The USA’s removal of Uganda, Niger, Gabon and the Central Africa Republic from the AGOA has only a limited impact
The USA’s removal of Uganda, Niger, Gabon and the Central Africa Republic from the AGOA has only a limited impact
CREDENDO | 16th January 2024
By Jonathan Schotte
Event
In 2000, the US Congress enacted the African Growth and Opportunity Act (AGOA). This trade preference programme aims to promote economic growth and development in sub-Saharan Africa.
It provides duty-free access to the US market for products from eligible sub-Saharan African countries, impacting approximately 6,800 tariff lines in the US tariff schedule.
In order to be eligible for AGOA, a beneficiary country must demonstrate respect for rule of law, human rights and core labour standards. Beneficiary countries also should not seek to undermine US foreign policy interests. Modifications to the list of eligible countries show that the USA takes these criteria seriously: in just the last two years, Ethiopia, Guinea, Mali and Burkina Faso have had their AGOA beneficiary status revoked.
On 31 October 2023, the latest changes to the list were announced: Uganda, Niger, Gabon and the Central African Republic were going to be removed from, and Mauritania restored to the list of beneficiaries. Both the removals and the reinstatement became effective on 1 January 2024.
Impact
In his letter motivating the most recent removals, President Biden called out the Central African Republic’s government for “gross violations of internationally recognised human rights”, and stated that Niger and Gabon “have not established, or are not making continual progress toward establishing, the protection of political pluralism and the rule of law”. The letter also noted that “the Government of Uganda has engaged in gross violations of internationally recognised human rights”. These last points likely refer to the recent coups that have taken place in Niger and Gabon, and the controversial anti-LGBTQ legislation that has been passed in Uganda.
Referring to Mauritania’s reinstatement, the Office of the United States Trade Representative stated that the country made “substantial and measurable progress on worker rights and eliminating forced labour”.
The current AGOA is set to expire in September 2025. In January 2024, the USA reached a preliminary agreement with African nations to extend its validity by a decade. The extension still needs to be approved by the US Congress, but will already help reassure investors worried about continuity.
It is not clear how effective the AGOA has been. Exports from sub-Saharan Africa to the USA have increased from a low level (see graph below), but remain tiny when compared to overall US imports of goods and services that currently amount to around USD 500 billion per quarter.
The sector where AGOA has probably had the most impact is the textiles sector. Apparel exports under AGOA preferences today account for virtually all US-bound apparel exports from AGOA beneficiaries. Leading exporters utilising these trade preferences include Lesotho, Kenya and Mauritius. However, the value of these exports peaked in 2004, as competition from Asian manufacturers increased when apparel quotas under WTO regulations expired at the end of that year.
AGOA has also been criticised for its limited scope and effectiveness in achieving its stated goals. The act only applies to a limited number of products and does not address some of the key challenges, such as corruption and poor infrastructure, sub-Saharan economies are facing.
Because of this limited effectiveness, it is not clear how exactly the removal of beneficiary status will impact the concerned countries. The impact will certainly be negative, since a removal of the beneficiary status represents a loss of export markets, and likely also a reduction in foreign direct investment (FDI), as investors are discouraged from investing in these countries. However, because of the low overall impact of AGOA on these economies, the effect of the suspensions on economic growth, the current account balance or FDI is not expected to have an impact that is large enough to require an adjustment to Credendo’s ratings.
