The unprecedented Agoa dilemma

By Donasius Pathera, PhD:

Over the last two decades, the United States (US) has been actively involved in supporting sub- Saharan Africa’s economic and trade development, primarily through the African Growth and Opportunity Act (Agoa).

Initially established on May 18, 2000, Agoa aimed to enhance market access for designated sub-Saharan African countries to the United States by offering duty-free treatment for specific import categories.

The primary objective of this legislation was to promote economic growth by encouraging good governance and open markets.

In order to qualify and maintain eligibility for Agoa benefits, countries were required to demonstrate progress in market liberalisation, rule of law, human rights, and core labor standards.

Presently, Agoa continues to provide preferential treatment to 44 countries in the region, covering over 6,500 tariff lines.

It has undergone four amendments since its inception, primarily to clarify preferential treatment terms, technical standards, and expiration deadlines. Initially, Agoa was designed to be effective for eight years, expiring in September 2007.

However, President George W. Bush extended its validity until 2015 by signing the Agoa Acceleration Act in July 2004.

In June 2015, during President Barack Obama’s second term, Agoa’s expiration date was extended once again through the Trade Preferences Extension Act, with Agoa now set to expire in 2025.

Significant changes have occurred in the global political and economic landscape since Agoa’s inception in 2000, and these changes have been accelerated by the Covid pandemic. The proliferation of mobile telephony has created new opportunities for millions to engage in the digital sphere, access mobile banking and payment systems, and receive various services via the internet.

While the middle class in sub-Saharan Africa continues to expand, there is also expected to be a significant increase in the youth population in the next three decades. This demographic shift, if managed appropriately, could yield a demographic dividend and help prevent social crises.

In the backdrop of these developments, the United States finds itself in an era of great-power competition with China, which has significantly increased its influence in sub- Saharan Africa. This competition extends to the region’s political and economic institutions.

Given these opportunities and challenges, it is essential for leaders in Washington and the broader US constituency to view Africa as a potential partner for expanding commercial relationships rather than a continent in need of foreign assistance. Consequently, the United States can consider three scenarios in response to the imminent expiration of Agoa:

Maintain the Status Quo and Renew Agoa: This scenario, although un ambitious and politically unappealing, involves renewing Agoa and extending the preferential trading system for sub-Saharan Africa for another 5-10 years.

However, more than two decades since its establishment, it is evident that Agoa, while necessary, has not been sufficient to achieve the primary policy goal of fostering market-friendly and politically open societies in the region. Moreover, there is limited enthusiasm in Washington for renewing Agoa, particularly in a political climate where free trade is a sensitive issue.

Take No Action and Let Agoa Expire: This scenario, which is strategically shortsighted, would involve allowing Agoa to expire without proposing a credible alternative. This could be detrimental to US foreign policy and national security interests, especially at a time when Africa is poised to become one of the largest regional markets in the twenty-first century. With China’s growing influence in the region, it would be unwise for the US government to allow Agoa to lapse without presenting a better alternative.

Allow Agoa to Expire and Redefine the US-Africa Relationship: This bold and creative scenario, while challenging, would allow Agoa to expire as part of a broader strategy for the United States’ engagement with Africa.

In this approach, the Biden administration, in collaboration with Congress, would reimagine the US economic relationship with sub-Saharan African nations.

This would involve using official development assistance and other development finance tools to help these economies diversify away from petroleum products, potentially doubling their non-petroleum trade and advancing their carbon-transition goals.

It could also tap into the region’s significant resources of lithium, cobalt, nickel, and platinum to position sub- Saharan Africa as a primary source for electric batteries, aligning with global efforts to promote green economies. US foreign assistance would play a crucial role in promoting sustainable mining practices for shared prosperity. Additionally, this redefined engagement would prioritise local workforce development, boost digital trade and services sectors, and support initiatives at the country level to enhance domestic resource mobilization and economic formalisation.

However, Agoa has also been criticised by some technocrats. Critics of the African Growth and Opportunity Act (Agoa) have raised concerns about various aspects of the trade agreement. Some of the common criticisms include:

Limited benefits for African countries: Critics argue that Agoa has not significantly improved the economies of African nations as expected. They claim that the benefits have been limited to a few countries and sectors, while the majority of African countries have not experienced substantial growth.

Dependency on exports: Some critics argue that Agoa promotes a dependency on exporting raw materials and low-value goods, rather than fostering diversification and industrialization in African economies. They believe that this hampers long-term sustainable development.

Unfair trade practices: Critics argue that Agoa perpetuates an unequal trade relationship between Africa and the United States. They claim that the US maintains high tariff barriers on African products, while African countries are expected to open their markets to US goods without similar protections.

Lack of support for local industries: Critics argue that Agoa does not adequately support the development of local industries in African countries. They claim that the focus on exports often neglects the growth of domestic markets and local businesses.

Limited job creation: Some critics argue that Agoa has not generated sufficient employment opportunities in Africa. They claim that the trade agreement has not led to significant job creation, especially in sectors that have the potential for high-value job growth.

Malawi, like many other eligible countries in sub- Saharan Africa, can benefit from the African Growth and Opportunity Act (Agoa) in several ways. Agoa is designed to promote economic growth and trade between the United States and eligible African nations.