TRADE WITH SUB-SAHARAN AFRICA

Office of Africa, Market Access and Compliance

Sub-Saharan Africa, a region with 48 countries and 643 million people, accounts for nearly 10 percent of the world’s population, and the largest regional bloc both in the United Nations and the World Trade Organization (38 members and 4 observers. However, the region has long been a marginal player in global trade. The volume of world trade has tripled while sub-Saharan Africa’s trade has grown less than 10 percent. In the last two decades, sub-Saharan Africa’s share of world trade has fallen from two percent to less than one percent.

Sub-Saharan Africa accounts for less than one percent of U.S. merchandise exports, and less than two percent of U.S. merchandise imports. From 1997 to 2000, U.S. exports to sub-Saharan Africa averaged $6 billion. Although U.S. exports to Africa formed only one percent of total U.S. merchandise exports, the United States exported nearly 80 percent more to sub-Saharan Africa than to all the former Soviet republics and Eastern European countries combined.

U.S. exports contribute significantly to building, developing and modernizing sub-Saharan Africa’s infrastructure. The principal U.S. exports included the following product categories: aircraft and parts; oil and gas field equipment; motor vehicles and parts; industrial chemicals; computers and peripherals; construction machinery and parts; telecommunications equipment; and agricultural machinery.

U.S. exports to sub-Saharan Africa are concentrated among a small number of countries. The top four markets — South Africa, Nigeria, Kenya, and Angola — accounted for 72 percent of U.S. sales in 2000.

There is potential for increased U.S. exports to the region given developments in many sub-Saharan African countries over the last decade. The apocalyptic media portrayal of Africa often overshadows the progress that many African countries have made and continue to make in strengthening democratic and free market institutions. Undeniably, a number of African countries are in the midst of political, economic and social turmoil. However, over two dozen countries in sub-Saharan Africa have made progress and continue to work toward reducing trade barriers, improving their business climates, selling state-owned companies, undertaking poverty alleviation programs, combating corruption, and building physical, financial, communications and legal infrastructures. These countries are progressively breaking the vicious cycle of poverty and political instability and entering the virtuous cycle of democracy and free market economics. The evidence of reforms can be seen in the upward GDP growth trends, lower inflation, and improved business climates. Opportunities exist for U.S. firms to participate in these countries’ efforts to build infrastructure, modernize their agricultural sectors and extract and process natural resources.

From 1997 to 2000, U.S. imports from the region averaged nearly $17 billion. In 2000, sub-Saharan Africa supplied 18 percent of U.S. crude oil imports by value in 2000, up from 16 percent in 1999. In comparison, Persian Gulf suppliers provided 25 percent of U.S. imports. Platinum group metals and woven and knit apparel are the second and third leading U.S. imports respectively.

U.S. imports from Africa remained highly concentrated among a small number of suppliers, even more so than U.S. exports. Four countries — Nigeria, South Africa, Angola, and Gabon — accounted for more than 87 percent of U.S. purchases. Three were major crude oil suppliers, while South Africa was an important supplier of platinum, diamonds and steel.

To help Africa transition out of exporting commodities and into suppling value-added goods, the African Growth and Opportunity Act (AGOA) was enacted in May 2000, as part of the Trade and Development Act of 2000. The Act extends to African beneficiary countries the most liberal access to the U.S. market available to any countries except those with which the United States has free trade agreements (FTAs). It also establishes a permanent forum for high-level dialogue between Africa and the United States on economic and commercial issues. The U.S.-African Trade and Economic Cooperation Forum convened in Washington at the end of October this year, hosted by the Secretaries of State, Commerce, Treasury and the Office of the U.S. Trade Representative (USTR).

AGOA serves as the centerpiece of U.S. engagement with Africa. AGOA establishes a new framework for U.S. trade, investment and development policy for sub-Saharan Africa. It establishes a set of tangible incentives to encourage sub-Saharan African countries to implement economic, commercial and governance reforms, in an effort to build a new framework for U.S. trade, investment, and commercial policy for the region. The Bush Administration is working to ensure full implementation of AGOA and a broadening and deepening of U.S. relations with the countries of sub-Saharan Africa.

Since May 2000, key steps have been taken to implement AGOA. The U.S. government has designated 35 AGOA beneficiary countries. As of now, nine sub-Saharan African countries have been designated for AGOA apparel benefits with five other countries in the process of meeting the requirements. The United States has provided extensive technical assistance to sub-Saharan African countries, including widespread outreach efforts. An Internet site, www.agoa.gov, has been created to provide information on the AGOA. Over a dozen regional and national AGOA implementation seminars have been conducted in Africa and the United States. The U.S. government has produced and distributed a comprehensive AGOA implementation guide and an AGOA video. The U.S. Customs Service has conducted training seminars for officials from at least 24 sub-Saharan African countries and sent technical assistance teams to five countries to provide guidance on requirements for AGOA apparel benefits. U.S. Embassies have also conducted intensive outreach campaigns and speakers on the AGOA have been
sent to 25 countries. Outreach and ensuring full implementation of AGOA will remain a priority for the U.S. government.

Recognizing the importance of financing, AGOA encourages the Export-Import Bank (EXIM) and the Overseas Private Investment Corporation (OPIC) to expand their programs in sub-Saharan Africa. One of the four OPIC Africa funds, the Africa Millennium Fund, was mandated by the AGOA legislation. This $350 million fund will invest in telecommunications, transportation, electricity, water and sanitation projects. In addition, OPIC’s three global funds can invest a portion of their capital in sub-Saharan Africa. OPIC has also committed $1 million to support micro-finance in Africa, in collaboration with Reverend Leon Sullivan’s organization the International Foundation for Education and Self-Help and the African Development Bank. OPIC has also created an African Investment Council as required by the AGOA legislation.

