PACCI UPDATESMAKING
PACCI UPDATESMAKING AFCFTA EFFECTIVEWhat we can learn from AGOA.By Kebour Ghenna, Executive Director, Wincate Muthini, Senior Project Manager, Pan African Chamber of Commerce and Industry (PACCI).Oil exports dominated AGOA transactions.TThe African Continental Free Trade Area (AfCFTA), hailed as Africa’s most ambitioustrade initiative, promises to unlock intra-African trade, boost industrialisation and driveeconomic growth.Yet, as we gear up for full implementation, valuable lessons can be drawn froman earlier initiative – the African Growth and Opportunity Act (AGOA). Signedinto law by the United States in 2000, AGOA aimed to increase US-Africa trade byoffering duty-free access to the US market for certain African products. While AGOA’sachievements have been noteworthy, it fell short in fully realising its potential for manyAfrican countries. Ethiopia, for example, lost its eligibility under AGOA in 2022 due tohuman-rights concerns in the context of the Tigray conflict, which caused a significanteconomic blow to industries like textiles that had benefited from the agreement. As wereflect on AGOA, we can shape AfCFTA into a more effective, dynamic and sustainabletrade framework.AFCFTA MUST AVOID AGOA’S PITFALLSMarket access vs utilisation. AfCFTA should invest in industries: AGOA providedsignificant market access, with over 6 500 products qualifying for duty-free entry intothe US. Yet, despite this, many African countries failed to fully utilise the opportunity.In 2019, only 13 of 39 eligible countries made full use of AGOA’s benefits, with thebulk of exports dominated by a few countries such as Nigeria and Angola, largely inoil. AfCFTA must address this challenge head-on. While it offers access to a market of1.3-billion people and a combined GDP of over -trillion, market access alone is notenough. African businesses need robust support to compete on the continental stage.This means AfCFTA should invest in building up industries like agriculture, textiles andmanufacturing, providing them with the capacity to grow and expand across borders.Reducing Non-Tariff Barriers (NTBs). AfCFTA must simplify trade rules: One ofAGOA’s greatest obstacles was the difficulty African exporters faced in meeting USregulatory standards. Many businesses lacked the capacity to comply with complexsanitary and phytosanitary standards for agricultural goods, which hinderedmarket access.Regional integration and infrastructure. Learning from AGOA success stories:Countries like South Africa and Kenya benefitted more from AGOA due to theirinvestments in regional infrastructure and integrated industries. For example, Kenya’swell-organised textile sector capitalised on AGOA, while South Africa’s sophisticatedmanufacturing base made it a leading exporter to the US. For AfCFTA to succeed, Africamust invest in its infrastructure, harmonise customs procedures and build transportnetworks that connect the continent. Currently, intra-African trade represents only 15%of total trade, compared to over 58% in Asia . The East African railway network and thedevelopment of pan-African energy infrastructure, like the Inga Dam, are examples ofregional projects that could drive economic integration.PHOTO: Eni6
Well-organised textile sectors capitalised on AGOA.Trade diversification. AfCFTA should promote industrialisation: AGOA’s tradeprofile was dominated by oil and raw materials, with little diversification into valueaddedproducts. In fact, petroleum products accounted for around 90% of AGOAexports between 2001 and 2014. This over-reliance on extractive industries limitedAGOA’s potential to drive long-term economic transformation. AfCFTA offers a freshopportunity to reverse this trend by encouraging the development of regional valuechains, particularly in manufacturing and services. Promoting industries like agroprocessing,textiles and pharmaceuticals could reduce Africa’s dependence on rawmaterials and foster industrialisation. For instance, Kenya’s success in expanding itsapparel exports to the US under AGOA highlights the importance of diversificationefforts that benefit local industries.AfCFTA must prioritise reducing NTBs within Africa, ensuring that businesses arenot burdened by excessive red tape. The World Bank estimates that eliminating NTBscould boost intra-African trade by 60%. Simplified trade rules, harmonised standardsand investment in trade facilitation will ensure that businesses across Africa can competemore effectively.The role of the private sector. A key to success: Private-sector engagement was a keysuccess factor for countries that maximised their gains under AGOA. In Ethiopia, forexample, private-sector-driven industries like footwear and textiles flourished, althoughthe recent AGOA suspension has impacted their growth. AfCFTA must actively involvethe private sector in policy formulation.Empowering women and youth. Unleashing Africa’s economic powerhouse: AGOAcreated jobs, particularly in sectors like textiles, where women formed the majorityof the workforce. However, many women and youth were unable to access the fullbenefits due to barriers such as limited access to finance and business training. SMEs,which account for 80% of employment and 50% of GDP in Africa, must have a seatat the table when it comes to trade negotiations. This will ensure that trade policiesreflect the realities of African businesses and promote innovation, investment andjob creation.AfCFTA can learn from this by making gender and youth empowerment centralto its trade framework. Targeted programmes that support women entrepreneurs,provide access to finance and promote youth-led businesses will help ensure thatAfrica’s burgeoning workforce benefits from the new trade landscape. The AfCFTAProtocol on Women and Youth, currently under negotiation, should play a key rolein addressing these challenges and fostering inclusive growth across the continent.KEY LESSONS FROM AGOANarrow export base and limited diversification: Under AGOA, Africa’s exportswere dominated by raw materials and petroleum, with little diversification intovalue-added sectors. This limited AGOA’s potential to drive sustainable developmentand industrial growth.Harmonising customs procedures will be important for the new free-trade agreement.Success dependent on infrastructure and regional integration: Countries that benefittedmost from AGOA, such as Kenya and South Africa, had invested in strong regionalinfrastructure and developed industries capable of meeting international standards.Non-Tariff Barriers as obstacles: Many African exporters struggled to comply withUS regulatory requirements, particularly in sectors like agriculture, where sanitary andphytosanitary standards were stringent.Private sector and institutional support gaps: AGOA’s impact was muted in part becauseAfrican countries did not fully engage their private sectors in trade-policy discussions,nor did they leverage institutional support such as chambers of commerce and industryassociations effectively.RECOMMENDATIONS FOR ENHANCING AFCFTA’S EFFECTIVENESSStrengthening institutional support: the role of chambers of commerce andindustry associationsRecommendation: National and regional chambers of commerce, industry associations andtrade bodies should be central players in AfCFTA’s implementation. These organisationscan provide critical support in capacity-building, advocacy and promoting intra-Africantrade among SMEs.Action: Establish a formal mechanism within AfCFTA’s secretariat to regularly engagethese institutions in trade policy formulation and implementation. Regional chamberscan act as focal points for disseminating information about AfCFTA’s opportunitiesand facilitating cross-border trade partnerships.Expected outcome: Increased participation of SMEs in intra-African trade, fosteringbusiness-to-business linkages across the continent.PHOTO: World Bank7
