25 May, Patrick Kagenda & Joan Akello:It is exactly 14 years since the Africa Growth Opportunity Act (AGOA) was signed into law by the US Congress to spur development in Africa. Over the last 14 years, African exports under AGOA have more than quadrupled since the program’s inception. However for Uganda, one can safely describe the AGOA story as a fading dream.
In 2013 for instance, Uganda exported $56,000 (Shs 140 million) in AGOA products to the US – largely apparel and flowers – down from a peak of over $4 million (over Shs 7 billion) of AGOA exports in 2004.
Yet, according to the US Embassy Spokesman Daniel Travis, the East Africa Trade Hub based in Kenya has facilitated over $145 million in exports to the US under AGOA and has assisted over 200 firms with market access to the US, over the past five years.
“Despite the AGOA success stories, there are a number of eligible countries that have not taken full advantage of the potential benefits,” says Travis, before giving Uganda’s dismal figures as an example.
Dr. Fred Muhumuza, a Research Fellow at the Economic Policy Research Centre at Makerere University, and advisor to the Finance Ministry, paints an even darker picture of Uganda’s AGOA story. “In terms of anticipated benefits however, there has been little if any benefits,” he says. He adds that even the little we exported under AGOA was because of a heavy subsidy by the government and debts to that effect are yet to be fully cleared. “Thus, we did succeed to enter the US market but with no gainful business results.”
What is even more shocking from a taxpayer point of view is that the AGOA initiative, which is funded to the tune of more than Shs 380 million per year, has become a bottomless pit of sorts. Is the taxpayer benefiting from allocating funds for AGOA promotion?
Stephen Kaboyo, the managing director of Alfa Capital, a Ugandan firm focusing on sovereign asset management, does not think that there is any promotion going on or any benefits to write home about. “Its broader economic impact has been modest in terms of real, broad and sustained growth as well as poverty reduction,” he says.
He adds, “Furthermore AGOA product coverage was too limited and did not include other products mainly in the agriculture sector where a country like Uganda would perform. For Uganda to enhance its export competitiveness under such programs, supply side constraints, poor infrastructure, unskilled labour markets which cloud Uganda’s export performance must be addressed.”
When the ebullient Susan Muhwezi was appointed Senior Presidential Adviser on AGOA and Trade, hopes were high that AGOA returns would be as cheery. However, she has been reduced to having photo opportunities at exhibitions, AGOA summits and factory tours. Now, it is easier for a business journalist to talk to Trade Minister Amelia Kyambadde than to get Muhwezi to pick our calls. Nathan Irumba, the executive director of the Southern and East African Trade Information and Negotiations Institute (SEATINI), says Uganda has not meaningfully benefited because of conditions internal to the country, within the AGOA Act itself and also in the global trading environment.
Steven Kamukama, an official in the External Trade Department at the Ministry of Trade, Industry and Cooperatives, agrees. He says Uganda’s performance in AGOA has been poor due to trade and investment constraints. Ugandan companies, he adds, are constrained by poor infrastructure, corruption, high electricity costs and limited access to credit, all of which make it difficult for them to link products to the market requirements and standards.
Unlike Kenya and Tanzania which have access to the sea at the ports of Mombasa and Dar-es-salaam, and oil refineries that supply furnace oil needed for the cotton boilers, Uganda manufacturers must contend with higher costs of doing business.
However, Travis said while Uganda has not exported a significant amount directly under the AGOA program, the majority of Uganda’s exports including coffee, vanilla beans, fish, cocoa beans, and tea all enter the US duty free.” And because these products already have zero tariffs under the Most Favored Nation (MFN) program, they are not counted as AGOA products.
On August 5 this year, US President Barack Obama will host 47 leaders from Africa at the first US-Africa Leaders Summit in Washington.
The Summit would seek to advance the US’s focus on trade and investment in Africa, and highlight America’s commitment to Africa’s security, its democratic development, and its people, according to a statement on the White House website. This summit is important as it comes barely a year before the AGOA initiative comes to an end in 2015 with an option for a renewal.
Travis says President Obama has made it clear that the US seeks “a seamless” renewal of AGOA before it expires.
“We encourage all AGOA countries, including Uganda, to share with us and with the US Congress their thoughts on the importance of AGOA over the past 14 years and their ideas on how AGOA can be made more effective,” says Travis. “In particular, we look forward to hearing Uganda’s strategy for taking greater advantage of the program should it be renewed.”
Irumba knows where the US should start – on the conditionalities within the Act itself, which he says make it ineffective for African economies.
