16 Jul 2014

In May 2000, the United States opened its markets to clothing and apparel imports from Africa through the African Growth Opportunity Act (AGOA). 

The main objective was to boost trade and industry in Africa by providing African goods and services with access to the lucrative and sustainable markers in America.

Botswana rushed to embrace this once in a lifetime opportunity as it complemented the nation’s efforts to boost export trade and diversify the economy. 

Around 11 companies immediately set in motion initiatives that would take advantage of AGOA and there was widespread optimism that finally Botswana companies would be able to compete on an equal footing with multinationals on the international market.

 But that was not to be. Fast forward to 2014, the number of companies taking advantage of the AGOA initiative had dwindled down from 11 to one. Botswana’s textile industry went through a rough patch that ultimately affected exports to the US markets. 

All this was blamed on the constant production challenges the continent was facing, which make it difficult for Africa to penetrate the US market. 

Thus, notwithstanding the over 6 500 product lines eligible under AGOA, only one company in Botswana is currently benefiting under this act which expires in September 2015.

Permanent secretary in the Ministry of Trade and Industry, Ms Banny Molosiwa admits that the minimal uptake of the AGOA programme does not bode well for Botswana.

However, she contends that AGOA was immensely beneficial to those companies that used it and it contributed immensely to increased clothing and apparel exports to the US between 2001 and 2008. Currently, Carapparel is the only company that is currently exporting garments to the US. 

The biggest challenge for Botswana companies, said Ms Molosiwa, is lack of raw materials, because Botswana is a net importer of inputs. She said the high costs of transport and logistics in a landlocked country like Botswana are an impediment for local companies to export through AGOA.

“Local companies have to import raw materials from faraway places like Asia and Europe. 

They then have to incur additional costs of exporting the finished products to the USA. All of these escalate costs and end up disadvantaging companies,” he said.

Over the last few years, AGOA was extended for short term periods, which caused a lot of uncertainty and made it difficult for companies to plan accordingly. 

Ms Molosiwa also explained that many local companies have limited production capacities and have not adequately diversified their products, which make them uncompetitive. 

 In addition, the US rules of origin are a challenge for most companies.

The rules of origin are a set of laws, regulations, and administrative rulings that are applied by various governments to determine the origin of goods, services or investments.

“These rules can have significant bearing on the costs of a product in the import market and therefore its competitiveness,” said Ms Molosiwa.

For her part, acting director of Botswana Exporter and Manufacturers Association (BEMA), Mrs Sthembile Tawengwa, believes local companies fail to take advantage of AGOA because the parameters set on quality are stringent. She explained that BEMA has a total of 114 members of which 75 of these companies are exporting into the region and international markets. However, she said none of these companies export USA or benefit from AGOA.

“Input costs are very high in Botswana when compared to other countries in the region which have incentivized production. As a result it is difficult to be competitive in pricing within the AGOA market.  

The local company that is benefiting from AGOA is only able to do so because it has a presence in Asia, which makes it cheaper for them to source fabric and to locate buyers, not because it is doing anything different from local companies,” she said.

Mrs Tabengwa also revealed that the other local company that benefits from AGOA is a jewellery manufacturer of Asian origin which has set markets within AGOA. 

However, Mr Tabengwa believes AGOA is a good opportunity that will encourage companies in Sub Saharan Africa to forge partnerships with their counterparts in the US. The only solution to the problem, she said, would be for Botswana to adopt production based incentives, capacity building incentives and lower the import duties. She also called for more assistance to the manufacturers. 

Meanwhile, Ms Molosiwa said it is not easy to determine the contribution that AGOA made to Botswana’s economy. 

However, she revealed that the value of exports to the US for the period of 2001-2008 increased from US$2.2 million to US$16.6 million.

She said there was a decline after 2008, because some companies closed down while others stopped exporting because of the economic recession. ENDS