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What a 10-Year AGOA Renewal Will Mean for Sourcing in Africa

The African Growth and Opportunity Act (AGOA) may be facing its fast-approaching September expiration date, but talks about renewing the preference program are progressing.

AGOA allows sub-Saharan African countries duty-free access to the U.S. market, provided they abide by the law, support human rights, promote poverty reduction and do not engage in corrupt activities.

Last Thursday, the Senate passed the Trade Preferences Extension Act of 2015 as well as the Trade Facilitation and Trade Enforcement Act of 2015, and approved a motion to start debating trade promotion authority (TPA).

The Trade Preferences Extension Act includes renewing the Generalized System of Preferences (GSP) program and removes a restriction that keeps travel goods, like backpacks and handbags from being considered for GSP eligibility. It fixes outdated classifications of certain types of athletic footwear and includes a 10-year renewal of the African Growth and Opportunity Act (AGOA).

A 10-year renewal would be the longest in AGOA’s 15-year history.

“The fact that they are talking about 10 years is really a game changer. The kind of infrastructure that you want to build takes some time,” said Gail Strickler, Assistant U.S. Trade Representative for Textiles. “If you’re constantly worrying about renewal or constantly worrying about whether benefits are going to be there, it’s kind of hard to look at sourcing there.”

USTR did extensive research to uncover what it would take to get companies into Africa, looking at how banks lend and equipment leasers lease and found that when it comes to the most sophisticated type of apparel equipment, for example, lease periods are generally around seven to 10 years.

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“So this 10 year renewal would allow for companies to really plan to make apparel for the amount of time that’s required for them to invest in that type of equipment,” Strickler said.

JC Mazingue, apparel trade adviser for Origin Africa echoed the sentiment, saying, “Africa is competing with the world for investments. AGOA renewal sends an important signal to investors. It creates the necessary time frame for companies investing in Africa to generate adequate return on their investment.”

Under AGOA, the Third Country Fabric provision—which could also be renewed for the full 10 years for countries already benefiting—stipulates that as long as a garment is cut and sewn in Africa, fabric can be imported from anywhere in the world and the goods can be shipped to the U.S. duty free.

Mazingue said 90 percent of African garments exported to the U.S. are made of imported fabrics, a fact that won’t change overnight, so the Third Country Fabric provision will help bridge the gap until investments materialize.

“In the past, [Third Country Fabric provision] TCFP, because it was not tied to the overall AGOA legislation, created uncertainty among the business community in the U.S. and in Africa,” Mazingue said. “Because TCFP is so critical to AGOA, the fact that it will now be included in the legislation sends another important signal. It removes the previous uncertainty.”

Of the 47 African nations eligible for AGOA benefits, only 26 are qualified, meaning they have the effective visa system in place to ensure country of origin and guard against trans-shipment. Those qualified countries include: Benin, Botswana, Burkina Faso, Cameroon, Cape Verde, Chad, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa (the only country that doesn’t have the Third Country Fabric provision), Tanzania, Uganda and Zambia.

Some nations are poised to better benefit from the trade privilege than others, however.

According to Mazingue, “The East Africa region is becoming the de facto sourcing hub for the continent. Among others, Ethiopia, Kenya, Lesotho, Madagascar, Mauritius are well positioned.”

Ethiopia specializes in workwear, uniforms, basic knits, Mazingue explained. Kenya is the leader in chinos, slacks, denim jeans, Lesotho is a big producer of denims, Madagascar has woven and knit shirts manufacturers, and Mauritius is more and more a place for fashion and value added products, he said.

Infrastructure is a pressing concern for companies deciding whether to source on the continent, and while each country comes with its own issues, Mazingue said, “Generally, energy costs need to go down, transportation and logistics need to improve. As this will happen over the 10 years, Africa’s competitiveness will improve.”

One thing many have yet to consider is that there are 16 countries both eligible for AGOA benefits with the U.S. and Everything But Arms (EBA) benefits with the EU, which also offers duty-free, quota-free treatment. Those countries include: Benin, Burkina Faso, Chad, Ethiopia, Lesotho, Liberia, Madagascar, Malawi, Mozambique, Niger, Rwanda, Senegal, Sierra Leone, Tanzania, Uganda and Zambia.

So for global companies, the opportunity to source in Africa and be able to ship duty free to either the U.S. or EU could simplify sourcing.

As discussions about AGOA’s renewal advance, Strickler said, “We want to keep the momentum going to make sure nobody pulls out of Africa and since there’s bipartisan support, we certainly hope this legislation will move forward before its expiration in September.” She added, “Based on 10 years renewal, AGOA could see a fourfold increase in terms of their textile exports.”