Aid and Trade at the U.S.-Africa Summit

U.S.-Africa Leaders Summit

(Official White House Photo by Chuck Kennedy)

American trade with Africa has increased dramatically over the last two decades. At the Africa summit in Washington, the Obama administration has argued for “seamless renewal” of the core legislation shaping trade policy with Africa. Those words have been echoed at events organized by the Brookings Institution, Rep. Karen Bass (D-Calif.), the World Bank and the Chamber of Commerce. The Africa Growth and Opportunity Act (AGOA) deserves some credit for this trade expansion. But the evidence suggests that it has not been a substitute for inclusive, sustained development — especially in beneficiary countries with troubling governance records. Also, Congress will debate AGOA renewal in a different context compared to its initial passage. So how successful has AGOA been, and what’s different about the context of trade policy today?

Oil is consistently the top duty-free import from AGOA beneficiaries, accounting for 86 percent of such imports in 2012. This presents a challenge to African economies that are just starting to diversify and overcome colonial-era dependencies on natural resources. Also, because natural resource dependence feeds African autocracy, as a seminal academic study by Nathan Jensen and Leonard Wantchekon documents, Congress needs to find a way to ensure that trade benefits advance, rather than undermine, governance reforms.

Among non-energy products, apparel has seen the biggest gains under AGOA, and this is another message being broadcast this week at the summit. A study by economists Garth Frazer and Johannes van Biesebroeck found that apparel imports increased on average 42 percent. But combined with other products, such as agriculture and manufacturing, AGOA conservatively resulted in only a 6.6 percent increase in non-oil imports from Africa, with a modest impact on African GDPs. Moreover, “only a fraction of the observed export increases can be attributed to the act.” A study by Marcel Olarreaga and Caglar Ozden also found that “the main impact” of AGOA has been on apparel, and only seven countries (Kenya, Lesotho, Madagascar, Malawi, Mauritius, South Africa and Swaziland) have really benefitted. Finally, research published in the Journal of Economic Studies concluded that AGOA had a “positive but not significant effect on beneficiary exports to the USA for all country groups.” AGOA did contribute to an overall increase in trade volume, rather than diverting trade from Europe — the source of Africa’s traditional trading partners. This means that growth in trade is coming from new buyers, which is good news for trade as an engine of African development.

How will the debate on AGOA be different this time around? AGOA emerged during the “trade wars” of the 1990s: President Clinton pushed approval of the North American Free Trade Agreement, the World Trade Organization and a series of bilateral trade agreements. The emerging environmental movement argued that food safety and environmental laws should not be considered “non-tariff barriers to trade,” and that trade regimes should be able to punish polluters (much the same way that countries can be sanctioned for permitting intellectual property rights violations). Labor unions argued for worker rights because, as former Rep. Barney Frank (D-Mass.) explained, there is no point in trade agreements if consumers do not have the leverage to bargain for decent wages as workers.

Congress now has reliable, if mixed, data about AGOA’s record, and it faces very different contexts at home and in Africa, which experienced negative growth overall during the 1990s. “Trade not aid” was a mantra in the 1990s among those who sought cuts in foreign assistance, since the U.S. didn’t have to counter Soviet influence around the globe. The National Bureau of Economic Research found that “trade not aid” can be misleading, though: “Trade preferences can help create the conditions for growth, but they are not sufficient.” Even in Kenya, where AGOA has contributed to large increases in textile employment, a study in a leading political economy journal, World Development, concluded that “predatory” policies in Kenya, which it characterizes as common in Africa, impede AGOA’s full impact there. In sum, if you want development, it is hard to escape the tough conversations about democracy; promoting trade by itself is insufficient. The growth of the private sector in Africa cannot simply replace inclusive democratic policy processes. There’s more to trade than textiles, and oil exporters should be expected to meet new international norms of transparency and accountability. As George Soros told a summit side meeting on Monday, the fight for transparency will need constant renewal.

Governance is one of the three core themes of the Africa Summit. When the parties and panels are over this week, Congress should not forget what we have learned about aid and trade. AGOA has helped create jobs on both sides of the Atlantic, but it need not help Africa’s autocrats, as a number of participants emphasized at Bass’s event. For the dividends of growth in trade to benefit the continent’s youth — those responsible for lifting the “Africa rising” banner in the first place — democracy needs to go hand in hand with development.

Carl LeVan (@Dev4Security) is an assistant professor at American University and an Associate Fellow of IPS. He is the author of Dictators and Democracy in African Development: The Political Economy of Good Governance in Nigeria.