Agoa shows US has successfully courted Africa

First Published in Business Day on   January 26th, 2023   |   by   Gracelin Baskaran

Agoa shows US has successfully courted Africa

The African Growth & Opportunities Act spurs manufacturing and has been a tool for human rights

US treasury secretary Janet Yellen is in town this week. While news headlines have focused on the overlapping visits to the continent of Yellen, Russia’s Sergey Lavrov and China’s Qin Gang, Yellen’s comparative advantage is marked. She’s a pre-eminent economist — the first to have led the Federal Reserve, the White House council of economic advisers and the treasury — and she’s here to leverage that experience to build US-Africa relations.

Fellow columnist John Dludlu recently suggested Washington’s overtures to Africa are likely to fail, in part because the US has lost its race to court Africa through trade. (“Too little, too late for the US to counter China in Africa”, January 18). I disagree.

In 2000, then US president Bill Clinton signed the African Growth & Opportunities Act (Agoa), which gave Sub-Saharan African countries a competitive edge by unilaterally allowing them duty-free exports for 6,500 products to the US. In 2021 Africa exported $4.8bn in non-oil goods to the US through Agoa — that's more than the GDPs of 13 African countries.

When discussing US-Africa trade there are three evidence-backed points to be made: without Agoa, some smaller Sub-Saharan African countries would never have developed a private sector; when countries have had their Agoa benefits suspended it’s led to an exodus of investment, indicating that the competitive edge Agoa offers is vital to investors; and Agoa has become an economic diplomacy tool the US has leveraged to reduce human rights abuse. Whether it’s the best tool for the purpose is up for discussion.

Agoa has clearly been the driving factor behind the development of the private sector in some Sub-Saharan African countries. In Lesotho, the manufacturing industry grew from a handful of factories in the 1990s to become the largest private sector employer after Agoa was instated, providing employment for 40,000 people and exporting mainly American brands such as Old Navy, Walmart and Levi’s to the value of about $250m.

China has never provided any incentives to attract investment to Lesotho. On the contrary, China’s manufacturing firms came to Lesotho so they could benefit from Agoa and tap the US market. When Agoa benefits are withdrawn evidence from multiple countries shows investment leaves — including Chinese firms.

In 2011 Eswatini exported $73m in textiles and apparel to the US through Agoa. In 2015 the US suspended Eswatini’s Agoa benefits due to its poor labour and human rights record. Many of the 30 (largely Chinese-owned) textile and apparel factories immediately relocated.

China didn’t step into the breach and provide similar incentives to retain investment. In 2017, after Eswatini resolved its ills, Agoa was reinstated and a national Agoa utilisation strategy was developed to increase exports from Eswatini to the US and boost US investment.

We’re seeing a similar script play out in Ethiopia. In 2016 I visited the bustling industrial park in Hawassa, which hosted factories producing for H&M and PVH, whose brands include Tommy Hilfiger and Calvin Klein. In 2021, two weeks after President Joe Biden announced Ethiopia’s suspension from Agoa’s benefits for gross human rights violations, PVH announced that it would close its factories. It’s hard to prove causation, but the correlation is strong.

Agoa offers a unique insight into the divergent approach the US and China have taken on the African continent. I want to preface this carefully — I believe targeted sanctions are generally preferable to economy-wide ones, because the latter can put thousands out of work.

The US decided to suspend Ethiopia’s Agoa benefits as it worked on targeted sanctions. It was a significant blow. It would have been easier for the US to do nothing — after all, the Ethiopian government has been a strategic ally in the Horn of Africa, where radicalisation and instability are rife.

Shortly after the AU brokered a ceasefire, Ethiopian Prime Minister Abiy Ahmed requested that Agoa benefits be reinstated. He clearly realised its value.

I am uncomfortable that China didn’t lift an economic finger to incentivise Ethiopia to end a war that’s killed upwards of 500,000 people. It simply watched from the sidelines. Silence is complicity.

The argument that US hasn’t “courted” Africa through trade is unfounded. Africa. Agoa has been a backbone for building a competitive private sector, generating jobs (350,000 direct jobs and over a million indirect jobs), and increasing revenue. It’s courted it, within the parameters of decency, rather than at the expense of it.

In next week’s column I will critically assess the question of whether African countries have really been drawn to the “warm embrace” of China. 

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