Hippolyte Fofack
The World Bank
AGOA CIVIL SOCIETY NETWORK FOURTH US-AFRICA TRADE AND
ECONOMIC COOPERATION FORUM
AGOA AND PERSPECTIVES FOR SUB-SAHARAN
AFRICA’S DEVELOPMENT WITHIN THE
INTERNATIONAL CONTEXTDAKAR, July 19, 2005
AcknowledgementsThe Government of SenegalThe US Government and Congress for their
support and commitment to SSA’s development
Mrs. Rosa WhitakerMr. Michael WilliamMr. Fred OladeindeFDA Staff State Department Staff
OutlineObjectivesBackground and rationaleUS-Africa economic cooperation
Historical trends: Characteristics and implicationsAGOA: Objectives and OverviewAGOA & International Development ContextAGOA Development Impact and AchievementsChallenges ahead
Overcoming market segmentation (FDI Attraction)Manufacturing and industrial development for
economic diversification and large scale productionContribution from the Nelson Mandela Institution
Summary conclusion and recommendations
ObjectivesProvide an overview of AGOA within the
international development assistance to Sub-Saharan Africa
Highlight key achievements under AGOA and remaining challenges ahead
Discuss a number of potential areas of intervention and actions which could enhance effectiveness of development impact under AGOA
Highlight the risks of the status quoSummary conclusion and recommendations
Background and RationaleAfrica’s social and welfare indicators are
abysmal:Almost half of Sub-Saharan Africa (SSA) 700
million people live on just US$0.65 a day (in PPP terms)
Poverty has been growing steadily, causing the Africa share of the poor to account for over 30 percent of the world poor in the 1990s
Predictions are not encouraging: by 2015, over 87 percent of people in SSA will leave on less than US$2 a day, over twice the world average and three times the average in MENA.
International Trade Context: Marginalization of Sub-Saharan AfricaAlthough accounting for over 1/8 of world
population, SSA account for less than 2% of world trade, and attract less than 1% of global capital flows.
Over the last 2 decades SSA’s share of world trade has continued to decline, while global trade volume has tripled.
SSA countries highly isolated – trading neither with the rest of the world nor between themselves (SSA intra-regional trade well below average for other regions of the world, partly as a result of market segmentation, overlapping of sub-regional trade agreements, and infrastructural constraints)
Sub-Saharan Africa's share of world exports of goods
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5All products Agricultural products
International Trade Context: Marginalization of Sub-Saharan AfricaAfrica’s output has changed very little since 1970:
it continues to be overwhelmingly dominated by few primary commodities, with low value added, mainly agricultural products and natural resources
As a result African economies are undiversified and extremely vulnerable to terms of trade and exogenous shocks
Capital flights, brain drain of skilled workers, and lack of economic diversification are major constraints with tremendous implications for investment, employment creation, export potentials and macroeconomic stability.
IllustrationSelected African Countries:
Agricultural Employment (in % of total employment)
20304050607080
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Congo, Dem. Rep. Zambia Tunisia
IllustrationSelected Countries: Agricultural Employment
(in % of total employment)
0
10
20
30
40
50
60
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
France United States Korea South Africa
Technology level of products traded at the international market
1996
High technology22%
Medium technology32%
Low technology18%
Diverse4%
Based on resources
11%
Other products13%
1976
High technology11%
Medium technology
22%
Low technology21%
Diverse1%
Based on resources
11%
Other products34%
International Trade Context: Marginalization of Sub-Saharan AfricaProliferation of regional trade agreements (RTA),
which now cover over one third of world tradeFor non-members, discrimination in RTAs members, discrimination in RTAs
adversely affects excluded countries, posing adversely affects excluded countries, posing systemic issues that require international systemic issues that require international attentionattention
Volume of trade between US and other Volume of trade between US and other regions of the world rising systematically and regions of the world rising systematically and accounting for a sizable share of world tradeaccounting for a sizable share of world trade
International Trade Context: Marginalization of Sub-Saharan Africa
The rise in volume of trade reflects the The rise in volume of trade reflects the potential benefits in terms of economic growth potential benefits in terms of economic growth and development. and development.
