Since inception in 2000, and its now been 16 years, Zimbabwe has not been part of the Africa Growth and Opportunity Act widely known as AGOA in short. In this post I give an analysis of what the continued exclusion from AGOA mean or does not mean for Zimbabwe as a country and enterprises domiciled in Zimbabwe that may want to trade with the United States.
AGOA is America’s flagship trade framework with sub-Saharan Africa. It provides preferential duty-free market access to the United States across a range of up to 7000 products including textiles. Virtually all American trade cooperation with sub-Saharan Africa is conducted within the AGOA framework which itself enjoys bi-partisan backing in the United States from both the Democratic and Republican political parties.
AGOA is merely a policy framework given legal life through legislation and does not come with any packages or loans to support eligible countries. I suspect this may also explain its bi-partisan success within the US Congress.
AGOA legislation accords the United States President power to determine by decree which countries are eligible or ineligible on an annual basis. It is routine for countries to lose and regain their eligibility status from time to time.
More than anything else, it is this eligibility issue that has largely kept Zimbabwe away from AGOA.
The main issues affecting eligibility center around a country’s human rights record. Other important issues include enactment of anti-terror laws (following 9/11) and liberalization of domestic markets which also entail elimination of barriers to United States trade and investment. This essentially means AGOA is not a one way street but a reciprocal trade framework.
Of its 14 peers in the Southern African Development Community (SADC), it is only Zimbabwe which at no time has set foot in AGOA. Swaziland was deemed ineligible in January 2015 which turned out to be a major blow on its textile industry.((Aljazeera – Swaziland unrest looms after US rescinds trade deal )) and is currently scrambling to return to AGOA through a raft of legislation reforms to meet the AGOA eligibility criteria.((AGOA.info – Swazland reforming laws to regain AGOA status)) The Democratic Republic of the Congo (DRC) was suspended in January 2011.
Regarding eligibility requirements, countries need not have arrived, but must be “making continual progress toward establishing”((
AGOA.info – AGOA Country Eligibility)) the requirements as set-out in the legislation. Countries that tend to be kicked off AGOA are those that in respect of the requirements back-slide or seem to be making no meaningful progress despite US government engagement.
In every sense, AGOA is therefore both a commercial trade framework but also an important foreign policy instrument by which the United States can influence other countries and spread its values abroad.
AGOA and Zimbabwe’s land-reform programe
With AGOA coinciding with Zimbabwe’s hot-tempered land reform program which began about 2000 and condemned by the West, Zimbabwe’s place in AGOA was a foregone conclusion. Its fate was further cemented by the infamous targeted US legislation in the form of the Zimbabwe Democracy and Economic Recovery Act (ZIDERA) of 2001.
Since 2000, with the brief interruption of the Government of national Unity (GNU) of 2008-2013, Zimbabwe has not found the necessary repose to prove the kind of stability and progress that would facilitate the removal of ZIDERA to pave the way for AGOA eligibility.
Intense regime change rhetoric targeted at the United States that continues((Newzimbabwe.com – Mugabe dismisses calls for reforms as nonsense, tells west to keep their resources)) since the fall-out on the land reform remains a clear sign of a continued lack of appetite for AGOA in Harare. Opinion peaces published in state owned media((The Herald – AGOA: Shocking, one sided deal)) further confirm this view.
The question then is what has Zimbabwe been possibly loosing by remaining outside AGOA for all these years.
Competitiveness disadvantage
Being the only country in SADC outside of AGOA, Zimbabwe has obviously remained an uncompetitive investor destination for these many years. This is to say an unknown number of investors with potentially billions in investment dollars have avoided coming here in the last 16 years because of our inability to competitively export to the United States.
In a competitive world were there is cutthroat fight for FDI this is a big deal. The United States is the 2nd largest export economy in the world((OEC – United States)). This means just about every serious economy in the world works hard to gain United States market access and this includes China and the European Union (EU).((Wikipedia – List of the largest trading partners of the United States)) In 2014, the United States had a trade deficit of over US$700 billion having exported US$1.45 trillion and imported US$2.19 trillion. This figures indicate just how much global exports go to the US.
International investors that Zimbabwe is so looking for consider their ability to export to the United States as part of their investment decision. It is not surprising that other countries in SADC have benefited from foreign investment from other regions looking to take advantage of AGOA. This is attributable to AGOA not baring foreign owned companies domiciled in beneficiary countries from benefiting from the policy. Some have pointed to this as a weakness of the preferential trade policy.
