6th Global Conference on Business & Economics ISBN : 0-9742114-6-X Role of AGOA/USAID Trade Hubs in Bringing Sub-Saharan African Food and Consumer Products to the U.S. Marketplace Dr. L. Lum Niba, LaSalle University, 1900 West Olney Ave, Philadelphia, PA 19141 ABSTRACT Most American consumers do not expect to find processed food and consumer products in their local Wal-Mart with a ‘made in Africa’ label. This is because other than for oil/petroleum products, consumer exports from sub-Saharan Africa (SSA) to the West have traditionally been raw, unprocessed food and agricultural products. In recent years however, there has been a monumental shift. While downstream product exports from Africa are still virtually a blip on the radar screen, the fact is that there is now a vehicle for the potential growth and expansion of trade in SSA processed food and consumer products. This is primarily due to the African Growth and Opportunity Act (AGOA). Originally signed in 2000 (and amended in 2002 and 2004), AGOA has provided great competitive advantage for SSA product-marketing in the United States. The greatest benefit of AGOA is that products traded (including primarily processed products and apparel) under the agreement are duty-free (U.S. International Trade Commission, 2005). In the short span of its existence, AGOA has spawned success; with 2005 SSA exports to the U.S. under the Act totaling $38.1 billion. Some of the most remarkable include frozen fruit sorbet from South Africa sold in Wal-Mart and Costco, and packaged tuna from Senegal. The fundamental challenge in SSA is the appallingly inadequate infrastructure and sore lack of capacity. Furthermore, policy and business structures in most of SSA are rudimentary and largely outdated, rendering the region noncompetitive. The USAID regional trade hubs have provided technical assistance to greatly facilitate production of quality products for a discerning, sophisticated American marketplace. The Southern Africa Global Competitiveness Hub for instance, brokered the development of the Trans Kalahari corridor to provide a lucrative trade route linking South Africa, Botswana and the Namibian port of Walvis Bay. Implementation and realization of the full benefits of AGOA in SSA still lags far behind potential, mainly because of a lack of awareness, but also because of inadequate business networks. AGOA business partners in SSA cite the importance of in-person and direct communication as a crucial ingredient in brokering deals and gaining exposure. Trade shows, open meetings and networking events are therefore essential. Effective execution and expansion of AGOA businesses in SSA and business partnerships in the U.S., and collaboration with the indispensable USAID trade hubs is vital in ensuring that U.S. consumers get more food and consumer products from SSA in their retail stores. INTRODUCTION Sub-Saharan African (SSA) exports to the West have historically been petroleum products, minerals and non-processed agricultural and farm products such. In fact, for several countries in Central and West Africa, petroleum products account for the largest proportion of exports to the United States (United States Census Bureau, 2006). Even then, overall African trade and export is still a disproportionately minuscule fraction of overall world production and trade. The primary aim of the African Growth and Opportunity Act (AGOA) was to expand and enhance African trade with the United States. Specifically, AGOA targets the production and export of processed products from SSA countries to the United States. This provides access for the development and expansion of new trade opportunities SSA countries, enabling potential growth in competitiveness. Provisions of AGOA: AGOA was originally signed into law on July 18th, 2000, and further expanded in 2002 and 2004. The primary provision of AGOA is that it allows duty-free entry for various processed and manufactured products from eligible Sub-Saharan African countries into the United States under the Generalized System of Preferences (GSP), provided the U.S. trade Representative (USTR) and the U.S. International Trade Commission (USITC) determine that these are not import sensitive. Duty-free access was a key incentive for SSA countries to build their economies and adopt free market trade policies. With AGOA in place, duty-free access covers the 4,600 GSP line items as well as an additional 1,800 products from SSA AGOA-eligible countries, making allowance OCTOBER 15-17, 2006 GUTMAN CONFERENCE CENTER, USA 1 6th Global Conference on Business & Economics ISBN : 0-9742114-6-X