Next time you pick up sporting gear or a pair of jeans in a U.S. mall, do
check the label. It may have been made in Lesotho, a small, mountainous and land-locked country completely surrounded by South Africa,
with a population of around two million.
Lesotho is a
beneficiary of the Africa Growth and Opportunity Act (AGOA), which allows over
6,400 products from eligible sub-Saharan African countries to enter the U.S.
market duty-free. The country has made big strides in the garment industry with
U.S. exports estimated at US$330 million in 2015, against US$140 million in
2000. Today, according to the Lesotho Textile Exporters Association, about 80% of Lesotho's
textile and garment exports go to the U.S. With 44,000 employees, the garment industry
is the country’s largest private sector employer.
There are other
‘Made in Africa’ success stories that have emerged since AGOA was introduced in
2000 and extended
by 10 years in September 2015. According
to the 2016 AGOA report released by the Office of the United States Trade
Representative, non-oil exports to the United States under AGOA nearly tripled
from $1.4 billion in 2001 to $4.1 billion in 2015. Automobiles from South
Africa and apparel from Kenya, Lesotho, Mauritius, and Swaziland were the leading exports.
The
gains from AGOA are undeniable, despite criticisms that the agreement favours
petroleum products and that it excludes some agricultural products in which
Africans have a comparative advantage. There have also been concerns that the
export of Africa’s agricultural products to the United States is made even more
difficult by complex health and food safety regulations. This, however, has not
stopped bolder, export-ready, African countries from capturing shares in the
U.S. market. In July, for instance, Namibia became the first African country to be eligible to
export boneless (not ground) raw beef products to the US.
A
key challenge for Africa will be to ensure that its industries that have
thrived under
AGOA do not collapse, that the thousands of jobs created in the automobile
and automobile parts, apparel, fruit and nut, cocoa, footwear, and flower
industries are
sustained and continue to grow beyond 2025.
This will demand that Africa strengthens its
skills base and capacity to compete. Failure to do so could see competitors
such as Vietnam erode its growing market share in especially textiles and apparel should the United States
ratify the Trans-Pacific Partnership Agreement. The US textile and apparel market is
estimated at US$350 billion. Africa, despite its large potential, supplies a paltry one per cent of this. A challenge
for the continent is use the next nine years up the end of AGOA in 2025 to
build competitive industries in the sector. A country that could emerge as key
player is Ethiopia.
A 2015 McKinsey survey of 40 global chief
procurement officers in the apparel industry, for the first time named Ethiopia
as a possible global sourcing destination. Like with many other African
countries, the challenge for Ethiopia is to shift from being of the world’s
leading sourcing options to becoming a priority.
For responsive countries, AGOA has provided
invaluable lessons that Africans can use to stimulate the growth of their
export industries and seize market share elsewhere. It has also helped enhance intra-African
trade by enabling producers in different countries to create new value chains
that deliver mutual benefit. Botswana, for instance, now exports leather to
South Africa where it is processed into upholstery for luxury car exports to
the United States.
Meanwhile, the AfDB will
continue to play its part by building infrastructure to improve Africa’s
competitiveness in U.S. markets. This will include promotion of regional
integration that enhances trade and skills for greater global
competitiveness. Equally important,
within Africa is the creation of solutions for export-oriented small and medium
enterprise (SME) to help bridge the unmet demand
for trade finance in Africa, currently estimated at US$ 120 billion. Work
in this direction is already well underway. Established in February 2013 the
Bank’s Trade Finance Program (TFP) has already supported more than 85 domestic
banks in 27 African countries, catalyzing approximately US$3.4 billion of trade
in vital sectors such as agriculture, manufacturing and construction and energy. More than 60% of the transactions supported
are on account of SMEs. Furthermore,
the Bank’s emphasis on regional value chains in its “Industrialize Africa”
strategy recognizes the opportunities that anchor industries in one country can
provide to industries in neighboring countries.
African
governments are aware of the challenges. At the September 2016 Ministerial AGOA
Forum, African trade ministers recognised the urgent need to plan ahead. They committed to the creation of a task
force to outline strategies for US-Africa trade and investment relations beyond
2025. This is a good start. Now, the clock is
ticking and the bell signaling the end of AGOA privileges will soon resonate
across Africa. We must be ready when it
rings.
*Moono Mupotola is
the Director of the NEPAD Regional Integration and Trade Department at the
African Development Bank (AfDB)
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