Africa: The African Growth and Opportunity Act nears its deadline
Africa: The African Growth and Opportunity Act nears its deadline
Lexology | 20th June 2023
By Virusha Subban
The African Growth and Opportunity Act (AGOA), which allows duty- and quota-free exports from eligible African countries into the United States, is due to expire in 2025. There has been much speculation that it might be replaced with new trade agreements between the two regions that will follow the free trade policies of the African Continental Free Trade Area agreement and the reciprocal trade initiatives promoted as part of the US’s Prosper Africa initiative. It has also been suggested that an evolved AGOA might be the way forward, creating an increasingly mutually beneficial trade relationship between the two regions.
What is AGOA?
The African Growth and Opportunity Act (AGOA), the United States (US) trade preference program for Africa, allows duty- and quota-free exports from eligible African countries into the US. It is due to expire in 2025 and there has been much speculation that it might be replaced with new trade agreements between the US and African countries that follow the free trade policies of the African Continental Free Trade Area (AFCFTA) agreement, as well as the reciprocal trade policies promoted by the US’s Prosper Africa initiative. However, it has also been suggested that adherence to the strict statutory obligations of AGOA membership might continue to be implemented by the US as an effective governance tool, ensuring beneficiaries adhere to AGOA eligibility requirements for duty-free trade with the US.
Eligibility criteria
AGOA eligibility criteria are reviewed annually to ensure that countries qualify to continue to receive the benefits of the trade preference scheme. Requirements for eligibility include, among other things, that countries must be making substantial progress in establishing a market-based economy, as well as following the rule of law and implementing economic policies that reduce poverty and combat corruption and bribery. Countries must also protect internationally recognized workers’ rights and not engage in activities that undermine US foreign policy or national security interests. Countries must not be found to have committed gross human rights violations. If countries are not making progress with AGOA eligibility requirements, they may be terminated as beneficiaries of the trade preference scheme. Alternatively, the US administration may withdraw or suspend the duty-free treatment of products in a particular country to facilitate compliance with AGOA.
AGOA success stories
Recent trade figures outline AGOA’s success, particularly in certain countries in Africa. According to a report released by the Office of the United States Trade Representative in 2022, US census data for 2021 shows that South Africa was the top exporter under AGOA, with products worth USD 2.7 billion exported to the US, including vehicles and parts, jewelry and ferroalloys. Nigeria exported USD 1.4 billion in products, mostly crude oil, and Kenya utilized AGOA to export USD 517 million in products to the US, including apparel, flowers and macadamia nuts. Ghana exported mostly crude oil via AGOA, but also sent cocoa powder/paste and cassava (a root vegetable) to the US, with a total export value of USD 324 million. Angola exported crude oil to the US under AGOA, valued at USD 300 million.
A report by the US International Trade Commission released in April 2023, further shows that in 2021, five of the 30 beneficiaries of AGOA accounted for 82% of non-oil exports to the US: South Africa, Kenya, Lesotho, Madagascar and Ethiopia. The report also revealed that in 2022, the textile and apparel sector in African beneficiary countries resulted in exports worth USD 1.76 billion to the US, most coming from Kenya, Madagascar, Lesotho, Ethiopia and Mauritius. Exports in this sector have also created jobs and improved the livelihoods of women in these countries.
Room for improvement
At the US-Africa Leaders’ Summit (Summit) in Washington, DC in December 2022, US policymakers hinted at an AGOA extension before the 2025 deadline. US Trade Representative Katherine Tai noted at the Summit that there was an interest in "…discussing today ways in which we can improve AGOA - including how we can increase the utilization rates, particularly among smaller and less-developed countries, as well as ensure that the program’s benefits fully reach all segments of society."
Reciprocal trade
That reciprocal, sustainable trade and investment are firmly on the agenda between the two regions was reinforced by the signing of a Memorandum of Understanding (MoU) between the US and the AfCFTA Secretariat at the Summit. The MoU covers expanded engagement between the two regions and intends to “promote equitable, sustainable, and inclusive trade; boost competitiveness; and attract investment to the continent.”