for over 6,400 items (African Growth and Opportunity Act, 2000). As of date, the AGOA provisions are in place till September 30th, 2015. For SSA countries to benefit from the AGOA duty-free access provisions, the eligibility criteria must be fulfilled, most of which are predicated on economic, political and social reform. At the inception of AGOA, 34 SSA countries were declared eligible. Since the 2000 proclamation however, the following additional countries have gained eligibility: Burkina Faso, Burundi, Cote D’Ivoire (which later lost eligibility), Democratic Republic of Congo, The Gambia and Swaziland. Conversely, the following countries have lost their AGOA eligibility: Central African Republic, Cote D’Ivoire, Eritrea and Mauritius. Of the 48 SSA countries, 37 are currently AGOA-eligible. General Overview of AGOA Provisions: May 18, 2000 AGOA signed into law by President Clinton as Title I of the Trade and Development Act of 2000 (AGOA I). Provided incentives (duty-free access) for sub-Saharan African countries to expand trade with the United States. December 21, 2000 President Clinton extended duty-free access under GSP for over 1,800 tariff line items (in addition to the standard list of 4600 items) August 6, 2002 Amendments to AGOA I signed into law by President Bush as part of the Trade Act of 2002 (AGOA II). Expanded preferential access for imports from SSA countries by: Doubling the cap for apparel; Granting Botswana and Namibia lesser developed beneficiary country status (producers could use third country fabric); Providing preferential treatment for knit-to-shape articles, with components either from the U.S. or from other eligible SSA countries; Expanding preferences for hybrid apparel July 13, 2004 AGOA Acceleration Act of 2004 signed into law by President Bush (AGOA III). Extended preferential access for imports from SSA countries till September 30, 2015 (originally 2008) Extended 3rd country fabric provision until September 2007. Included a Congressional policy statement that textile and apparel provisions be regarded in a trade-expanding manner Included policy statements on AGOA benefits with regard to poverty reduction, peace promotion, investment and trade reinforcement, combating HIV/AIDS and trade liberalization. Promoted investment in projects that support development of infrastructure such as roads, ports and information technology. December 3, 2004 Miscellaneous trade and Technical Corrections Act of 2004 signed into law. Amendment to AGOA III granting lesser-developed beneficiary status to Mauritius, allowing them to use non-U.S. fabric and yarn in apparel. (Sources: African Growth and Opportunity Act, 2000; United States International Trade Commission, 2005; United States Trade Representative, 2005) The U.S. market is protected in this AGOA framework by various safeguards. First, there is monitoring of SSA partner countries for compliance with eligibility criteria. Secondly, the Commerce Secretary monitors apparel imports to guard against surge, threats or damage to the U.S. apparel import (duty-free access could be suspended for such products). Thirdly, a US-SSA Trade and Economic Forum is hosted by the Secretaries of Commerce, State and Treasury, and the USTR. Finally, annual reports are made to Congress through 2008. AGOA and the United States Agency for International Development (USAID) Trade Hubs: The USAID is the primary player in facilitating SSA-US trade in AGOA-eligible SSA countries. The USAID’s vehicles are the African Global Competitiveness Initiative (AGCI) and the regional trade hubs in SSA. OCTOBER 15-17, 2006 GUTMAN CONFERENCE CENTER, USA 2 6th Global Conference on Business & Economics ISBN : 0-9742114-6-X The existing trade hubs are the West African Trade hub headquartered in Accra (Ghana), the Southern Africa Trade Hub headquartered in Gaborone (Botswana) and the East and Central African Trade Hub, with head quarters in Nairobi (Kenya). The USAID Trade Hubs in cooperation with regional trade groups such as the West African International Business Linkages program, the Southern African Global Competitiveness Initiative and the South Africa International Business Linkages program provide technical and logistical assistance such as sponsoring travel to trade shows and technical guidance. AGOA FOOD AND CONSUMER PRODUCTS IN THE U.S. MARKET-PLACE A little more than five years after the inception of AGOA, consumer products imported into the United States under its auspices are now available in the US market-place. Some countries exporting non-petroleum products to the United States under the AGOA agreement