““Trade and investment, as the US experience Trade and investment, as the US experience has shown, can represent powerful tools both has shown, can represent powerful tools both for economic development and for for economic development and for encouraging broader participation in a encouraging broader participation in a political process in which political freedom political process in which political freedom can flourish” AGOA (2000)can flourish” AGOA (2000)
International Trade Context: Marginalization of Sub-Saharan Africa Indeed international trade and commerce with the Indeed international trade and commerce with the
rest of the world have been the cornerstones of rest of the world have been the cornerstones of US economic growth and investment.US economic growth and investment.
These trade relationships are governed under These trade relationships are governed under three instruments:three instruments:Multilateral track (GATT, WTO)Multilateral track (GATT, WTO)Bilateral and regional agreements (FTA with Israel, Bilateral and regional agreements (FTA with Israel,
Canada, NAFTA, FTAA-2005, US-APEC-2010)Canada, NAFTA, FTAA-2005, US-APEC-2010)Unilateral track (Japan [1970-80], Adean Trade and Unilateral track (Japan [1970-80], Adean Trade and
AGOA)AGOA)
US-AFRICA ECONOMIC COOPERATION
Historical PerspectivesIn spite of its potential and historical
relationships with the US, SSA export to the US has remained the lowest in the world
Over the 30 years following the post-independence era and prior to AGOA Act, SSA exports to the US have remained below 2.5% of global export to the US,…,
Moreover, these exports are largely concentrated in primary products (largely energy and oil, which account for about 80% of total SSA export to the US)
Historical PerspectivesSimilarly, SSA’s import of goods and
services from the US has remained very low
Compared to US global export, SSA’s imports from the US have accounted for about 1.5% on average over the 30 years post-independence era up to the negotiation of the AGOA
Illustration: Trend of US-SSA TradeUS Trade with SSA ($ million)
0
10,000
20,000
30,000
40,000
50,000 Imports
Exports
Illustration: Exports and Imports as Share of Total US Trade
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
ExportsImports
Historical Perspectives (FDI)The level of trade between the US and SSA is a
mirror image of FDISSA is the lowest recipient of FDI in the world, and
its share has been declining steadilyTotal FDI to SSA has remained almost constant, at
less than 1% of US direct investment abroad The low level of FDI is not compensated by rising
domestic investments in SSA, especially during the 80s and most of the 90s
These periods are characterized by prolonged economic downturns, rising unemployment and poverty.
Historical PerspectivesSSA abysmal picture (from the standpoint
of international trade and FDI) reflects a development strategy largely driven by:
Basic agricultural production and natural resources
excessive reliance on international assistance and foreign aid
Rising foreign and external debtThe cost of this development strategy has
been significant.
Trend External Assistance in Per Capita Terms (SSA)
0
5
10
15
20
25
30
35
40
Historical Perspectives and Lessons from US ExperiencesOver the years, trade and investment have been
engines for economic growth and development in US
A development strategy based on trade and investment has worked for US, but also for EU countries and emerging market economies from the developing world
Indeed, historically, Aid alone has never developed a country, the AGOA philosophy is to foster SSA’s development through the promotion of investment and trade between US and SSA.
THE AFRICAN GROWTH AND OPPORTUNTITY ACT
(AGOA)
OBJECTIVES AND OVERVIEW
AGOA: ObjectivesAGOA is a unilateral (One Way) extension of
preferential access (duty and quota free market access) to the US market for eligible products--- agricultural commodities, petroleum, minerals and manufacturing, apparel and footwear- from eligible SSA countries.
AGOA is a landmark act in support of SSA’s development through trade and investment promotion, fostering of regional integration and private sector development in SSA
It is a landmark act to foster SSA integration into the global economy based on a strong partnership with the US.
AGOA: ObjectivesIn Section 102 of the AGOA Act, the US Congress
recognizes that: “SSA represents a region of enormous economic potential
and of enduring political significance to the US” “Trade and investment, as the US experience has shown,
can represent powerful tools both for economic development and for encouraging broader economic participation in political process in which political freedom can flourish”
“increased trade and investment flows have the greatest impact in an economic environment in which trading partners eliminate barriers to trade and capital flows and encourage the development of a vibrant private sector that offers individual African citizens the freedom to expand their economic opportunities and provide for their families”
AGOA: ObjectivesIn Section 102 of the AGOA Act, the US
Congress recognizes that:“offering the countries of SSA enhanced trade
preferences will encourage both higher level of trade and direct investment in support of the positive economic and political developments underway throughout the region”
“encouraging the reciprocal reduction of trade and investment barriers in SSA will enhance the benefits of trade and investment for the region as well as enhance commercial and political ties between the US and SSA”.
