TRALAC - Trade Law Centre

If Exploited Well, AGOA Can Make a Great Impact

Monday, 11 November 2002

Source: The East African Standard (Nairobi)

The African Growth and Opportunity Act (Agoa) came into force in the year 2001. The law allows the United States of America to trade with accredited countries duty and quota free.

Already great inroads have been made in the area of textiles through this Act. It is reported that Kenya exported to the US, textile and apparel, worth US $56 million (Sh4.4 billion) by September 2001.

The Export Processing Zones Authority (EPZs) have attracted 20 garment factories exporting textile and apparel provisions to US under the Act.

It is projected that for the year 2002, the country would earn US$ 70 million (Sh5.6billion). The Agoa offers opportunity in up to 2000 products.

Other products that could be traded on include leather products, yarns, pyrethrum, nuts fruits, fish, cheese, natural honey, footwear, leather, vegetables, roses, metal gemstones, handicrafts, folklore products, carvings, handmade products, and pharmaceuticals.

In a report, 'Impact Study of the Implementation of the African Growth & Opportunity Act (Agoa) on Kenya's economy with the emphasis on the poor,' the opportunity is yet to be exploited to the fullest.

Peter Kegode and Margret Kiruri who wrote the report, say that if well exploited, the Agoa is expected to earn major incomes for producers and exporters in the country.

"This will in turn have a significant impact and contribute immensely towards ameliorating the poverty and unemployment crisis. This is possible if the right market competitive recipe and acumen is applied," they say.

The report notes that Agoa has been extensively discussed in Kenya, but has minimal and disjointed initiatives by both government and the private sector towards its implementation.

Kegode/Kiruri say cotton production need to be restructured urgently if the higher textile and apparel exports to the US markets are to be sustained.

They identify a major shortcoming to be the inability by the Sub Saharan countries to successfully gain market access for majority of products that fall within the eligible product list of 2000 Generalised System Preference(GSP) products.

Under Agoa, Kenya has an opportunity to reach out to small and medium sized businesses, micro enterprises and broaden the circle of those benefiting from trade with the US.

The study observed that most of the key stakeholders, including the Government, were in most cases reacting to the Agoa legislation and did not appear to have a national co-ordinated strategic plan, coherent enough to address key issues and implementation aspects of the Act.

They noted that the Ministry of Trade and Industry, being the focal point for Agoa, was sufficiently aggressive and focused, but the same focus seemed to be absent in key strategic ministries such as agriculture and rural development, environment and natural resources, information, transport and communication.

Unlike Kenya, some of the Agoa eligible countries had full fledged functional inter-ministerial committees to co-ordinate various aspects of Agoa legislation with great success. The report calls for the development of an all inclusive and coherent implementation strategy if the poor and disadvantaged are to benefit from Agoa. Similarly, there is need to overhaul some of the domestic legislations affecting key sectors, to make them more facilitatory rather than regulatory.

Meanwhile, the Government has also been discussing with US for assistance in setting up a co-ordinating office to help Kenya firms take advantage of the trading opportunities under Agoa.

US has confirmed having written up a grant proposal seeking about $400,000 from the African Trade and Investment Policy Program(ATRIP) to help establish such an office.

The report observes that Agoa is yet to make significant impact on the rural poor. It notes that though the rural people have been predominantly involved in the production and processing of primary products including horticulture, cotton, textiles and apparel as well as the Afro-centric products such as handicrafts, they do not benefit from the value accrued from the export of the final product.

The middlemen, large companies and foreign investors enjoy most of the benefits at the expense of the primary producers.

Other products identified to have great potential to penetrate the Agoa market if they entered the special niche market include organic tea, horticulture and floriculture, raw cotton, cotton seed, spices and nuts, pyrethrum, natural semi processed gemstones, fish fillet & sea food and folklore items.

Those interviewed within the small and micro enterprises and the farmer groups cited lack of information, lack of export know how and documentation, high interest rates, limited access to credit, over regulation of business, high tax regime, poor physical infrastructure, insecurity, unfair competition and weak support institutions as constraints in taking advantage of the Agoa.

Other constraints include stringent sanitary and psytosanitary requirements on Agricultural products. Indeed the head of Kenya Plant and Health Inspectorate Service (KEPHIS) has expressed concern over these requirements, calling for technical assistance in order to implement Pest Risk Analysis audit required before shipping agricultural or horticultural products to the US market. The report recommends that there be technical assistance to enable the various intermediary and development agencies to build capacities and that of stakeholders and beneficiaries.

It calls for the investment of a fumigation chamber at the Jomo Kenyatta International Airport. They also call for lowering of transaction costs, which link producers to international markets.

There is also need to form a full fledged Agoa information centre and to amend the Official Secrets Act to make information more freely available.

Gunneries need to be refurbished with modern technology in order to address the requirements of the international markets.

The Government should be lobbied to enact a small and medium enterprise bill that would enhance the recognition of the SMEs and provide an efficient policy framework that is necessary for the development of the sector.