US State Department to aggressively increase FDI in Africa.

Its about time we linked AGOA to FDI.  So far, US companies have played a more limited role in boosting AGOA exports from Africa. 

Regarding the linkage between AGOA and FDI, especially in the textile and apparel industry in SSA, an example is the textile and apparel industry in Lesotho, one of the largest in SSA, which has been boosted in recent years by the influx of Asian investors who have taken advantage of the AGOA program.

However this is not investment coming from the US.

See related article here.

SSA Exports to the EU and US

Useful summary on the composition of Sub Saharan Africa's Exports to the EU and US, which shows:

• SSA non-oil exports to the European Union have been noticeably higher than to the United States
• Textiles and apparel were prominent in non-minerals/metals SSA exports to the United States, while agricultural products were a larger component in SSA exports to the European Union.
• SSA agricultural exports to the United States are markedly lower than to the European Union (due, in part, to the closer proximity of Europe to SSA).
• While remaining (non-oil, non-minerals/metals, non-textiles/apparel, non-agriculture) SSA exports to the United States have grown, they are still markedly lower than to the European Union. In 2008, exports from South Africa accounted for 81% of total SSA exports in this category to the U.S., and 59% to the EU.

Meanwhile, the US is the largest country importer globally and the single largest importer of African goods at a country level. Hence the U.S. has a merchandise trade deficit with Sub-Saharan Africa and the deficit continued to widen in 2008 to $67.5 billion, from $53.0 billion in 2007. Nigeria, Angola, the Republic of Congo, South Africa, Chad, and Equatorial Guinea accounted for 97.2 percent of the U.S. trade deficit with Sub-Saharan Africa in 2008. 

Meanwhile Africa's trade with the EU has continued to decline, from a high of 55% in the mid eighties to about 35% share of total Africa trade in 2008. See previous post on Africa's Trade Profile with Global Partners.

President's Obama 2010 Trade Policy Agenda

 President's Obama's 2010 Trade Policy can be accessed here. 


The policy has a distinctly Asian and Pacific slant (understandably so) and in particular mentions China, India, ASEAN, APEC and a proposed FTA- the- Trans-Pacific Partnership (TPP) Agreement, with Australia, Brunei, Chile, New Zealand, Peru, Singapore, and Vietnam.  

EU, Russia and Brazil are also addressed (i.e. all the BRICs).

Snippets of the policy priorities include:

a). Support and Strengthen a Rules-Based Trading System

b). Enforce Our Rights in the Rules-Based System

c). Enhance U.S. Growth, Job Creation and Innovation

d). Work to Resolve Outstanding Issues with Pending FTAs and Build on Existing Trade and   Investment Arrangements

e). Facilitate Progress on National Energy and Environmental Goals

f). Foster Stronger Partnerships with Developing and Poor Nations: 

• "The United States stands by our Hong Kong commitment to provide duty-free and quota-free market access to least-developed countries as part of the implementation of a successful conclusion to the Doha Round.
• Sub-Saharan Africa is the location of the world’s largest cluster of extremely poor countries, but the beginnings of growth and reform are evident. The United States will continue to partner with African countries to perpetuate positive changes. Building on the success of last summer’s AGOA Forum in Nairobi, USTR will work with Congress and stakeholders toward a new U.S.-Africa trade paradigm that takes into account new and evolving global trade developments. The next AGOA Forum of U.S. and African trade ministers, to be hosted by the United States this year, can promote the benefits of U.S.- Africa trade to the American public, develop plans to better incorporate small- and medium-sized businesses into trade with Africa, and work with Congress to help African countries take better advantage of AGOA and other trade opportunities. The United States also will continue to work on a bilateral investment treaty with Mauritius, to work with African partners through existing Trade and Investment Framework Agreements (TIFAs), and to consider what other types of trade arrangements the United States can advance with African nations".

g). Reflect American Values in Trade Policy

Comment: On the new policy approach to Sub Saharan Africa,the newly proposed trade agenda, is expected, among other things, to foster regional integration in Africa and increase investment by offering incentives for US investors in Africa. See previous post here.

