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 Administration." 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.   Perspectives 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.

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