Exploiting the opportunities provided by AGOA
Fred Oladeinde serves as president of the Foundation for Democracy in Africa; a Washington DC-based non-profit organization steadfastly promoting participatory democracy, sustainable development and economic growth in Africa. He works with partners on policy reforms that will advance democracy, good governance, rule of law, and trade in Africa. He is also chairman of the African Growth and Opportunity Act (AGOA) Civil Society Network—a network of civil society organizations in AGOA-eligible countries and the United States that optimize trade and economic development in Africa. AGOA has been a center of debate regarding its extension. Some say that the outcomes of the free trade opportunity act turned out to be less enthusiastic for many African countries that had enjoyed non-reciprocated or unilateral trade opportunities in the US. But after several joint pledges and activisms, the US Congress passed legislation last year to extend AGOA for a decade. Since then, a year has gone by. This week Oladeinde was where he had a roundtable with reporters on issues related to AGOA. In his brief encounter with the press, Oladeinde reacted on topics related to how Africa is favored to have AGOA that can potentially contribute to transform African economies. After that Birhanu Fikade of The Reporter sat down with Oladeinde to discuss the legacy AGOA and see how the 10-year extension help countries such as Ethiopia better reap the opportunities. Excerpts:
The Reporter: You were among a group of individuals who took part in the process of extending AGOA for the coming ten years. What was the specific role your organization played during the process of extending AGOA?
Fred Oladeinde: As a network we had worked collectively with the network members to educate people, not only doing business in Africa, but to educate all Americans about the importance of US-Africa trade. We were also able to approach the United States Members of Congress since AGOA is legislation and had to meet the congressional staff and explain why there should be political support for the extension of AGOA.
A similar approach was used with the executive branch because that also was an important engagement to convince the administration; they had to work with Congress in terms of getting the necessary extension. We had worked with members of the African diplomatic corps. They are key players and key stakeholders. They have more access to the administration and that is one very important element to make things happen.
Hence, it was a collective effort and as a secretariat we helped to coordinate the process. All of our members were fully engaged and helped in all areas for making that happen. It was a very anxious time where some people had thought we would never get AGOA extended. But it turned out to be a great delight and we had it extended. By the way, it is the largest extension that never happened before.
If that is the case, what is your overall assessment of AGOA in the past 15 years?
If you ask me, I am an Afro optimist. My point of view is that when we are looking at it from a development point of view, it’s slow but has to be sustainable. We have some serious structural changes and reforms in different countries in Africa including Ethiopia. Those reforms must be in place for the benefits of AGOA to be optimized. We have to have more reforms. Though we have achieved things to a certain level, there is more to be done.
The hope is that we can attract more US foreign direct investment to Africa and I expect that to increase and the supply side has to be very much engaged. Some of the reforms we are asking for should be seen for what they are. It is not with the intention of controlling. It is with the intention of liberalizing. In the future we would have strong economies that would allow governments to be more responsive and allow governments to provide more without external support. They can use trade as an engine for economic growth.
But don’t you think the reforms that you or perhaps the AGOA system is pushing for are probably expensive given the volatile nature of trade where most economies in the continent predominantly depend on exporting primary commodities?
That is the problem. The volatility of commodity trading is high. No question about that. But the value addition is what can allow a country to be more predicable in terms of economic growth. It gives ownership and helps a country to better plan its future and in order to achieve some of what we are asking for. It also improves the standard of living. That means the country can produce and has the energy to add value to its products, which in turn means that there is access to electricity and children can be able to read books at night. These are some of the standards that are good for all of the countries in Africa. It is also good for all of the people in the US and beyond. But we have to ensure that there is a sequence of development priority agenda and we need to put things in place that allows us to add value.
Let me give you an example. Raw coffee is about two dollars a kilo and Ethiopia is a major producer of the highest quality of Arabica coffee. If we can add value on the same kilo, we can get forty dollars. Now think about the difference between forty dollars and two dollars. You should consider how many kilos every day, every week, every month and every year and forever will be produced. What is the investment that would allow us to do that? That I think is too much and we need to ask ourselves.
Sometimes it is questionable that big players of the global arena or those giant companies make trade to be more difficult and costly. How do you think they will provide a level playing field for developing countries or Third World countries?
As I said earlier, I am an Afro optimist and as an Afro optimist the notion of Third World country is something that is stuck in our minds. Competitiveness and efficiency is universal. It’s a universal language. If I can produce the best product and sell it at the best price, everybody will buy from me. It doesn’t matter where I am from. I could be in Africa or anywhere else in the world. We now have the opportunity to be able to integrate into the global market. Being efficient, effective, competitive and ensuring that we are sustainable is what matters most.
Let’s talk about coffee. The private sector obviously pays two dollars for a kilo. There are people producing that coffee. If there is enough way and the ability to create an environment to bring the investment into Ethiopia it will help change things around because in the final analysis every company is looking to maximize profits.
Let’s look at the extended AGOA. Can you mention one or two basic differences of the new AGOA and what makes it different from the previous one?
The rule regarding origin is one that can be picked as a major difference. The Trade Preferences Extension Act of 2015 is now trying to encourage for more regional integration. Hence, if I produce coffee and I bring Rwandan coffee along and blend it and if I can maintain certain level of Ethiopia’s share in it then it could be labeled as a product of Ethiopia though there is a certain amount of contribution from somewhere else.
That is why the regional integration is very important. The other point is that Congress realizes that they want AGOA to be as effective as possible and be more transparent. That means, if someone in Ethiopia or even in the US believes that there are certain things that have been done by Ethiopia but that is against the eligibility criteria, we can petition in the US Trade Representative (USTR). They have the mandate to investigate and if they think that what you have brought up requires investigation, they will do that.