AGOA: ObjectivesIn Section 103 [statement of policy] of the
AGOA Act, the US Congress supports:“Encouraging increased trade and investment
between the US and SSA”“reducing tariff and nontariff barriers and other
obstacles to SSA and US trade”Expanding US assistance to SSA’s regional
integration efforts”….“strengthening and expanding the private sector
in SSA, especially enterprises owned by women and small business”
AGOA: ObjectivesIn Section 103 [statement of policy] of the AGOA
Act, the US Congress supports: “facilitating the development of civil society and
political freedom in SSA”“Encouraging joint ventures between small and
large businesses” “establishing the US-SSA Trade and Economic
Forum” and“the accession of SSA’s countries to the
Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”
AGOA WITHIN THE INTERNATIONAL DEVELOPMENT
CONTEXT
AGOA & International Trade Arrangements (WTO) The AGOA Act is consistent with global
approach to trade, as it is expected to result in:Reduction of tariff barriersReduction of nontariff barriers
Trade Arrangements of this nature have been used elsewhere and are in force in a number of regions
AGOA is a Trade Promotion Act to expand the volume of SSA export, and hence global export.
AGOA & International Development
Trade arrangements of this nature are expected to:Help improve macroeconomic management,
including through economic growth and diversification, mitigation of growth volatility
Contribute to private sector development, including through establishment of joint ventures, reduction of capital flights and hence increased savings and investment prospects
AGOA & International DevelopmentTrade arrangements of this nature are expected
to:Increase productivity, especially in export sectorsFoster SSA economic integration, including through
collaboration and exchange between countries, and Contribute to increased per capita incomeHelp empower civil societyMitigate HIV/AIDS effects on SSA workforceReduction of gender disparities
AGOA could contribute to reduction of poverty, and gender disparity, improvement of life expectancy. From this standpoint, it is an MDG Enhancing Act.
AGOA: EARLY DEVELOPMENT IMPACT AND ACHIEVEMENTS
Development Impact and AchievementsStatistics from US Commerce Department shows
that:SSA imports from the US increased markedly during the
post-AGOA period; by over 53% between 1999 and 2004SSA exports to the US increased significantly during the
same period as well; between 1999 and 2004, they increased from US$14805
to US$37828 millionsHowever, these imports are still largely confined in
primary products, natural resources. Energy-related products accounted for about 80% of US imports from SSA
Figures seem to suggest that SSA exports have grown more rapidly.
Development Impact and Achievements
0
10,000
20,000
30,000
40,000
1999 2000 2001 2002 2003 2004
US Trade with SSA ($ million)
Exports
Imports
Development Impact and AchievementsThe following countries appear to have benefited
the most from the post-AGOA export boom in nonenergy-related products (textiles and apparel):South AfricaMauritiusKenyaBotswanaTanzania
The common denominator of these countries is the strength of their manufacturing industry and prospects of diversification of their economies.
Development Impact and AchievementsThe US Congress finds that “It is in the mutual interest of the United
States and the countries of SSA to promote stable and sustainable economic development in Sub-Saharan Africa”
Access to energy and oil is particularly vital to US strategic interest
US imports from Africa reflect that strategic interest
Development Impact and Achievements
Issues: Are the countries of SSA fully benefiting from the
AGOA Act?Are these countries at their full potential in this
partnership?Does the current pattern of SSA imports from the US
reflects Africa’s strategic interest, economic empowerment and sustainable development?
It is central and critical for countries in SSA to have a clearly defined and articulated strategic vision to guide their trade relationships in order to fully benefit from the AGOA Act.
CHALLENGES AHEAD
Key Challenges for SSADeveloping and strengthening local private sector
and domestic capitalism, which requires:Strengthening links between real and financial
sectorsPromoting the development of sound domestic
financial institutions and curbing capital flights– This could be enhanced by speeding up SSA
countries access to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
Organizing and strengthening civil society organizations and the media, a powerful force for checks and balances
Key Challenges for SSAStrengthening links between industry and
academiaOvercoming of the challenges of market
segmentation, which constitute major constraint to:FDI attraction (SSA received the lowest share of
FDI to developing countries– 6.3% of total)Regional integration and increased prospects
for economies of scale and large scale production.
