The shift in focus on the development of the African region
The African Growth and Opportunity Act (AGOA), passed in the United States in 2000, has played a central role in stimulating sub-Saharan economic progress and strengthening their co-operation with Washington. However, despite the growth in African industry and supplies achieved through cross-state collaboration, the United States has failed to significantly reduce poverty and social inequality in the region. Consequently, in July 2024, U.S. senators put forward a bill to amend AGOA, which seeks to revise existing provisions to address inequality and narrow the gap in the utilisation of export quotas in African countries.
The origins of a mutually beneficial relationship
AGOA is based on the principles of the Generalised System of Preferences, which involves the introduction of a preferential customs tariff mechanism for more than 6,000 agricultural and manufactured goods exported from developing African countries. Currently, 32 African nations are able to take advantage of the law, allowing them to ship their goods more freely to the U.S. market.
Each year, the US President analyses the geopolitical situation in partner countries to determine which of them are eligible to receive foreign investment and tariff quotas for duty-free imports. Under this programme, preferences can be given to countries that demonstrate success in the formation of a market economy, guarantee the observance of citizens' rights, as well as promote free international trade and the inflow of American investments. In addition, such countries are not allowed to engage in actions that could harm U.S. foreign policy and security. Over the past decade, the main factors in the suspension of trade benefits have been political changes caused by coups d'état during changes in government. Since the law was passed, 12 countries have been excluded from the AGOA programme, and Equatorial Guinea and Seychelles independently withdrew from cooperation after achieving "high-income country" status.
By granting free access to the American market, the United States, in turn, gains special access to the strategic raw material resources of African countries. Since the start of the special military operation in Ukraine, crude oil and petroleum products have become the most demanded goods under the trade initiative. In 2023, the share of crude oil in the total imports of AGOA partner countries was $4.2bn out of $9.7bn, and its main suppliers were Nigeria, Ghana and Angola. This fact has drawn criticism from the international community, questioning the goals of the African Growth and Opportunity Act, as the trade preferences provided allow the US to freely purchase fuel for its needs and minimise the impact of sanctions on Russian supplies. In addition, many international experts argue that the increased demand for oil and gas from African states as part of the US trade programme contradicts global climate goals to reduce the production, trade and consumption of fossil fuels.
In addition to gas and oil, Washington is also attracted to Africa's critical mineral reserves. For example, after China imposed an export ban on graphite, which accounts for about 79% of the world's annual supply, the United States turned its attention to Madagascar, Mozambique and Tanzania, whose combined reserves are estimated at 69 million tonnes and significantly exceed those of China (52 million tonnes). Also on the African continent 5 deposits of rare earth metals are being developed, with reserves accounting for 2% of the world's production. According to analysts of S&P Global Commodity Insights, by 2027 lithium production in African mines will increase more than 30 times due to foreign investments. Africa will account for 12% of global supplies, with Mali, the Democratic Republic of Congo and Zimbabwe among the continent's top producers.
The Republic of South Africa Situation
Since 2023, tensions in diplomatic relations between the United States and the Republic of South Africa (RSA) have peaked due to the country's participation in the Mosi II joint naval exercise between Russia and China. In addition, U.S. lawmakers have questioned the appropriateness of South Africa's participation in AGOA due to the republic's reaching the status of a “high-income developed country”. According to the Office of the U.S. Trade Representative, South Africa is the top exporting country under the trade initiative, with $3.6 billion in exports through 2022. However, the republic's exclusion from AGOA could have a serious impact on the United States, as critical minerals that Washington relies on are largely sourced from the Republic of South Africa. Since the start of the special military operation in Ukraine, the U.S. has fully supplied itself with chromium from South Africa, as well as more than a quarter of its demand for manganese, titanium and platinum used in the production of defence products and electronic devices.
However, for the republic, withdrawal from this project may be seen as a strategically disadvantageous step - in the long term, it will have a negative impact on its economy. In addition, it will lead to the withdrawal of American companies from the country, a reduction in production and worsening conditions for exports, and in the case of South Africa's exclusion for political reasons, the consequences could be even more serious, including a decline in market confidence, an outflow of investment and a fall in the value of the national currency. However, Cape Town has alternative partners in the form of Russia and China, which are interested in developing trade and economic ties with the African country in various areas.
Legislative modernisation
In July 2024, during the AGOA forum, US senators introduced a bill to extend the African Development Programme for another 16 years and proposed changes to the text of the law, including new provisions to control member countries - holders of trade preferences - and to provide certain presidential actions in cases where an AGOA member's public policies do not meet the programme's eligibility criteria. These would address inequalities and narrow the gap in the utilisation of export quotas in African countries. For example, the bill's sponsors, Senators Chris Coons and James Risch, have proposed expanding the provisions on out-of-cycle review by entrusting the authority to conduct them, on an equal footing with the President, to Congress. The Chairman and any other Ranking Member of either committee of jurisdiction could then jointly send a letter calling for an out-of-cycle review, which the Executive Branch would have to carry out immediately. However, the document is still awaiting approval from Congress and the administration of US President Joe Biden.
In the context of geopolitical instability in the region, the US Government is actively supporting local companies and start-ups entering the African market, as well as encouraging investments in various manufacturing sectors, which helps to reduce risks and improve the efficiency of investments. As a consequence, US lawmakers consider it necessary to add new clauses to the text of the document, which would require the beneficiary country to develop strategies for the utilisation of all investments and benefits provided. The participation of representatives of the Office of the U.S. Trade Representative, the U.S. Department of the Treasury and the U.S. Agency for International Development in the preparation of such a document will be mandatory.
Many experts are also considering the option of introducing a loan programme under AGOA, similar to the one in the Inflation Reform Act (IRA). It is believed that this would be done in order to encourage US firms to open new facilities and create jobs for African residents. Alternatively, it is proposed that the IRA should be amended so that the law's preferences apply not only to states with which the US has free trade agreements, but also to AGOA members. Thus, all the above changes are aimed at securing US supply chains as the continent is currently in a struggle for resources and markets between the US, European Union countries and Asia.
Despite the primary purpose of the African Growth and Opportunity Act, U.S. partnership with AGOA countries plays a strategic role for Washington specifically in the area of mining and mineral supply. By deepening cooperation with African states, the United States is attempting to reduce the influence of Russia and China in the region, as well as its dependence on supplies of critical minerals from these countries. For this reason, the inclusion of an appropriate provision in AGOA could be key to facilitating African producers' access to the tax preferences of the Inflation Reduction Act (IRA), bypassing the need for formal free trade agreements. Otherwise, AGOA may not bring significant benefits to either African states or the US, and the weakening of economic diplomacy could negatively impact the economies of all the countries participating in the trade initiative.
