African Growth and Opportunity Act (AGOA) is a legislation approved by the US. Congress in 2000 and it will expire later this year. The act works similar to a free trade agreement that gives qualified Sub-Saharan countries trade preferences. However, it is not really a common two-way trade agreement such as NAFTA, which allows both sides of the trade to have the same provisions. AGOA is designed to benefit African exporters instead of US exporters. With the date of expiration approaching, whether the Obama administration should renew the act is not really a question. Despite the fact that AGOA appears to be ineffective and contributed little to the trade between Africa and the US, termination of the act would be a negative political signal to African leaders. The problem is whether they should work on the policies so that the act will be more effective on improving the trade with Africa. Or a more complicated option is to expand the act to be a free trade agreement.
Currently, about 40 countries have been qualified as AGOA-certified countries. In order to be approved by the US, African countries have to meet certain policy requirement including issues of human rights, intellectual property, democracy, etc., which is designed to protect the benefit of the US counterparties. Those policies are the reason why people call AGOA a political incentive tool – it offers incentives for African countries to keep working on building free market. In order to keep the trade relations with the US, African countries took a lot of efforts on their domestic policies and it substantially helped the economic growth of African countries. However, other than the policy impact, the act is not effective enough as what legislator expected in terms of improving volume of trade. Statistics shows that African exports to the US had increased by 500 percent for the first ten years of the act, but we cannot ignore the fact that the figure in 2000 is very small, less than $10 billion. Besides, 90% of the exports mentioned above are oil, which has little to do with AGOA, and it helps nothing with jobs and economic development. The remaining 10% of the growth represents the actual result the act.
One of the main reasons of the ineffectiveness that economists have been arguing is the lack of infrastructure in Africa, especially compared with the fast growing Southeast Asia. Therefore, even with the policy support from the US government, few investors would be willing to bet on it and importing from Africa is still not more attractive than importing from other countries. If the Obama administration just simply renews the act with the same policies, AGOA will continue to be just a political incentive tool and neither African countries nor the US can benefit from it substantially.
In spite of the ineffectiveness, the US policy makers can never ignore the critical political impact of AGOA, mainly because 8 of 20 fastest growing economy in the worlds are Sub-Sahara countries. It would take some time for the trade volume of African countries to take off. All over the world has gradually realized market potential of Africa. Back to 1960s, China started building diplomatic relations with African countries by financial aid and foreign direct investment. For the US, AGOA is probably the only major connection with African countries. It is important to make sure that the interests of Africa are better served through the relations with the US. In this case, the old AGOA is not enough to achieve that and the Obama administration needs to figure out something that will substantially contribute to the trade with Africa.
A new question that has been raised recently is whether to include South Africa as a member of AGOA. Different from other Sub-Saharan countries, South African is much more developed with well-developed infrastructure and sufficient work force. South Africa so far benefited the most from AGOA because of the advantages stated above. Based on the purpose of AGOA to promote development of Africa, some argue that South Africa definitely does not deserve the favorable policy from AGOA. Moreover, the political relations between the US and South Africa is unclear because of the attitude towards Iran. However, can the US just exclude South Africa from the act? It is not wise to make the relation with the most developed countries in Africa worse.
Everything should be settled in 3 months before the annual summit with the African leaders on August. It would be really interesting to see how the Obama Administration will deal with the problems stated above.