SME disadvantage
Related to poor competitiveness has been the direct disadvantage AGOA exclusion has placed on Zimbabwe’s SME sector. Outside of AGOA it is extremely difficult for Zimbabwe’s small and medium enterprises (SME) to tap into the opportunity laden US market. This is also at a time when SMEs are emerging to be bulwarks of a floundering economy. SMEs dominated this year’s Zimbabwe International Trade Fair (ZITF) in Bulawayo an event traditionally dominated by well established big companies((The Zimbabwe Independent – ZITF loses lustre as economy falters)).
Else where on the continent, SMEs are leveraging AGOA to enter the US market. This is the case in Kenya, for example, were the government there is actively facilitating increased SME capacity to export to the United States((AGOA Info – Kenya: Government set to hold SME forum on AGOA)).
eCommerce disadvantage
Related to but not limited to SMEs is the AGOA exclusion effect on eCommerce. AGOA is a serious complication to Zimbabwean businesses which would otherwise enjoy competitive access to the US market using eCommerce platforms.
Moving around Zimbabwe, barring AGOA, there are glaring opportunities for SMEs, for example, to sell their products online to the US market. Some creative products out of Zimbabwe could possibly make it big in the United States simply by selling them online.
While it is still possible, overall, it becomes uncompetitive to run such a business when US buyers could possibly order those same products online out of other SADC AGOA beneficiary countries. This is also the case for creative works considering that art and crafts products out of southern Africa are generally similar.
Relocation to AGOA beneficiary countries
Putting all things together, Zimbabwean investors wishing to seriously exploit the United States export market are more inclined to set-up business in AGOA eligible countries. This is often across the border into South Africa or Botswana.
This option, in many cases, is not applicable to SMEs which lack the kind of funding and logistics necessary to contemplate such a relocation. The easiest thing for them to do, regrettably, is to simply miss the opportunity.
It is in this way that AGOA has worked to attract investors into sub-Saharan Africa in search of opportunities to export to the United States under the preferential trade regime. It is in search of such opportunities that Taiwanese investors reportedly dominate Swaziland’s textile industry having started arriving to invest in 2000 when Swaziland first qualified for AGOA.
To note is that the subsequent suspension of Swaziland from AGOA is a serious problem for these investors. It encourages due diligence among future investors leading to a more thorough selection of stable and more predictable investment destinations in respect of AGOA requirements.
AGOA and Trade deficits
Individual companies and businesses exporting to the US under AGOA overall benefit. However, at country level many AGOA eligible countries in the SADC region according to data available((AGOA Info – AGOA Data Center)), have largely been suffering deep trade deficits.
At a regional (SADC) and continental level AGOA has a long term negative impact due to the deficits.
AGOA countries across sub-Saharan Africa put together suffered deficits between 2000 and 2013 only enjoying a positive turn in 2014 and 2015.((AGOA info – AGOA Data Center))
It is in this context that in the bigger scheme of things Zimbabwe is not entirely at loss by not being in AGOA. Going by this data, AGOA in aggregate terms has been more beneficial to the United States than it generally has been to the participating countries combined.
South Africa, the regional powerhouse, has suffered a negative AGOA trade balance consistently between 2000 and 2014((AGOA info – Country Profile: South Africa)). The same applies to Angola, Botswana, DRC, Malawi, Mauritius, Namibia and Swaziland. At the same time Mozambique, Tanzania and Zambia enjoyed a consistently favorable trade balance between 2000 and 2014.
It is important to note that while under AGOA each of these countries may have suffered negative or positive trade balances, the overall country trade balance could also offset the AGOA deficits or benefits through other trading partners outside the United States.
AGOA has just been renewed for a further 10 years to 2025. All eligibility huddles removed, if Zimbabwe is to consider being part of AGOA the goal from the onset should be to join the league of the few regional and sub-Saharan Africa countries that are enjoying positive trade balances.
This is not a simple task and will require a clinical examination of the 7000 products on the AGOA list against Zimbabwe’s own strengths. An opportunity such as AGOA to succeed and bring meaningful value to Zimbabwe requires an AGOA focus team within the Ministry of Industry and Commerce that is very knowledgeable about the policy and keeps a tab on relevant data.
This is not all. Ministry of Industry and Commerce will also need to work with other government ministries such as Ministry of Health to ensure that US reciprocal imports meet the necessary yardsticks (such as sanitary and phytosanitary standards). Admittedly this is capacity that not only Zimbabwe but many of the beneficiary countries currently lack.
President Barack Obama Image Credit: Thepeak.tv