Wesbank

AGOA: Botswana’s failing option

SHARE   |   Monday, 25 April 2016   |   By Staff Writer
Zahir and Setipa Zahir and Setipa

Local industries have an opportunity to improve their fortunes under the new AGOA – a unilateral preferential trade arrangement extended by the US government to sub-Saharan African countries, which has eluded them for the pasy 16 years. Since inception in May 2000, only one local company – Carapparel Botswana – has accessed AGOA, despite the availability of over 6 400 products for duty-free export to the US. Botswana exports to the US stood at $7.5 million in 2015, down from $9 million in 2014. Botswana's export to the US in 2014 was dominated by diamonds at 94% of total exports. Carapparel Botswana Managing Director Sam Lin is quick to point out the challenges they have encountered over the years and denies finding success in AGOA. His company produces 100-200 000 items per month of casual wear for men and women exclusively for export to the US through AGOA.  From a workforce of 1 200 employees at factories in Gaborone West Industrial and Block 3 industrial, Lin says they have had to reduce workers to just 700 in 2014 and further to 370 in 2015 due to several challenges. The drastic reduction in production led to dwindling profits from around USD70 million per annum in 2010/11 to just USD9 million in 2014. 

700 machines lying idle

Lack of skilled labour, stringent immigration laws, customs double inspection, power, water and logistics are some of the challenges cited by Lin as major hindrance to the textile industry. "We have about 700 machines lying idle because we do not have skilled labour to operate. We have been losing about 100 workers per year and this leads to training costs in the region of P500 000. In 2015 we trained 300 workers and managed to retain only 10 per cent despite incentives we offer for multi-skilled workers and bonus for surpassing target," he said. Lin said China being the leading producer of textile machinery and equipment also has highly qualified technicians but the Chinese technicians' applications for work and residence permits are often rejected in Botswana after a year-long wait. "These technicians are quickly absorbed by our neighbour (Lesotho) where they provide the critical service to the textile industry," said Lin.    

Lesotho case

Presenting a Lesotho case study of a successful AGOA strategy, Lesotho’s Minister of Trade and Industry, Cooperatives and Marketing Joshua Setipa said Botswana government should partner with industries to set up the necessary infrastructure and facilities which may be too expensive for individual companies. He said it is important that government creates a conducive environment to allow different industries to set up and thrive. Setipa emphasised that to boost participation in the AGOA programme, the country should increase private sector participation and involvement of industries. Among the sub-Saharan African countries, Lesotho is the number one exporter of apparel to the U.S under AGOA. Lesotho has established one of the largest textiles and garment manufacturing industries in sub-Saharan Africa, following the development of a National AGOA Response Strategy to improve and up-scale the implementation of AGOA. The strategy was also aimed at establishing a diversified manufacturing sector.

Setipa emphasised the need for continuous improvement of the doing business environment, like setting up a stop shop for investors to access services in one place, as is the case in Lesotho. He said Lesotho owes the success in exploiting AGOA to having invested a lot in improving the doing business environment. It takes about three days to process applications for investors, but Setipa insists that the turnaround time is not enough as emerging competition like Rwanda have reduced the time to just three hours. In Botswana potential investors are assisted by BITC who process their applications in different government departments, which is a lengthy process running into months, involving persuading and pleading with government officials. "You need to have a coordinator for everything, and of course the good will from all stakeholders to support the project. Otherwise it will never take off," said Setipa.  Addressing the business community and the civil society on the new AGOA legislation (2015-2025) on Tuesday, Setipa said Botswana should "develop a forward-looking national strategy in which industry is part and parcel of, and should help diversify the market”.

He emphasised the need to promote citizen entrepreneurship and support of locally owned industries, with the goal of affording smaller enterprises a more important role in the economy through building industrial linkages with foreign businesses. Setipa said Botswana has a comparative advantage against competitors in the African continent and should exploit the opportunities. He said unlike others Botswana easily satisfies the eligibility criteria for AGOA as set for African countries. To qualify African countries have to have established, or be making progress toward establishing: a market-based economy; rule of law, political pluralism, and right to due process; elimination of barriers to U.S. trade and investment; economic policies to reduce poverty; a system to combat bribery and corruption; and protection of internationally recognised worker rights. Countries must not engage in activities undermining US national security or foreign policy interests; or gross violations of internationally recognized human rights. "All these are already in place in Botswana," said Setipa. 

