Deepening regional integration in Africa: Maximizing AGOA in ECOWAS for economic transformation
AGOA, the African Growth and Opportunity Act, is one of the cornerstones of the U.S.-Africa economic relationship. A trade program that includes 41 African countries, AGOA was renewed in 2015 for another ten years.
It helps African countries develop their export industries and open their markets, build jobs, and ultimately, build peace and human security through economic growth. But many African countries haven’t fully taken advantage of their preferential access to U.S. markets due to neglected AGOA utilization plans, small markets, underdeveloped sectors, and more.
In this paired paper and policy brief, Southern Voices Network Scholar George Boateng explores how regional integration through the West African economic community ECOWAS can help West African countries leverage regional advantages to become more competitive. He discusses policy options for using regional integration to maximize utilization of AGOA, drive economic transformation, and build peace and security.
A Viable Approach to Increasing AGOA Utilization in ECOWAS
ECOWAS could maximize its utilization of AGOA through a variety of scenarios, which are based on the product space approach (pioneered by Hausmann and Hidalgo). They define product space as a network of inter-relatedness between products. Relatedness is associated with the similarity in the inputs required by a certain activity including particular skills, institutional capabilities, and infrastructural and technological requirements. Economic progress will occur when countries move from what they are already producing to others products that are sophisticated; in other words, by producing and exporting more high-value but related products. Therefore, AGOA-eligible countries in West Africa can exploit economies of scale through integration and become more competitive in export-led manufacturing by moving goods to more productive spaces in the region. These productive spaces are countries which are more efficient in producing high-value goods; they have the skills and infrastructure as well as the technical capabilities.
For example, Burkina Faso, Mali, and Benin are significant producers and exporters of raw cotton, but they lack the business framework, supply chain, skills, large middle class, and industrial structure of some of their coastal neighbors such as Ghana and Senegal. These countries can benefit from the infrastructure, business frameworks, and skills of their neighbors by manufacturing textiles or apparel. This would add value to their cotton, increasing the value of exports and making the region more competitive. Similarly, Burkina Faso is a major producer of mangoes in West Africa, with over 250,000 metric tons per year, but the country lacks the processing capacity to move into the production of high-end produce like processed mangoes. An integrated agro-processing industry with a coastal neighbor such as Ghana or Côte d’Ivoire that has the competitive skills set and infrastructure for processing will be beneficial.
The World Economic Forum’s Global Competitiveness Index (2015-2016) assesses the competitiveness landscape of 140 economies, providing insight into the sources of their efficiency. Infrastructure and skills act as major constraints to competitiveness in West Africa. West Africa can, however, be more competitive as a region than individually. In developing a regional cotton textile and garment industry, or an integrated agro-processing industry, countries like Burkina Faso, Benin, or Mali that are not competitive in indicators such as infrastructure, business framework and skills can benefit from superior indicators of their neighbors such as Côte d’Ivoire, Ghana or Senegal with Global Competitiveness Index of 3.9, 3.6 and 3.7 respectively. This arrangement will move goods to more efficient countries in the region. But this concept would only be aided by faster progress in realizing reforms in the ECOWAS customs union, as well as by fully implementing sectoral policies such as the common industrial policy.
Not everyone agrees with the approach outlined above. There are concerns that agro-processing, apparel, and textile production are low-skilled manufacturing industries, and that AGOA beneficiaries should look to higher skilled manufacturing rather than concentrating on low-earning sectors. It is true that agro-processing, apparel, and textiles are low hanging fruit in the manufacturing sector. However, given the current levels of infrastructure and capacity within the region, these sectors are where West Africa needs to begin. Over time, it can learn and move into high-skilled manufacturing. This level of manufacturing will encourage the growth of similar support mechanisms like decent logistics, urban transportation, reliable power supply, and legal framework for hiring labor for industry, consequently enabling further diversification in exports.
Additionally, trade logistics will play an important role in increasing West Africa’s AGOA utilization. Efficient logistics connect firms to domestic and international markets through reliable supply chain networks. Countries faced with low trade logistics performance are less competitive because they incur higher transaction costs. The World Bank Logistics Performance Index (LPI) ranks West African countries at 2.3 on efficiency of logistics in facilitating trade, behind Southern African and Eastern African countries which each have a 2.7 score. To improve competitiveness, West Africa countries should aim to boost logistics in trade.
In a nutshell, if regional partnerships are strengthened and comparative advantage is secured in the product space by AGOA beneficiaries in West Africa, it will facilitate movement of goods from less efficient countries to more efficient ones, and increase value addition and export-led manufacturing, which will trigger further export diversification.
It is crucial for the U.S. government to continue expanding on its strategy and trade capacity-building in Africa. The most important need is assistance in deepening regional integration in ECOWAS (and other RECS), particularly in harmonizing the processes of the Free Trade Agreement and especially the removal of tariffs on industrial products. Moreover, it is essential that African governments establish effective dialogue with the private sector, civil society, and policymakers to chart new and robust ways to be relevant in the new trade policy environment.
One of the key outcomes of the World Trade Organization’s 2014 Bali meeting was the Trade Facilitation Agreement (TFA). Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce cost burdens and maximize efficiency. Studies suggest moving goods more quickly and efficiently would create $1 trillion in export gains, a $960 billion GDP increase, and 21 million new jobs. Hence harmonization of the customs union by all member states of ECOWAS will go a long way to increasing intra-community trade and learning to compete by upgrading into regional and global value chains. Industrialization, predominantly export-led manufacturing, remains vital for Africa’s economic transformation and human security, and for providing employment for millions of youth across the continent.
The sectoral strategy on the common industrial policy will be pivotal in enhancing export-led, competitive manufacturing in the region. In order for ECOWAS to be competitive and be able to export more under AGOA, it needs to increase its share of manufacturing in total global exports. A regional industrial trade base, which employs economies of scale and moves goods from less efficient to more efficient countries, will help maximize AGOA in ECOWAS.
For a set of policy options and recommendations related to harnessing regional integration to maximize AGOA utilization in West Africa, see the accompanying Africa Program Policy Brief.
George Boateng served as a Southern Voices Network Scholar at the Wilson Center from April to June 2016. He is a Research Analyst at the African Center for Economic Transformation (ACET) in Accra, Ghana, which is a member of the Southern Voices Network.