Africa to leverage East-West battle in Agoa talks

Africa’s stock is rising amid the United States’ efforts to wrestle back economic influence on the continent The post Africa to leverage East-West battle in Agoa talks appeared first on The Mail & Guardian.

Africa to leverage East-West battle in Agoa talks

In 1998, Bill Clinton embarked on the longest and most extensive trip to Africa by any sitting US president in history at the time. His goal? To forge ties with a continent which was viewed as something of a backwater during the Cold War.

During a speech he gave after meeting South Africa’s then president, Nelson Mandela, Clinton remarked that the hope for Africa’s future was stronger than it had been in a generation. Two years later, he signed the Africa Growth and Opportunity Act (Agoa) into law, putting the continent’s economic prospects firmly on America’s policy agenda. 

This week, as Agoa nears its expiry in 2025, beneficiaries of the preferential trade agreement will sit down to discuss its future with their US counterparts. Top of mind will be ensuring that the pact is improved after logging a disappointing track record since its signing in 2000. 

Although this may be the intention of the forum on paper, colouring the back-and-forth over Agoa is the fact that the global economy is navigating significant geopolitical shifts — and that the US will seek to maintain its foothold on a continent also courted by rival economic superpower China

During separate briefings last week — one by a South African contingent led by Trade, Industry and Competition Minister Ebrahim Patel, and the other by US officials — the message was that African countries ought to be getting more out of Agoa.

The trade agreement, which gives eligible sub-Saharan African countries duty-free access to American markets, was found wanting in a US International Trade Commission report published earlier this year.

According to the report, between 2001 and 2021, US imports under Agoa were relatively small, mostly from a few countries and were concentrated in a handful of sectors, including energy, apparel and transportation equipment.

In 2021, five of the 39 Agoa beneficiaries — South Africa, Kenya, Lesotho, Madagascar and Ethiopia — accounted for about 82% imports, excluding crude, which has historically dominated trade under the programme.

Commenting on Agoa’s effectiveness, US assistant trade representative for Africa Constance Hamilton said that when the legislation was enacted in 2000, the hope was that it would be “a game changer”, improving America’s relations with member countries and supporting regional integration across the continent. 

“We know that a number of countries get into Agoa, a number of countries get out of Agoa. These are all questions that we have to talk about — about what’s important, what are we looking for, how can the programme be more impactful,” Hamilton said.

Eckart Naumann, an independent economist and associate of the Trade Law Centre, noted that although Agoa has been valuable to a number of African countries, its benefits haven’t been shared equally.

“Having preferential market access on its own does not guarantee utilisation of such preferences, as there are so many more factors at play,” he told the Mail & Guardian. “Those countries that already had an industrial base, or produced agricultural goods that could be traded internationally, have often benefited greatly.”

The biggest challenges to having African countries extract greater value from Agoa are probably on the supply side and in navigating export processes, Naumann added.

Producers must be able to turn out competitive quality and export-ready products, navigate the export process — often requiring special clearance — and then optimise their strategy around marketing, trade finance, logistics and so on, he said.

“Some of these are probably areas where the US can further expand its already considerable support,” Naumann said, “although the legislation is not necessarily the logical mechanism to give effect to this, unless it specifically directed assistance into dedicated support programmes.”

During last week’s briefing, Patel said beneficiaries would look to increase Agoa’s gains by asking for more user-friendly rules, that products be added to the duty-free list, to attain all beneficiary countries and for the programme to be complemented by investment and measures that allow medium-sized firms to access the US market.

But, as Naumann points out, Agoa’s African beneficiaries have no real negotiating power under the Act — which, if renewed, is in the hands of an often mercurial US congress. 

Another election on the horizon, which will see former president Donald Trump challenge incumbent Joe Biden, adds an extra layer of uncertainty to Agoa’s future beyond September 2025. Trump infamously once referred to African nations as “shithole countries”.

That said, there is reason to believe that Agoa’s beneficiaries hold some leverage, given that they have found themselves in the middle of the tug-of-war between the US and China.

“While Agoa provides eligible sub-Saharan African countries with broader and more dependable duty-free access to the US market, it is undoubtedly also a tool to deepen the political relationship and partnership with African countries,” Naumann said.

“I think it is safe to say that Agoa’s intended role in fostering a strong economic relationship and providing African exporters with greater opportunities is at least as much driven by the rising influence of others in Africa — predominantly China, but also Europe, with whom many African countries have a preferential trade deal and which historically has always fostered close ties with Africa.”

Nhlanhla Cyril Mbatha, director of the Rhodes Institute of Social and Economic Research, agreed that Agoa has been America’s response to wrestle back influence in the wake of China’s growing political and economic authority on the continent. Current global events, including Russia’s aspirations to reshape the political world order, mean that the trade pact has become all the more important to the US, Mbatha said.

“This is also the primary aim of the upcoming Agoa forum,” he added.

“On paper it is about how to make Agoa more effective, how to make more African companies take advantage of Agoa at a technical and market level. But at a political level it is about how to ensure liberal democracies continue to be established and are also cemented.”

The US International Trade Commission report notes that certain underlying trade conditions between America and sub-Saharan Africa have changed markedly since Agoa was first enacted, partially contributing to the programme’s lacklustre performance.

First, countries in sub-Saharan Africa have diversified their export destinations, the report notes. In 2000, the US was the destination for 20.8% of the region’s exports, but by 2020 it was the destination for only 5.1%. The US has been relegated from the leading export destination to the fourth, after China, India and South Africa.