2015 AGOA Exports from the Region 

• South Africa: $2.9 billion
• Angola: $1.8 billion
• Lesotho: $299 million
• Malawi: $49 million
• Mozambique: $9 million
• Botswana: $8 million
• Zambia: $4 million
• Namibia: $0
• Swaziland and Zimbabwe: Not Eligible

Fazul Zahir – the CEO of one of the largest textile firms in the country Premier Clothing – concurs that local industries need to be supported by government through development of policies that will help in growth until they can produce for export. He decried that although government may have some legislature in place failure at implementation often results in local industries not benefitting anything. He gives the example of the textile industry. "We have long developed a long term strategy to turn around the textile industry and help businesses achieve growth to meet the standards set up in AGOA. The textile industry employs a large number of the disadvantaged sections of the society being women and in the process contributes to poverty eradication efforts of government. But now nothing is happening regarding the roll-out of the long-term textile strategy, which should have commenced this year," said Zahir. AGOA is United States Government’s signature trade initiative with sub-Saharan Africa. First established in May 2000, AGOA provides more liberal access to the US market than any other unilateral trade preference arrangements. It reinforces African reform efforts and improves access to capacity building through regional Trade Hubs. On June 25, 2015 the Senate approved legislation to re-authorize AGOA until September 30, 2025. The new AGOA provides a 10 year extension of AGOA, while retaining existing product coverage and includes third country fabric provision. It enhances and streamlines trade capacity building. 39 African countries are currently eligible for AGOA.


Key issues for AGOA include: Boosting AGOA utilisation in the remaining ten years; Preparing for a more reciprocal U.S.-Africa trade and investment relationship; and Ensuring Africa is not left behind as the rest of the world signs on to increasingly liberal “plurilateral” trade agreements. AGOA benefits include Duty-free treatment to more than 6,400 products (with at least 35% African value-added): including 1,800 tariff lines in addition to the standard 4,600 through the General System of Preferences (GSP). Under a Special Rule (“Third Country Fabric” provision), lesser-developed countries can enjoy an additional preference of duty-and quota-free access for apparel made from fabric of any origin. Botswana and Namibia are eligible through a special exception. Some critics are still skeptical if Botswana can develop industries that will benefit from AGOA before it expires in 2025. They point to failure at implementation as the major hindrance at government enclave. Perhaps to prevent further failures, Botswana has assembled a team of experts from different sectors of the economy to work with a consultant in the development of an AGOA response strategy.  


Chief Operations Officer at BITC, Meshack Tshekedi, said contrary to some claims, 10 years is long enough to develop a product, anchor it on the US market by exploiting AGOA and expand into the region. He said Botswana imports almost everything from SA, therefore opportunities for local production are immense covering basic foodstuffs, leather industry (footwear and car seats), auto components, horticulture textile arts and crafts, glass, rubber and beneficiation of mining products. He said already government is developing an effluent treatment plant to support the establishment of Lobatse leather Park, expected to open up business opportunities. "AGOA should be used as a launch pad for firms in sectors like agriculture, agro-business, manufacturing, resource sector, IFSC, tourism and hospitality," said Tshekedi.

2015 AGOA snapshot

US $19 billion total exports
US $9.3 billion under AGOA + GSP
Top beneficiaries:  South Africa, Angola, Chad, Nigeria, Kenya, Lesotho

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Key AGOA eligible products
• Apparel and footwear
• Leather
• Certain motor vehicle components
• A variety of agricultural products
• Arts and crafts
• Chemicals and steel

US Embassy Deputy Chief of Mission, Tim Smith, said AGOA is particularly important for Botswana companies because it provides an opportunity to take them to the next level. He said AGOA provides a head start over competitors from Asia and other regions, noting however that the competition remains fierce. “And that is a good thing because we need globally-competitive companies to lead Botswana diversification through exports. It takes a globally competitive company to meet the timeline, quality, and price demands of the U.S market,” said Smith. Smith said the U.S Embassy want Batswana to leverage resources and market access to grow their businesses, diversify Botswana’s economy, create jobs and boost bilateral trade. To this end, the U.S Embassy, through the United States Agency for International Development (USAID), supports a five-year $15 million (P166.5 million) Development Credit Authority (DCA) with Barclays Bank Botswana to provide access to credit for small and medium enterprises and entrepreneurs.

SEE ALSO:

Seretse’s response

In response the Minister of Investment, Trade and Industry Vincent Seretse said initiatives are in place to diversify the economy and sustain Botswana industries to ensure competitiveness in the international markets. He singled out the National Exports Strategy, the Industrial Development Policy, the Economic Diversification Drive and the Private Sector Development Programme which need implementation to ensure that local firms benefit from the new AGOA. Seretse said despite minimal benefits by local businesses in AGOA, there is still hope for manufacturers in the next 10 years. He welcomed the requirement that countries should develop AGOA utilisation strategies with the help of US capacity building agencies, if they are to tap into the programme. He said through the strategy, Botswana would be able to develop potential sectors to expand exports and be competitive in the US markets as well as the rest of the world. "I am in support of the development of a strategy because as Botswana, we were unable to fully benefit from AGOA in the past 15 years," stated Seretse. Seretse decried that only two of the 13 companies that initially benefitted under AGOA are still in operation, saying many industries could benefit under the arrangement. Due to the collapse of the beneficiaries Botswana experienced a negative trade balance of P38.1 million with the US between 2004 and 2014. Appreciating support from the US government, Seretse said the increased benefits under AGOA would result in increased exports to the US enhancing Botswana's economic growth through employment creation and industrial development. He said AGOA will further contribute to the regional integration objectives as the Southern African Development Community (SADC) had refocused efforts towards industrialisation of the region.