Hippolyte Fofack The World Bank

1. AGOA CIVIL SOCIETY NETWORK FOURTH US-AFRICA TRADE AND ECONOMIC COOPERATION FORUM AGOA AND PERSPECTIVES FOR SUB-SAHARAN AFRICA’S DEVELOPMENT WITHIN THE INTERNATIONAL CONTEXT DAKAR, July 19, 2005 Hippolyte Fofack The World Bank

2. Acknowledgements • The Government of Senegal • The US Government and Congress for their support and commitment to SSA’s development • Mrs. Rosa Whitaker • Mr. Michael William • Mr. Fred Oladeinde • FDA Staff • State Department Staff

3. Outline • Objectives • Background and rationale • US-Africa economic cooperation • Historical trends: Characteristics and implications • AGOA: Objectives and Overview • AGOA & International Development Context • AGOA Development Impact and Achievements • Challenges ahead • Overcoming market segmentation (FDI Attraction) • Manufacturing and industrial development for economic diversification and large scale production • Contribution from the Nelson Mandela Institution • Summary conclusion and recommendations

4. Objectives • Provide an overview of AGOA within the international development assistance to Sub-Saharan Africa • Highlight key achievements under AGOA and remaining challenges ahead • Discuss a number of potential areas of intervention and actions which could enhance effectiveness of development impact under AGOA • Highlight the risks of the status quo • Summary conclusion and recommendations

5. Background and Rationale • Africa’s social and welfare indicators are abysmal: • Almost half of Sub-Saharan Africa (SSA) 700 million people live on just US$0.65 a day (in PPP terms) • Poverty has been growing steadily, causing the Africa share of the poor to account for over 30 percent of the world poor in the 1990s • Predictions are not encouraging: by 2015, over 87 percent of people in SSA will leave on less than US$2 a day, over twice the world average and three times the average in MENA.

6. International Trade Context: Marginalization of Sub-Saharan Africa • Although accounting for over 1/8 of world population, SSA account for less than 2% of world trade, and attract less than 1% of global capital flows. • Over the last 2 decades SSA’s share of world trade has continued to decline, while global trade volume has tripled. • SSA countries highly isolated – trading neither with the rest of the worldnor between themselves (SSA intra-regional trade well below average for other regions of the world, partly as a result of market segmentation, overlapping of sub-regional trade agreements, and infrastructural constraints)

8. International Trade Context: Marginalization of Sub-Saharan Africa • Africa’s output has changed very little since 1970: it continues to be overwhelmingly dominated by few primary commodities, with low value added, mainly agricultural products and natural resources • As a result African economies are undiversified and extremely vulnerable to terms of trade and exogenous shocks • Capital flights, brain drain of skilled workers, and lack of economic diversification are major constraints with tremendous implications for investment, employment creation, export potentials and macroeconomic stability.

9. Illustration

10. Illustration

11. Technology level of products traded at the international market

12. International Trade Context: Marginalization of Sub-Saharan Africa • Proliferation of regional trade agreements (RTA), which now cover over one third of world trade • For non-members, discrimination in RTAs adversely affects excluded countries, posing systemic issues that require international attention • Volume of trade between US and other regions of the world rising systematically and accounting for a sizable share of world trade

13. International Trade Context: Marginalization of Sub-Saharan Africa • The rise in volume of trade reflects the potential benefits in terms of economic growth and development. • “Trade and investment, as the US experience has shown, can represent powerful tools both for economic development and for encouraging broader participation in a political process in which political freedom can flourish” AGOA (2000)

14. International Trade Context: Marginalization of Sub-Saharan Africa • Indeed international trade and commerce with the rest of the world have been the cornerstones of US economic growth and investment. • These trade relationships are governed under three instruments: • Multilateral track (GATT, WTO) • Bilateral and regional agreements (FTA with Israel, Canada, NAFTA, FTAA-2005, US-APEC-2010) • Unilateral track (Japan [1970-80], Adean Trade and AGOA)

15. US-AFRICA ECONOMIC COOPERATION

16. Historical Perspectives • In spite of its potential and historical relationships with the US, SSA export to the US has remained the lowest in the world • Over the 30 years following the post-independence era and prior to AGOA Act, SSA exports to the US have remained below 2.5% of global export to the US,…, • Moreover, these exports are largely concentrated in primary products (largely energy and oil, which account for about 80% of total SSA export to the US)

17. Historical Perspectives • Similarly, SSA’s import of goods and services from the US has remained very low • Compared to US global export, SSA’s imports from the US have accounted for about 1.5% on average over the 30 years post-independence era up to the negotiation of the AGOA

18. Illustration: Trend of US-SSA Trade

19. Illustration: Exports and Imports as Share of Total US Trade

20. Historical Perspectives (FDI) • The level of trade between the US and SSA is a mirror image of FDI • SSA is the lowest recipient of FDI in the world, and its share has been declining steadily • Total FDI to SSA has remained almost constant, at less than 1% of US direct investment abroad • The low level of FDI is not compensated by rising domestic investments in SSA, especially during the 80s and most of the 90s • These periods are characterized by prolonged economic downturns, rising unemployment and poverty.

