Agoa worries top Obama agenda

2013-06-30 14:00

If there is one pressing economic topic on the agenda for US president Barack Obama’s three-country tour of Africa this week, it is the Africa Growth and Opportunity Act (Agoa).

South Africa’s heavily state-supported automotive manufacturing industry relies on Agoa for tariff-free access to the US – which in turn underpins half of all South African automotive exports totalling about $2?billion (R20?billion) a year.

Both Minister of Trade and Industry Rob Davies and Foreign Affairs Minister Maite Nkoana-Mashabane said this week South Africa would seek an extension of the agreement, set to expire in 2015. South Africa is in favour of a 15- to 20-year extension.

In August, a preparatory Agoa forum will be hosted in Ethiopia, where the future of the programme will be discussed.

Kenya’s African Cotton and Textile Industries Federation this month met to hash out a common position for the forum: at least 10 more years of Agoa.

Access to Agoa is, in principle, renewed for each of the qualifying countries every year by the US president, but Congress has to extend it past 2015.

It is theoretically intended as a reward for “progress towards the establishment of a market-based economy, rule of law, economic policies to reduce poverty, protection of internationally recognised worker rights and efforts to combat corruption”.

Agoa grants tariff-free access to the US market for a wide array of products from 40 qualifying African countries and sits on top of the US’ Generalised System of Preferences (GSP), a wider tariff-removing initiative covering imports from 130 developing countries.

The combination of GSP and Agoa concessions covers about $35?billion in exports to the US per year, although 90% of that is oil, principally from Nigeria and Angola, which would still have unfettered market access without Agoa.

South Africa is the third-largest Agoa/GSP exporter, but it is arguably the largest Agoa beneficiary as it dominates the trade in non-oil goods listed under the act. If oil is taken out of the equation, cars from South Africa actually make up almost half of all Agoa exports from Africa.

One estimate this year has South African auto exports to the US instantly dropping to zero if Agoa lapses.

Evans Chinembiri, an economist with the nonprofit policy think tank Tips, this year estimated that an end to Agoa would cut auto exports to the US by as much as 92% and leave the sector with 57% lower total exports in 2019 than would be the case if Agoa continues.

The symbolic heart of Agoa is, however, the clothing sector, which is the major beneficiary in the rest of the qualifying countries, especially Mauritius, Lesotho, Swaziland and Kenya.

During the World Economic Forum on Africa, which was held in Cape Town in May this year, US Under Secretary of State for Economic Growth, Energy and the Environment Robert Hormats promised that “the administration is committed to working with Congress on an early, seamless renewal of Agoa”.

It remains to be seen what reassurance Obama gives this week.

There are 600 US companies operating in South Africa, across a variety of market segments. The US government estimates that these provide approximately 120?000 quality jobs to the South African economy, which is struggling with its job-creation targets. Further, it is estimated that these 600 companies use 30% of their profits in South Africa and contribute to social upliftment locally.

South African companies such as Dimension Data, Telkom and MTN are significantly exposed to the US market while petrochemical giant Sasol is staking much of its future on synfuel manufacturing in Louisiana, using natural gas from fracking.

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