“AGOA also has stringent eligibility conditions requiring countries to implement policies much similar to those of the structural adjustment programmes namely; market economy policies of liberalisation, deregulation and privatization. These policies have had far reaching negative implications on Uganda and EAC economies,” says Irumba.
He adds Uganda like most East African countries, other than Kenya, lack a viable local textile industry because of opening up of the sector especially to second hand clothes and other cheaper textiles. Therefore, there are very little backward and forward linkages to the local cotton industry. Most of the clothing used in producing apparel is imported from third party countries mostly Asia. This is why Kenya, which has some remnants of a textile industry, has managed to benefit.
Travis says they recognize that tariff preferences alone cannot address the many constraints that impact Africa’s regional and global trade competitiveness – such as poor infrastructure, non-tariff barriers, the thickness of African borders that limit regional trade, and the high cost of moving goods. “Still, there is room for Uganda to increase and diversify its exports to the US, including under AGOA,” he says. Establishing an AGOA strategy is where Uganda should start, according to Travis.
“One key step countries can undertake is to develop a national AGOA strategy. AGOA strategies come about through a dialogue between the public and private sectors, and they identify particular sectors for export growth,” he says. Uganda could do well to borrow a leaf from Kenya, where there is an AGOA unit (within the Department of External Trade in the Ministry of Trade) and the National Committee on AGOA (NC-AGOA), which were established in November 2011. The committee has four subcommittees to deal mainly in Agriculture, Non-agriculture, Textile and Apparel, and Policy and Advocacy.
Indeed, Kenya’s performance last year was a far cry from Uganda’s. Our neighbour’s primary exports under AGOA in 2013 were apparel ($305 million), edible nuts ($24 million), cut flowers ($3 million), fruit and vegetable juices, and sporting goods earned the country about ($1 million) each – quite massive compared to Uganda’s paltry $56,000.
No quick fixes
Irumba says government intervention is a must to spur local cotton industries, and other cost effective industries to supply the local market then have a surplus to export to the US market.
But Muhumuza however says the true gate keepers of international business are not governments but rather private sector dealers mainly supermarkets because agreements signed between governments cannot compel private businesses to add a country or its business people if they do not match their standards and conditions set by global value chain managers.
He says Uganda could not match the requirements in terms of timelines, and quality of cotton a reason why we still had to import fabric from Pakistan, Sri Lanka, etc to simply do the cutting and stitching. “We lost the opportunity to use our own cotton and benefit our own farmers. Our cotton and its growing areas were not certified by the US companies,” Muhumuza says. He concurs with Travis on the need to strategise through organization and leadership and etc if we are to benefit from what he describes as “a sleeping giant of great potential.”
The analysts say AGOA should be extended to cover all products including sensitive agricultural goods; its preferences made permanent to allow firms to plan for the future and make investments and AGOA would be more effective with less restrictive rules of origin, which would allow firms more flexibility in sourcing inputs in order to exploit their comparative advantage in low-cost labor, including helping beneficiary countries reducing supply-side constraints (such as poor infrastructure), and a longer time horizon for the agreement in order to reduce firm uncertainty.
Travis says AGOA is the “foundation of the US’s economic partnership with Africa, and just last August, the US Trade Representative Michael Froman announced that a top-to-bottom review would be done not only of the AGOA program, but also of the various structures that support and feed into that program.
“We are in the midst of that review right now, working closely with our stakeholders in the US and [in Africa], with Congress, and with experts in African trade and investment,” he adds. He adds that the aim of this review is to develop a set of proposals that would have broad support across all these parties and would lead to the passage of a renewed and modernized AGOA regime that expands trade, and contributes to the impressive record of growth on this continent.
But Travis suggests that African countries like Uganda should look beyond AGOA. He says it is important that African countries like Uganda take steps such as implementing the WTO Trade Facilitation Agreement, which was completed at the recent WTO Bali Ministerial.
If implemented, he says, this agreement would be beneficial for African countries, which stand to gain the most from trade facilitation reforms considering that they suffer disproportionately from difficult customs and border procedures and a range of other challenges that constrain both regional and global trade.
Going forward, Travis also suggests that given what has been observed in other countries, Uganda should look on the inside instead of looking solely to the US for answers. “We have seen that AGOA benefits largely accrue for those countries that have done the most to make themselves an attractive business environment, both for foreign investors and domestic firms, by encouraging investment and trade, maintaining political stability, observing the rule of law, and demonstrating respect for human rights and worker rights,” he says, adding that the US looks forward to hearing Uganda’s strategy for taking greater advantage of the program should it be renewed. Indeed, the sooner this is done the better or else the AGOA “opportunity” would continue to remain a far off dream.