Africa's Top 20 Global Merchandise Trade Economies

Source: Customised from EC Trade 2008 data. Click to enlarge

SA is the top African importer and exporter and globally has a 0.6% share of world trade. However SA has a negative trade balance with imports valued at about 70billion Euros and exports at 55.8 billion Euros . 

Nigeria comes in second on total trade (both imports and exports) and the country has a positive trade balance with a higher share of global exports (52.2 billion Euros) than imports (37.1 billion Euros). 

In Sub Saharan Africa, the big players on total trade (over 10 billion Euros) are SA ranked globally at no. 36, Nigeria (44), Angola (55), Sudan (82), Ivory Coast (89), Kenya (90) and Ghana (95). 

Naturally oil exporters are at the top. Angola and Sudan are 2 LDCs in the top 10 on total trade. The North African countries have a higher combined total trade than most Sub Saharan African countries.

Top global trade economies:

EU combined trade is highest in all three categories. However on a per country basis:

• Importers (and total trade and in the same order): USA, Fr Germany, China, Japan, France.
• Exporters: China, Fr Germany, USA, Japan, Netherlands.

Interestingly, China is the world's largest exporter and leading source of imports for Africa. See Africa- China engagement here.

Meanwhile, the US is the largest importer globally and the single largest importer of African goods at a country level.  See US-Africa trade profile here.

See previous post on trade between Africa and trading partners here.

What Could the Doha Round Mean for Africa?

The Doha Debates continued….

Recently, This is Africa held an exclusive interview with Mr Pascal Lamy, the Director General of the WTO, to discuss the status of the Doha Negotiations and Africa. Lamy said “What is on the table for Africa is huge,” referring to issues such as the possibility of duty free-quota free access to developed markets for Least Developed Countries, many of which are in sub-Saharan Africa.  He added that "the reduction of export subsidies by the EU, US, Japan and other developed economies, as well as reducing tariff escalation, both of which are often seen to stifle low income countries’ ability to compete on the export of manufactured goods, can also have a potentially significant impact on African trade".

However, according to a study by the Carnegie Endowment for International Peace entitled “What Could the Doha Round Mean for Africa?”, the actual benefits for low income African countries would be minimal, with the exception of South Africa.   In addition, the study found that, assuming FULL Duty Free Quota Free (DFQF) access to developed markets for LDCs was provided, this would allow Africa to benefit from the Doha Round. The estimate sees the region gaining $1.2bn or 0.63 percent of GDP, clearly highlighting the importance of this particular metric.

Indeed at the October 2009 Sixth LDC Ministerial meeting in Dar Es Salaam Tanzania, LDCs called on the WTO Membership to fully implement, the decision on DFQF market access for all products originating from all LDCs, as contained in Annex F of the Hong Kong Ministerial Declaration, accorded through Agricultural and Non-Agricultural Market Access modalities and ensure market access for at least 97 per cent of products originating from LDCs, at the tariff-line level.  Lamy reportedly attended this meeting and informed Ministers that there was no mandate for an early harvest and that LDCs would have to wait until the round was concluded to reap any benefits.

Meanwhile, products from LDCs have enjoyed DFQF access to the EU market since 2001 under the Everything But Arms initiative which gives the 49 LDCs duty free access to the EU for all products, except arms and ammunition.

Additionally,the Canadian Africa PACCIA/PACT program also implements DFQF for LDCs.

The US market benefits some African countries under the AGOA regime however it excludes other LDCs due to the eligibility criteria established in the Act.  For instance, of the 47 GSP eligible Sub-Saharan African countries, only 34 are AGOA eligible. A non discriminatory regime for LDCs would be ideal however, at the December 2009, 7th WTO Ministerial meeting in Geneva, the US Trade Representative Ambassador Ron Kirk instead called on major developing countries to offer DFQF access to LDCs and indeed Brazil and India have extended such offers.  China has extended a similar offer to African LDCs with diplomatic relations with China.

