Africa’s Growth and Opportunity Act: Economic Policy Implications for Kenya

Abstract

The study examines the policy areas that Kenya needs to improve on in order to take full advantage of Africa's Growth and Opportunity Act (AGOA). The Act, as a new US trade and policy towards Sub-Saharan Africa, provides liberal conditions to Africa's exports to the United States. The situation is that Africa's products would enter the US markets under duty free conditions, subject to the rules of eligibility being met by the beneficiary countries. Kenya is one of the countries in Africa which is targeted by the Act. It suffers from the economic problems facing the continent, namely indebtedness, low export earnings, dependency on development assistance and low investment inflows among others. These are partly caused by weak internal policies and also by external factors. The consequence is widespread poverty among the population as a result of decline in economic growth and performance. In Chapter One, the background to AGOA is discussed and it is shown that the economies of Africa are characterized by myriad problems embodied in Kenya. It is particularly shown that trade policies of both the US and Africa to date are protectionist. African states also continue to suffer because the sectors, namely agriculture and manufacturing utilize outdated technology hence need to modernize them to be able to compete. The study also reveals that there is little integration of the sectors hence the linkages effects that generate economic growth cannot be exploited. In the circumstances that the economies of Africa in general and Kenya in particular experience downward trend due to some of the conditions referred to earlier, development assistance and the politics of debt serving become the order of the day. Since the aim of the AGO A is to promote trade and not aid as the US is convinced that trade and investments would sustain the economies, the study therefore utilized international trade development assistance, debt, foreign direct investment paradigms to guide the analysis. These are found to be relevant to the research area since AGO A main components deal with these issues. . The literature review explicates that the US economic policy towards Africa is defined in strategic terms only. In which case, US views Africa as a source of vital raw materials namely; oil and minerals. Trade, investment and aid are very small as compared to other continents. Those African states which process the oil and minerals critical to the US are the leading beneficiaries of US trade, investment and aid. Chapter Four is a critical treatment of the Act. Privatisation of public enterprises, which is one of the conditions African governments are expected to be committed to implementing is analysed. Its pros and cons are considered, however it is viewed that there should be sufficient evaluation before the enterprises are sold. The provision on textile and apparel is found to suggest that the US is still protectionist, showing gradual liberalization. Most important however is the fact that the limitless duty free market is not as is purported. AGO A is as limiting as the past regimes since the prevailing preferential treatment is bilaterally negotiated but can suffer from unilateral (US) ban. Findings on policy implications for Kenya are that it has made a considerable effort to improve its trade in textile with the US within two years of gaining eligibility. It has also realized minimal impact in investment and linkage effects brought about AGO A. However the incentive structure is far inadequate in relation to infrastructure, fiscal policies and regulatory frameworks. All have led to high costs of productions and to the uncompetitiveness of its products in the markets. A major area of concern is the state of the collapsed cotton industry which the study shows is still crippled. Kenya therefore needs to urgently develop a strategy and favourable conditions to revive the industry within the remaining two years the Act allows imports of duty free cotton yam from AGOA beneficiary country. Otherwise reliance on imports would adversely affect her production and trade in the same commodity.