Mbatha noted that after Agoa’s initial successes, there have been reports of huge declines in 2016. “During this time China has become the most important single trade country for sub-Saharan Africa. In fact most of Africa’s positive economic story has come at the coattails of China’s growth,” he said. 

“Even for South Africa, China alongside the EU are now the most important trade partners.”

(Graphic: John McCann/M&G)

Mbatha further noted that the diversification of African economies has not happened at the expected levels, with many African countries still exporting mainly raw products. “And most notably these raw products have gone to China. This should not only worry the US, but African countries themselves.”

China’s rapid economic influence on Africa seems to have undermined America’s economic aspirations for African countries outlined through the Agoa, Mbatha added. “It is easier — it takes less time and local investment — to export raw materials than to first add value to products. This is especially the case if there is big demand for raw products from China.”

Mbatha noted that China also actively helps African partners to extract raw materials for exporting, while also investing in programmes such as the building of transport infrastructure to ensure greater flows of extracted products. “China has outsmarted the US at this game.”

China has taken advantage of Africa’s current political and economic landscape to craft its programmes, while America’s strategy holds aspirations to fundamentally transform these two areas, Mbatha explained. Countries can lose their Agoa benefits if they fail to meet certain democratic and human rights thresholds, as was the case with the removal of Ethiopia, Mali and Guinea from the programme last year.

This week, Biden gave notice to the US congress of his intention to “terminate the designation” of the Central African Republic, Uganda, Gabon and Niger, saying they did not “meet the eligibility criteria of section 104 of Agoa”.

“Ultimately this is a battle of political and cultural values. Partnering for doing business with China for many African countries has less transformational costs and transactional costs and therefore it is more attractive and effective. This is also a challenge for both the US and the EU,” Mbatha said. 

He suggested that this predicament may require that Agoa’s economic aspirations have to be separated from its political demands.

“The requirements for revision of political conditions may have to be reduced and a more stepwise approach taken that accounts for the costs of political transformation that are paid by African governments. 

“Basically, the US strategy has to be more realistic of the current conditions at least for short-term gains, if they want to deal with competition from China. Whether such a strategy will work in the long term would be up in the air though.”

Perhaps the most pressing demand from Agoa’s beneficiaries is for its early renewal. Patel has underlined that the Act’s early renewal will go a long way towards creating certainty for investors as the continent looks to assert its role in the global economy.

“This illustrates the leverage that African countries now have with China competing with the West,” Mbatha said.

“Agoa beneficiaries know that Agoa will be renewed in 2025, and this may take a long time — but can now ask the US, if not demand, that Agoa be renewed early to erase uncertainties and ensure Agoa is in place for the benefit of the US especially.” 

But officials from the US may prioritise improving Agoa over its early renewal, despite the fact that tweaking the legislation could create further delays at congress. Hamilton hinted at this during last week’s press briefing, noting that not trying to improve the programme would be a wasted opportunity.

Landry Signé, a senior fellow in the Global Economy and Development Programme and the Africa Growth Initiative at the Brookings Institution, said the East-West dynamic seems to have emboldened Agoa’s beneficiaries — but the US side may take a more ambivalent posture.

“Those geopolitical questions will have implications on the conversations, perhaps even more on the African side than on the US side … I mention the African side because with the rise of China, Russia, Indonesia, Brazil and their increased economic investment and commercial relations with Africa, the African side feels they have more options.” 

Signé noted that though the Ways and Means Committee did ask that the Agoa report be drafted, suggesting a desire to renew the programme, others in congress do not see the urgency of this. “The US side is more ambivalent. On the African side it is clear. The official position of the African diplomatic corps in the US is that Agoa should be renewed without delay,” he said.

Furthermore, African countries want Agoa to be extended beyond the sub-Saharan region, Signé said. 

With Agoa being a unilateral agreement, and with the geopolitical context not necessarily applying a huge amount of pressure, Congress still has room to move at its own speed.

That said, Africa’s position in the global economy is important, especially in the longer term, making it a key destination for investors, who will look for certainty through commercial agreements like Agoa. 

Africa will represent up to 40% of the global population by the end of the century and is home to many of the critical minerals needed for the energy transition, as well as digital transformation. The continent also has an estimated 60% of the world’s uncultivated arable land.

Signé recalled a May 2000 edition of The Economist brandishing the headline, “The hopeless continent”. “At that time, Africa was viewed as insignificant and just as a recipient, whereas now it is increasingly considered an important contributor to the global economy,” he said.

But Africa represents only 3% of global trade. “That is why initiatives such as the African Continental Free Trade Area [AfCFTA] are important in putting Africa on the map, both on the continent itself and also in the minds of the rest of the world,” Signé said.

The AfCFTA is a key element of Africa’s intention to assert itself in the wake of a changing world order. It has also given African countries the opportunity to speak with one voice on matters affecting regional trade. But inadequate manufacturing capacity among AfCFTA partners suggest there are still problems to be overcome before it comes into full force.

Africa demands far more attention than it did even a decade ago — but ultimately investors want certainty and there remains a lot of work to be done on this front. “That is where stability is important, security is important, peace,” Signé noted.

“For African countries to leverage the positive trends that we have seen thus far, it will be important to address some of those other challenges … Generating more value will make a more meaningful difference on the continent, generating more stability and long-term success.”

The post Africa to leverage East-West battle in Agoa talks appeared first on The Mail & Guardian.

(Excluding for the Headline, this article ("story") has not been edited by MiBiz News and is published from a web feed or sourced from the Internet.)