By Amar Hamoudi
U2 Front Man Bono and US Treasury Front Man Paul O’Neill may have had a few differences during their Africa tour, but they clearly agree that Africa needs increased market opportunities.
Therefore, it’s no surprise for example that earlier this week Secretary O’Neill touted the African Growth and Opportunity Act of 2000 (AGOA) as an important piece of US development policy. (AGOA is intended to allow African exporters to claim exemption from tariffs on most goods that they send to the United States.)
Mr. O’Neill seems mighty proud of AGOA. The reasoning seems to be that aid is for naïfs who don’t understand how the market works, while schemes like this reflect the sleek new market-friendly approach to development for the 21st century.
But if you think our aid policy is flawed, just have a look at AGOA—it’s at least as bad. It’s misnamed; there’s virtually no GO in it at all. Last year, 85% of the goods sent here under the AGOA program were oil or oil products. (In the first month of this year, that number was down a bit, to 56%, thanks in large part to a few European car manufacturers wising up to AGOA and exporting a few dozen cars out of South Africa). Were import duty exemptions for Exxon/Mobil or Royal Dutch Shell what Secretary O’Neill meant when he said that AGOA will “advance export-driven private sector growth”?
In fact, AGOA seems to have had no impact on exports from Africa at all. Over the course of last year, exports from AGOA-qualifying countries fell by at least as much as exports from all developing countries.
AGOA hasn’t worked because it has serious structural flaws. First, in order to qualify, countries must submit reams of complex paperwork—so much so that even 15 months after AGOA was put in place, about three fifths of the exports from qualifying countries were still being taxed, since countries couldn’t figure out how to go through the procedures to claim their benefits!
And then there’s the fact that the law doesn’t give any protections to exporters against all the other trade barriers (other than standard tariffs) that the U.S. throws up. For example, take the recent case where a consortium of west coast fruit producers asked the Bush administration to suspend South Africa’s AGOA benefits on canned pears, arguing that competition by imported pears from South Africa had created a hardship. This was similar to the requests for protection, which steel producers and softwood lumber producers had successfully put to President Bush earlier this year. (The administration has not ruled on the pear issue yet.)
(The response of fruit producers in South Africa, by the way, was revealing. They said AGOA did induce them to send exports to customers in the USA instead of other countries, but that it did not induce them to expand their production. Investing to expand production, they said, is too risky because the benefits can be revoked at any time. So much for AGOA’s promise to generate growth or opportunity.)
Producers in Africa can expect that any time they succeed in taking advantage of AGOA, some special interest group here will demand that their benefits get taken away. They’ll have to hire expensive lawyers and promise that they’re not really growing or providing new jobs. If they have to make this claim, what was the point of the law in the first place?
Of course private sector growth is necessary to improving livelihoods in Africa. After all, private firms are better at producing most things than governments are. But many of the impediments to private sector growth are exactly the sorts of things that aid is designed to address. Improvements in health, education, and infrastructure, for example, are essential precursors to private investment, and are underprovided by the market.
O’Neill has insisted over and over that aid must have measurable results. How come his tool of choice—AGOA and similar initiatives to legislate increases in trade and investment flows— doesn’t have to pass the same tests?
It’s not the use of public resources to affect market dynamics is anathema to the Bush administration. President Bush recently committed some 300-billion taxpayer dollars to protect U.S. farmers from the effects of market competition. He said this spending was justified because the livelihood of farmers “depends on things they cannot control: the weather, crop disease, and uncertain pricing.”
In African countries, where on average over 85% of exports have been in agricultural products or other primary commodities, the principle is the same. Africans—just like U.S. farmers—don’t need lectures from the Bush administration. Instead, they need the sort of help, which neither AGOA nor our aid policies are providing right now. It’s time we do our part, and make some serious reforms.
Amar Hamoudi was a Research Associate at the Center from October 2001 to August 2002.