are: Table 1: Key AGOA Food and Consumer Products Exporting Countries: Product Apparel Coffee, Tea, and Spices Cotton Fish (and fish products) Exporting Countries Lesotho, Madagascar, Mauritius Ethiopia Kenya, Uganda Benin, Burkina Faso, Chad, Mali The Gambia, Mauritania, Namibia, Sao Tome and Principe, Senegal, Tanzania Other agricultural products (e.g. shea-butter) Ghana, Guinea-Bissau, Malawi, Swaziland (Sources: United States International Trade Commission, 2005; United States Census Bureau, 2006) There are notable successes in consumer products imported into the United States under the auspices of AGOA. These include frozen fruit, various clothing and apparel items, gift baskets among others (AGOA 2005, Chemengich and Gale, 2005; Dougherty, 2004). Specific success stories include the following: 1. 2. 3. 4. 5. 6. 7. 8. Frozen fruit sorbet (Island Way Sorbet) imported from the South African company Dynamic Commodities, which produces pineapples, apples, oranges, lemons; Dynamic Commodities has contracts with 7-Eleven and its products are carried in Costco and Wal-Mart. Under AGOA, the company reduced the 17 % tariff, and imports topped $1.8 million in 2004 (African Growth and Opportunity Act, 2004). Swimsuits, medical scrubs and polo shirts produced in Cameroon by the Brodwell Company (and Ken Atlantic brand) for the U.S. market; Socks finished, bleached and packaged by the company Overseas Knitwear in Ghana and exported in partnership with Southeastern Yarn Sales (Charlotte, North Carolina); Knit pants finished by the Kenyan (East Africa) company Chandu EPZ Limited, and imported for sale in JC Penney and Wal-Mart; Men and women’s garments produced by Shining Century in Lesotho for sale in the U.S.; such factories contributed to the estimated $318 million of Lesotho’s exports to the United States in 2003; Camouflage t-shirts produced by Belin Textiles in Ghana (West Africa) and imported for sale in WalMart; Peace baskets (made of handicraft and gift items) assembled by the company Gahaya Links in Rwanda and displayed in Macy’s; AGOA sales are estimated at $370,000. Infant and children’s clothes produced by Bodo Voahangy in Madagascar; the company contracted with Ralph Lauren and have reached sales of up to $100,000 per year. Overall, SSA-US exports under AGOA increased by 88 % in 2004, and were estimated at $26.6 billion, of which non-petroleum products were 3.5 billion (U.S. Dept of Commerce, 2005). CONSTRAINTS IN THE IMPLEMENTATION OF AGOA Most SSA countries still lag far behind in utilizing and exploiting the benefits of AGOA. Perhaps this is most clearly demonstrated by the fact that almost six years after the enactment of AGOA, raw materials for most garment and apparel factories are still being sourced from Asia (Dougherty, 2004). Most apparel factories and production in SSA, are sourced from Asia or other third countries. The major challenges are: Government Regulatory and Policy Hurdles: OCTOBER 15-17, 2006 GUTMAN CONFERENCE CENTER, USA 3 6th Global Conference on Business & Economics ISBN : 0-9742114-6-X A common characteristic cited by foreign investors is the nature of the government economic, regulatory and policy barriers that are prevalent in SSA. Topical areas of concern include the inconsistencies in the rule of law, enforcement of contracts, lack of transparency in trade policy administration, high tariffs and taxes, and land tenure practices that are counter productive (USTR, 2005). Furthermore, logistical policy issues such as outdated income tax policies, bureaucracy in registration and administration of business licenses, inadequate insurance and property protection deter the development of an entrepreneurial and free market approach by potential producers. There is minimal government and institutional support for the production of AGOA eligible products in many SSA countries. Little is being done in the way of government commitment to facilitation of investment and promotion of the export trade. Intra-regional movement, communication trade within SubSaharan Africa is still highly limited. There are still considerable barriers that frustrate attempts and efforts to build trade within SSA. These hurdles make it extremely difficult and untenable for the development, growth and expansion of the new markets being generated by AGOA. Eligibility in AGOA is strongly dependent on the economic and political structures within the AGOA countries. Therefore progressive policies and commitment to reformare intertwined in the implementation of AGOA. Inadequate Trade and Export Infrastructure: Most SSA countries lack substantial trade