The extension of AGOA could help transform African economies

Dear Fellow South African,  

In the last few months, there has been much discussion in South Africa about AGOA, which stands for the African Growth and Opportunity Act. The Act was passed by the United States Congress in 2000, granting qualifying African countries duty-free access to the US market for their exports.

While this may seem to many in our country to be a rather distant, even obscure, topic, AGOA is an important instrument for growing and transforming our economy. The benefits of AGOA are felt in the lives of our people through increased economic activity and the jobs that such activity created.

We have just hosted a successful 20th AGOA Forum in Johannesburg where we made a case for the extension, or reauthorisation, of AGOA beyond 2025. This would provide certainty for companies wanting to invest or expand their operations in eligible African countries.

South Africa benefits a great deal from AGOA. Our country is the United States’ largest trading partner in Africa. The US exports more goods to South Africa and imports more goods from South Africa than any other African country. According to US Census Bureau data from 2020, South Africa was the largest destination for US foreign direct investment among AGOA eligible countries. 

The value of AGOA to African countries, however, extends beyond the impressive trade statistics. Rather, AGOA can make an important contribution to the transformation of African countries from mainly being exporters of raw materials to producers of finished goods for both continental and global markets. 

If extended beyond 2025 for a sufficiently long period, and if used more effectively, AGOA can contribute significantly to the further diversification of African economies. It could enable countries to produce a wider range of products using the abundant minerals, metals and agricultural produce. The extension of AGOA could also encourage the further development of value chains across different countries.

We have already seen this happening in South Africa’s automotive industry, for example. Local automotive companies source leather car seats from Lesotho, wiring harnesses from Botswana, copper wiring from Zambia, steering wheel components from Tunisia and rubber from Côte d’Ivoire, Nigeria, Malawi, Ghana and Cameroon. The vehicles are finally fully manufactured in South Africa then exported to the US duty-free under AGOA. 

This is a great example of the resources and industrial capabilities of different African countries being brought together to produced finished goods that can be sold beyond our shores. This is contributing to the creation of jobs both in South Africa and in other African countries and raising foreign exchange earnings. 

Such regional value chains will be integral to the success of the African Continental Free Trade Area. As trade barriers between Africa countries come down, the potential for such integration will grow enormously.

The 20th AGOA Forum discussed what needs to be done to scale up investment by US companies to fully unlock the opportunities provided by AGOA. With the share of AGOA-eligible countries to total world exports still negligible and industrialisation and economic diversification still work in progress, there is much more that we need to do. A renewal of AGOA will incentivise greater US investment in Sub-Saharan Africa and improve the export competitiveness of African products. 

As the cornerstone of the United States’ trade relationship with sub-Saharan Africa, AGOA has played an important, catalytic and transformative role in these economies. 

AGOA enhances the diversification of African economies enabling them to export value added products. By enabling African countries to have preferential access to the US market, this opportunity incentivises African countries to develop and export value-added goods and services. This does and will continue to reduce Africa's dependence on primary commodities and enhance its ability to participate in global value chains.

Another important element of AGOA is that it has a capacity building and technical assistance component that supports African countries in meeting the requirements for accessing the US market. This assistance helps improve Africa's competitiveness by enhancing skills, knowledge and infrastructure, enabling African businesses to meet international standards.

Africa has been advocating for the integration of continental economies for a long time. AGOA encourages regional integration among African countries. To fully benefit from AGOA, countries are finding that it is far better to work together to increase production capacities, harmonise standards and develop regional value chains. This is demonstrated by the experience of 10 countries, including South Africa, in the production of motor vehicles exported to the US. This promotes cooperation, economic integration and the growth of larger regional markets within Africa.

Yet the benefits of AGOA extend beyond our continent. As we learnt from the COVID pandemic, the global economy stands to benefit from more diverse value chains that are not dependent on just a few sites of production.

South Africa greatly values its bilateral relationship with the US, one of our largest trading partners and with whom we enjoy relations that extend well beyond trade.  

We look forward to further engagement around the reauthorisation of AGOA at a time when its benefits continue to support our quest for economic growth, job creation and inclusive, sustainable development. 

With best regards,