AGOA : Challenges facing Africa
AGOA has managed to generate 13% annual growth in the apparel industry since its inception. This growth has translated into $914 million in exports from Sub-Saharan Africa (SSA) to the U.S. A major challenge has been that the products are mainly petroleum based; apparel and manufactured automobile parts from South Africa. Manufactured parts made up only $47 million goods that were sourced from SSA to the U.S.
Sub-Saharan Africa has traditionally been a sourcing region for Europe and most recently China and India. In addition, most trade data shows that US companies still prefer Eastern Europe and South East Asia for sourcing material despite the advantages offered through this Act.
In terms of cost SSA can compete with China and India when it comes to low wages, efficiency and capitalization. Trade costs make up the bulk of costs for product from SSA. The manufacturing world has changed and SSA has been left behind. Companies now make various components in different parts of the world due to decrease in transportation costs and improvement in management of the managing the process. This ability to produce more efficiently allowed for an increase of products sourced from 67% to 78% in the global marketplace from 1986 to 2000.
The inability of African countries adopt comparative advantage and specialize has made costs higher and unable to compete on the world market. Inefficiencies are caused by lack of competition which is comparable to value added tax of 25-30%. Recommendations for improving efficiency include creating regulation reforming customs process and investing in technology to lower costs. Regional policy that lowers costs and reduce tariffs and quotas for member countries can greatly reduce cost.
Imports from SSA under AGOA were $66.3billion in 2008; an increase of 29.8 % from the previous year. There was more product diversification and an increase was seen in jewelry, fruits, nuts, fruit juices, plastic products and cocoa paste. Mineral and metals increase by 58.8 % and transportation equipment from South Africa increased by 224.8%
Top beneficiaries of AGOA are Nigeria, Angola, South Africa, Chad, and Republic of Congo. Africa’s economic growth has been hampered by the global economic crisis of 2007. A decrease in capital flow, equity markets and inflation giving rise to increase in commodities has resulted. Unrest in the Niger Delta caused a slight drop in Nigeria oil production.
Factors such as political instability in Kenya and conflict in Democratic Republic of Congo have led to a decline in imports form SSA. There are capacity constraints due to inadequate energy, railroads; roads and ports damper exports.
Source: Agoa.gov
Source: Agoa.gov
