Ford, General Motors, Toyota, Daimler and BMW quadrupled their investment in production and export infrastructure in SA from about 208m to 868m. More recently, Daimler announced it would invest a further 280m by 2014 in its East London plant to produce next- generation Mercedes Benz C-class vehicles for export to global markets, including the US.
To date, the Obama administration has shown only lukewarm support for Agoa. Indeed, it is the first administration since Agoa’s enactment not to offer any enhancements to the legislation. Instead, the idea gaining currency in Washington is a version of trade preference reform in which Agoa-like benefits are extended to all “least developed countries”, leaving Africa with no exclusive trade benefits and SA, with its middle-income status, completely out of the loop.
It is critical that Agoa stakeholders begin to frame the argument for the law’s extension beyond 2015 now. With a new Congress in Washington, led by a group potentially more open to conversations on African trade, Africa has a unique opportunity to reverse eroding confidence in Agoa’s value.
Most of this group was swept into office on an anti-big government platform. Agoa fits this mind-set. Trade, not aid, is a mantra that resonates in today’s economic landscape, particularly since it supports job growth in the US at a time when cutting unemployment at home is America’s top political and economic priority.
Further , this new Congress will be asked to decide the fate of the “third- country fabric provision”, which allows African apparel manufacturers to use non-African materials in clothing exports to the US. That provision is set to expire at the end of next year, and its extension — or lack thereof — will be an important bellwether of how committed Congress might be to extending the full legislation beyond 2015.
Until now, SA has been content to leave advocacy for Agoa largely to others. But today, at a time when Agoa’s value is under attack and its fate unresolved, there is no clear African leadership to fight for its preservation. If Agoa is to be saved, it needs a strong African champion, such as SA, which has the global presence to clearly and forcefully communicate Agoa’s importance as a central tool in the continent’s journey to prosperity.
Let South Africans not wait until three minutes to midnight to do so.
OP-ED Courtesy of Business Day, 04. February 2011
Link here to the original.