It was also announced at the Summit that the US intended to invest USD 55 billion in Africa over the next three years and that USD 15 billion would be deployed in “two-way trade and investment commitments, deals and partnerships that advance key priorities, including sustainable energy, health systems, agribusiness, digital connectivity, infrastructure and finance.”
The trade partnership between the US and Africa has been strengthening for some time. In 2021, the Biden Administration announced that it would renew the US Prosper Africa initiative with a focus on improving trade and investment in sectors such as infrastructure, energy and climate solutions, healthcare and technology. At the December 2022 Summit, it was announced that, through the Prosper Africa initiative, plans were being made to boost African exports to the US by USD 1 billion through investments and partnerships and to mobilize an additional USD 1 billion in US investment in Africa.
Trade agreements and funding initiatives
The Administration has also been focusing on trade agreements that don’t disadvantage US businesses and consumers. In July 2022, the US-Kenya Strategic Trade and Investment Partnership was signed, focusing on increased investment and sustainable and inclusive growth that will be of benefit to both countries’ citizens and businesses. The agreement also included the intention to support regional economic integration in East Africa.
In April 2023, the US funded a USD 55 million expansion of an export processing zone in Kenya to boost its apparel exports. Similarly, Nigeria announced last year that a state garment factory would be launched as part of a garment production hub that could benefit from exporting textiles to the US through AGOA.
Possible change
It has also been suggested that one of the ways AGOA could be improved is by assisting in the development of sustainable critical mineral value chains between the US and Africa. Driven by the energy transition, the demand for critical minerals is expected to rise sharply, more than doubling by 2030 and quadrupling by 2050, according to the International Energy Agency’s World Energy Outlook 2022. As one of the world’s top producers of many critical minerals, Africa is a major producer (and home to huge undeveloped resources) of metals including cobalt, copper, bauxite, chromium, high purity iron ore, platinum group metals, lithium and rare earth metals.
Benefits of AfCFTA
At present, the majority of Africa’s critical minerals are exported in the form of ores or concentrates. However, AfCFTA has acted as an impetus for African governments to address their infrastructure gaps, enhance and streamline supply chains, improve policies that fulfil net zero commitments, boost manufacturing capacity and overhaul regulation relating to trade, cross-border initiatives, investment-friendly policies and capital flows. It is expected that the trade in mineral commodities in Africa will benefit from these reforms, and that (among other factors) this will result in African countries undertaking a more active role in the sustainable processing of metals and minerals, which could be traded with the US via the AGOA program.
A mutually beneficial relationship
The US and African countries have been developing strong, sustainability-focused trade and investment partnerships for some time, with some countries particularly successful in increasing the volume of products they export to the US via AGOA. With continued investment in infrastructure and programs that boost sustainable trade and empower African businesses, this relationship could rapidly grow among existing beneficiaries and expand into countries with smaller economies. US businesses would also be able to leverage Africa’s new free trade zone, helping to create an increasingly beneficial relationship between the two regions that could eventually mature into a wholly reciprocal trade arrangement. In this regard, it appears that an evolved form of AGOA is likely to remain part of the US-Africa trade relationship.
Key takeaways
- Businesses trading with the US from Africa should take note that AGOA’s stipulations will likely change, either through replacement or evolution, within the next 24 months.
- Such changes are likely to be of particular benefit to African traders with a sustainability focus, small and medium enterprises, women- and youth-owned businesses and those in smaller countries who have not yet been able to benefit from AGOA’s duty free trade with the US.
- Businesses with operations in Africa should note that the US is likely to continue to utilize duty free trade agreements as a governance tool to ensure countries benefitting from such agreements adhere to its strict eligibility requirements. Duty free trade benefits might therefore be put at risk if member countries do not not adhere to these criteria. Businesses should ensure they have a risk mitigation plan in place should this outcome occur.
