The US President Barack Obama promised during his visit to Senegal to improve the the African Growth and Opportunity Act (AGOA); the US initiative that allows African countries to access the US market on duty free Quota free arrangement. President Obama told joint press conference with his Senegalese counterpart Macky Sall that"AGOA will end in two years time. But I will seek for modalities to renew and improve the law to regenerate more trade and employment opportunities,"
The President's promise is good news indeed given that up to now US authorities had a clear signal that the AGOA will be extended come 2015. Now that the President himself has made the promise we can hope that the AGOA will be extended; after all the arrangement itself is a Presidential Initiative.
On the face of it, this should be good news to Africa. But of course we know that the President still has to convince Congress before the promise to extend AGAO can become a reality. There is still another huddle to over come. The US may extend the AGOA but the extension of its Waiver at WTO is also required. The extension of the WTO Waiver might turn out to be a serious huddle given that other countries like Cambodia, Bangladesh and Vietnam are also seeking for a similar preferential arrangement from the US. These countries will of course try to broke the extension of the AGOA waiver at WTO on grounds that the initiative is discriminating in nature as it does not cover all developing countries . The AGOA violates the Non discrimination requirement of WTO and that is why it must be provided a waiver at WTO. The current waiver expires with the AGOA in 2015. The likes of Cambodia have already used the WTO platform to express to the US their demand for the AGOA equivalent. It remains to be seen how this will play out.
In any case the period of extension will also determine the extent to which the AGOA will remain relevant to the economic development needs of Africa. At the moment some schools of thought say that the AGOA has not helped Africa realize economic growth as anticipated by the Act. It is said that the time span for the AGOA has always been a short period so inadequate to attract large scale foreign direct investments. As an example, this school of thought say that US citizens and others from more developed economies have failed to take advantage of this noble AGOA initiative because the arrangement does not provide guarantee returns to long term targeted investments. It is believed that this is so because of AGOA's short time nature and the fact that the initiative itself is unilateral thereby making it difficult for investors to predict its continuity after a certain period.
In addition, Africa has it own internal challenges relating to the supply side constraints. The challenges explain why since the launch of the AGOA in 2000, not many African countries have significantly taken advantage of the initiative. Save for a few countries-Kenya, Mauritius, Lesotho and Botswana, most of the other countries have not benefited as much. The American market is highly capitalistic with unique market demands. Penetration into the US Market requires clear response mechanism that address the constraints along the value chain and tailor the production systems to the US market needs and requirements. African countries continue to face challenges related to transport infrastructure, limited storage and warehouse facilities, limited investments in value addition, low capacities to comply with standards and rules of origin requirements, ignorance about the market, and un integrated value chains, among others.
Obama has promised will extend the AGOA but without clear response mechanism to address the above challenges, Africa will not effectively take advantage of the initiative. It should also be recalled that effective implementation of the response mechanism is also dependent on the duration of the AGOA.
In short, should AGOA be extended? yes. Will Africans benefit much from the extension of the AGOA? yes but only greatly if they are able to address the supply side constraints and attract plausible investments . But duration of the extended period of the AGOA is obviously going to be a key indicator in addressing the above challenges.