The other is making sure that there is no abuse of AGOA in terms of the eligible opportunities. There could be a request by the USTR as what just happened to South Africa. Instead of the regular yearly assessment, they will ask anytime the eligible country to verify issues in question.
We have the likes of AGOA contending presumptive free duty or free quota markets. We have everything but arms (EBA) in Europe and we have other versions of AGOA in Asia. Despite all these freely accessible markets, what is typically unique about AGOA?
There is no reciprocity in AGOA. It is unilateral free market opportunity. That is one of the contentions most African countries have with the European Union. The other point is that the trade and investment elements of AGOA depends on whom you are talking to but I think it’s more encouraging and there is a lot of investment in trying to help provide trade capacity building for eligible countries and trade hubs on the ground. Utilizing resources of the US embassy and commercial services to help support the implementation of AGOA are some of the investments we can look at.
In addition to that, the potential of the diaspora community utilizing AGOA is also another substantial factor. People believe that a lot of diaspora transferred money can be encouraged to be channeled into investment activities instead of using it for consumptions or put aside as disposable income. It will help the African supply side to ascend on the ladder of transformation that we are talking about.
Other than the inefficiencies or incapacities, most western sectors—to certain extent—are highly subsidized. The same holds true for the US. Then how do you think AGOA helps African countries compete under such circumstances and become a principal exporter of less processed items?
AGOA is mainly a trade act that facilitates exports from Africa into the US. It has nothing to do with the US selling in Africa. It is not like that. We produce in Africa and we sell to the US, The American consumer buys from us. There is no requirement for the US to trade back.
My point is, that if those sectors that are subsidized, the prices of goods and services will be lower in the American markets. Competing producers there apparently are challenging Africans.
That is a very important point. The American consumer is looking at products for their qualities, for their prices and standards and of course for their brands. As you and I know branding is becoming a very essential influencer. Therefore, if an American producer produces and sales in the US, it is very difficult to compete even in the American market alone. If you have been in the US most of the things are not made in the US. It is simply because countries like China are able to produce more cheaply than the US. That has been one of the issues discussed during this election.
Our standard of living is high. Our minimum wage is high. There are some products which are not just competitive for the American companies to produce. Hence, our AGOA products going into the US, except in some specialty areas, are not competitive with American products, including textile. The US accounts almost for 40 percent of the 1.6 trillion dollars garment and textile trade in the world. If you go to the Wal-Mart shops, you might see a few US made garments. That is the point. Yes, I understand the subsidy issue. It needs to be stopped. But it is not that window we are looking at now. In terms of export from the US to Africa, you could say the subsidy would deter African countries not to be competitive in Africa. But AGOA is about going the other way around.
When trading internationally, the principle is that you export the surplus you have produced in which comparative or absolute advantages are under consideration. But countries such as Ethiopia are facing persistent shortage of hard currency. They are facing difficulties in terms of trade and deficit in balance of payment. Hence, they tend to export in short supply. How do you see that affecting those countries’ involvement in AGOA?
In terms of affecting AGOA, they have been able to earn more foreign exchange. If Ethiopia would go from 30 million dollars to one billion dollars as projected for the textile sector, then one billion dollars will come into Ethiopia from American consumers who have bought products that have been produced in Ethiopia. Therefore, the money comes to Ethiopia.
I think the point that you are trying to make here is a very important point. Countries have to be cognizant of the fact that pegging foreign exchange is not always the best policy. In the final analysis, it is not sustainable. Free market approach allows the market to decide what people should buy and what they can’t afford. When the government is very rigid, it is going to be a state of uncertainty where people don’t know what they should buy and what they shouldn’t. Because, they don’t even know what the opportunity cost is.
If we know the real price of buying a certain product is 100 birr, then I may not buy it as a consumer and decide for better price cuts because very soon the demand for that product might go down. But if the government insists that it costs 100 birr and we are going to sell it for 60 birr, I could buy more though I don’t know what the real costs is.
Many governments think the issue of liberalizing their foreign exchange as a disadvantage. In the short-term yes they might be right but in the long-term, water finds its own level. The market is a very intelligent place. People in their minds estimate the power of the marketplace. The decisions in the marketplace are made by individuals and it affects them in many ways.
If you tell me something is to be sold for 500 birr I probably say why would I spend a one-day wage to buy that item? I would look at something else to buy. But when it is not clear as the government manipulates at the backdoor, making the 500 birr price to make look like 200 birr, I will continue buying. By doing that I am costing the government 300 more birr every day. I don’t know whether I am costing the government to that extent. Hence, we should look at liberalization from the economic point of view, not from the colonial mentality.
The other side of the argument is that liberalizing some sensitive sectors would be calamitous, according to governments’ claims. They say that they can’t compete with those that might come from abroad.
Let me give an example of a small country. Mauritius is one of the smallest countries in the world where the country has no tariffs. They have a liberalized economy and they are doing very well. They have nothing to fear but fear itself. We need to have strong governments that are not corrupt. We need to have regulations that we can enforce. We have to have a steady control of what comes in terms of quality and standards. That we can’t compromise.
If there are mistakes there should be some exceptions in the rules. People make mistakes to the extent of some three or five percent. We can’t make 80 percent mistakes. When we have a government that provides, we have nothing to fear because, market places are intelligent places. We need a government that understands and regulates within the rule of law that allows those things to happen. If we have proper enforcement, believe me there is nothing to fear but fear itself.