Making sense of US-Africa trade
Trying to understand how the US’ engagement with Africa might evolve, if at all, under a Trump administration is like reading tea leaves, writes Shannon Manders.
At the US-Africa Business Summit in Washington in June, US commerce secretary Wilbur Ross urged African countries to strike bilateral trade deals with the US rather than rely solely on the Africa Growth and Opportunity Act (AGOA), a 17-year-old preferential trade agreement that provides duty-free market access to the US for 39 qualifying Sub-Saharan African countries.
To its detriment, the multilateral agreement is a one-way privilege: African countries are not required to import US goods duty-free. It was renewed by US congress in 2015 for an additional 10 years, but, unlike with a free trade agreement, AGOA’s benefits can be cut and conditions imposed at any time.
“Having two-way trade agreements, not just temporary trade agreements, would create long-term sustainable improvements to the quality of life of everyone,” Ross said in his speech.
Ask anyone involved in US-Africa trade, and the general consensus is that a move towards bilateral trade agreements (of which there are currently none) that would bring about greater reciprocity for the US is likely.
“The new administration will react adversely to anything that’s seen as a giveaway: anything that’s being perceived as something that the US is being taken advantage of,” surmises Scot Anderson, Denver-based Hogan Lovells partner and global head of its energy and natural resources group. “If you’re an African nation or company looking to open up avenues to the US, I think looking for that quid pro quo is probably something that might get you in the door,” he says.
Ross’ recent speech echoes what was laid out in a report by the office of the US trade representative (USTR) entitled Beyond AGOA: Looking to the future of US-Africa trade and investment published in September last year (then under the former administration), suggesting that alternatives to AGOA may have already been in the pipeline, regardless of a change of power in the US.
The report reads: “As more reciprocal arrangements go into effect within Sub-Saharan Africa and between African countries and other developed country partners, the pressure to consider more stable, permanent, and mutually beneficial alternatives to AGOA will grow in the US as well.”
But drilling down into the specifics of exactly what all this could mean for AGOA – and the myriad of other lesser-known investment treaties and framework agreements that the US has with Africa – remains, at this stage, speculative: the administration of President Donald Trump still has no spokesperson on Africa. That would be the role of the assistant secretary of state for African affairs, and the post is still vacant, pending a nomination by the administration.
“That has left a void on Africa policy,” says Frank Samolis, co-chair of the international trade practice at Squire Patton Boggs, who sits on the board of directors of the US-Africa Chamber of Commerce.
His sentiment resonates with the majority of experts on Africa: “There is absolutely no priority for Africa under the current US administration,” says Robert Besseling, executive director of specialist intelligence company EXX Africa.
And while the US’ trade relationship with Sub-Saharan Africa is underdeveloped (the US Census Bureau puts 2016 exports to the region at US$22bn and imports at US$26.5bn), it has not escaped the office of the USTR that “in 2012, eight of the 20 fastest growing economies in the world were in Sub-Saharan Africa according to the IMF”, as written on its website.
The facts so far
What we do know is that President Trump wants to significantly axe the budget for the State Department and the US agency for international development (USAID), which would make deep cuts in long-term development aid, humanitarian food assistance and peacekeeping missions around the world.
In its detailed budget revealed in May, the White House asks for US$25.6bn for the core budget of the State Department and the USAID, plus US$12bn for overseas contingency operations. The total figure is 32% below current spending.
The point was driven home by commerce secretary Ross in his summit speech: “Our trade relationship is vital to the security and stability of both the US and Africa. But our relationship with Africa has to continue its transition from being aid-based to becoming trade-based.”
According to Samolis, these budget cuts are troubling because they are the only tangible piece of evidence that the Trump administration is not providing the level of assistance that Africa has received in the past from prior administrations.
“When you’re talking about infrastructure improvements and the threat of famine, when those aid levels are drastically reduced, that’s a sign that the Trump administration – from an aid standpoint – seems to be taking a much more parsimonious approach,” says Samolis. “That’s a pretty important indicator on where this administration is coming from on foreign assistance. That concerns me.”
One of the most well-known USAID projects under threat as a result of the cuts is former President Barack Obama’s Power Africa initiative – a US$7bn plan launched in 2013 to double access to electricity across Sub-Saharan Africa. Although the initiative is only just getting started, it’s now in limbo until the Trump administration takes a view on it.
“There’s a chance that Power Africa survives but as a diminished initiative,” says Anderson at Hogan Lovells.
