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Can U.S. trade help Africa?

August 11, 2009

Sudath Perera has every reason to be content. He started up his textiles factory outside the Kenyan capital Nairobi nine years ago; today, he employs 1500 workers and turns over between 18 and 20 million U.S. dollars a year.

“We are contributing to the local economy by creating employment,” he says. “And indirectly there are a lot of local suppliers also relying on us.”

Perera’s factory is one of thousands of businesses on the continent that are taking advantage of a U.S. trade programme under which certain goods from around 40 sub-Saharan African countries can be imported to the States duty-free.

It’s known as AGOA – the African Growth and Opportunity Act – and was one of the main reasons for U.S. Secretary of State Hillary Clinton’s visit to the continent.

“The ingredients are all here for an extraordinary explosion of growth, prosperity and progress,” said Clinton at the AGOA forum in Nairobi last week. “I know how important it is to translate legislation like AGOA into daily changes that people can look to.”

Many on the continent say they’re already feeling those changes. Textiles factory worker Christine Mwende didn’t have a job before Perera employed her; and though the 120 dollar-a-month salary she makes is low by Western standards, she says it’s made all the difference.

“This job has really helped me,” she told Reuters Africa Journal correspondent Vivianne Mukakizima. “When I started working here, my child had not started school – but he is now in class 4.”

Kenya’s minister of trade, Amos Kimunya, says his country is definitely seeing the benefits. “America is a huge consumer market, it’s a super-power,” he told Reuters. “We are doing business with Europe and America but we could do more and believe that the future lies in more trade not aid … not waiting for handouts.”

But handouts are exactly what’s making life so difficult for farmers on the other side of the continent.

They produce cotton, which should, in theory, go into making the textiles that African factories are exporting to the States duty-free. But cotton from Burkina Faso is struggling on the global market because it is competing with cotton from the United States, which is heavily subsidised by the American government.

It means that prices in recent years have been at their lowest point since the 1970s and experts say that if western countries stopped giving subsidies to farmers, global cotton prices could go up by as much as 28 percent.

“The framing of our market has always been to what I call developed country markets”, says Kenyan economist James Shikwati, who feels that African countries should focus more on trading with each other. “If developed markets subsidise their farmers it becomes very difficult for African cotton to access such markets. We have cases where farmers abandon the cotton farming itself because there is nobody to purchase their cotton.”

One small growth market is organic cotton, which many women in Burkina Faso are now turning to, because the pesticides that can cause fertility problems are not used – and because of the profit margin.

“With normal cotton you have to borrow money to buy fertiliser,” says farmer Juliana Dabire. “At the end of the season, when you take your money, it’s not always possible to make a profit. But I have almost no debts to pay after cultivating. So when I finish, I can keep all the money that they give me.”

The 250 dollar net profit that she made last year helped feed 9 children, repair her house and buy bicycles for her two eldest sons.

But even though organic cotton from farmers like her goes into making Victoria’s Secret underwear, she herself buys all her clothes second-hand.

It is the other major competitor for African textiles: the clothes that are donated by individuals in the West, but that become a thriving informal industry once they reach Africa. A shirt in one of the millions of second-hand markets on the continent can retail for as little as 1 dollar – less than the cost of producing one new.

In spite of the incentives, trade from Africa still accounts for a tiny percentage of global business. America, which champions itself as a big supporter of African industries, only gets about 3 percent of its total imports from Africa.

Economic analyst James Shikwati said: “AGOA is very clear that they are looking at the interest of America in terms of how to grow business in Africa. So what we need to do as Africans is to ask ourselves how can we develop our own interests? Because you are not going to benefit if you have no interests at all.”

(Photos: Workers load cotton on a truck in Dibien village in Burkina Faso in March 2009. Reuters/Katrina Manson. U.S. Secretary of State Hillary Clinton in Pretoria on Aug. 7. Reuters/Siphiwe Sibeko)

Comments

Why no mention of the Chevron initiative in Angola? Isn’t that the real trade initiative that is being pushed, here?

See this story:

“SAN RAMON, Calif., Aug. 11 (UPI) — Supermajor Chevron Corp. announced a partnership with U.S. agencies to foster the development of a diversified and sustainable Angolan economy.”

“Chevron, the U.S. Agency for International Development and the Cooperative League of the United States of America unveiled a new partnership in Angola to help improve the commercial prospects for small- and medium-scale farms and agricultural enterprises in Angola…”

“…Its $3.8 billion Tombua-Landana project, expected to come online in the third quarter of 2009, will reach a peak production level of 100,000 barrels of oil per day by 2011.”

Posted by C.C. | Report as abusive
 

The Cynic might argue that AGOA was the Veil that was thrown around the real story, which is getting Crude out of the ground. I am not that Cynic.

I think for the most Part, African Countries and their Entrepreneurs have been very fragmented and we have lacked coordination. The US is an enormous market and AGOA goes someway to removing the Toll Booth. The arrival of the c21st and Internet allows us to leap frog the Infrastructure Gap and reach directly into the US Heartland. Its a little disjunctive but there are rich pickings for smart African entrepreneurs with smart Governments behind them.

Aly-Khan Satchu
http://www.rich.co.ke
Twitter alykhansatchu

 

I just wanted to mention that Christine Mwende’s child could easily go to school, even without the mothers job. Of course, she has to pay for transport, uniform and for food.
But there shouldnt be any fee for schools in Kenya. Officially, primary education is free. But in real, Kenyan teachers take still money from the kids and their families, otherwise children are chased away.
I guess, every economic effort goes side by side by educational efforts. Eduaction should never be corrupted. Otherwise it will never be spread..

 

It’s a complex balance. Desperate people need aid, but food donations drive down local prices and put farmers out of business. Governments are corrupt and infrastructure is lacking. Can capitalism save the day? Will trade and business investment help poorer countries grow and prosper? Can outside trade partners and investors encourage environmental responsibility and fair distribution of wealth? So hard to tell, but it does seem to be the new strategy. If the West doesn’t do it, China will. I just hope it’s good for the continent.

Posted by Sandy | Report as abusive
 

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