and market policy infrastructure to evolve from the traditional one or two raw material export focus (such as crude oil or raw agricultural products), to a processing/production-based end-use product orientation. The complementary policy structures for this new emphasis, such as a free market economy, privatization and so on, have not been clearly established in SSA. In many SSA countries, access to capital, financial markets, and trade is tightly controlled and regulated by a central government. In many countries for instance, major businesses and production operations such as agricultural farms and plantations etc, are state-run and state- controlled. This has somewhat greatly limited the extent to which businesses can re-align to take advantage of the AGOA provisions. Only in recent years has there been a move toward the free market and liberalization. In most of the major commercial areas, there is availability of funds for loans, but these enterprises face difficulties in resource management and lack of collateral (Tahsoh, 2001). Production and service costs are still a major constraint in most areas. Services and supplies such as water, power, transport (roads, seaports) and telecommunication are still prohibitive, and substantially raise production costs (USTR, 2005). Inadequate capacity to fulfill demand: There are numerous barriers and challenges to the smooth functioning of the value chain in SSA countries. Specifically, there are supply-side constraints in meeting demand for production operations. Basic processing industries are minimal or non-existent. The lack of capacity to source raw material is a major challenge particularly for garment and apparel factories, which so far have had to rely on raw materials from Asia (Dougherty, 2004). Central to the AGOA apparel provision however, is the fact that materials used for apparel have to be either from the United States or from other AGOA eligible countries, or in special instances for countries that have been granted lesser-developed beneficiary status, components can be obtained from a third country. This is the case with Botswana and Namibia. This provision therefore puts the onus on SSA countries to provide capacity and supply to meet the production of apparel. The development of raw material sourcing is essential to sustain production. Technical know-how, access to research findings, modern technology and international standards is a major concern. USTR assessments indicate that there is still a lack of technical capacity in the area of phytosanitary standards and in enforcing technical regulations (USTR, 2005). Internal instability within SSA Countries: With the lengthy tenure of most heads-of-state and political leaders in SSA, government change and reform often leads to instability and simmering volatility. While there have been considerable efforts to control corruption, embezzlement and looting of state resources, corruption and lack of penalties or restitution provide for a tenuous business environment. To be successful as trade partners and suppliers, stability and consistency is essential. Furthermore, AGOA eligibility requires progress toward reform and evidence of stability. Policing the provisions of AGOA is extremely difficult in tenuous or conflict situations. This has led to some countries being taken off the list of AGOA-eligible countries. This uncertainty in turn makes buyers uneasy and limits business opportunities for these countries. US Buyer Issues: Gap in Trade Culture Between SSA Suppliers and US Market: Buyers and customers in the U.S. are largely unfamiliar with the concept of SSA as suppliers for consumer products, particularly since the paradigm of SSA trade has been in petroleum products and OCTOBER 15-17, 2006 GUTMAN CONFERENCE CENTER, USA 4 6th Global Conference on Business & Economics ISBN : 0-9742114-6-X commodities, and to some extent, tourist services. Outsourcing and off-shoring by most U.S. companies have been to other emerging markets, mainly Asia. This is largely understandable as these markets have developed and built infrastructure to be effective and comprehensive suppliers and market partners. STRATEGIES FOR ENHANCING THE UTILIZATION OF AGOA The AGOA provisions are set to expire in September 2015. They were extended (from the 2008 expiration date), primarily because progress toward augmenting African trade and sustainability was relatively insufficient. Local capacity, productivity, technical competency, supply and sourcing are still lagging far behind anticipated demand. While the growth in non-petroleum exports has been steady since the