In its favour, he tells GTR, there has been some talk – even among conservative thinkers – that the US can use initiatives like Power Africa to promote its own self-interest.
“People looking to influence policy have been arguing that it actually is in the interest of the US economy and US workers to have something like Power Africa, because even though the infrastructure is being built in Africa, a lot of it is US technology, and some of it is US hardware – power lines, generators, etc. But it’s also US know-how, so US companies will be engaged to build this infrastructure,” he explains.
Set up in 2000, AGOA gives duty-free and quota-free access to the US market on around 6,000 products from qualifying African countries. In his speech, Ross urged African countries to comply with the act’s eligibility requirements. Many interpreted this as a veiled warning to Kenya and other members of the East African Community (EAC), which have recently been accused of falling foul of these criteria.
“We must ensure countries currently benefiting from trade preferences granted by our AGOA continue complying with the eligibility requirements established in US law,” said Ross. “The administration takes these congressional requirements very seriously. And in applying our laws, we will vigorously protect the rights of US companies and workers in the global arena.”
Tensions rose earlier this year when the US-based Secondary Materials and Recycled Textiles Association (Smart) filed comments requesting that the USTR and the trade policy staff committee (TPSC) launch a review of the AGOA benefits for Kenya, Tanzania, Rwanda and Uganda. The group believes the countries violated terms of the act when they decided last year to phase out imports of used clothing by 2019. The countries had been instructed to do so by the EAC, which told all member states to buy their clothing from within the region to boost local manufacturing and help grow the region’s economy.
Smart believes the move imposes significant economic hardship on the US’ used clothing industry.
In response, the Kenyan government had hired Washington lobbying firm Sonoran Policy Group to help prevent the country’s expulsion from AGOA, and in late June the USTR published a notice announcing that a review of Kenya’s inclusion in AGOA “is not warranted at this time”. The jury is still out on the three other EAC states.
But there has been no talk of amending or cancelling AGOA, and while Samolis at Squire Patton Boggs says that there are “possibilities” for the diminution of AGOA benefits, he doesn’t think this will happen.
The bigger problem with AGOA, he says, is that it has never been terribly effective beyond the petroleum industry (in 2013, AGOA imports of petroleum imports took up an 86% share). “If the purpose of AGOA is to promote diversification of economic resources, then that’s not been a good result,” Samolis says.
And if the Americans are after greater reciprocity, the Africans also feel that they’re not getting a good deal. “It allows western economies to come and buy natural resources in Africa on the cheap, and it allows those markets to flood Africa with western-manufactured goods – also on the cheap – therefore leaving no incentive for African companies to invest locally in manufacturing,” says Besseling at EXX Africa.
Given the insular view that Trump has taken thus far on a global scale, and with China stepping in as the unlikely champion of free trade, many believe that this situation may play out in Africa too.
If the US does retreat from the continent, it could give more advantage to China, and an opening to the Asian nation to fill in the gaps left by the US.
“In a way it’s analogous to the US withdrawing from the Trans-Pacific Partnership (TPP): we pull out of global leadership, whether it’s on trade and the TPP or economic aid in the case of USAID. You leave a void that naturally other countries will try and fill, and in my view, in both trade and aid, that would be China,” says Samolis.
The USTR is aware of the dangers of being left out in the cold, and writes in its report: “Although the US believes expanded Sino-African relations are generally positive for Africa and for the global trading system, reciprocal arrangements between China and Sub-Saharan Africa without parity for American exporters will only intensify concerns that US exporters will find themselves being left out of African markets.”
Taking this a step further, some believe that Africa could become a chessboard for the US and China to battle out their egos.
“China is Africa’s biggest trading partner and a significant investor, and it may see a vacuum – because of the retreating west – to really flex its muscles,” says Ronak Gopaldas, Africa macro strategist at Rand Merchant Bank in South Africa.
Samolis agrees that if there is increasing friction between the US and China on trade, there is a possibility that the administration may decide to put more resources into investment in Africa, simply to hold the line on Chinese influence on the continent.
“If tensions exacerbate between the US and China, there is a possibility that Africa may become more important to this administration as a politico-economic bulwark against topping further aggression,” he says.
Nevertheless, the continent’s importance in such a situation is probably somewhat exaggerated and Africa would, for the most part, be a bystander to any kind of global trade dispute. One could argue that in light of the US’ engagement with the likes of Canada, Mexico and Cuba, among others, the best that Africa could hope for is benign neglect.take me back