Opinion and Analysis
Wean off dependency on Agoa
Posted Thursday, August 30 2012 at 21:00
- Agoa provides Kenyan firms unprecedented access to the US, the largest market in the world.
- While Agoa lasts, Kenyan policymakers and private firms should do everything they can to push into the US, taking full advantage of the leg-up that Agoa offers Kenya over its competitors.
- If Agoa is used aggressively, Kenyan firms will develop the experience required to meet demand in the US and beat its competitors when Agoa’s preferential access disappears.
The Africa Growth and Opportunity Act (Agoa) —a deal that gives Kenyan firms duty-free, quota free access to the US market — received a lot of coverage in the Kenyan press this year.
Most of this was focused on demands to extend an exception, set to expire in September 2012, that allows African countries to use textiles from outside in its clothing exports to America and still benefit from the preferential access to the US that Agoa provides.
Usually this kind of access is contingent on using inputs from your own country or nations from the same regional trade bloc, not third party countries — which is mainly China in the case of textile inputs into Kenya’s apparel sector.
Thankfully, the extension was granted. So business continues as usual. But this would be an misguided response.
Business as usual is not enough. Agoa provides Kenyan firms unprecedented access to the US, the largest market in the world.
While Agoa lasts, Kenyan policymakers and private firms should do everything they can to push into the US, taking full advantage of the leg-up that Agoa offers Kenya over its competitors.
If Agoa is used aggressively, Kenyan firms will develop the experience required to meet demand in the US and beat its competitors when Agoa’s preferential access disappears.
Launched in 2000, the preferential market access that Agoa granted played a critical role in spurring Kenya’s exports with the US. This was most dramatic in the case of apparel sector, which grew at a whopping 44 per cent a year in the few years after Agoa’s passage.
Agoa has created an apparel industry in Kenya on a scale that the country would unlikely have achieved without preferential access to the US.
But the strong trade regime-based advantage that Agoa offers has meant that Kenya has developed an industry whose competitive edge is based on policy advantages and not firm-level ones.
The proffering of such an edge is based purely on the largess of US policy makers, leaving the textile and apparel sector very vulnerable. It needs stronger foundations.
Agoa offers Kenya opportunities that it cannot afford to pass up. The US is a huge market that gives Kenyan firms great chances for business growth.
The government and the private sector must do what they can to push for Agoa’s extension beyond 2015, when it is set to expire. Preferential market access is particularly critical for the textile and apparel sector.
However, in parallel with these efforts, the government and the private sector should work to wean themselves off a dependence on Agoa.
Growth beyond apparels is important too. Supporting the growth of other sectors’ exports to the US will require targeted sector-level support to address barriers to US market entry, from market knowledge, to buyer linkage, to addressing non-tariff barriers.