The AGOA legislation urges Ex-Im Bank to expand its financial commitments in sub-Saharan Africa under its loan, guarantee and insurance programs. Ex-Im Bank programs are available in 32 countries in sub-Saharan Africa. Ex-Im Bank support to sub-Saharan Africa has grown from $56 million in 1998 to $914 million in 2000. Ex-Im Bank created a new initiative to provide $1 billion a year in loans and loan guarantees to support the purchase of HIV/AIDS goods and service. This initiative is available to both the public and private sector in sub-Saharan Africa. In an effort to increase African businesses’ ability to access financing, Ex-Im is providing more flexible financing terms under its Short-term Insurance Pilot Program, and is pursuing guarantee agreements with African banks.

AGOA has already begun to stimulate robust growth in U.S.-African commercial ties. Trade with the 35 AGOA-eligible countries tracked closely with all of sub-Saharan Africa in the first half of 2001. U.S. imports grew seven percent, while exports jumped 35 percent. Imports of knit and woven apparel expanded 28 percent, with especially strong performances by Madagascar, Mauritius, Lesotho, and South Africa. Anecdotal information indicates that United States and third country investors have been especially active in the region’s textile and apparel sector, in an effort to take advantage of AGOA’s apparel import provisions. U.S. industry has reported new sourcing contracts with African suppliers and many inquiries from African firms seeking joint ventures or U.S. expertise and inputs.

AGOA has not only had an effect on trade, but also on policy. Many African countries have implemented or strengthened economic and political reforms and committed to improving labor or human rights situations during the AGOA country eligibility review process and the bilateral consultations. A number of governments either
committed to tackling corruption or instituted new laws, procedures, or commissions to do so. Countries are strengthening and reforming their business and trade laws and updating their intellectual property regimes to comply with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Other
countries are working to improve their customs procedures, streamline their tax systems, and accelerate privatization. Governments also have implemented or made commitments to implement a number of reforms related to worker rights, eliminating the worst forms of child labor, and human rights. In addition, many sub-Saharan African businesses have become advocates for economic and political reform, because of their interest in specific AGOA trade benefits.

The Department of Commerce is encouraged by the actions of many sub-Saharan African countries that are implementing difficult economic and political reforms and seeking to strengthen trade relations and business ties with the United States. African governments are acknowledging that they must address impediments to U.S. trade and investment. At the same time, they are looking to the United States, among others, for assistance in helping them achieve their visions for a more stable, economically sound, and democratic region.

AGOA is expected to help countries diversify their exports and to assist them in building a manufacturing base to create long-term economic growth. Anecdotal evidence indicates that in many countries, AGOA has led to substantial new investment, jobs and trade. Countries where this is particularly true include Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, South Africa, Senegal, Tanzania, Uganda and Zambia. Examples of results from AGOA include: a government of Kenya estimate of creation of 50,000 direct and 150,000 indirect jobs resulting from new investments; new investment in Lesotho of $120 million, four times the size of official development assistance flows to Lesotho; and investment in a new tuna processing plant in Ghana.

AGOA has also promoted increased dialogue between African governments and their private sectors. The U.S.-African Trade and Economic Cooperation Forum, in particular, provided an opportunity for increased public-private dialogue on economic and political reform and on conditions for generating enhanced trade, investment, and growth (see sidebar).

U.S. companies stand to gain from AGOA. Because of historical ties, Africans are more familiar with trading with Europe. By building commercial linkages, AGOA will orient African countries to the United States. U.S. firms will have an opportunity to supply goods and services that African firms need to build productive capacity to enter the U.S. market. In addition, the annual U.S.-Africa Trade and Economic Forum will become an important venue for the United States to encourage and press for continued economic and political reforms.

The First U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum

“No nation in our time has entered the fast track of development without first opening up its economy to world markets. The African Growth and Opportunity Act is a road map for how the United States and Africa can tap the power of markets to improve the lives of our citizens”
– President George W. Bush, October 29, 2001

With these words, President Bush addressed the first U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum, more commonly known as the AGOA Forum. The AGOA Forum was held October 29–30, 2001 and was hosted by the Secretaries of State, Treasury and Commerce and the U.S. Trade Representative. Trade, Foreign Affairs and Finance Ministers from 35 eligible sub-Saharan African countries attended the Forum, along with representatives from African regional organizations. The focus of the Forum was on discussing further measures that the U.S. and sub-Saharan African nations can jointly take to stimulate economic growth and trade enhance democracy and good governance and combat HIV/AIDS. The Forum was a resounding success largely because of the broad cabinet-level participation and the interactive format of the plenary sessions. The participation of President Bush, Secretary Powell, Secretary O'Neill, Secretary Evans, Secretary Veneman, U.S. Trade Representative Zoellick, National Security Advisor Rice, USAID Administrator Natsios and Members Of Congress of both political parties demonstrated the deep commitment of the Administration and U.S. Government to strengthening trade and investment ties, increasing prosperity and combating poverty on the African continent. During the Forum, U.S. officials emphasized the United States’ commitment to Africa and noted the initial success of AGOA. U.S. speakers underscored the necessity of good governance, rule of law and political freedom to attract investment and achieve growth. The use of African co-chairs and active question and answer sessions allowed African officials the opportunity to speak openly about the benefits and challenges of AGOA. In his address to the Forum, President Bush announced the creation of a $200 million Overseas Private Investment Corporation support facility that will give American firms access to loans, guarantees and political risk insurance for investment projects in sub-Saharan—Africa. He also announced the establishment of a Trade and Development Agency (TDA) regional office in Johannesburg and the TDA Trade for African Development and Enterprise Program, both to provide guidance and assistance to governments and companies, which seek to liberalize their trade laws, improve the investment environment and take advantage of AGOA.