Kenya is one of the top five beneficiaries of the US-Africa trade initiative, the African Growth and Opportunity Act (AGOA). It also had the second highest occupancy rate in 2018 as over 70% of its US exports were covered by the program.
The trade pact, established in 2000, grants Sub-Saharan Africa the most liberal access to the huge US market, which is available to any country or region with which Washington does not have a free trade agreement. The initiative had a significant impact on stimulating trade between Africa and the US. Exports to the US from eligible African countries increased by over 272%, from $ 22 billion in 2000 to $ 82 billion in 2008.
Probably due to COVID-19 disruptions, exports fell to $ 18.4 billion in 2020. Despite these fluctuations, Africa maintained a positive trade balance with the US over the 2000-2020 period thanks to AGOA-enabled products. By 2017, the trade initiative had created over 300,000 jobs in sub-Saharan Africa, many of them in the clothing sector.
We recently carried out a country case study in Kenya on the implementation of AGOA between 2000 and 2016. We found that Kenya’s total exports to the US increased by $ 443.2 million (or 405%) from $ 109.4 million to $ 552.6 million during that period. By 2020, the number had risen to $ 569 million, with most of the country’s exports coming from eligible products.
Viewed differently, Kenya’s average annual exports to the US in the nine years prior to the trade program (1992-2000) were $ 101 million. In the nine years thereafter (2002 to 2010), average annual exports to the United States rose to $ 305 million. They continued to rise to an average of $ 557 million between 2012 and 2020.
In addition, unlike the 1990s, Kenya had a positive trade balance with the US, averaging $ 158 million a year since 2016.
Kenya’s exports to the US under this program have allowed the country to develop a sizable textile and clothing export sector. In 2016, Kenya had 111 companies in its Export Processing Zones that produced the majority of its exports, valued at $ 634 million. Calvin Klein and Tommy Hilfiger are some of the US brands that buy Kenyan apparel and apparel products.
The sector employed 52,000 workers, used more than $ 250 million in local resources, and attracted more than $ 710 million in total investment. However, Kenya’s apparel export sector is largely dependent on the US market. This over-reliance on the US market should worry Kenya as it makes its apparel sector vulnerable to unpredictable fluctuations in the US market.
While Kenya’s non-textile exports to the US – mainly coffee, tea, nuts, and cut flowers – also grew in the 2000-2016 period, their growth rate was less impressive.
On a social level, AGOA has also contributed to creating jobs for marginalized groups such as women and young people. However, we found that working in these clothing companies was associated with poor working conditions, low wages, temporary work and sexual harassment of female workers.
We also found that Kenya, like many other eligible countries, under-uses AGOA, with the non-textile sector being almost neglected. Whether or not the US-Africa trade program is extended after it expires in 2025, Kenya’s experience shows many political implications for the country and other member countries.
Targets of the trade pact
The African Growth and Opportunity Act was enacted by former US President Bill Clinton. Its main goals were to diversify the region’s export production, expand trade and investment between the two destinations, and accelerate economic growth in sub-Saharan Africa.
These would be achieved in a number of ways. First, the dismantling of tariff and non-tariff barriers. Second, negotiating trade agreements. Third, the integration of the region into the world economy. Finally, the expansion of US aid for regional integration in Africa.
Its main aim, in many ways, was to support the ability of African economies to harness the textile and clothing sectors as potential engines for industrialization and economic growth. In that sense, it reflected similar success in South and Southeast Asia.
Much of the export growth to the US from Kenya and other non-oil exporting countries comes from the textile and clothing sectors. There has been a relatively mild response from other sectors of the economy. These countries can make better use of the US trade initiative by not basing their exports as heavily on some of the thousands of eligible products.
Lessons for Africa
In our study, we found a number of policy loopholes in Kenya that are relevant to other African countries. For example, trade opportunities are largely determined by US trade policy rather than the region’s competitive advantage. In addition, the US dominates the terms of the renewal of the pact. We believe that eligible countries like Kenya should look beyond the US-Africa program and diversify their markets accordingly.
Second, African countries should ensure that their apparel industries are globally competitive in order to get the most of their apparel exports to the US and enter new global markets. They should be well supplied with the inputs and infrastructure they need to thrive. Improvements in the transport infrastructure, for example, would accelerate the transport of inputs and finished goods and reduce costs.
Third, most of the investments in Kenya’s export processing zones are foreign-owned. There is also a huge pay gap between Kenyan and overseas workers due to the roster of jobs and skills these two types of workers possess. Hence, capacity building is required to produce a critical mass of professionals who can lead the country’s textile and agricultural processing industries in order to maximize their profits from current and future trade opportunities.
Countries in the sub-Saharan Africa region should also strengthen their regulatory framework. This includes mechanisms to enforce laws related to labor law and other forms of human rights protection provided for in the US-Africa trade pact. This would ensure that women and youth workers in Kenya’s export-oriented companies are protected and can benefit from this trade program.
These countries should also create a favorable export policy environment that is globally competitive in order to attract significant manufacturing investment to the region. In Kenya this is currently being undermined by high levels of corruption and mismanagement. There is also a significant amount of political instability, mainly caused by the country’s ethnically based and extremely competitive elections, particularly at the presidential level.
The country now has a new decentralized government structure that promises to contribute to a calmer national political environment. However, Kenya needs to do more to hold credible elections and potentially dilute its presidential power that fuels its overly competitive, bitter and constantly destabilizing elections.
Finally, Kenya and other African countries should strengthen their trade negotiation skills in order to make the most of new international trade deals. In today’s world, the difference between winning and losing in trading depends largely on the ability to negotiate good trades. Hence, not only must African countries invest in high quality capacity building training for their trade negotiators, but they also need to hire, retain and empower the right people for these roles.
Kenya is in the process of negotiating a free trade agreement with the US, the first such agreement between the US and a sub-Saharan African economy. If this succeeds, it would be the most important trade development in the region since the AGOA came into force in 2000.