In many ways, Angola seems an economist’s – and politician’s, and businessman’s – dream.
By the numbers, Angola’s economy appears to be booming. Between 2001 and 2010, it grew by 11%, and continues to tick annually at 3.4%. In just one year, the country turned a deficit on its head and now runs a GDP surplus of 7.5%.
Yet here’s the catch: 40% of its population lives below the poverty line –- and unnecessarily so, says Human Rights Watch. The group reports that widespread corruption has prevented all but a few rich Angolans from reaping the rewards of their country’s natural resources.
Angola’s winner-takes-all economy is just one example a how the African Growth and Opportunity Act fell short of its proposed development goals for the continent. With AGOA, the inherent risks and benefits of free trade were played out in full: the agreement helped boost export trade in some countries, while making others vulnerable to American imports. But the real winners in AGOA, economically speaking, have been oil-rich countries like Angola that have been encouraged to do business with the United States despite violating AGOA’s ‘good governance’ rules.
With AGOA’s 2015 expiration date looming, the legislation’s scattered results in Africa have not gone unnoticed. In 2010, the Center for Global Development concluded that U.S.-Africa trade has grown threefold since 2001, it had not brought about “economic growth and reform in the beneficiary countries.”
When it was first signed by President Clinton in 2000, AGOA aimed to offer what legislation called “tangible incentives” for African countries to open up their economies and engage in free trade. These “tangible incentives” took the form of an expanded list of items – 1,800 more to be exact – that African countries could export to the United States without having to pay duty. Before AGOA, duty-free items numbered 4,600 and were covered under the General System of Preferences, which applies to many countries.
The idea at work was that free trade would encourage AGOA’s 40 or so members to ramp up industries that could add value to raw materials. For example, instead of exporting pineapples, a country would export pineapple juice, or pineapple jam.
In 2006, African textile industries were granted more benefits under the third country fabric provision. This allowed African apparel factories to use fabric purchased overseas while declaring their products “made in Africa,” in order avail of duty-free status.
The third country fabric provision was instrumental in kick-starting textile industries in Africa. One such country to benefit was Lesotho. Prior to AGOA, the landlocked country’s 2 million or so people relied mainly on subsistence farming and migrant work in the mines of neighboring South Africa.
The advent of duty-free trade with the United States and the third country fabric provision attracted fast and furious foreign direct investment in Lesotho. Today, a robust, Taiwanese-run apparel industry is the largest private sector employer in the country, employing 45,000 people, most of them women. Lesotho’s economy has grown by 200%. Ninety percent of the products made in there end up in the U.S. under popular labels such as the Gap, Calvin Klein and Levi Strauss.
Lately, however, the country’s dependency on duty-free trade with the U.S. has become painfully clear. Congress has yet to renew the third country fabric provision – set to expire in September 2012 – that keeps the apparel industry competitive with Asian manufacturers. Without it, Lesotho factories by contract will have to pay duty. Industry leaders say the fees will exceed their profits.
“It is a very serious problem if it’s not extended,” says Johnny Lin, executive secretary of the Lesotho Textile Exporters Association, who claims buyers are already dropping orders. “The buyers from the U.S. are most likely to pull out from Lesotho completely.”
In some instances, the absence of trade barriers has benefited the U.S. by opening the floodgates for American imports. But not all economies can keep up. Burkina Faso and Benin import far more from the U.S. than they export. And in Zambia, second-hand clothes imported from the U.S. nearly crippled the country’s apparel industry, reported the Washington Post.
Experts warn that, given the risks associated with free trade agreements like AGOA, the legislation itself should not be considered a panacea but more a “tool in the toolbox” for fledgling economies.
“It’s not realistic to expect Africa to become vertically integrated in a short period of time,” says lobbyist Paul Ryberg, director of the African Coalition for Trade, which is lobbying Congress to extend the third country fabric provision. “Especially when you keep moving the goal posts and changing the rules a you go.”
Overall, free trade with the U.S. has led to an uptick in non-oil exports, which stood at $3.5 billion at their peak in 2008. Yet of this, at least $2 billion was from automobile manufacturing in South Africa, and $1 billion from textiles exported by only a handful of countries. Between 2001 to 2008, the eight poorest AGOA members exported less than $500,000 worth of AGOA products collectively.
The Office of the U.S. Trade Representative argues it’s not the amount that counts, but the effort. “There are a number of countries out of 40 members that are sending a range of products to the United States,” says Florizelle Liser, Assistant U.S. Trade Representative for Africa. “Some of it is very tiny. But we’re starting from that base — one order, one container a month — and moving up. Some of numbers are small, yes. But there’s also significant growth in some sectors.”
While the balance sheets of AGOA members vary, one group of countries pumps out a steady stream of exports. These are the oil-producing countries of Nigeria, Angola, the Democratic Republic of Congo and Chad, which have been among the top five AGOA exporters from day one. Between 2001 and 2008, annual petroleum exports from these countries increased to about $52 billion from $7 billion, and grossed $49 billion in 2011 alone. By contrast, the second biggest industry is textiles and apparel, which grossed $855 million in 2011.
Specialist groups have seized on AGOA’s free trade structure as a way gain influence in resource-rich Africa. In 2002, an Israeli think tank based in Washington, D.C., called the African Oil Policy Initiative Group, made the case for pursuing oil in the Gulf of Guinea, an oil-rich body of water off the continent’s west coast and among the world’s top locations for oil and gas exploration. In a white paper, the group noted AGOA’s role in promoting this agenda: “The energy sector is pleased by the AGOA-triggered reforms in customs services. AGOA should be used to leverage these improvements throughout the continent.
While U.S. interest in resources from the Gulf of Guinea nations may seem obvious, some worry the proceeds come at a cost.
All of AGOA’s top exporting countries have been accused of human rights abuses and corruption. Recently, Human Rights Watch warned of the oppressive atmosphere surrounding Angola’s upcoming elections, citing “increasing restrictions on the rights to freedom of expression, association, and assembly and media freedom.” In Nigeria, police regularly commit human rights violations such as unlawful killings and enforced disappearances, according Amnesty International. And the Democratic Republic of Congo is roundly criticized by both advocacy groups for restricting the press and oppressing political opponents.
These violations might be less of an issue in the context of trade with the U.S., were it not for AGOA’s explicit admissions criteria. Legislation requires AGOA member countries to demonstrate a number of best practices in good governance, including “efforts to combat corruption”; “protection of worker rights and human rights”; and “the rule of law and political pluralism.” To what degree these are enforced by the United States is unclear.
The stringency of these rules is being tested now in South Sudan, which, despite recent border violence, is fast-tracked to becoming AGOA’s 41st member country. Since gaining independence in July 2011 — and with it, three-quarters of the oil-producing land once controlled by Khartoum — South Sudan has waged an aggressive campaign against the north to commandeer the Heglig pipeline on the border. While South Sudan’s recent tactics fly in the face of AGOA’s pro-democracy, pro-peace criteria, economists say the country’s oil reserves nevertheless guarantee it a seat at AGOA’s table.
Whether AGOA is renewed in 2015 depends largely on whether U.S. policymakers feel the country has a strong enough foot hold in Africa to stand firm against China’s growing influence there.
And yet, Africans are showing increased skepticism over free trade agreements: many have refused to sign the new European Trade Agreement that reads similarly to AGOA legislation. For these countries, the price of free trade is too great to bear.