AlgeriaLibyaMorocco MauritaniaTunisia
AMU
GhanaNigeria Cape Verde
Gambia
ECOWAS
Benin NigerTogo Burkina FasoCote d’Ivoire
Conseil de L’Entente
Guinea-Bissau Mali Senegal
WAEMU
Liberia Sierra Leaone Guinea
Mano River Union CLISS
CameroonCentral African Rep.GabonEquat. GuineaRep.Congo
Chad
Sao Tomé & Principe
ECCAS
CEMAC
Angola
Burundi*Rwanda*
Egypt
DR Congo
DjiboutiEthiopiaEritreaSudan
Kenya*Uganda*
Somalia
Tanzania*
EAC
South AfricaBotswanaLesotho
Namibia*Swaziland*
Mozambique
SACU
Malawi*Zambia*Zimbabwe*
Mauritius*Syechelles*
Comoros*Madagascar*
Reunion
IOC
*CBI
SADC
COMESA Nile River Basin IGAD
AMU: Arab Maghreb UnionCBI: Cross Border InitiativeCEMAC: Economic & Monetary Community of Central AfricaCILSS: Permanent Interstate Committee on Drought Control in the SahelCOMESA: Common Market for Eastern and Southern AfricaEAC: East African CooperationECOWAS: Economic Community of Western African StudiesIGAD: Inter-Governmental Authority for GovernmentIOC: Indian Ocean CommissionSACU: Southern African Customs UnionSADC: Southern African Development CommunityWAEMU: West African Economic & Monetary Union
Overlapping African agreements…Overlapping African agreements…
Key Challenges for SSAPromoting manufacturing and industrial
development for:Economic diversification and growthDiversification of SSA exports to the US to
increase non-energy-related exports, which currently account for less than 20% of total
Employment creation and growth of per capita income
Large scale production within international standards and norms to meet the requirements of global demands and fully take advantage of economies of scale.
Key Challenges for SSAPromoting science and engineering in support of
manufacturing and industrial developmentThe Nelson Mandela Institution for Knowledge
Building and the Advancement of Science and Technology in Sub-Saharan Africa could play a key role in this area
Indeed, long-term studies of the US and other advanced countries show that science and technology have been responsible for at least half of long-term economic growth, through:
Improvement in capital and labor productivityThe creation of new products, services and
systems
Examples of the US Economy
For instance, in the field of biotechnology, the original investment in basic research delivered incredible dividends in industrial countries:Creation of thousands of highly skilled jobsContribution of billion of dollars to western
economiesPotential applications for improvement of
health and agricultural yield and productivity.
What is said about biotechnology is also true about other fields of science and engineering, in particular, the IT sector where thousands of jobs were created in the 1980s and 90s. For instance in 2002, the US Department of Labor
Statistics showed that computer software engineers held about 675,000 jobs, and
about 21,000 computer software engineers were self-employed
A 1994 study shows that MIT graduates have created over 4000 major companies and corporations with total sales of $232 billion
Contribution of S&T to Income GrowthRegression KEI 2002 and GDP per capita 2002
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
Knowledge Economy Index 2002
GD
P pe
r cap
ita 2
002
(199
5 co
nsta
nt U
S$20
02)
R2 = 0.66Finland
Brazil
ChinaIndia
Korea
RussiaJordan
Ireland
Poland
South Africa
Ethiopia Ghana
Turkey
USA
UK
Slovenia
Taiwan
Vision of the Mandela InstitutionThe Nelson Mandela Institution envisions the
transformation of SSA’s industrial and economic landscape and the strengthening of its socio-cultural foundation
It is a global effort to foster Sub-Saharan Africa’s economic growth and diversification, industrial development, and employment creation through:
the promotion of excellence in science, engineering and,
their applications based on competitive processes, transparency and accountability.
Pillars of the Institution
• the African Institute of Science and Technology (AIST), a world-class institution based on the very successful model of Indian Institute of Technology (IIT), the US and other leading institutions of excellence in science and engineering around the world;
• the Sub-Saharan African Learning Network (SSALN) to improve and promote the creation of, and flows of knowledge across Sub-Saharan African countries and encourage continuing learning.
Objectives of the AISTProviding the best facilities for undergraduate,
graduate and post-graduate studies and research;At full capacity, the four regional AIST will produce
about 5000 world-class scientists and engineers every year, …,
These engineers will have the mission to create and adapt knowledge to transform local communities and improve the human condition across Africa.
bridge between research and industrial development enhanced through strong link with industry for technology transfer and the creation of technology parks around the AIST for seeding innovations.
