The United States announced a plan to remove Ethiopia from the African Growth and Opportunity Act (AGOA) by the first day of January – and shockwaves quickly swept through America’s clothing industries and the shoe – like a tsunami that no one expected. Manufacturers were alerted that their African goodwill investments may have been in vain, and retailers began to consider pulling out of Ethiopia.
Under close scrutiny, the concept of exiting the Ethiopian partnership from AGOA may be a huge mistake – a mistake that probably should (and could) be reversed, resolved, extended, or at least littered with exemptions. America has encouraged the clothing and footwear industries to invest in Ethiopia, and is now potentially leaving “demand.” Plus, all things considered, a brutal exit (with just two months’ notice) spooked other investors in sub-Saharan Africa. They fear the United States will not renew AGOA in 2025 and have its back the next time problems arise.
Of course, China is watching America’s every move and they immediately jumped at the weakness. For years, they have made significant investments in Ethiopia, and the country is sometimes referred to as Africa’s China. True to this mindset, they immediately announced a plan to purchase $ 300 billion worth of goods from Africa over the next three years and invest around $ 10 billion. China has also sent its Foreign Minister Wang Yi directly to the Ethiopian capital (Addis Ababa) to show its support for the elected government of Prime Minister Abiy Ahmed.
America, on the other hand, has applied a different strategy. Sanctions were announced, followed by 60 days notice of a planned AGOA-EXIT. The United States sent US Secretary of State Antony J. Blinken to neighboring Kenya for negotiations, advised US citizens to leave the country, and asked for “precautionary assurances” for US diplomats. Taking a page from the administration’s “Diplomacy First” handbook, Secretary Blinken said all unrest and atrocities “must stop.”
Ethiopia’s civil war is constantly marred by accusations of humanitarian, political and even geopolitical issues, but the AGOA charter calls for the development of a market economy, respecting the rule of law, political pluralism, the law. due process and poverty reduction – as well as the fight against corruption and the protection of human rights. There is no right or wrong in considering ending AGOA in Ethiopia – simply because America must follow the charter. However, if one takes a holistic view of sub-Saharan Africa, the announced withdrawal from AGOA could be the last straw for the struggling trade agenda, simply because Ethiopia’s exit spilled over far beyond. beyond the borders of the country.
Frankly, AGOA is not the best trade program the United States has ever created, but many developing countries have found it extremely useful. For twenty-one years, AGOA’s performance has been somewhat lackluster. This year’s trade volume shows little growth since the very first year of the program’s inception (in 2001). One explanation is that the program is roughly split between 55% energy and 45% non-energy sectors. In energy, there aren’t a lot of tariff savings, so oil is shipped to the United States because it’s cheap, not because of AGOA.
When looking at the results of AGOA, it is more important to focus on the non-energy sector – because it is the one that creates the most jobs and helps the most people at the humanitarian level – especially with clothing manufacturing in Kenya, Ghana, Lesotho, Madagascar, Mauritius, and (of course) Ethiopia.
Non-energy shipments were $ 1.3 billion in 2001 and just $ 3.8 billion in 2019, meaning little growth in 18 years. But, after all this time, it was Ethiopia that finally broke the mold and achieved significant growth in the non-energy sector. This improvement has created thousands of jobs and added to Ethiopia’s growing GDP; demonstrating that the program could really be effective. Now, with America’s arming of AGOA (as a tool to resolve a conflict between countries), retailers face another large and growing loss of international supply. To put it in a different perspective, just days ago, a very large and responsible American mega-brand announced that it was shutting down operations in Ethiopia. Other brands and retailers will likely follow suit.
In recent years, modern manufacturing facilities have been erected and numerous industrial parks dotted the Ethiopian landscape. Assembled products could now be returned to the United States duty-free, which is a significant advantage because (for example) clothing tariff rates could average around 20% or more.
The duty-free incentive was created to offset the cost of development and the lower productivity rates of workers. By accepting the terms of AGOA, the impact on local employment has been enormous. Ethiopia quickly became the African model to follow. However, with AGOA now sitting on the chopping block (along with Mali and Guinea), retailers are questioning whether the investment was worth it, and this line of thinking creates an even bigger problem. for all of Africa, because the AGOA program is due to be renewed in just a few years.
The United Nations, the African Union, the United States and several other countries are working hard to negotiate a resolution of the Ethiopian conflict. News reports indicate that there is little progress – except for a few announcements that humanitarian aid is finally reaching the Tigray region. Some also claim that government forces have regained control of several key areas that had been invaded by insurgents from the Popular Front for the Liberation of Tigray (TPLF).
The United States, for its part, should never approve of a country’s bad behavior, but there is a distinct difference in the terminology – whether skills are taught and families are nurtured. Investors knew Ethiopia was risky, but expected America to back their investment. Somehow, over time, there hasn’t been a distinction between a sewing machine operator making a living and an insurgent fighting a battle (all in the same country).
Prime Minister Abiy Ahmed formed his Ethiopian coalition government in 2018 and established peace with neighboring Eritrea. In 2019, almost everyone thought Ethiopia was going in the right direction and the Prime Minister was awarded the Nobel Peace Prize. However, in 2020 Prime Minister Ahmed took a different approach and mobilized government troops against the northern Tigray province. In return, they used their local militia (called TPLF) to retaliate. More recently, Prime Minister Ahmed (who is a former soldier) donned army fatigues and moved to the front lines of the conflict – where he announced: ‘We will not give in until we do. will not have defeated the enemy. We will not back down until we bury the enemy and secure Ethiopia’s freedom.
The prime minister’s aggressive stance could be seen as problematic, especially as TPLF forces have moved closer to the capital Addis Ababa. Prime Minister Ahmed is a Nobel Peace Prize laureate, and the concept of “burying the enemy” does not sound like a peace proposal. Second, the declared enemy is also Ethiopian, causing the Prime Minister’s civil war against Tigray, much like the Bronx going after Brooklyn. The people of Tigray make up about 6% of Ethiopia’s 119 million people, but they ruled Ethiopia for 28 years before the prime minister came to power. Obviously, from all the statements made and actions taken, Prime Minister Ahmed wants to control the Tigray region.
The United States had drawn up the African Growth and Opportunity Act (AGOA) with the main aim of helping Africa under a one-way trade deal. There have been calls over time to make it more bilateral; but this change would be an adjustment, not a cessation of activity. With Ethiopia’s sudden lack of privileges, many investors watch AGOA, shake their heads and say: why bother?
The Ethiopian conflict remains difficult to apprehend, as the current saga knows many twists and turns. However, to try to understand the future of AGOA, one can turn to the film of 2008: “The strange story of Benjamin Button” which was based on a short story by F. Scott Fitzgerald. In the film, Brad Pitt plays a unique individual whose life ranges from old age to birth. Looking back over 21 years of AGOA, the characteristics of success and failure appear time and time again, with little change in tactics. The AGOA commercial parody is played out, clarified and perhaps even foreseen by a specific line of the film – when Benjamin Button reflects on the past history and says, “Our lives are defined by opportunities, even those that we are. are missing. “
Almost everyone hopes that AGOA does not become a missed opportunity.
There is still time by January 1st.
Maybe, just maybe, something will change.