A preferential trade deal with the US that has reportedly created 350,000 jobs since 2000 is set to expire in September. As Congress mulls over its renewal, many in Africa are watching anxiously.
As dawn breaks in Maseru, Lesotho, hundreds of textile workers make their way to work along a narrow dirt track lined with wooden shacks selling corn, hot tea and bread rolls.
“Wages are small and it is hard work but it is all we have,” says textile worker, Winned Magala. “I am supporting many people with my wage alone,” she adds before rejoining a line of people shuffling towards a nearby clothing factory.
US market concessions under the African Growth and Opportunity Act (AGOA) have attracted a wave of investors to operate in Lesotho, allowing its textile industry to flourish. But the future of thousands of livelihoods in Africa currently hangs in the balance as the US Congress mulls over the renewal of the preferential trade deal which is due to expire in September.
Former US President Bill Clinton sanctioned AGOA in 2000 with the aim of boosting trade and development in eligible African countries. The trade programme grants 39 sub-Saharan African countries duty-free access for around 6,400 different products – many of them garments – into the US market. By 2014, exports from Africa to the US represented about $30bn, creating an estimated 350,000 new jobs.
Before AGOA, the Lesotho textile and clothing industry employed about 20,000 people, with South Africa and Europe being the principal export market. But in the years following 2000, the focus shifted to the US. Employment in the sector rose to 55,000 with 100% of exports being facilitated under AGOA, and the industry is now the second-biggest employer after the government.
Petroleum-producing states have also benefited greatly from the deal, with the likes of Angola exporting over $4bn worth of products in 2014. South Africa meanwhile has been another sizable beneficiary from the trade deal, having made $1.7bn in export revenues last year.
AGOA has stimulated South Africa’s automobile industry, creating 30,000 jobs, and had a similar effect on its citrus industry, creating 85,000 jobs. US government estimates suggest that the South African agricultural sector has the potential to expand their exports to the US by over $175m in the near future.
However, Congress is currently debating the deal’s terms, and given that AGOA is a unilateral agreement, several African countries are beholden to the US and its decision over whether to renew for another 10 years.
“Without AGOA, our industry would collapse,” says Monyane Moleleki, Deputy Leader of Lesotho’s ruling Democratic Congress. “More than 6,000 products are given preferential treatment – we concentrated on textiles. I can only hope it is renewed. If it isn’t, then we have to start think about broadening the base of our economy.”
The delay in renewing the deal has already affected orders from the US, according to Steve Lamar, Executive Vice President at the American Apparel & Footwear Association. “Apparel imports from Africa for the first three months are down about 4% compared to imports for the first three months of 2014,” he says. “This is a very clear indication that the delay has already caused people to either defer orders or not place orders. The longer AGOA is delayed, the more acute that problem becomes.”
Under the current provisions of the deal, countries must be “making progress” in a variety of areas to be eligible for inclusion in AGOA. These areas include the “establishment of market-based economies”, “development of political pluralism and the rule of law”, “elimination of barriers to US trade and investment” and “elimination of certain practices of child labour”.
Some non-compliant countries have previously been disqualified. Madagascar was suspended from the pact following a coup in 2009 but was later reinstated in July 2014. The US also rescinded the deal from The Gambia, South Sudan and Swaziland last year.
Swaziland, according to the US, failed to meet its criteria on workers’ rights and freedom of expression. The final straw for the US was when, in March last year, The Nation magazine editor Bheki Makhubu and human rights lawyer Thulani Maseko were arrested and sentenced to two years in prison for publishing an article criticising the government.
Swaziland’s exemption from AGOA could see over 17,000 job losses, a significant setback for a country of just 1.6m and in which nearly half the population is unemployed. Unable to cushion this loss, several factories have retrenched their workforce in an effort to stay open.
This February, for example, clothing manufacturer Leo Garments sacked the bulk of its workforce after losing orders from a chain of US buyers. The demise of the country’s industry is a warning shot to other African countries overly reliant on AGOA.
“The main risk emanating from reliance on AGOA is that countries become overexposed to a single market destination,” says Ronak Gopaldas, head of country risk at Rand Merchant Bank. “Furthermore, because the Act caters for certain products, there has been an increase in single-sector exposure both for employment and forex earnings. Owing to this heavy reliance on AGOA, loss of preferential status has had an adverse impact on countries like Swaziland.”
As the expiration of the deal nears, Lesotho, along with several other African countries, has sent a trade team to the US to lobby for an extension, but poor governance following an alleged coup last year and reports of poor working conditions may jeopardise its position.
In addition to governance, some countries face the risk of non-renewal owing to their middle-income status. The current US administration is in favour of renewing AGOA, but some factions have argued that middle-income countries such as Mauritius should not be included.
South Africa’s graduation
South Africa is another country on somewhat rocky ground. A recent spat over poultry between South Africa and the US is a symptom of deeper discord between the two countries and could see the early graduation of South Africa from the deal.
Speaking to African Business, a US embassy
official who wished to remain anonymous claimed that several members of Congress feel frustrated at South Africa. While South Africa has benefited enormously from AGOA, they argue, it has not reciprocated in kind. Rather, the official claims, many US policymakers are irritated that South Africa has continually imposed duties that block the US from gaining a toehold in growing markets, particularly in agricultural products.
“There’s a lot of concern particularly about what South Africa has been doing for the past several years where there is a disturbing pattern where we have seen an increasing number of our products blocked,” says the US official.
Since 2000, for example, South Africa has subjected US bone-in poultry to “anti-dumping” duties – penalties that countries impose on imports they believe are priced questionably low. The South African Poultry Association argues that an influx of US chicken imports could derail the domestic poultry businesses.
The US has also not exported beef to South Africa in over a decade and has been prevented from exporting pork to the country for three years, according to the official, despite a dearth of pork products to meet increasing demand.
“I believe it is unfair and inappropriate that the country that benefits from the law the most – South Africa – continues to maintain unreasonable tariffs on American poultry,” said Georgia Senator, Johnny Isakson, who co-chairs the Senate Chicken Caucus.
Rankling the US further, South Africa imports poultry from competitors in the European Union that benefit from a deal that allows it to export at lower tariffs. American policymakers frustrated at South Africa’s terms lobbied for the country to be graduated from the AGOA programme in three years – an amendment that was later withdrawn in April.
Going for AGOA
South Africa, along with most other African countries, will very much be hoping to remain part of AGOA, and they will be holding their breath for the trade deal to be renewed.
There have been some concerns that AGOA countries have not been able to translate trade preferences into transformative changes in their manufacturing capabilities and overall competitiveness. But the benefits of AGOA in encouraging certain sectors have been clear to see since 2000.
From the US’ side, the superpower says that as a unilateral agreement, the terms of AGOA are non-negotiable. But at the same time, it has said that it wants a more reciprocal relationship and more favourable trade terms in return.
“Over the course of this next renewal, which we expect will be 10 years, we will try to begin to also transition these relationships to more of a traditional economic partnership rather than this unilateral trade concession,” says the US official.
In the meantime, US apparel companies are pushing for a quick sign by their President. “Getting it renewed as soon as possible and for a long period of time gives you the predictability. Companies need to know that these are terms of trade that won’t change so they can develop relationships if their vertical partners – many of whom are in Asia – have the confidence to join them in Africa,” says Lamar.