enactment of AGOA, the pace has been slow and hesitant. Most SSA countries have not actively engaged in systematic planning for the establishment and implementation of supporting infrastructure to exploit the opportunities presented by AGOA. This can be attained by undertaking the following strategic steps: 1. Strategic Planning By SSA Countries: The starting point for SSA countries to explore the potential benefits of AGOA is to undertake comprehensive strategic planning to develop AGOA-focused export trade, in addition to existing trade structures. This involves not just the government, but all the stakeholders: private business, trade organizations, cooperatives, policy institutions, and foreign investors. This should be geared at first identifying core competency production, trade and export areas, (which dovetail with existing sources and capacity), followed by infrastructure development and support, and finally, a reduction in the economic, trade, and regulatory policy barriers. Reform is a criterion for AGOA eligibility. An establishment and maintenance of the rule of law and a guarantee of trade and property protection for investors, suppliers and buyers is crucial. The African Global Competitiveness Initiative of the USAID has as one of its strategic objectives to improve policy, regulatory and an enforcement environment. Stakeholders in SSA have to be genuinely committed to financial accountability, and to combating corruption to ensure macro-economic stability. A vital step in combating corruption and enforcing the rule of law is the reduction of capital flight. Wealthy Africans hold up to 39 % of their assets in foreign countries (Collier, Hoeffler and Patillo, 2000), with an estimated $700 - $800 billion held abroad in 2005 (Mistry, 2005). Capital flight from 25 SSA countries between 1970 and 1996 was estimated at $285 billion (Boyce and Ndikumana, 2001), and current annual capital flight is $20 billion per year (Ayittey, 2005). Retention of capital in efficient local financial institutions will greatly increase financial capacity. 2. Modernization of Market and Economic Policies to Liberalize Trade and Build Competitiveness: An evolution from the centrally-controlled market systems in many SSA countries toward a free market and trade liberalization is imperative to the success of AGOA. In most areas, there are constraints to entrepreneurial and private capital investment. Open trade has been shown to generally result in richer nations (Tupy, 2005). Trade expansion and market-based incentives could improve per capita income and hence growth (Asafu-Adjaye, 2004). This will also facilitate participation into international marketing networks. The private sector has to be strengthened to increase investment and trade. This can be achieved by improving the financing and investment structures, and fostering an investment-friendly financial climate. Progress has been made in establishing stock exchanges in countries such as Ghana, Kenya, Namibia, Botswana and Nigeria (Kleiman, 2006). Lowering investment and trade barriers in production of end-use consumer goods could further enhance foreign investment. Since the inception of AGOA, for instance, the U.S. has increased its investment in Africa by about 12 %, reaching a total of $9 billion (Arinaitwe, Andrew and Kamasaul, 2005). 3. Promotion of SSA Intra-regional Trade: While there are regional economic blocks and unions to facilitate trade, SSA has the smallest proportion of intra-regional trade in the world. It is possible to build on the existing country blocs and regional trade associations to facilitate supply and transportation networks. Cultivating and facilitating intra-regional trade between SSA countries will increase their trade capacity and overall competitiveness. It has been suggested that liberalizing trade within SSA could increase intra-regional trade by up to 54 % (Tupy, 2005). Tariffs in developing countries are extremely high. The average tariffs among developing countries are 15.2 % for agricultural products and 12.1 % for manufactured goods, compared with 2.8 % and 3.5 % respectively for developed countries (World Bank, 2000). The advantage of intra-regional SSA trade networks would likely be the establishment of trade-enhancing tariff scales and a reduction in protectionism. Improved intra-regional trade could enhance the capacity and growth of producers and hence their competitiveness (USTR, 2005). OCTOBER 15-17, 2006 GUTMAN CONFERENCE CENTER, USA 5 6th Global Conference on Business & Economics ISBN : 0-9742114-6-X 4. Development of Production and Technical Capacity: