AGOA has not addressed structural issues
DFA | 5th November 2023
By Ashraf Patel
IN A GLOBALLY competitive post-Covid world, fractured by geopolitics and multiple wars, the Global South and Africa face increased interest from global powers. We face many ideological storms and are caught in a range of conceptualisations in IR (industrial relations) theories ranging from uneven development, democratic peace theories, resource curse thesis; and of course real realpolitik.
This week, the US and 35 sub-Saharan African countries met in Johannesburg for the 20th Africa Trade and Economic Cooperation Forum (Agoa Forum). It entails strengthening trade and investment ties between the US and sub-Saharan Africa through the Africa Growth and Opportunity Act (Agoa), US legislation which provides various trade preferences to eligible countries in the region.
Of the 54 countries in Africa, 35 are currently trading under the programme which was renewed in 2015 and is set to expire on September 30, 2025. The US renews the eligibility of each country every year.
South Africa was the largest exporter in the agreement in 2021 and generated about $2.7 billion in revenue, mostly from the sale of vehicles, jewellery, citrus, nuts, autos and metals.
Countries such as eSwatini, Ethiopia, Lesotho, Malawi and Mauritius have also massively increased their exports to the US under Agoa.
The Agoa forum met during a time of the current Middle East conflict and a war between Israelis and Palestinians as well as the Russia-Ukraine conflict.
Last week the US Congress passed a $105bn defence and economic packages to Ukraine and Israel. In this context, Agoa concessions will likely be relegated to an after-thought. However, when an empirical analysis of conducted trade and development between US/EU and Africa, a much more concerning reality emerges, we witness the same old neo-colonial uneven paradigm.
Let’s unpack the “Big Five” issues that are constraining African development pathways.
1. Contradictory human rights
Trade and investment are not politically neutral and developing nations face the volatility of global geopolitics that has seen further instabilities. The increasing use of human rights in trade becomes ever more contradictory and untenable, fuelling cynicism by the Global South. For instance, Ethiopia was kicked out of Agoa last year because of the war in Tigray and lost its Agoa beneficiary status in January last year, yet eSwatini, which has the most draconian authoritarian regime in southern Africa, benefits immensely from access, and Morocco, which occupies Western Sahara, are beneficiaries to major US and EU trade programmes.
In this context, when Niger and Gabon, following military coups, and the Central African Republic (CAR) are excluded, it is thus seen as contradictory and sends different messages on the broader human rights-trade-investment model of Agoa.
2. Dumping of goods
The amount of chicken the US is allowed to dump in South Africa has increased once again. The allowance comes in the form of a substantial annual quota free from the anti-dumping duties that would otherwise have applied. These anti-dumping duties (R9,40/kg) have been in force since 2000 and they apply to imports from the US of bone-in portions such as leg quarters.
US negotiators forced the duty-free quota on South Africa during the finalisation in 2015 of the Agoa trade agreement between the two countries. It was added at the last minute as a make-or-break condition, and the South African poultry industry reluctantly bowed to this pressure because of the huge benefits the agreement contained for other South African industries.
Chicken is the number one protein of consumption in South Africa, and once had a vibrant industry, yet we also try imports from nine countries: Brazil, Denmark, Ireland, Spain, Germany, Netherlands, the US, Poland and the UK.
Local organisations such as the Food and Allied Workers Union (Fawu) and the South African Poultry Association (Sapa) are against poultry dumping because of its negative impact on the economy and the growth of the broiler industry in the country. Dumping is blamed for an economic decline and job losses in the industry.
Textiles in 2018. The US suspended Rwanda’s right to export clothing duty-free under Agoa, after it rightly banned the import of second-hand clothes, as it needed to develop its sectoral industry.
