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Agoa has rich export opportunities, if Kenya is interested

Monday February 8 2016

By BITANGE NDEMO
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Last week, I promised to explore the opportunities presented by the African Growth and Opportunity Act, commonly known by its acronym, Agoa.

This law constituted a ground-breaking American policy towards Sub Saharan Africa and came into effect in May, 2000, during President Clinton’s administration. 

Its purpose was to assist the economies of sub-Saharan Africa gain access to the United States market. 

Initially, it was envisaged that it would take 15 years. However, in June 2015, it was extended to 2025.

The Act covers more than 6,000 products than can be exported to the US on preferential trade terms, but Sub Saharan Africa has never exploited it fully. 

These products range from live animals to all sorts of meats, milk and milk products, eggs, nuts and fruits. The list is long and covers virtually all what we have in excess here, but information on how these opportunities can be exploited is lacking.

A number of studies show that Agoa has had a significant impact on export trade from Africa but the continent needs to do still more in order to exploit the opportunity fully. 

For this article, rather than attempt to analyse the entire product list, I will focus on two areas, textile and fisheries. These two also happen to be areas that Kenya’s government has committed to developing. 

In textile, Africa is exporting less than 2 per cent (about $ 1 billion) of the potential market Agoa yet we have abundant land to grow cotton, and labour resources.  

McKinsey & Company in one of its articles, East Africa: The Next Hub for Apparel Sourcing, predicts that Ethiopia and Kenya will constitute a major textile hub.   

There is even an unconfirmed story  that Kenya, like Ethiopia, is contemplating building a textile city.  If it gets done, it would be a brilliant idea that would create jobs and reduce poverty.

Preferential treatment into the huge US market is a great start for any country. 

Access to this market has enabled many countries to transition into middle-income status, and was the backbone of virtually all the Newly Industrialized Countries (NICs) of Asia, sometimes referred to as Asian Tigers. 

How we can leverage this opportunity to create African Cheetahs ? I see two major challenges, which, if overcome, would see Kenya rise as one Cheetah. 

The first one, which is easy to deal with, is infrastructure, especially cheap power that will make Africa competitive in the global market.  I will come to this later. 

The second challenge, which is more complex to overcome, is our defeatist culture. We tend to surrender even before we try. We manufacture every imaginable excuse why we cannot compete but fail to commit to try like everyone else did.

BREAK DOWN THE INDUSTRY

On energy, God has blessed us with opportunities for green energy.  Already, wind power is operational in Marsabit. Geothermal energy comes from Naivasha, hydro power is generated in  Masinga  and solar power can be tapped in virtually all parts of the country. 

We need to move production centres to sources of power.  This will result in dual benefit, i.e., cheap power as well as cheaper accommodation, which is a major cost driver.  China has used this strategy to bring development into rural communities and pulled millions of people out of poverty.

Our crisis of confidence in relation to the global markets can only be dealt with if we register successive small wins in enterprise.

If we were to succeed in clothing our people with locally-produced textiles and close the mitumba (used clothes) market, it would be a major physiological win. 

We should also create collaborations that fast-track our learning curve so as to independently exploit the entire textile value chain.  Successive wins will strengthen our resolve to succeed and compete in the global market.

Members of the Muluanda cotton ginnery stand in
Members of the Muluanda cotton ginnery stand in a cotton mound in the ginnery store in Busia County on October 21, 2015. Farmers blame the influx of imported new and second-hand clothes for the industry's struggles. PHOTO | TOM OTIENO | NATION

As I wrote last week, we must create closer collaboration with universities to deepen learning, create new programs in design and foster the interface between research institutions, government and industry.

There must a deliberate effort to support capacity building in every sector for sustainable development.

Virtually all textile enterprises in Kenya are foreign owned. There is a likelihood that one day, they will leave, pushing the entire nation back to square one. 

There is power in local collaborations. Already, through the locally developed chama concept, members can find increased investment opportunities in areas that an individual would have found difficult to invest in alone.

Chamascan enable us take advantage of the glaring entrepreneurial opportunities. Often people invest in replicative enterprises with no window for making money simply because the market entry is easy.

High cost of textile equipment may seem a major barrier, but one can break down the industry into segments, start anywhere along the supply chain and grow into the more complex areas of the industry.

Creating an industry association may help local investors to develop both the capacity and means to to scale up the business. 

The resurgence of the Kenya National Chamber of Commerce is in itself an opportunity to create an environment to share and disseminate industry information.

MARINE SCIENCES

The fish industry in Kenya, although highly lucrative, is hardly exploited especially for exports to the United States under Agoa. 

Perhaps it is worth knowing that piracy in Somalia started as a result of fishing in the rich waters of the Indian Ocean. 

Many fishing crews, especially from the Far East, come here to fish, mostly in the months of January to July, a period that coincides with the period tuna fish come into the warm waters of East Africa to spawn. 

If you compare our fish revenues with those of countries with marine resource similar to ours, you will see we are virtually asleep.

We can change this by developing greater capacity. Universities at the coast should introduce programs in Marine Sciences and support the government with research activities that can improve the exploitation of marine resources.

Instead of fighting those who trawl our coastal region in search of fish, we should invite them to collaborate with local fishermen and begin exporting fish formally around the world, including the US under Agoa.

We must also support local entrepreneurs with cold storage and other infrastructure.

Our freshwater fish such as tilapia and trout are delicacies that market themselves globally, yet they are not completely developed. We ought to celebrate such fish through festivals to unearth different recipes and increase their local consumption. 

Brand them like the Norwegian Salmon and set up a global distribution network.  It is not farfetched to imagine a chain of health food restaurants based on fish.

Next week I shall continue with the Agoa product list and explore more opportunities that are likely to create employment and reduce poverty.

Thomas A. Edison, the inventor of the electric light bulb said, ‘Opportunity is missed by most people because it is dressed in overalls and looks like work.’  Reading through the Agoa product list may look like work, but that is where opportunity lies. 

The writer is an associate professor at University of Nairobi’s School ofBusiness.Twitter: @bantigito