South African Investment Environment and Business Opportunities
The African Growth and Opportunities Act€¦ · The African Growth and Opportunities Act Tomasz...
Transcript of The African Growth and Opportunities Act€¦ · The African Growth and Opportunities Act Tomasz...
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The African Growth and
Opportunities Act
Tomasz Iwanow
Southern Africa Trade Hub
August, 24 2011
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Introduction
This presentation will:
• Introduce to the African Growth and Opportunity Act (AGOA)
– Overview Basic Legislation.
– AGOA aims
– How AGOA works.
– Eligibility
– Rules of Origin
• US/Sub-Saharan Africa patterns of trade
• Tanzania/US trade and AGOA.
• AGOA successes (both SADC and Tanzania)
• Challenges and Opportunities
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The AGOA: The basics
• AGOA is - a program of trade preferences:
• Signed in May 2000 as a part of legislation on Commerce
and Development.
• Unilaterally applied by US (vs EPAs)
• Not fully compliant with the WTO rules (LDC)
• What does AGOA do:
• Eliminates import tariffs on around 7000 products under
the General System of Preferences of the U.S.
• Extend GSP + 1400 products (footwear, luggage, handbags,
watches, and flatware)
• The most comprehensive and wide ranging US program
of trade preferences (without FTA)
• 98% of Sub Saharan African countries enter US duty-free
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AGOA Legislation
• AGOA I (2000)
– Title 1 of The Trade and Development Act of 2000 offers tangible
incentives for African countries to their efforts to open their
economies and build free markets.
• AGOA II (2002) Trade Act of 2002
– Expanded Coverage of AGOA
• AGOA III (2004) – AGOA Acceleration Act
– Extended access for AGOA imports until 2015
– Extended 3rd Country Fabric Provision until 2007
• AGOA IV (2006) Africa Investment Incentive Act
– Extended 3rd Country Fabric Provision until 2012
– AGOA GSP Provisions in effect until September 2015
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The aims of AGOA
• Supporting economic development and job creation in SSA through trade and investment. • Developing a commercial partnership rather than aid
dependency
• Eliminates tariffs on nearly all goods to the U.S. imported from sub-Saharan Africa
• Attracting new investors from U.S. and elsewhere to serve the US market.
• In order to fulfill AGOA‟s objective USAID created three Trade Hubs to provide technical assistance and support „development through trade‟.
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AGOA Eligibility
• US President designates countries as AGOA eligible if they have established or are making continued progress towards establishing: – Market Based Economies
– Rule of Law and Political Pluralism
– Elimination of Barriers to US Trade and Investment
– Protection of intellectual property
– Efforts to Combat Corruption
– Policies to: reduce poverty, increase availability of health care and educational opportunities, protect human and worker rights and eliminate certain child labor practices.
• 37 SSA countries are eligible.
• Tanzania became AGOA eligible in 2001; Cote d‟Ivore, CAR, Eritrea and Madagascar are no longer eligible.
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How AGOA works
Non African Country - AGOA ineligible
Produces good X with similar characteristics (price - $10, quality,
transport costs) to good Z coming from AGOA eligible country
Exports with out AGOA and pays 10% duty
Price on the US market $11
African Country –
AGOA Eligible
Produces good Z with similar characteristics (price - $10, quality and transport costs) to good X coming from
an AGOA ineligible country
Exports under AGOA and does not pay duty (0%)
Price on the US market $10
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AGOA Rules of Origin
• “Wholly produced” with SSA
– “the article must have become the growth, product, or manufacture of a
beneficiary sub-Saharan African” .
• The article must be imported directly from a beneficiary sub-
Saharan African country into the customs territory of the United US.
• Material content rule: value-added must be more than 35%
– “the article must have at least 35 percent of its appraised value attributed to the
sum of the direct costs of processing operations performed in the beneficiary
sub-Saharan African country or in any two or more beneficiary sub-Saharan
African”
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AGOA Special Provisions for the Textile and
Garment Industry
• 3rd Country Fabric Provision – specific for garment
manufacturers in AGOA LDC beneficiaries.
• Apparel made of U.S. yarns and fabrics
• Apparel made of sub-Saharan African (regional) yarns and
fabrics until 2015 (cumulation), subject to a cap; (caps large)
• Apparel made in a designated lesser-developed country of
third-country yarns and fabrics until 2012, subject to a cap;
• LDC (+ Botswana and Namibia), will enjoy duty-free/quota-
free access for apparel made from fabric originating
anywhere in the world.
• Visa system
• Established to avoid transshipment and use of counterfeit
documentation
• Requires African government to instituted required
enforcement and verification procedures.
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US/Sub Saharan Africa Trade Patterns
• AGOA exports $US 86 Billion USD in 2009 increased from
US 21 Billion in 2000
• Less than 20% of these exports were covered under GSP
• Clothing and Vehicle parts and Transportation Equipment main
categories apart from energy related products
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AGOA Exports by Sector
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
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Non-Energy AGOA Exports by Sector
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
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AGOA Exports by Country
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
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AGOA – The Tanzania's experience
• Tanzania exports to US totaled $43 million (small)
– Spices, coffee, precious stones, edible fruits and nuts, lac and
vegetable saps, and knit apparel.
• Small percentage of total AGOA exports.
• AGOA export were only $2.1. These duty-free imports
included apparel products, semiprecious stones, and
handicrafts.
• There is a common perception that opportunities
presented by AGOA are underutilized by Tanzania's
entrepreneurs.
