Infrastructure over AGOA

US Secretary of State Hillary Clinton created lots of excitement
(and even more traffic) in downtown Nairobi when she attended
the AGOA conference as part of her Africa tour.

But for all its hype, the AGOA market access provided
under AGOA does not really address any of
the supply side constraints – Rachel Keeler looks
at the conclusions and the resulting challenges
for Clinton in shaping the
Obama administration's US policy towards Africa.

It was clear from the start that last week's African
Growth and Opportunity Act (AGOA) conference
in Nairobi would have very little to do with US-Africa trade.

First, there is very little actual trade between the US
and Africa to discuss.

Petroleum exports from Angola and Nigeria
(both stops on US Secretary of State
Hillary Clinton's Africa tour) and four other
African oil producers make up over 90% of trade
with the US under AGOA.

Kenyan Prime Minister Raila Odinga put it bluntly
on day one of the forum: "[In the short term],
we can only hope for slow growth in our exports to the US,
" he said. "It will be some time yet before we have
the capacity despite preferences to compete with
major exporters like China and India."

Odinga emphasized that at this juncture,
Africa has much more to gain from trading with
itself than from seeking out Western markets

AGOA's duty free, quota free access to the US market
did engender a five-year textile boom in Kenya.

But in 2005 the Multifibre Agreement (MFA) that
had limited Asian exports to the US market expired,
and in 2007 the safeguard extension on
Chinese goods ended.

By the end of 2008, Kenya had lost nearly half
of its textile industry, which remains in
desperate decline today.

In hindsight, the general consensus is
that AGOA jumped the gun by
ignoring supply-side constraints that keep
African manufacturers from being able
to compete with Asia.

US Secretary of State Hillary Clinton
echoed Odinga in her opening remarks
at the conference, saying that
increasing regional trade presents the
"single greatest opportunity" to build up African industry.

"The market in the US is 300m people;
the market in Africa is 700m plus," she said.

Of course for Africa, market access of any kind is
not the main concern.

Inadequate infrastructure and weak governance
are much larger problems,
which American politicians are happy
to highlight rather than dwelling
on the failures of AGOA itself.

Stephen Hayes, president of the
Washington DC-based Corporate Council
on Africa (CCA), says there is a good chance
AGOA will not be renewed past its expiration date in 2015.

The US Congress is leaning heavily toward
instituting an umbrella trade preference programme
for all least developed countries (LDCs).

The favourite argument against this on
 Africa's behalf is that Bangladesh is
considered an LDC, but one which exports
three times as much in textiles to the US than
all of sub-Saharan Africa.

That Africa deserves special treatment seems
an easy case to make.
But "right now it's a losing case," Hayes says.

The US government is keen to simplify its approach
to external trade, focus more on
the domestic economy, and rebuild relationships
damaged under the Bush administration
in other developing regions.

The American textiles industry is also lobbying
on behalf of Asia, where production costs and
scale remain most attractive.
US Trade Representative Ron Kirk summarized
the situation in more politically correct terms
at the conference, saying: "The answer to
extending US trade preferences to
other countries is to make Africa more competitive."

Stepping Back
To this end, the US is shifting its Africa policy
away from trade to focus on trade capacity building,
infrastructure development, and anti-corruption diplomacy.
The US Trade and Development Agency (USTDA)
invests much of its funding for Africa in
technical assistance for energy, power and
transportation projects.

The agency just announced it will help the
West African Economic and
Monetary Union (UEMOA) link its regional rail lines.

They are also training customs officials in East Africa
and port managers from Liberia, Ghana, Kenya
and Tanzania, providing technical assistance for
the Tanzanian Energy and Water Utilities Regulatory
Authority (EWURA), and working with
the Ugandan Department of Meteorology
to modernize weather mapping to facilitate plane passage
and provide reliable information for farmers.

It is estimated that in Africa, inefficient transportation
can add up to 50% of production costs.

Thus USTDA is on the right track – if it can do
anything to resurrect Africa's dilapidated railways
or improve port operation in Mombasa
or Dar es Salaam, it will go a long way
toward making the region's competitive
(even if that does not address the other obstacle,
corruption in these institutions).

USTDA also funds feasibility studies and offers
deal structuring expertise,
which are both in high demand as
the continent explores how to increase
effective public-private partnerships
for infrastructure development.

One project receiving some hype at the forum was
the proposed Dar-Isaka-Kigali rail line.
Mike Mohan, a retired rail consultant working
with the American rail company
Burlington Northern Santa Fe (BNSF)
to advise the Rwandan and
Tanzanian governments on the project,
says the studies and project plans
are nearly complete. If construction goes forward
on the line, which would be the fastest
in East Africa and cost between USD1bn to 5.5bn,

Mohan says it will cut the cost of shipping and
travel time through Tanzania in half: "When you do that,
" he said, "you not only hear the beautiful sound of
a locomotive whistle, you hear the sound of
an economy opening up." As usual
there have been some problems – East African
Business Week reported in July that Tanzania had
to cancel a concession agreement it had negotiated
with Rail India Technical and
Economic Services (RITES) to manage part of the project.

But Rwanda's ever-proactive President Kagame
has taken a leading role on making sure
the rail line goes through,
which should create some momentum.

USAID has also hired private consultants to work with
in Africa to provide technical assistance on
infrastructure deals and floundering
yet viable infrastructure projects.
And at least 70% of America's Millennium
Challenge Corporation's (MCC) USD4.6bn
African portfolio is now dedicated to
funding infrastructure projects in countries
that meet development benchmarks.