One could say Africa is already enjoying the huge benefits- ahead of the conclusion of the Doha round. However, recent DFQF offers do not immediately extend 100% market access.  In addition, most LDCs, exports to these markets have not materialized due to: the immediate exclusion of non commodity products they are able to produce competitively; the high costs of doing business; transport costs to distant markets; non-tariff barriers, and the lack of capacity to produce diversified exportables.   

A New Policy Approach Towards Africa Unveiled by AGOA Architects

Ten years after the enactment of the African Growth and Opportunity Act (AGOA), a coalition of its original architects and supporters have unveiled a comprehensive and ambitious new trade and economic policy to be presented to the Obama Administration, that would build on AGOA’s successes and expand the growing trade relationship between Africa and the United States.

The new policy proposal, entitled Enterprise for Development: A New Policy Approach Toward Africa, calls for the continuation of AGOA’s exclusive duty- and quota-free access to the US market for African goods, as well as policies to strengthen and grow indigenous enterprises in Africa and measures that support job creation, export promotion and prosperity in both the US and Africa.  

The main policy proposals include efforts to:

a) Expand and protect AGOA and make it permanent

b) Develop tax incentives and credits for US investors in Africa

c) Support regional integration through AGOA

d) De-link AGOA from the WTO Doha Round

e) Partner to revitalise Africa's agricultural sector

f) Make US aid smart and effective

g) Expand and reform the Millennium Challenge Corporation

h) Increase funding for US exports to Africa

i) Increase support for the Overseas Private Investment Corporation (OPIC)

The proposals recognise that the private sector is pivotal to the expansion of trade and investment and that efforts to support the US private sector as well could increase investment in Africa.

Additional information on this development can be found here

SACU Centenary: Champagne?

The Southern African Customs Union (SACU) is commemorating its centenary and the theme of the celebrations is “Implementing a Common Agenda towards Developmental Integration in Southern Africa”. As I reflect on the theme, I am reminded that the combined population of the SACU countries is around 55 million with South Africa accounting for some 87% of the total.  South Africa also accounts for over 90% of SACU's aggregate GDP and will continue to maintain its predominant position in the region.

The SACU agreement was formalized in June 1910 between the then Union of South Africa — Territories of Basutoland, Swaziland and the Bechuanaland Protectorate.  The Agreement was renegotiated into the 1969 SACU Agreement, signed by the sovereign states of Botswana, Lesotho, and Swaziland (BLS) and South Africa, on December 11, 1969.  The second SACU Agreement provided two major changes: the inclusion of excise duties in the revenue pool and a multiplier in the revenue sharing formula that enhanced BLS revenues annually by 42 percent.  

With the independence of Namibia in 1990 and the end of apartheid in South Africa in 1994, SACU members embarked on a third round of new negotiations in November 1994, which culminated in a new SACU agreement in 2002. Namibia therefore joined SACU following her independence in 1990 and is the newest Member to the regional community.

Over the decades, intra-SACU trade has intensified but the traditional importance of South Africa as a regional hub has remained broadly unaltered. More than 95% of commercial flows within the customs union involved South Africa as a destination or supplier.  Moreover, South Africa accounts for around half of total BLNS trade, whereas the intra-SACU component of South Africa's total trade is relatively minor, reflecting SA’s greater diversification in terms of export destinations and import sources.

The EC continues to absorb the largest share of overall SACU exports, followed by the United States.  However, similar to the trend in the rest of Africa, the U.S. market remains the single most important single country destination (outside SACU) for exports from Lesotho and Swaziland, mainly due to the preferences granted under the African Growth and Opportunity Act (AGOA).  Exports to China from SACU, although still relatively modest, registered the fastest growth during the period reviewed (2003-2009).  Imports into SACU originate largely from the EC, China, and the United States.  Since 2005, imports from China have exceeded those originating in the United States and SACU's imports consist mainly of machinery and transport equipment, fuels, and chemicals.

However despite the longevity of the agreement, the results of regional integration have been imbalanced and fall far short of a century of progressive progress.  For instance, according to the WTO Third Trade Policy Review of SACU of November 2009, deeper integration is necessary for more balanced development in the SACU region and even though SACU economies have  collectively expanded at an average annual rate of about 4% in real terms since 2003, there is variation in growth rates in each economy and a generally unsteady performance.  The mixed growth record may reflect severe infrastructure bottlenecks, fluctuations in mining output, volatile national currencies, polarisation as well as the global economic downturn in recent years.

