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Agoa still vital to improving US-SA trade

18th October 2013

By: Creamer Media Reporter

  

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By: Jeffery Nemeth

Despite today’s challenging economic environment, when it comes to Africa, companies and administrations around the world have remained enthusiastic about the opportunities on what was once called the Hopeless Continent.

In the last decade, largely owing to its strengthened democratic institutions and economic and trade reforms, as well as trade agreements such as the US’s African Growth Opportunity Act (Agoa), South Africa has established itself as a gateway into the rest of Africa.

In recent months, both South African and US government officials have reiterated the importance of maintaining favourable trade between the two countries. President Barack Obama’s visit to South Africa not only highlighted the willingness of the US government to renew Agoa but also made it clear to South Africa that the US is still open to continue using Agoa to facilitate and entrench bilateral trade between the two countries.

There has been talk to graduate South Africa out of Agoa because the country’s level of development indicates that it no longer needs agreements based on Agoa to trade with the US. However, to do this will negatively impact on the strides that South Africa has made and limit the access that US companies have to Africa’s network – a network that South Africa has been relentlessly spearheading and promoting to the rest of world. South Africa has worked hard to position itself and the rest of Africa as viable investment destinations, and the US cannot deny that Africa has become more important for future investments.

Last month, I joined South African Trade and Industry Minister Rob Davies and other representatives of the South African administration and the American Chamber of Commerce in South Africa as part of a panel that made presentations to the US Congress to include South Africa in the 2015 Agoa renewal. These presentations to the US Congress and the proposals to review challenges and make concessions have been a starting point in establishing strong consideration for South Africa to be included in the 2015 Agoa renewal.

In the past half decade, South Africa has established successful trade relations with other key players and this has eclipsed the various accomplishments from US-South Africa bilateral trade achieved through Agoa. There are about 600 US companies operating in South Africa, and a survey of 80 of the largest US companies revealed that they have created more than 150 000 jobs and contribute to skills development and a combined yearly revenue of over R233-billion to South Africa. This encouraged the South African administration to review the regulatory challenges experienced by US companies, amicably resolve them with the US administration and implement these resolutions to ease the difficulties of US companies doing business in South Africa.

These reviews and presentations are important for a number of reasons. Firstly, Agoa has improved trade between the US and South Africa, and has expanded US presence and influence in sub-Saharan Africa, as South Africa is still regarded as the springboard into the rest of the continent. Secondly, with the emergence of new key players in global economics and business, maintaining seamless trade relations with South Africa reduces the possibility of US influence and trade on the continent being supplanted. Thirdly, the recent announcement by the South African administration to fully integrate and fold the National Planning Commission (NPC) into an institution that is accountable to government means that the NPC’s National Development Plan, a proposal that addresses the importance of focusing on foreign investment, regional integration and industrialisation, will be bolstered into a key policymaking document.

Research proves just how vital a tool Agoa has been in improving trade between the US and South Africa. In addition, the research shows that, since being signed into law in 2000, Agoa has offered tangible incentives for African countries to open up their markets. South Africa, particularly, has been encouraged to take advantage of Africa by broadening its free-trade agreement network beyond the region – offering US companies the opportunity to increase their sales of goods in new markets on the continent and strengthen their partnerships with African counterparts.

According to a report prepared by the Department of Trade and Industry’s Trade and Industrial Policy Strategies (TIPS), bilateral trade patterns between the US and South Africa are firstly, encouraging – this is to be expected. But, most importantly, they also point to new growth opportunities between the two countries.

Agricultural products represent a lucrative export opportunity for South Africa – however, these require long-term certainty from the US regarding South Africa’s Agoa eligibility status to make investment in US export initiatives by agri- cultural producers worthwhile. The TIPS report suggests that a request be made to the US to reduce the time taken to grant product exports eligibility to South African exporters. This would be in line with other transactional concessions that need to be considered, not only for increased revenue and a stable trade pattern between the two countries, but also for more promising employment creation.

