The African Growth and Opportunity Act (AGOA) is set to expire this September. AGOA provides about 6,500 African products with a preferential quota and duty-free access to the United States market. Over the past 13 years, AGOA has been important to Kenya and Africa because unlike economic partnership agreements, the Act is non-reciprocal and unilateral – preferences apply only to African imports entering the US and not US exports into African countries. Basically, African products are allowed to enter the US with limited tariffs which makes them more marketable.
Courtesy of International Centre For Trade and Sustainable Development
By Anzetse Were
Kenya has already benefited from AGOA through textiles, spices, coffee, tea, fruits and nuts exports. The textile and apparel industry has reaped significant benefits through AGOA and contributes 85 per cent of the jobs created in the export processing zones (EPZ).
Over the AGOA period, the Institute of Economic Affairs says, the value of our exports to the US increased from $109 million (Sh10.5 billion) to $433 million (Sh42 billion) per annum. Part of that can be attributed to AGOA. Luckily for Kenya, the Obama administration seems keen on renewal. However, it is clear that the partnership will be reviewed. Already there are signals from Washington that the US is getting anxious about its economic position globally. It is in the process of negotiating the Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU which will give EU products top preferential access to US markets.
The US has good reason to grant such access to the EU because the pact will be reciprocal. The negotiation of such a partnership gives clear signals that the US is looking out for itself and Kenya should watch out. Secondly, as Kenya becomes a stronger economy, the baby-sitting treatment Africa has traditionally received aimed at rectifying trade imbalances will happen less. Over the past few years Kenya and Africa have been saying, “Stop giving us aid, we’ve grown up; we’re ready for investment, trade and being treated as equals.” Kenya ought to realise that the US is listening and this new ethos of equal partnership, not preferential access, may inform AGOA’s renewal. Already, there are plans to amend AGOA to put pressure on South Africa to open its market to American poultry producers and Kenya can expect similar changes.
So what should Kenya aim for in the renewal of AGOA?
The first is to push for the maintenance of preferential access with limited or no expectation of reciprocity. This case will be harder to make now than it was 13 years ago, but the government ought to make the case that Kenya should continue qualifying for unreciprocated access.
Secondly, we should push for value addition. In the case of textiles and apparel, for example, Kenya should make the case for adding value to the skins and hides before export. This will add value to textile exports, deliver greater financial returns and support economic growth more strongly.
Thirdly, expand Kenya’s export profile. The Brookings Institute suggests that we should set up a task force to identify products for which the country has a comparative advantage in producing, and then export these through AGOA. South Africa has diversified its exports to include agricultural products, chemicals, minerals, machineries and energy-related products. Kenya can learn from its experience.
Finally, high transport costs to the US are a non-tariff barrier translating into weak price competitiveness of our products. We need to negotiate a bilateral agreement for air freight transportation via direct flights into the US.
Anzetse Were is a development economist based in Kenya. She is a weekly columnist for the Business Daily. Twitter: @anzetse, email: [email protected]
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