According to World Bank Trade data, SACU countries over the period 2006-2009 generally shrunk in average annual growth rate of total trade i.e. exports, imports of goods (merchandise) and services at constant 2000 U.S. dollars. As shown in the chart, Lesotho (the smallest economy of the five) shows to be the only exception to this trend.  

As a customs union, SACU policy harmonization efforts aimed at achieving a more cohesive, integrated regional market with balanced export-led growth is vital.  Considering the centennial theme has been acknowledged by the SACU Heads of State, one can only say "a 100 years later, its about time". 

Obama's National Export Initiative 2010

At the recent State of the Union address, US President B. Obama announced his goal of doubling America’s exports over the next five years -– an increase that will support 2 million American jobs. Following this, he issued an Executive Order -The National Export Initiative (NEI), a federal initiative to improve conditions that directly affect the private sector's ability to export.  Currently the US imports from Africa under AGOA, more than it exports to the continent.  The Executive Order will result in the creation of an Export Promotion Cabinet to develop and implement the initiative.  

The NEI is replicated below:

For Immediate Release

March 11, 2010

Executive Order - National Export Initiative

EXECUTIVE ORDER

- - - - - - -

NATIONAL EXPORT INITIATIVE

By the authority vested in me as President by the Constitution and the laws of the United States of America, including the Export Enhancement Act of 1992, Public Law 102-429, 106 Stat. 2186, and section 301 of title 3, United States Code, in order to enhance and coordinate Federal efforts to facilitate the creation of jobs in the United States through the promotion of exports, and to ensure the effective use of Federal resources in support of these goals, it is hereby ordered as follows:

Section 1. Policy. The economic and financial crisis has led to the loss of millions of U.S. jobs, and while the economy is beginning to show signs of recovery, millions of Americans remain unemployed or underemployed. Creating jobs in the United States and ensuring a return to sustainable economic growth is the top priority for my Administration. A critical component of stimulating economic growth in the United States is ensuring that U.S. businesses can actively participate in international markets by increasing their exports of goods, services, and agricultural products. Improved export performance will, in turn, create good high-paying jobs.

The National Export Initiative (NEI) shall be an Administration initiative to improve conditions that directly affect the private sector's ability to export. The NEI will help meet my Administration's goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms -- especially small businesses -- overcome the hurdles to entering new export markets, by assisting with financing, and in general by pursuing a Government-wide approach to export advocacy abroad, among other steps.

Sec. 2. Export Promotion Cabinet. There is established an Export Promotion Cabinet to develop and coordinate the implementation of the NEI. The Export Promotion Cabinet shall consist of:

(a) the Secretary of State;

(b) the Secretary of the Treasury;

(c) the Secretary of Agriculture;

(d) the Secretary of Commerce;

(e) the Secretary of Labor;

(f) the Director of the Office of Management and Budget;

(g) the United States Trade Representative;

(h) the Assistant to the President for Economic Policy;

(i) the National Security Advisor;

(j) the Chair of the Council of Economic Advisers;

(k) the President of the Export-Import Bank of the United States;

(l) the Administrator of the Small Business Administration;

(m) the President of the Overseas Private Investment Corporation;

(n) the Director of the United States Trade and Development Agency; and

(o) the heads of other executive branch departments, agencies, and offices as the President may, from time to time, designate.

The Export Promotion Cabinet shall meet periodically and report to the President on the progress of the NEI. A member of the Export Promotion Cabinet may designate, to perform the NEI-related functions of that member, a senior official from the member's department or agency who is a full-time officer or employee. The Export Promotion Cabinet may also establish subgroups consisting of its members or their designees, and, as appropriate, representatives of other departments and agencies. The Export Promotion Cabinet shall coordinate with the Trade Promotion Coordinating Committee (TPCC), established by Executive Order 12870 of September 30, 1993.

