Deepening Regional Integration in Africa: Maximizing the Utilization of AGOA in ECOWAS for Economic Transformation 

George Boateng, 2016.

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Résumé:

Bien que de nombreux pays africains aient connu une énorme croissance au cours des deux dernières décennies, la pauvreté reste enracinée. Peu d’emplois ont été générés pour le grand nombre de jeunes qui entrent chaque année dans le marché du travail. Fondamentalement, la croissance n’a pas entraîné une transformation économique, ce qui est nécessaire pour assurer une croissance équitable et la sécurité humaine. Des problèmes graves ont empêché les pays africains de générer la croissance et les emplois nécessaires pour transformer leurs économies. Parmi ces problèmes figurent les politiques économiques, les institutions faibles et l’insécurité.

Although many African countries have seen enormous growth over the last two decades, poverty remains entrenched. Few jobs have been generated for the large numbers of young people who enter the job market every year. Fundamentally, growth has not brought economic transformation, which is necessary to ensure equitable growth and human security. Serious issues have prevented African countries from generating the necessary growth and jobs to transforming their economies. Prominent among these issues are poor economic policies, weak institutions, and insecurity.

AGOA, the African Growth and Opportunity Act, is central to U.S.-Africa trade and investment. It is a non- reciprocal U.S. program that provides duty-free access for qualifying exports from eligible Sub-Saharan Africa (SSA) countries and represents a clear opportunity for African countries to spur trade and growth, and ultimately take steps toward economic transformation. AGOA has created an estimated 300,000 direct jobs in beneficiary Sub-Saharan African countries, and an estimated 120,000 American jobs.

It also represents a powerful tool for economic transformation and ultimately peace building, through the promotion of sound economic policies geared towards human security. Economic inequality and perceived resource imbalances are often at the root of conflict and instability; therefore, strategies to generate broad-based economic growth can contribute not only to improved livelihoods, but also peace building and improved human security.

The ECOWAS commission has stated that the organization’s first objective remains the promotion of trade between member states. But little regional trade occurs; instead, the key trading partners for West African countries are outside the continent. Europe and the Americas are the main destinations of West Africa exports (68 percent). Regional trade is dominated by Nigeria and Côte d’Ivoire (87 percent of transactions), with Ghana and Senegal third and fourth respectively.

The share of intra-ECOWAS trade in world trade is low and decreasing: 8.1 percent in 2012 against 16.2 percent in 2001 for imports from member countries, and 9.6 percent to 7.8 percent for exports during the same period.16 These figures may be underestimated—the United Nations Conference on Trade and Development estimates that informal cross-border trade in West Africa could represent 20 percent of Nigeria’s GDP and 75 percent of Benin’s. Regardless, the relatively low level of intra-ECOWAS trade represents a serious problem, and is part of a continent-wide pattern—trade among SSA countries in general is only about 12 percent, compared to more than 60 percent in Europe.

ECOWAS could maximize its utilization of AGOA through a variety of scenarios, which are based on the product space approach (pioneered by Hausmann and Hidalgo). The define product space as a network of inter-relatedness between products. Relatedness is associated with the similarity in the inputs required by a certain activity including particular skills, institutional capabilities, and infrastructural and technological requirements.

Economic progress will occur when countries move from what they are already producing to others products that are sophisticated; in other words, by producing and exporting more high-value but related products. Therefore, AGOA-eligible countries in West Africa can exploit economies of scale through integration and become more competitive in export-led manufacturing by moving goods to more productive spaces in the region. These productive spaces are countries, which are more efficient in producing high-value goods; they have the skills and infrastructure as well as the technical capabilities.

Additionally, trade logistics will play an important role in increasing West Africa’s AGOA utilization. Efficient logistics connect firms to domestic and international markets through reliable supply chain networks. Countries faced with low trade logistics performance are less competitive because they incur higher transaction costs. The World Bank Logistics Performance Index (LPI) ranks West African countries at 2.3 on efficiency of logistics in facilitating trade, behind Southern African and Eastern African countries which each have a 2.7 score. To improve competitiveness, West Africa countries should aim to boost logistics in trade.

In a nutshell, if regional partnerships are strengthened and comparative advantage is secured in the product space by AGOA beneficiaries in West Africa, it will facilitate movement of goods from less efficient countries to more efficient ones, and increase value addition and export-led manufacturing, which will trigger further export diversification.

The reauthorization of AGOA to 2025 should be a welcome proposition for SSA. But will AGOA be renewed post-2025? There are concerns it will not. This is attributed to the changing global trade environment, most notably the European Union’s preferential trade agreement with African, Caribbean, and Pacific (ACP) countries, which is providing two-way access for European firms, while AGOA does not provide preferential access for U.S. firms. With the Trans-Pacific Partnership (TPP) agreement on the horizon, SSA countries must position themselves for deeper integration and export-led manufacturing before the 10-year window of AGOA closes.

The reauthorization of AGOA presents a window of opportunity for Africa, but also a call to action to seize this window to enhance economic reforms and peace building; deepen integration; diversify exports and increase export-led manufacturing; and move goods from less efficient spaces to more efficient ones.

In answering the above questions, it is crucial for the U.S. government to continue expanding on its strategy and trade capacity-building in Africa. The most important need is assistance in deepening regional integration in ECOWAS (and other RECS), particularly in harmonizing the processes of the Free Trade Agreement and especially the removal of tariffs on industrial products. Moreover, it is essential that African governments establish effective dialogue with the private sector, civil society, and policymakers to chart new and robust ways to be relevant in the new trade policy environment.

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