Out-growing AGOA

The Africa Growth and Opportunity Act (AGOA) – a deal that gives Kenyan firms duty-free, quota free access to the US market – received a lot of coverage in the Kenyan press this year. Most of this was focused on demands to extend an exception, set to expire in September 2012, that allows African countries to use textiles from non-African countries in its clothing exports to the US and still benefit from the preferential access to the US that AGOA provides. (Usually this kind of access is contingent on using inputs from your own country or countries from the same regional trade bloc, not third party countries – which is mainly China in the case of textile inputs into Kenya’s apparel sector).

Thankfully, the extension was granted, and now everyone is breathing a sigh of relief. So business continues as usual. However, this would be an misguided response. Business as usual is not enough.

AGOA provides Kenyan firms unprecedented access to the US, the largest market in the world. While AGOA lasts, Kenyan policy-makers and private firms should do everything they can to push into the US, taking full advantage of the leg-up that AGOA offers Kenya over its competitors. If AGOA is used aggressively, Kenyan firms will develop the experience required to meet demand in the US and beat its competitors when AGOA’s preferential access disappears, as one day it will.

Policy-based advantages

Launched in 2000, the preferential market access that AGOA granted played a critical role in spurring Kenya’s exports with the US. This was most dramatic in the case of apparel sector, which grew at a whopping 44% a year in the few years after AGOA’s passage. In effect, AGOA has created an apparel industry in Kenya on a scale that the country would unlikely have achieved without preferential access to the US.

However, the strong trade regime-based advantage that AGOA offers has meant that Kenya has developed an industry whose competitive edge is based on policy advantages and not firm-level advantages. The proffering of such advantages is based purely on the largess of US policy makers, leaving the textile and apparel sector very vulnerable. It needs stronger foundations. 

Reap what you can

AGOA offers Kenya opportunities that it cannot afford to pass up. The US is a huge market that offers Kenyan firms great opportunities for business growth. Therefore, the government and the private sector must do what it can to push for AGOA’s extension beyond 2015, when it is set to expire. Preferential market access is particularly critical for the textile and apparel sector. However, in parallel with these efforts, the government and the private sector should work to wean themselves off a dependence on AGOA.

Growth beyond apparels is important too. Supporting the growth of other sectors’ exports to the US will require targeted sector-level support to address barriers to US market entry, from market knowledge, to buyer linkage, to addressing non-tariff barriers such as US sanitary and phytosanitary requirements. Support of this kind will require considerable resources to deliver, therefore the sectors to which it will be directed will have to be carefully selected.

Finally, all businesses in Kenya face business barriers that make doing business difficult and costly. These are not unique to firms that are doing business with the US, but they are too fundamental to leave unaddressed. Therefore, getting serious on AGOA will require also actively focusing on the general business barriers faced by Kenya’s entrepreneurs, and specifically the ones that disadvantage its firms that export to the US. 

Finding competitive advantage out of policy advantage

Focusing on these three strategic priorities – lobbying for AGOA’s extension beyond 2015, focusing on helping US-focused exporters punch into the US market, and addressing general business barriers faced by Kenyan firms – will serve Kenyan firms that sell into the US well. AGOA’s extension will give Kenya’s apparel exporters more time to develop the skills and technologies required to compete with their more cost-effective rivals from South and South East Asia. Helping firms access US market opportunities, and working with them to overcome access barriers, will increase the range of sectors that trade with the US away from the apparel sector alone, offering wider and more secure business and employment opportunities for Kenyans. Finally, focusing on addressing business constraints across the board will help not only Kenyan exporters to the US but all Kenyan firms, which is good for business and good for the country. 

With the right strategic focus and concerted effort, AGOA can provide Kenya an amazing opportunity for economic growth. But Kenyan firms should not grow dependent on these advantages. They should use them with the knowledge that they will one day be revoked (or eroded because similar deals are extended to all other countries). Growing under the umbrella of AGOA’s special preferences is necessary and useful, but as Kenyan firms grow their experience and deepen their US market foothold, they will not need these advantages. They will succeed in the US not as a result of policy advantages gifted out of a room in Washington DC, but because they deliver products that US consumers’ want over what Kenya’s competitors provide. That will be good for US consumers; it will be wonderful for Kenyan firms and the people that they employ.