The idea is to reward countries already
on the right track.

Tanzania has made the cut, while Kenya and
Uganda are on the "threshold" waiting list.

The MCC uses much of its influence and cash
to mitigate the risk of setting up
infrastructure projects in Africa to the point
where private investors feel comfortable coming in.

This is a much more important role to play now,
following the global crisis, with
many investors saying infrastructure deals
that have some kind of donor participation
have a much lower rate of corruption
and higher chance of fiscal success.

Pessimistic Perceptions
It is easy to agree that these programmes will
do more to help Africa in the near term
than AGOA ever could.

Preferential access to a large market like the US,
which is driven by more diversified and
value-added demand than any African economy,
can improve competitiveness here.

But it will not change the price of electricity.
Kenyan textile firms undoubtedly advanced
their production skills through exporting
to the US under AGOA, but when left on par
with Asia following the end of the MFA,
it was electricity and fixed production costs
that made the difference.

One Kenyan businessman whose family
runs both a textile factory and sugar plantation
told us that he plans to start powering
his textile production through
the conversion of bagasse – the waste
byproduct of sugarcane processing – into electricity.

He estimated that this would bring
his costs down by more than 30% and
allow him to compete with Asian textile exporters.

This is telling, but also may be optimistic,
as it is difficult for one factory alone
to attract large western clients.

Many researchers have said that low-cost
manufacturing tends to cluster,
as it has in Asia, and once this happens
 it is very difficult for single factories or
countries to break into the market.

The conference presentation from Trevor Robertson,
who heads Ralph Lauren's outsourcing office
in Hong Kong, was full of pie charts dominated
by China and other Asian producers.

There is a good chance that this will not change anytime soon.

"He wasn't sold on Africa," Hayes says
of Robertson. Jordache Enterprises,
one of the largest American clothing companies
sourcing from Africa, is also feeling doubtful these days.
The company may have to pull its operations
out of Madagascar, which is in danger
of losing AGOA status because of
governance concerns following
a coup earlier this year.

Madagascar's rival political camps have just
signed a power-sharing agreement with
 provisions for elections in 15 months, but it is
not yet clear whether the deal will hold.

If Jordache does pull out, Hayes says,
"it will be decades before they, or other
companies who look up to Jordache,
before they come back to Africa."

American perceptions of Africa in
both political and private business circles
have soured recently, following a string of
coups, violent elections,
continued human rights abuses and corruption.

"Right now, there is a more pessimistic
view of Africa," Hayes says; for example,
at a private dinner held for Hillary Clinton
in Nairobi and attended by
various scholars and researchers,
"everyone around the table
felt Africa was going in the wrong direction."

At the same time, President Obama has made
it clear that African stability is a key concern
for America.
But pursuing that stability will not be easy,
especially as Obama faces high expectations
and limited funds in his attempt
to promote smart aid and good governance
while prioritizing US national security.

Obama is also in many ways rebuilding
US-Africa relations from scratch.
Authors from the US-based Center for Strategic
and International Studies recently released
draft excerpts from a new book called,

"Beyond the Bush Administration's
Africa Policy: Critical Choices for the Obama

They argue that an obsession with HIV/AIDS
funding under Bush through the PEPFAR programme
decreased the diplomatic and
institutional capacity of
America's overall approach to the continent.

Obama must now figure out how to
rebuild capacity in the Africa Bureau of
the State Department and USAID,
and integrate these agencies' efforts with
those by the MCC, USTDA, AFRICOM, embassies
and others to shape
a coherent African development policy.

This is of course no small task, as
American bureaucracy is nearly
as notorious as Tanzania's for
being stubbornly inefficient and resistant to change.  

For Kenya, it will continue to be
an uneasy relationship with America
going forward.
Clinton's brief stay in Nairobi appeared
ultimately more frustrating than fruitful.

The day before she opened
the ministerial portion of the AGOA conference,
Raila Odinga made a rather retrograde show
of telling the private sector forum
that African countries "don't need
lectures on how to govern ourselves".

He said this following one of
US Ambassador Michael Ranneberger's
now commonly ignored speeches about
how desperately America wants to see
reform and good governance
take hold in Kenya.

Clinton went on to hold private talks with
Kibaki and Odinga along this line,
from which no serious progress
could be discerned.

She was later shuttled off to share a stage
with Agriculture Minister William Ruto
on food security.
Ruto is widely regarded as one of
Kenya's most incendiary politicians,
amongst those suspected to have been
responsible for inciting last year's post-election violence,
and who was also allegedly involved
in the maize scam.

Between Ranneberger, Raila and Ruto, Clinton's visit felt like a charade.

The frustration apparently came to a head this week
in Kinshasa where Clinton went to speak out
 against the mass rapes raging in eastern DRC.

A translator mis-communicated a question from
a male student about President Obama's views and
asked Clinton instead what her husband,
Bill Clinton, had to say on the matter.

She snapped back that she is the secretary of state,
not her husband.

An unfortunate slip, but what woman would
not feel the same after spending a week
attempting to knock some sense
into a succession of Big Men?

This will be a difficult act for the US to keep
playing with Kenya and other African states,
with so much on the table yet so little to work with.

             J-L K.
Procurement Consultant
Gsm:    (250) (0) 78-847-0205 (Mtn Rwanda)
Gsm:    (250) (0) 75-079-9819 (Rwandatel)
Home:  (250) (0) 25-510-4140
    P.O. Box 3867
  Kigali - RWANDA
    East AFRICA
Blog: http://cepgl.blogspot.com
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