Sec. 3. National Export Initiative. The NEI shall address the following:

(a) Exports by Small and Medium-Sized Enterprises (SMEs). Members of the Export Promotion Cabinet shall develop programs, in consultation with the TPCC, designed to enhance export assistance to SMEs, including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets.

(b) Federal Export Assistance. Members of the Export Promotion Cabinet, in consultation with the TPCC, shall promote Federal resources currently available to assist exports by U.S. companies.

(c) Trade Missions. The Secretary of Commerce, in consultation with the TPCC and, to the extent possible, with State and local government officials and the private sector, shall ensure that U.S. Government-led trade missions effectively promote exports by U.S. companies.

(d) Commercial Advocacy. Members of the Export Promotion Cabinet, in consultation with other departments and agencies and in coordination with the Advocacy Center at the Department of Commerce, shall take steps to ensure that the Federal Government's commercial advocacy effectively promotes exports by U.S. companies.

(e) Increasing Export Credit. The President of the Export-Import Bank, in consultation with other members of the Export Promotion Cabinet, shall take steps to increase the availability of credit to SMEs.

(f) Macroeconomic Rebalancing. The Secretary of the Treasury, in consultation with other members of the Export Promotion Cabinet, shall promote balanced and strong growth in the global economy through the G20 Financial Ministers' process or other appropriate mechanisms.

(g) Reducing Barriers to Trade. The United States Trade Representative, in consultation with other members of the Export Promotion Cabinet, shall take steps to improve market access overseas for our manufacturers, farmers, and service providers by actively opening new markets, reducing significant trade barriers, and robustly enforcing our trade agreements.

(h) Export Promotion of Services. Members of the Export Promotion Cabinet shall develop a framework for promoting services trade, including the necessary policy and export promotion tools.

Sec. 4. Report to the President. Not later than 180 days after the date of this order, the Export Promotion Cabinet, through the TPCC, shall provide the President a comprehensive plan to carry out the goals of the NEI. The Chairman of the TPCC shall set forth the steps taken to implement this plan in the annual report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Foreign Affairs of the House of Representatives required by the Export Enhancement Act of 1992, Public Law 102-249, 106 Stat. 2186, and Executive Order 12870, as amended.

Sec. 5. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:

(i) authority granted by law to an executive department, agency, or the head thereof, or the status of that department or agency within the Federal Government; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

BARACK OBAMA

THE WHITE HOUSE,

March 11, 2010.

US Africa Trade Profile

The United States is Africa’s largest single country market, purchasing 28.4 percent of the continents exports in 2007.  Sub-Saharan Africa accounts for slightly more than one percent of U.S. merchandise exports, and slightly more than three percent of U.S. merchandise imports, of which about 81 percent are petroleum products.

However, the U.S. has a merchandise trade deficit with Sub-Saharan Africa and the deficit continued to widen in 2008 to $67.5 billion, from $53.0 billion in 2007.  Nigeria, Angola, the Republic of Congo, South Africa, Chad, and Equatorial Guinea accounted for 97.2 percent of the U.S. trade deficit with Sub-Saharan Africa in 2008.  Other leading AGOA (see AGOA Extension Act 2015) beneficiaries include Gabon, Cameroon, Lesotho, Madagascar, Kenya, Swaziland, and Mauritius.

Predictably, petroleum products continued to account for the largest portion of AGOA imports by the US with a 92.3 percent share of overall AGOA imports. With fuel products excluded, AGOA imports were $5.1 billion, increasing by 51.2 percent. Much of this non-energy product increase was due to a 224.8 percent increase in imports of AGOA transportation equipment, virtually all from South Africa.

AGOA minerals and metals imports by the US also increased by 58.8 percent and AGOA chemical and related products by 38.7 percent.  Meanwhile, AGOA textiles and apparel imports declined by 10.4 percent and AGOA agricultural products by 7.9 percent.

The good news however is that  U.S. imports under AGOA are becoming increasingly diversified. Some of the more significant products include: jewelry and jewelry parts; fruit and nut products; fruit juices; leather products; plastic products; and cocoa paste.