Low and inadequate capacity and productivity for supply to export markets is a major concern in SSA. SSA countries absolutely have to commit to building capacity and raising productivity to be competitive. A pivotal component required for the effective functioning of the value chain for AGOA-eligible SSA countries are the small and medium size enterprises for growing, processing and production of needed raw materials and sourcing. To fit into the AGOA framework, there is no doubt that technical assistance is crucial. The United States has provided considerable support for capacity building to SSA countries. In 2004 for instance, the U.S. provided a total of $179.5 million for capacity building for AGOA eligible SSA countries (USTR, July 2005). Furthermore, the USAID has pledged funds ($5 million) for enhancing plant health inspection services for SSA fruits and vegetables to be traded in the global marketplace (USAID, 2006). There have been some steps in SSA toward capacity building for trade and development. The New Partnership for African Development (NEPAD) for instance has as part of its priority, building and improving infrastructure, improving Africa’s share in global trade, attracting foreign direct investment among others (NEPAD, 2005). 5. Market and Trade Education and Training: There is need for basic education on the provisions and potential benefits of AGOA. Education and instruction for policy makers, entrepreneurs, suppliers and marketers will contribute to improving an understanding and familiarity with AGOA. One of the objectives of the African Global Competitiveness Initiative is to improve market knowledge and skills among private sector enterprises. It is important to note that there is indeed a gap in marketing and management skills in SSA (concomitant with the lower rates of formal education among producers and suppliers in the region). Market education and training is therefore an important aspect of developing and enhancing trade infrastructure. Furthermore, more specific technical training and in international standards is essential. 6. Improved Collaboration Networks: Trade shows, networking and media exposure opportunities are an integral part of developing business opportunities and meeting trade partners. Collaborations and links with firms outside of SSA will could be useful in enabling small and medium size enterprises improve their financing (Tahsoh, 2001). The USAID Trade hubs have been the primary means for liaison between SSA producers/suppliers and trade partners. Sustainable collaboration networks, as well as promotional and marketing opportunities need to be further developed. CONCLUSION Progress assessments of AGOA so far highlight potential areas for growth in exports from SSA, mainly in value-added horticultural products, agro-processing (including products such as fruit juices, cocoa-butter), service industries (including tourism and transportation), energy-related products, forestry, fisheries and light manufacturing (USTR, 2005). While the challenges of implementing and maximizing the benefits of AGOA so far still outweigh the strides that have been made, it is important to be cognizant of the fact that AGOA has only been in existence for little over six years. The majority of the stakeholders - producers in SSA, policy makers, trade experts - have yet to fully adapt to AGOA. Its implementation and application requires a prolonged, sustained, long-term effort. While there has not been an explosion in trade as anticipated, there have been small but significant steps. AGOA’s provisions were extended to 2015, in the hope that productivity, change, progress in SSA/US end-use products trade would be realized. For food and consumer products in particular, there have been notable successes. As the ‘pioneer’ successful SSA-AGOA businesses establish and their products become competitive, it is anticipated that this will further spur growth and expansion, and SSA end-use processed food and consumer products will constitute a component of the US market place. REFERENCES African Growth and Opportunity Act. (2005). http://www.agoa.gov Arinaitwe, S.K., Andrew M., and Kamusaul, M.D. (2005). AGOA: America’s Goodwill to Africa. Journal of the American Academy of business, Cambridge, 7,(2), 39-45. Asafu-Adjaye, J. (2004). International Trade and Sustainable Development in Sub-Saharan Africa. International Journal of Social Economics, 31, (4), 417-429. Ayittey, G. (2005). Africa Unchained. p. 324. New York: Palgrave Macmillan. Boyce, J.K. and Ndikumana, L. (2001). 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