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Hillary offers trade opportunities to Africa – unless we don’t feel like it

Hilary-AGOA.png Secretary of State Hillary Clinton had good news for Africa in the Nairobi forum yesterday on the US African Growth and Opportunity Act (AGOA). AGOA offers breaks from quotas and duties on African exports to the US. First enacted under Bush, AGOA is at least a partial success story, with exemplars like textile exports in Lesotho and Madagascar. Secretary Clinton yesterday endorsed new efforts to “maximize the promise of AGOA.” She declared “we are committed to trade policies that support prosperity and stability.”

Except when we aren’t. AGOA privileges can be revoked for political reasons, like if the President and the US Trade Representative (USTR) decide a country does not have sufficient “rule of law.”

Which is exactly what is threatened now with that success story of textiles in Madagascar. Ever since a political crisis and change in government in Madagascar last spring, the USTR has been threatening to revoke Malagasy eligibility for AGOA, which would effectively destroy the Malagasy textile industry (worth between 6.5 and 8 percent of GDP and accounting for 50,000 jobs).

We had a previous blog post on this, which had a dramatically nonexistent effect on USTR actions.

Of course, the USTR implementing AGOA has good intentions – to promote good governance. There are two problems with this: (1) we don’t have a clue how to do this in Madagascar, and (2) why try to do it by punishing private individuals instead of the government?

On (1), Malagasy politics are not really that hard to understand, as long as you have a Ph.D. in Malagasy history, political science, sociology, economics, and familiarity with the byzantine maneuvers of the FOUR way-far-from-perfect quarreling rivals for power. All the US government asks in exchange for continuing AGOA is that these four guys who hate each other come to an instantaneous consensus on early, free, and fair elections. USTR officials confirmed to us on background yesterday that these efforts continue.

It’s not totally clear why USTR is being so insistent, when “rule of law” is so vague as to allow the eligibility of DRC, Guinea, and Guinea Bissau (as we ineffectively pointed out last time). (This arbitrariness is what justifies the snarky title of this post.)

On (2), all I have to say to elaborate on “why punish private individuals”, is – why punish private individuals?

Time is running out for Madagascar, as incentives to invest and produce for advance US orders are disappearing further the longer the USTR dithers. Political risk comes not from the Malagasy or other African governments, but from the US government’s failure to follow any consistent rule of law on how to apply the AGOA rule of law provision. This arbitrariness weakens the AGOA incentives for ALL African countries.

Please USTR, try to make Secretary of State Clinton’s promising words come true, don’t throw away one of our all-too-scarce development policy successes.

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  1. Danton wrote:

    Nice post but please add a second “l” to Hillary.

    Posted August 6, 2009 at 1:59 am | Permalink
  2. See..

    This is one of my problems with development economists however much I love them. They love to advance the theory that without the West’s patronage either by aid or trade, Africa cannot develop.

    Let the US block its borders to Madagascar, who cares? In fact, all the other ministers should have just walked away from that crappy AGOA meeting and told the US to stuff itself, if they were smart. Speaking from a cynically political standpoint. Today it is Madagascar they are blocking, tomorrow it might be Nigeria. Why not avoid the embarrassment by simply blocking out the least essential of US products and selling our stuff (as in this case textiles)regionally?

    The funny thing is that if this was really something the US needed like oil, they won’t hear o! It wouldn’t matter to them that ten feuding lords exist. They will just take what they need and pay off whoever needs to be paid off (see Niger Delta for more details).

    Posted August 6, 2009 at 1:59 am | Permalink
  3. Anonymous wrote:

    it will never block Nigeria, because of OIL.

    98% of AGOA trade concerns oil.

    Disregarding oil, Agoa exports are falling, in stark contrast to non-Agoa exports of (many of) the concerned countries.

    Slashing tariffs in interafrican trade, would do so much more good than AGOA ever will.

    Maybe Prof. Easterly could figure out how high the tariffs are between textiles of Madagascar and a shop in say Abuja, Nigeria or Kigali, Rwanda?

    Posted August 6, 2009 at 3:27 am | Permalink
  4. Tim Squires wrote:

    @Iyinoluwa Aboyeji

    Yes Africa may be able to develop without the help of the West but why not open up trade to the west for these countries. It opens a source of income to these countries which hopefully will exacerbate their growth. Also part of the point of the article was to point out that them blocking Madagascar made no sense and that they should develop rules for what “rule of law” is. You are correct in your assertion who knows what they will block next and that is one of the points Dr. Easterly makes.

