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Wednesday, 25 August 2010 14:19

AGOA Yet to Benefit Africa

By David Muwanga

KAMPALA, Uganda, August 25, 2010 (East African Business Week) — Exports to the United States on the basis of the African Growth and Opportunity Act (AGOA) have increased from $23b in 2000 to $81b in 2008, African small and medium scale firms (SMEs) have not benefitted.

 

This is due to lack of trade assistance that goes beyond improvements in infrastructure and the business environment.

Experts from the Brookings Africa Growth Initiative advise that providing trade assistance and resources would increase the success of emerging sectors like Uganda's apparel industry and firms attempting to transit from the export of raw coffee beans to processed coffee.

 

"They are faced with problems of raising capital for market research, marketing to importers, and meeting packaging and sanitary standards," argues Dr. Ezra Suruma, a Distinguished Visiting Fellow of the Africa Growth Initiative of the Global Economy and Development project based in the USA.

 

Dr. Suruma is also the finance advisor to Ugandan President Yoweri Museveni

He made a presentation with another economic expert Zania Lewis at the forum to mark The Africa Growth and Opportunity Act (AGOA) ten years held on August 2-3, 2010 in Washington, DC.

 

The forum brought together senior government trade officials from 38 African nations and the U.S government to discuss "New Strategies for a Changing World."

He said that the financing available to African SMEs is very expensive compared to what is available in the advanced economies, and high capital costs weaken these firms' capacities to compete.

 

"Many would-be exporters find that African banks are unwilling or unable to offer financing in exports to the United States," Lewis noted. "AGOA needs to stimulate local production in Africa if it emphasizes building the capacity of small and medium enterprises (SMEs) through trade assistance and providing specific resources and assistance."

The United States Agency for International Development (USAID) has been one of the leading agencies in providing aid for trade for capacity building assistance in at least 110 countries.

 

These effort's have helped many countries but does not specifically address problems facing firms that are attempting to break into AGOA trade.

"In Uganda, efforts to increase textile exports to the United States have been minimal despite the incentives and support by the government to export-oriented firms attempting to break into the U.S. market," Lewis explained.

 

He said that Uganda grows high-quality cotton but lacks the capacity to produce apparel for the U.S. despite efforts to export locally produced and imported fabric.

He said production based on imported fabric has yielded disappointing results mainly because of costs' of importing ready-made fabric while production based on domestic fabric is promising since it requires lower transportation costs.

 

John Page, a Senior Fellow of the Initiative says that regional integration for Africa as the continents' economies are small, both in population and economic size.

"40% of Africans live in countries without access to the sea, compared with 4%t of the world's population, transport and power links between countries are limited with poorly performing institutions that raises the cost of trade logistics," she said.

 

He said Africa has had little success in forming regional groupings despite the economic logic and the political rhetoric in favour of tighter regional ties.

"Take the case of the Common Market for Eastern and Southern Africa (COMESA) that has not achieved free trade among its members, movements of people across its borders remain problematic, and it is a long way from integrating its financial market and with a few exceptions of the East African Common Market and the Southern African Development Community (SADC), Africa's other regional economic groups have similar problems.

 

He says that regional integration initiatives in Africa have shown so little dynamism because the business community sees few opportunities in cross border trade with neighbours.

He says trade among African countries in intermediate goods and components is low meaning there is little pressure from the private sector for effective infrastructure and institutions to support regional trade.

 

Chains allow beneficiary countries to qualify for the minimum local input and processing requirements of using input from other AGOA beneficiaries.

"Intermediate inputs and components purchased from Uganda for example can count as part of the local inputs of a Kenyan firm exporting to the United States,' he explained.

 

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