21. Historical Perspectives • SSA abysmal picture (from the standpoint of international trade and FDI) reflects a development strategy largely driven by: • Basic agricultural production and natural resources • excessive reliance on international assistance and foreign aid • Rising foreign and external debt • The cost of this development strategy has been significant.

23. Historical Perspectives and Lessons from US Experiences • Over the years, trade and investment have been engines for economic growth and development in US • A development strategy based on trade and investment has worked for US, but also for EU countries and emerging market economies from the developing world • Indeed, historically, Aid alone has never developed a country, the AGOA philosophy is to foster SSA’s development through the promotion of investment and trade between US and SSA.

24. THE AFRICAN GROWTH AND OPPORTUNTITY ACT (AGOA) OBJECTIVES AND OVERVIEW

25. AGOA: Objectives • AGOA is a unilateral (One Way) extension of preferential access (duty and quota free market access) to the US market for eligible products--- agricultural commodities, petroleum, minerals and manufacturing, apparel and footwear- from eligible SSA countries. • AGOA is alandmark act in support of SSA’s development through trade and investment promotion, fostering of regional integration and private sector development in SSA • It is a landmark act to foster SSA integration into the global economy based on a strong partnership with the US.

26. AGOA: Objectives • In Section 102 of the AGOA Act, the US Congress recognizes that: • “SSA represents a region of enormous economic potential and of enduring political significance to the US” • “Trade and investment, as the US experience has shown, can represent powerful tools both for economic development and for encouraging broader economic participation in political process in which political freedom can flourish” • “increased trade and investment flows have the greatest impact in an economic environment in which trading partners eliminate barriers to trade and capital flows and encourage the development of a vibrant private sector that offers individual African citizens the freedom to expand their economic opportunities and provide for their families”

27. AGOA: Objectives • In Section 102 of the AGOA Act, the US Congress recognizes that: • “offering the countries of SSA enhanced trade preferences will encourage both higher level of trade and direct investment in support of the positive economic and political developments underway throughout the region” • “encouraging the reciprocal reduction of trade and investment barriers in SSA will enhance the benefits of trade and investment for the region as well as enhance commercial and political ties between the US and SSA”.

28. AGOA: Objectives • In Section 103 [statement of policy] of the AGOA Act, the US Congress supports: • “Encouraging increased trade and investment between the US and SSA” • “reducing tariff and nontariff barriers and other obstacles to SSA and US trade” • Expanding US assistance to SSA’s regional integration efforts”…. • “strengthening and expanding the private sector in SSA, especially enterprises owned by women and small business”

29. AGOA: Objectives • In Section 103 [statement of policy] of the AGOA Act, the US Congress supports: • “facilitating the development of civil society and political freedom in SSA” • “Encouraging joint ventures between small and large businesses” • “establishing the US-SSA Trade and Economic Forum” and • “the accession of SSA’s countries to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”

30. AGOA WITHIN THE INTERNATIONAL DEVELOPMENT CONTEXT

31. AGOA & International Trade Arrangements (WTO) • The AGOA Act is consistent with global approach to trade, as it is expected to result in: • Reduction of tariff barriers • Reduction of nontariff barriers • Trade Arrangements of this nature have been used elsewhere and are in force in a number of regions • AGOA is a Trade Promotion Act to expand the volume of SSA export, and hence global export.

32. AGOA & International Development • Trade arrangements of this nature are expected to: • Help improve macroeconomic management, including through economic growth and diversification, mitigation of growth volatility • Contribute to private sector development, including through establishment of joint ventures, reduction of capital flights and hence increased savings and investment prospects

33. AGOA & International Development • Trade arrangements of this nature are expected to: • Increase productivity, especially in export sectors • Foster SSA economic integration, including through collaboration and exchange between countries, and • Contribute to increased per capita income • Help empower civil society • Mitigate HIV/AIDS effects on SSA workforce • Reduction of gender disparities • AGOA could contribute to reduction of poverty, and gender disparity, improvement of life expectancy. From this standpoint, it is an MDG Enhancing Act.

34. AGOA: EARLY DEVELOPMENT IMPACT AND ACHIEVEMENTS

35. Development Impact and Achievements • Statistics from US Commerce Department shows that: • SSA imports from the US increased markedly during the post-AGOA period; by over 53% between 1999 and 2004 • SSA exports to the US increased significantly during the same period as well; • between 1999 and 2004, they increased from US$14805 to US$37828 millions • However, these imports are still largely confined in primary products, natural resources. Energy-related products accounted for about 80% of US imports from SSA • Figures seem to suggest that SSA exports have grown more rapidly.