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Tanzania Imports and Export to/from US (in US$ „000)
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Exports
Imports
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Tanzania Imports and Export to/from US (by sector) ($US „000)
0
10000
20000
30000
40000
50000
60000
Exports
Imports
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Tanzania‟s Top 20 exports (in US$ millions)
Rank Product Value Share
1 Gold 818.59 20.9%
2 Precious metal ores and concentrate 497.68 12.7%
3 Coffee 115.20 2.9%
4 Fish fillets and other fish meat 104.45 2.7%
5 Coconuts, Brazil nuts and cashew nuts 90.90 2.3%
6 Unmanufactured tobacco 90.36 2.3%
7 Cotton 89.03 2.3%
8 Other oil seeds and oleaginous fruits 69.53 1.8%
9 Tea 68.14 1.7%
10 Dried leguminous vegetables 58.68 1.5%
11 Other furnishing articles, 53.03 1.4%
12 Twine, cordage, ropes and cables, w 37.96 1.0%
13 Electric instantaneous or storage water heater 33.28 0.8%
14 Wood sawn or chipped lengthwise 25.65 0.7%
15 Mineral or chemical fertilizers 24.50 0.6%
16 Electric generating sets and rotary converters 23.78 0.6%
17 Cotton, carded or combed. 21.93 0.6%
18 Precious stones (other than diamonds) 21.88 0.6%
19 Uncoated kraft paper and paperboard 21.04 0.5%
20 Cocoa beans, whole or broken 20.15 0.5% 17
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Tanzania‟s Top 20 exports to US (in US$ millions)
Rank Product Trade Value Share
1 Coffee 13.26 27.7%
2 Coconuts, Brazil nuts and cashew nuts 5.97 12.5%
3 Machinery, not specified 4.52 9.5%
4 Electric instantaneous or storage water heaters 4.18 8.7%
5 Plants and parts of plants 3.31 6.9%
6 Warp knit fabrics 2.26 4.7%
7 Precious stones (other than diamonds) 1.91 4.0%
8 Raw fur skins 1.58 3.3%
9 Tanned or dressed fur skins 1.30 2.7%
10 Ivory, tortoise-shell, 1.01 2.1%
11 T-shirts, singlets and other vests, 0.83 1.7%
12 Bones and horn-cores, unworked, def 0.77 1.6%
13 Cocoa beans, whole or broken 0.71 1.5%
14 Fish fillets and other fish meat (w 0.69 1.5%
15 Locust beans, seaweeds and other algea 0.61 1.3%
16 Uncoated kraft paper and paperboard 0.46 1.0%
17 Tea, whether or not flavoured. 0.45 0.9%
18 Extracts, essences and concentrates 0.43 0.9%
19 Animal products not elsewhere specified 0.36 0.8%
20 Parts suitable for use solely or pr 0.28 0.6%
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AGOA Successes - Lesotho
• AGOA has resulted in phenomenal exports increases in
Lesotho garments.
• Key for the success was relaxed “single transformation”
Rules of Origin.
• Source fabric from the most competitive locations.
• Make it up into garments for large US retailers
(WalMart, Kmart, GAP)
• Lesotho‟s exports to the US rose from over US$ 100
million in 2000 to US$ 450 million in 2004.
• Employment 40,000 – 50, 000
• Problems: Little linkages with the rest of the economy
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AGOA Successes – Madagascar/Kenya
• A similar rise in exports to the US as a result of AGOA has occurred in Madagascar.
• In 2007, Madagascar exported textiles and apparel worth US$ 287 million to the US.
• Due to political problems Madagascar became ineligible for AGOA benefits in 2010.
• In the first 11 months of 2010 Madagascar exported only US$ 53 million worth of apparel to the US.
Kenya experience:
• Kenyan exports of apparel to US exceeded US$ 200 million in 2010
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AGOA – Tanzania Experience
• Sun-Flag factory (Arusha) (AGOA success)
– The completely vertically integrated clothes factories in Africa.
– Ring spinning, yarn twisting, circular knitting, warp knitting, yarn
and fabric processing, a woven made up unit, knitted garmenting
with in-house embroidery.
• „Marvelous Flotea‟,
– Dar es Salaam based handicraft manufacturer
– Increased annual income from $120 to producing 2,000 to 3,000
pieces a month with an annual income of $100,000.
– Nearly 50 percent of sales come from exports to the United
States, India, and Japan
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AGOA opportunities
By looking at the current exports of Tanzania here is
where the AGOA opportunities may be:
• Apparel, Footwear, Leather products
• Fruits and nuts (cashew)
• Prepared vegetables
• Cut flowers (Arusha – directly to US and avoid duty)
• Prepared seafood (fish) (Tuna – Mauritius)
• Crafts
• Furniture
• Other manufacturing
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AGOA is an opportunity …
• AGOA and in general globalization offer a wide range of opportunities to Tanzania‟s companies (big or small).
• The largest single market in the world the U.S. market (but is a very competitive).
• Everyone is looking for a share of this market
• Consumers expect the highest standards of quality and safety
• U.S. importers and consumers are not very familiar with the products coming from Tanzania or SADC.
• Both a challenge and opportunity.
• Opportunity to establish a name in the US market
• But adds to a challenge of penetrating the US market.
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But also a challenge …
• Diversification beyond the energy and resource exports.
• Improving business climate that can decrease the preference margins of AGOA.
• Easy of doing business (Tanzania ranks 128th)
• Customs and trade facilitation
• Infrastructure/transport (% of final price)
• Export Strategy/Vison
• Strong entrepreneurship/professional management
• Improvements will allow Tanzania to take advantage of AGOA
• Predictability
• Standards, SPS
• But as shown in this presentation these challenges can be overcome.
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Discussion
Do you have experience dealing with AGOA?
How do you think the outcomes of AGOA can be
improved?
Any Problems?
Do you have any other questions/comments?