Ideas to Action:

Independent research for global prosperity

X

Views from the Center

Feed

Last week Secretary of State Clinton, U.S. Trade Representative Kirk, Secretary of Agriculture Vilsack, and other U.S. government officials were in Nairobi at the African Growth and Opportunity Act (AGOA) Forum, making new and improved promises about the commitment of the United States to African development. I was in Nairobi last week too to moderate our fifth consultation meeting for the CGD Global Trade Preference Reform Working Group. Previous consultations were held in Jaipur, Delhi, Dhaka, and London, but the AGOA Forum offered a unique opportunity to discuss global trade preference program reform and coordination – an initiative specifically designed to assist lesser-developed countries expand exports and increase opportunities for economic growth – with individuals from the public, private, and non-profit sectors in Africa.

To create a context, it should be said that uncertainty about Kenya’s economic future percolates through every conversation in Nairobi these days. Companies and individuals alike wonder what is next, and what can be done. This is hardly new, but Kenyans certainly believe that they should have passed this point in their development some time ago. In a country so full of opportunity, there is ongoing frustration as to whether their government will ever, can ever, deliver on the promise of economic growth. In many instances there is a dramatic downsizing in expectations. In small meetings I had with farmers, conversation focuses on food security, not food exports. In small meetings I had with officials the conversation focused on new and improved economic and export plans to replace those that have not worked. There is a clear emphasis on regional, not global integration, not because the latter is not essential, but because the former seems to be a more realistic goal given where Kenya is right now in terms of economic capabilities.

AGOA and other trade preference programs matter to Kenyans. They consider these programs to be a potential lifeline to a future that always seems to be just a bit out of reach. But most of the people I spoke with in Kenya were not convinced that preference programs were working the way they should. Two specific questions were raised time and time again in conversations.

First, do preference programs create incentive structures for production that effectively lock lesser-developed countries into sectoral “trade bands” and limit options for diversification or progression into higher valued added industries? Worse, do these programs transfer scarce resources away from sectors that would provide more effective and sustainable outcomes for the country and its people?

As a specific example, AGOA provisions emphasize the importance of establishing a viable textile and apparel sector specifically designed to increase investment and integrate Africa more effectively into the global supply chain. But critics argue that any competitiveness that has derived from this effort was inevitably short-lived. Recent trade statistics from AGOA support this conclusion.

For Kenyans, the problem was insufficient recognition by officials in both the United States and Africa that Africa would never, could never obtain a comparative advantage in textiles and apparel given the existing comparative advantage of other countries, especially those in East Asia. Bad planning leads to bad outcomes. As one Kenyan said, with the guidance of the United States, the Kenyan government created an economic development and export strategy around textiles and apparel, and this is “an illusion from which we now must extract ourselves if we are ever to hope to find economic success.”

In hindsight, what should have been done? What still can be done? Most people I spoke with in Kenya argued that AGOA should focus on helping its people improve and adjust to the changing needs of the agriculture sector, emphasizing sound agronomic practices, building strong farmer cooperatives, encouraging value-added projects, identifying niche markets, eliminating middle-men, and improving standards.

Second, can U.S. trade and foreign assistance policies be effectively coordinated such that comprehensive development strategies work? Said one Kenyan, preference programs without sufficient supply-side funding “was like offering someone an opportunity for a job interview knowing all along they had no suit for the interview. You cannot say thank god you have trade preferences unless you have the ability to use them – and let us be clear, we do not have the ability to use them.”

The imperative of more effective and responsive U.S. foreign assistance policies has stated explicitly for a number of years by my colleagues at the Center. But the point the Kenyans raised about the nexus between trade and foreign assistance is critical. Supply-side constraints in preference-receiving countries – meaning everything from basic infrastructure to government officials who can effectively process paperwork – are widely recognized as one of the primary obstacles to the utilization of preference programs. But very little serious thought has been put into the question of how to coordinate trade and foreign assistance policies to obtain and pursue coherent development outcomes. Trade has been an afterthought in the discussions on foreign assistance reform. In fact, with the exception of a small group of individuals at USTR and in Congress, the two issues are not discussed in tandem at all. This is a huge mistake.

The answer is more than just increased funding, but rather how to prioritize the very limited funding that is available to obtain the largest bang for the buck. It is really a question of how countries adjust so they can implement existing provisions in trade arrangements and take advantage of opportunities in the global economy. This requires an intensive and ongoing dialogue about appropriate “sequencing” of funding, that is to say which investment – services, energy, roads, ports, workforce – comes first such that it will have the largest positive impact on an economy. It requires an explicit analysis of where the best multiplier effects can be obtained with specific investments. A policy mechanism must be developed to measure the costs and benefits of adjustment so that trade preference programs and trade agreements can be more effective in their development impacts.

Preferences are not a panacea. But the Kenyans I spoke with raised a question that must be answered by the Obama Administration: how do you create a coherent cooperative strategy between the United States and African countries that will lead to effective, sustainable, and progressive development outcomes in Africa? How do you re-think AGOA so there is a more holistic, extended dialogue that better aligns trade and foreign assistance policies so national strategies result in outcomes that the United States and African countries consider essential – poverty alleviation, economic opportunity, and political stability? The remarks given by USG officials in Nairobi suggest they may understand the importance of this kind of critical re-think on policy coherence, but now words must be translated to action.

Related Topics:

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.