36. Development Impact and Achievements

37. Development Impact and Achievements • The following countries appear to have benefited the most from the post-AGOA export boom in nonenergy-related products (textiles and apparel): • South Africa • Mauritius • Kenya • Botswana • Tanzania • The common denominator of these countries is the strength of their manufacturing industry and prospects of diversification of their economies.

38. Development Impact and Achievements • The US Congress finds that • “It is in the mutual interest of the United States and the countries of SSA to promote stable and sustainable economic development in Sub-Saharan Africa” • Access to energy and oil is particularly vital to US strategic interest • US imports from Africa reflect that strategic interest

39. Development Impact and Achievements • Issues: • Are the countries of SSA fully benefiting from the AGOA Act? • Are these countries at their full potential in this partnership? • Does the current pattern of SSA imports from the US reflects Africa’s strategic interest, economic empowerment and sustainable development? • It is central and critical for countries in SSA to have a clearly defined and articulated strategic vision to guide their trade relationships in order to fully benefit from the AGOA Act.

40. CHALLENGES AHEAD

41. Key Challenges for SSA • Developing and strengthening local private sector and domestic capitalism, which requires: • Strengthening links between real and financial sectors • Promoting the development of sound domestic financial institutions and curbing capital flights– • This could be enhanced by speeding up SSA countries access to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions • Organizing and strengthening civil society organizations and the media, a powerful force for checks and balances

42. Key Challenges for SSA • Strengthening links between industry and academia • Overcoming of the challenges of market segmentation, which constitute major constraint to: • FDI attraction (SSA received the lowest share of FDI to developing countries– 6.3% of total) • Regional integration and increased prospects for economies of scale and large scale production.

43. Overlapping African agreements… Nile River Basin COMESA IGAD ECCAS AMU CEMAC Somalia Sao Tomé & Principe Algeria Libya Morocco Mauritania Tunisia Egypt Cameroon Central African Rep. Gabon Equat. Guinea Rep.Congo ECOWAS Djibouti Ethiopia Eritrea Sudan Burundi* Rwanda* Ghana Nigeria Conseil de L’Entente Chad Cape Verde Gambia DR Congo Kenya* Uganda* Benin Niger Togo Burkina Faso Cote d’Ivoire Angola Guinea-Bissau Mali Senegal EAC Liberia Sierra Leaone Guinea Tanzania* Mauritius* Syechelles* Malawi* Zambia* Zimbabwe* SACU Comoros* Madagascar* WAEMU Mano River Union South Africa Botswana Lesotho CLISS Namibia* Swaziland* Reunion AMU: Arab Maghreb Union CBI: Cross Border Initiative CEMAC: Economic & Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Cooperation ECOWAS: Economic Community of Western African Studies IGAD: Inter-Governmental Authority for Government IOC: Indian Ocean Commission SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic & Monetary Union *CBI Mozambique SADC IOC

44. Key Challenges for SSA • Promoting manufacturing and industrial development for: • Economic diversification and growth • Diversification of SSA exports to the US to increase non-energy-related exports, which currently account for less than 20% of total • Employment creation and growth of per capita income • Large scale production within international standards and norms to meet the requirements of global demands and fully take advantage of economies of scale.

45. Key Challenges for SSA • Promoting science and engineering in support of manufacturing and industrial development • The Nelson Mandela Institution for Knowledge Building and the Advancement of Science and Technology in Sub-Saharan Africa could play a key role in this area • Indeed, long-term studies of the US and other advanced countries show that science and technology have been responsible for at least half of long-term economic growth, through: • Improvement in capital and labor productivity • The creation of new products, services and systems

46. Examples of the US Economy • For instance, in the field of biotechnology, the original investment in basic research delivered incredible dividends in industrial countries: • Creation of thousands of highly skilled jobs • Contribution of billion of dollars to western economies • Potential applications for improvement of health and agricultural yield and productivity.

47. What is said about biotechnology is also true about other fields of science and engineering, in particular, the IT sector where thousands of jobs were created in the 1980s and 90s. • For instance in 2002, the US Department of Labor Statistics showed that computer software engineers held about 675,000 jobs, and • about 21,000 computer software engineers were self-employed • A 1994 study shows that MIT graduates have created over 4000 major companies and corporations with total sales of $232 billion

48. Contribution of S&T to Income Growth

49. Vision of the Mandela Institution • The Nelson Mandela Institution envisions the transformation of SSA’s industrial and economic landscape and the strengthening of its socio-cultural foundation • It is a global effort to foster Sub-Saharan Africa’s economic growth and diversification, industrial development, and employment creation through: • the promotion of excellence in science, engineering and, • their applications based on competitive processes, transparency and accountability.

50. Pillars of the Institution • the African Institute of Science and Technology (AIST), a world-class institution based on the very successful model of Indian Institute of Technology (IIT), the US and other leading institutions of excellence in science and engineering around the world; • the Sub-Saharan African Learning Network (SSALN) to improve and promote the creation of, and flows of knowledge across Sub-Saharan African countries and encourage continuing learning.