In June, Obama stressed the importance of renewing, improving and updating Agoa so that more trade and more jobs are generated. Importantly also, the US administration needs to show American companies that, in South Africa, they are operating on a level playing field so that, once discussions are concluded, both countries win. South Africa’s admini- stration has demonstrated its readiness to review and change the regulatory challenges that exist for US companies. These include the issuing of work permits, the implementation of black economic empowerment (BEE), intellectual property rights and regional free trade.

The DTI has proposed that there should be a critical review of work permit criteria and the introduction of expeditious processing. Cost and disruption implications should be documented for government and, if reasonable timeframes are not met, there should be automatic approval. The DTI has engaged with the Department of Home Affairs on this issue.

When it comes to BEE, both the US and South African administrations understand that transformation is a legitimate policy objec- tive. American investors in South Africa want to continue to make meaningful transformational contributions but, in many cases, it is disproportionately difficult or practicably impossible for these investors to have equity participation. What American investors want to do is invest in productive ways that range from employment creation, getting work expe- rience, skills development and being better served as customers and consumers. Alternative forms of complying with BEE codes of good practice in terms of equity should be objective and clearly spelt out, and both the American Chamber of Commerce in South Africa and the DTI understand that, while details are important, a firm commitment to the principle of equity equivalents would make a substantial material and psychological contribution to transformation and nation building.

South Africa has a proud record of recognising and protecting intellectual property rights but occasional talk among policymakers and representatives of the governing African National Congress’s alliance partners has generated uncertainty about South Africa’s commitment to intellectual property protection. American investors, who are the world’s greatest defenders of intellectual property rights, appreciate South Africa’s attempts to not dilute intellectual property rights law, and the administration is encouraged by the US to make its resolve and dedication to intellectual property unambiguous and to avoid statements or threats that create misleading impressions around the certainty of intellectual property rights in the country.

Lastly, issues surrounding regional free trade have been top priority for the South African administration. Africa has various regional free trade agreements (including the Common Market for Eastern and Southern Africa, the Economic Community of West African States, the Southern African Development Community and the Southern African Customs Union) and a discouraging factor is that, while virtually ‘pure’ free trade has existed within Europe for decades, Africa’s internal barriers remain more prohibitive than in many other countries and regions. The many detrimental effects of this are well documented in economic literature and free trade is one of the few issues of consensus among economists.

One of the biggest negative effects of intra- African trade barriers is that investors have better access to African economies if they invest outside the continent. To attract investment into Africa, internal barriers have to be removed and South Africa has maintained its commitment to promoting intra-African free trade and removing significant barriers unilaterally.

Does South Africa have the largest gross domestic product on the continent? Yes, we all know that. Do South Africa’s ambitions and strength to drive intraregional trade in Africa make it the ‘big brother’ on the African continent? Perhaps. Does this mean that the country should be graduated out of Agoa when it is renewed in 2015? No – because, beyond the numbers and statistics, South Africa is still largely a developing economy.

Yes, it is a more developed economy in Africa and, according to many socioeconomic definitions, it does fit the bill as a ‘middle-class country’. However, the discrepancy between the country’s wealthy middle class and poor is too large to ignore. The lack of skills in the country’s working class and the undesirably high unemployment rate require both the contribution of the public and private sectors – both locally and internationally – and the most favourable way to remedy these worrying realities is through Agoa.

The American Chamber of Commerce in South Africa has requested from the South African administration that procedures, processes and laws be streamlined and simplified so that US companies get the certainty they require in doing business in South Africa. In addition to this certainty, the South African administration has expressed how Agoa has helped the country in achieving its development and economic objectives and how Agoa has brought central issues around trade in Africa to the fore. We are certain that our efforts will not be in vain and that, with the US Congress revising the criteria for countries to be included in Agoa and looking at the presentations made, South Africa will be able to prove that Agoa is certainly helping in making it a global player.

 

  • Nemeth is president and CEO of Ford Motor Company Southern Africa and president of the American Chamber of Commerce in South Africa.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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