    Overall I agree that the phrase “rule of law” tends to set off alarm bells that there is most likely a political agenda at work. The best possible thing to do for these countries would be to set guidelines of what rule of law is, which would help decrease uncertainty. As mentioned in the article you can already see the consequences of not having a definition, the decrease in long term contracts. Finance 101 tells us that the more uncertainty in the future the lower the value today.

    Posted August 6, 2009 at 8:50 am | Permalink
  5. Ronan L wrote:

    I fear the EU is no better, with its ‘we’ll give access to the EU to all your least important export sectors’ strategy…

    Although there surely has to be some middle ground between the US/EU stance and the China stance, which is essentially propping up the worst African governments.

    Posted August 6, 2009 at 9:32 am | Permalink
  6. @TimSquires

    I am not against that idea.

    I just frankly think its a waste of time. Your FDA’s hate our products and I have a strong feeling people here do too. Actually I am studying consumer habits of North Americans to African products and

    what we are finding is that except one blackmails them into buying our products with the picture of a poor malnourished child (a la “fair trade”), they won’t buy. They’ll just move on to “higher quality produce” from north American farms. Even ask yourself, will you buy milk for example from Nigerian farms even if they are cheaper-even powdered milk? How many Americans walk into African stores to ask for powdered milk, yes the same powdered milk African would die to buy here? Clearly you don’t like our food, so we should not even be selling to you in the first place.

    The surprising thing is that we actually need the food. We have 900 million people and over half of them go to bed hungry, yet we are begging you to help us chop small groundnut and you are “fronting”. Please why don’t we sell Madagascar’s textiles to poor African people without clothes instead of taking your second hand clothing or why should we send you our cocoa when you won’t eat it and there are many people that can feed with it within our borders.

    Also as for economic growth via trade or aid from the west, all the studies are showing negative. In the words of Dana Roodrik, “Poor countries become rich by producing what rich countries produce”. That means that until we can sell your PMS instead of crude oil, until we can make that milk you won’t buy chocolate, until we can stop blackmailing you with fair trade coffee and start an African coffee chain that will compete with star bucks, we cannot develop. That’s just the truth-and trade with the west has nothing to do with that really. Activists of AGOA and Doha keep pushing the insane view that we need to sell our primary agricultural produce to the West to develop when that is not true at all. What we need to do is to get together as a continent and improve our collective lot by adding value to our products and then, selling it to you, like you have been doing to us for the last 300 or more years.

    Call me protectionist but I really think what Africa needs is a trade policy that sets up barriers to trade in the right places in favor of African brands and companies. Deny the phone companies coltan from Congo, stop exporting oil from Nigeria. Tell China and the West (rest?), no more Ore and then lets see what will happen. Ofcourse there will be issues but none that we cannot solve. Someone will say where is the manpower? That’s not a problem at all. there are 75 million educated Africans in Diaspora, how about they start coming home when we stop supporting their “refuge countries” with the produce of our sweat. But we need one integrated economy for this to work well.

    We cannot continue to sell ourselves into bondage. Nigeria should be selling oil to Togo instead of the US. They have refineries too. We should sell our cocoa to African chocolate making companies in Cote d’ivoire instead of Switzerland so that they too can make profit from the jobs.

    In fact let me be cynical and use Dambisa Moyo language; How about one phone call from the head of every Africa state to the head of western trade missions saying to them “In five years, we will end all our trade with your country.” Now that’ll be revolutionary….

    Posted August 6, 2009 at 11:09 am | Permalink
  7. At the risk of shameless self promotion (on someone elses’ blog..I am so ashamed :( )…I actually write about these things here:

    Posted August 6, 2009 at 11:13 am | Permalink
  8. Grant Tudor wrote:

    A few notes:

    1. The anonymous post above notes that 98% of AGOA trade concerns oil; in fact, that number is actually at around 80%. Nonetheless, it still largely illustrates the shortcomings of this trade policy, as oil surely does not constitute 80% of what Africa could export to the U.S.

    2. Iyinoluwa Aboyeji rightly implies that the most egregious barriers to trade are indeed within Africa itself. Many countries have tariffs upwards of 20%. Regional trade should most certainly be a primary focus, not just international. Indeed, even the West promotes regional trade first and foremost (think the EU, NAFTA, etc.).

    3. Lastly, perhaps Secretary Clinton is beginning to strategically reposition the U.S. Marginal trade improvements such as AGOA (as it currently stands) are no match for the emerging Sino-African marriage. If the West refuses to engage in free, fair and mutually beneficial trade with Africa, then China certainly will – and will gain overwhelming economic and political leverage in doing so.

    Posted August 6, 2009 at 1:43 pm | Permalink
  9. Joan McKniff wrote:

    If Madagascar loses AGOA status, its exports to USA or elsewhere will NOT be blocked. They simply will not get tariff discount.

