Tuesday, August 15, 2017

The Challenges of AGOA and The Way Forward

African Growth and Opportunity Act (AGOA) is a Trade Act enacted by the government of the United States of American (USA). It accords duty-free treatment to most products exported by the beneficiary sub-Saharan African (SSA) countries to the United States. It was enacted on May 18, 2000 as a public law 106 of the 200th congress. The Law was due to expire on September 30, 2008, but as a result of the July 13 signing of the AGOA Acceleration Act of 2004, AGOA expiration was extended to September 30, 2015. The administration of President Barack Obama signed the Extension and Enhancement of AGOA Act into law on June 29, 2015. This has extended the expiration of this trade law to the year 2025.

The legislation significantly enhances market access to the USA for qualifying SSA countries. Qualifications for AGOA preference is based on a set of conditions contained in the AGOA legislation. In order to qualify and remain eligible, each country must be working to improve the rule of law, human right, and respect for core labour standards.

The recently concluded AGOA forum (between African representatives and the USA officials) that was held in Lome, Togo (August 8-10, 2017) to deliberate on how SSA can take advantage of this trade programme did not yield any result, neither was there any conclusion on the way forward. As a matter of fact, the feedbacks tend to tilt towards warning enthusiasm about the future of the Act, even though it still has about 8 years to its expiration. Many observers have expressed concerns about the fact that SSA countries are not taking full advantage of this opportunity.

I do not see any reason why anyone that is conversant with the situation of the African continent should be surprised at the very low volumes of exportation from the SSA countries to the USA. The situation is like giving a big and well spiced chicken lap to a child that has no teeth, and then expressing perplexity over the fact that the child is unable to bite the chicken and take full advantage of the nutrients inside. The majority of African countries have fundamental issues and challenges that need to be addressed before we can take advantage of any trade Partnership and agreement like AGOA from the USA, or even the Economic Partnership Agreement from the European Union (EU). I have categorised all these challenges into seven groups which include product, purchasers, paperwork, pricing, payments promotion and policy.

The Product to be exported is a major challenge. It is no more news that major export products of Africa nations including the SSA countries are mainly agricultural commodities, crude oil and raw metals. On the other hand, most of the over 6000 items on the AGOA product list are not raw products, they are mainly value added products in their secondary or tertiary states. So if the SSA countries are going to be able to benefit from AGOA, there is a great need to shift from focusing on primary products and begin to add value to them in order to convert them into secondary or tertiary products. This has not happened for the past 17years that this USA trade law has been in place because of other issues that I will discuss in other factors below.

The next major challenge is purchasers. These are the buyers of the products in the USA. They operate under strict regulations that must be adhered to before they can import any product into the US market. This means anyone planning to ship to a US buyer from the SSA countries need to be able to demonstrate competence to deliver the right product(s), consistency in delivery and credibility. We in the SSA countries are in an environment where mediocrity thrive thus, coming up to the high standards demanded by the buyers become a task that only few companies can achieved.

The challenge of paperwork is another major obstacles that has impeded the progress of AGOA in the SSA countries. These has to do mainly with the post export documentations. For the importer in the US to enjoy the duty free benefits on the goods being imported, the exporter from SSA countries provides the following documents; Commercial Invoice, Certification of Origin, Bill of Lading, Packing List, and other necessary documents peculiar to the importation of such goods into the US market. The challenge is not the documents themselves, but some specific details that must be stated on them before it can be allowed into the US market without the payment of duty fee. For example the Certificate of Origin must conform to the details required for rule of origin while the Commercial Invoice for Apparel has to be stamped with original AGOA visa by the exporting country's authorities.

Pricing is undoubtedly a major challenge that confront the AGOA programme. Despite the fact that the goods under this scheme are allowed into the US market free of duty payment, the infrastructural deficit is so high thus, leading to the high cost of production. The bad roads leads to high cost of transporting the goods, lack of power supply leads to high cost of running the factory, lack of certified laboratory increase the cost of quality certification (since samples need to be sent abroad to reliable laboratory analysis). Therefore, we need to fix the infrastructural deficit in order to be reasonably competitive.

Another vital factor that mitigate against the low volume of exportation under the AGOA programme is Payment. The seller wants to get payment before the buyer gets the goods while the buyer wants to see the goods before making payment. However, since more than 80% of the world trades are done on open account (which means the buyer will first see the goods before effecting payment), the seller is therefore forced to agree to this payment terms. The implication of this is that the seller might not get payment (because of the low quality of good shipped) and this therefore discourage them from further shipment. If the government fix the port issue and ensure that only good quality products are shipped and secure the expected payment via an export credit insurance, this problem can be addressed.

The need for continuous Promotion of the AGOA programme by the relevant government agencies through different print, electronic and online media cannot be over emphasised. The first aim of this promotion is to continuously educate the public about the programme. The second aim is to correct the mindset of business people in SSA countries. There is a mindset issue that has been created for a long time that need to be corrected, and this is the desire to always prefer to export products in their primary state. The citizens are simply following the footsteps of government through the exportation of crude oil. The government needs to champion this initiative both in words and in action.

The last and probably the most important factor is the government Policy. If the SSA countries want to benefit maximally from the AGOA trade law, they must formulate policies that will make exporting to the US under AGOA to be become attractive to the business communities in their various countries. Some of these policies include; an export growth desk in the presidency to fund and drive the promotion strategies stated in the previous paragraph, a completely tax free regime should be given to company that add value and export under AGOA to the US, a quarterly intensive training that will last for one week should be organise free of charge only for those that have already started production of their products to build their capacity, connect them with sources of funds and potential buyers in the US, a committee should be setup that will review the progress made on a monthly basis, address the challenges and report to the export growth desk in the presidency through the Nigeria Export Promotion Council (NEPC).

I am very sure that if the points raised in the article are well noted and the various suggestions acted upon, in a few years, even if we have not completely fix our infrastructural deficit, we will begin to see the desired growth in the volume of exportation that is being done by the SSA countries to the US market and other export markets around the world.

For question you reach me on bayemibo@3timpex.com

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