The East African Community (EAC) had wanted all second-hand clothes imports banned by 2019. Rwanda’s decision followed an agreement that had been adopted by the East African Community (EAC) in 2016, to ban imports of used clothing imports by 2019 in order to boost the local clothes manufacturing businesses. In addition, second-hand clothing is amongst the worst culprits of environmental pollution and has no local developmental impacts. Again, this shows the de- industrialisation effects of some of Agoa’s programmes.
3. Debt crisis and tax evasion
A few years ago, the narrative of ‘Africa rising’ – a reference to the strong economic performance across the continent in the period 2000 to 2014 was a cause for hope. At the time, a high commodity boom, tech-enabled growth, and investment in fiscal-taxation systems, ensured a growth of middle classes. According to the IMF regional economic outlook, “Rising food and energy prices are impacting the region’s most vulnerable, and public debt and inflation are at levels not seen in decades. Against this backdrop, and with limited options, many countries find themselves pushed closer to the edge. Sub-Saharan African countries find themselves facing severe exogenous shocks. The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances, thus growth is expected to decline.”
As of November last year, 37 out of 69 of the world’s poorest countries were either at high risk or already in debt distress, while one in four middle-income countries, which host the majority of the extremely poor, were at high risk of fiscal crisis. Northern Banks are draconian and have not moved on any debt relief measures, pushing Africa back to the 1980s mega debt situation.
Take for example, Ghana – a rising star of Africa. Although it has recently discovered and is producing oil and gas, it has yet to achieve fiscal sustainability and has approached the IMF for a $3 billion bailout package. In February this year, Nigeria plunged into a monetisation crisis, even though it is a lead oil exporter and oil prices are at record levels.
South Africa also faces anaemic growth, even though it was a recipient of a R500bn IMF loan-stimulus package in 2020 during the Covid pandemic. South Africa’s mid-term budget has exposed the unacceptably high Debt-GDP ratio of over 28% and interest on debt the largest item on the national budget.
4. Copyright and IP outflow
One of the big profit centres and foreign exchange earners for US multinationals is in the domain of copyright and intellectual property (IP). During the Covid pandemic the North practices Covid nationalism and pharmaceutical corporations profiteered, and refused to share Covid IP, yet there seems to be collective amnesia in the current Agoa. South Africa’s creative arts and content industry also suffers due to the heavily lobbied Copyright Amendment Bill that will deny them their creative livelihoods.
Given the US and EU have been linking human and labour rights to trade, its signature trade programmes, the Agoa and as well as EU’s Economic Partnership Agreement (EPAs) rely heavily on the concept of Export Processing Zones and Special Economic Zones for modes of investment. It is here that large scale labour exploitation takes place, with local level wages in farms that are akin to Orwellian conditions.
In a recent article on BBC.com, social commentator Odigie said Agoa had in some areas presented obstacles to realising labour rights on the continent where exploitation is a problem.
“We have seen the encroachment of the right to freedom of association through the setting up of special export processing zones and the erection of labour laws that bar workers from organising in such special zones. “The stifling of the policy spaces also meant that several African governments were not free to intervene within the economic spaces in workers’ interests, such as introducing and applying a national minimum wage. Most businesses use wages as a tool of competition.”
Odigie observed that there had been heightened calls for laissez-faire practices against better labour market regulation.
“The mantra of ‘an enabling business environment’ is reduced to a business writ approach: workers’ rights must be slaughtered to appease businesses,” Odigie said. “It was critical that this summit also discussed how businesses that operated and generated profit in Africa paid their fair share of taxes.
“The continent is bleeding from the activities of businesses that evade, avoid and dodge taxes through profit-shifting [tax haven patronisation] and base-erosion activities [over-invoicing of production costs].”
In conclusion, programmes such as Agoa are rooted in realpolitik and have not addressed the underlying structural issues of uneven development – fair trade at WTO, the major debt crisis, while trade, IP and investment is lopsided in favour of the US and EU nations. Alternative pathways are required if sub-Saharan Africa is to ever gain some form of industrialisation and policy sovereignty.