    Posted August 6, 2009 at 1:58 pm | Permalink
  10. Stephen Jones wrote:

    Please why don’t we sell Madagascar’s textiles to poor African people without clothes instead of taking your second hand clothing

    If they’re so poor they don’t have clothes they probably aren’t going to be able to buy any.

    The massive import of second hand clothes is pretty much an African phenomenon. When the tsunami hit in 2004 in Asia people were told not to donate clothes because those affected by the tsunami would refuse to wear them. It is however an African consumer preference, and at least is ecologically sound.

    Posted August 7, 2009 at 3:43 am | Permalink
  11. Great points by Easterly, as usual.

    But this comment:

    “Call me protectionist but I really think what Africa needs is a trade policy that sets up barriers to trade in the right places in favor of African brands and companies.”

    Assumes that the “in the right places” clause would actually take place. Historically governments almost always support losing brands and companies that benefit their cronies rather than support “the right companies.”

    For a better strategy,

    1. Increase economic freedom across the board; see Easterly’s excellent article on the benefits of economic freedom here,

    2. Support African entrepreneurs in creating great brands that can succeed in the West (and thereby also succeed in Africa). See “Africa: The New Edge, The New Green,” for a specific strategy for African entrepreneurs,

    Posted August 7, 2009 at 2:18 pm | Permalink
  12. @ Stephen, you can’t have “preference” if you have no choice. Truth really is we really hate second hand clothing but true that is what we can afford. However, if the infrastructure for regional trade made it such that we could trade with Madagascar and get these clothes for comparable prices (mark my words, I wear used clothes, they are NOT cheap),we would actually prefer to have the Madagascan textiles imported. It costs roughly $2 to sew dresses in Nigeria because the labor is cheap and we really like new clothes. In fact families virtually bankrupt themselves to buy new clothes for their children at Christmas–whatever their class. That’s how much we like new clothes. That we cannot afford them is an issue that can be corrected with easier access. Saying that Africans deserve to wear used clothes because they want to sounds a bit patronizing to me

    @Mr Strong: I see where you are coming from but your assertion is not necessarily always true. Infact some of the largest and strongest brands we have in Nigeria today are the product of government support. Dangote, Globacom and Zenon, all billion dollar Nigerian companies heavily benefited from Government largess-especially with respect to policies skewered to favor their businesses. Sometimes, governments, when they choose correctly, can participate in creating strong brands from their countries.

    On Easterly article, you make a good point. However, I don’t think in this article he necessarily addresses the issue of strengthening regional markets vs opening your infant markets to choking competition from international markets. I surely hope he does this someday. I think you should read Bad Samaritans by Ha Joon Chang, it basically details how such “temporary special measures” in trade have helped even the West’s economic growth over the last century.

    Besides, I think the order of your statment should be reversed. We should “creating great brands that can succeed in Africa and expand into the west. Something irks me about the notion of selling African products to create jobs for westerners when it is African who need the jobs and the products. Its not like Africans will get employment in an African star bucks in say New York with the repressive (but sensible) immigration policies of developed countries.

    Finally, excuse my skepticism but as I indicated in another comment above, without the smack of sympathy or “exoticness” (for lack of a better word)that always comes with everything tagged African in the west and which sadly is a motivation for consumerism that hardly lasts, I doubt African businesses without strong roots in Africa can survive. As I indicated before, there are strong indications that westerners and their Food and Drug regulation bodies do not like African products and so they just patronize them.

    And again, someone must ask the difficult questions, how does an “African” brand recognized in the west feed poor African if they are providing westerners jobs Africans couldn’t possibly gain access to?

    I am frankly not sure exactly how Ms Wade’s diaspora based business contributes to African development. But well that’s just my humble opinion

    Posted August 8, 2009 at 12:12 am | Permalink
  13. Stephen Jones wrote:

    Truth really is we really hate second hand clothing but true that is what we can afford

    Which doesn’t explain why there’s no market in exporting second hand clothes to the Indian sub-continent.

    (mark my words, I wear used clothes, they are NOT cheap)

    My point exactly.

    Posted August 8, 2009 at 1:46 pm | Permalink
  14. from NHOKU Walter Sisulu Univrsity. (s.a) wrote:

    This U.S ,U.S U.S , speaking with no action thing is so very painful for African states because since they have debts (owing) U.S have to jump when U.S says so. U.S. is the same state that is slowering the development in Africa, the same U.S that thinks for its own people only, using the natural resourcees of AFRICA. It is about time for Africa to realy move from the traditionaltrading(us,europian states) and cross to ASIA which is already doing wonders for the african state..

    Posted August 21, 2009 at 11:15 am | Permalink
  • About Aid Watch

    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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