The Sub-Saharan African Learning Network (SSALN)
The SSALN will provide infrastructure and incentives structures for:– the creation of knowledge,– life-long learning,– flows of knowledge and dissemination
across SSA Improving understanding of African
issues and challenges, and preparing future generations of leaders.
African Scientific CommitteeThe Board will be advised by a multidisciplinary
African Scientific Committee, consisting of scientists from a wide range of disciplines, including engineering, biology, chemistry, medicine, mathematics, physics, finance and economics.
The Scientific Committee will also play a leadership and catalytic role in:Promoting research in SSA and supporting the AIST
visionEnsuring timely transfer of technology in SSA, through
collaboration between African scientists in the Diaspora and Africa-based scientists;
promoting the diffusion and assimilation of technology.
Resources and FinancingTo support the AIST and the SSALN, the
Foundation will establish an Endowment Fund for Excellence (EFE).
The endowment model will allow dual funding from public and private, hence mitigate the dependence on one country.
Hence the Institution will seek contributions to this EFE from private and public sources worldwide.
Harvard has an endowment fund of over US$20 billion, and our expectation is to raise about US$5 billion by end-2012 to ensure:– long-term financial sustainability;– Equity and access to all– Sustained quality of education.
Expected Development Impactthe prospects for improving the quality and
performance of primary and secondary education through a state-level competitive process.
The institution of the AIST to which access is conditioned upon meeting the requirements of the CEE and AGATE will provide a benchmark for assessing the performance national education systems, secondary and post-secondary, and even tertiary educations in a cross-country comparative setting.
Increased access to knowledge and human resource-based
the promotion of science, knowledge creation, assimilation and diffusion continent-wide within the context of the proposed Foundation, which involves pooling resources together, will limit the costs for a given country, especially for the small low-income countries, and increase the benefits for all.
In addition, the smaller states, which may not have enough resources, including human resources to sustain a performing higher learning institution may greatly benefit from the institution of the AIST, and increased collaboration and flows of information and knowledge across SSA.
The production of a relatively large number of homegrown engineers on an annual basis and over time, the establishment of a platform for a fruitful collaboration between African-based scientists and the Diaspora, are likely to reduce the costs and negative impact of brain drain.
Welfare improvement, prospects for economic development and employment creation, through linkages with industries, and choice of appropriate and practical technologies, FDI, technology parks, economic diversification.
Reduction of growth volatility and exposure to terms of trade shocks, and other risks
Bridge the knowledge gap and digital divide between SSA and the rest of the world.
Support and contribution to the realization of the AU vision, and its economic platform, the NEPAD and the objectives underlined in the AGOA Act, including:economic integrationPrivate sector developmentReduction of gender disparitiesEmployment creation and increased per capita
income
Risks and Sustainability Reforms and Infrastructure Development:
– Curriculum reform and harmonization to emphasize the teaching of sciences at primary and secondary school level.
The benefits will greatly depend on a significant improvement in the state of existing infrastructure (transport and telecommunication networks) across Sub-Saharan African countries.
Brain drain, to be weighted against the prospects of remittances from migrants, increased trade, and cycling of knowledge.
Risks of Status QuoSignificant, including:
– Persistence of widespread poverty and vulnerability to endemic diseases
– Debt-Poverty Trap;– Continued widening gap between SSA and
the rest of the world;– Continued dependence and vulnerability to
macroeconomic shocks and other risks– uncertainty about the future
Some Illustrations.
Summary and RecommendationsThe AGOA is a landmark Act to enhance the
development of Africa. In spite of initial success in terms of exports boom,
the realization of full potential by SSA countries remains a challenge for most if not all countries, and will require:stepping up the development of manufacturing
industry, and efforts to diversify the sources of growth and exports
to mitigate vulnerability to terms of trade shocks and exposure to exchange risks
Summary and RecommendationsSome key recommendations include:
Accelerating SSA’s countries access to the OECD Convention on Combating Bribery of Foreign Public Officials
Supporting the establishment of the AIST for economic diversification, industrial development, growth and employment creation and expansion of SSA’s exports
Supporting the organization of SSA civil society organization
Gradual elimination of overlapping models of regional integrations in favor of a uniform integration path a la EU
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