American Chamber of Commerce in Ghana (AMCHAM), the African Growth and Opportunity Act (AGOA)’s Trade Resource Centre (ATRC) at the Ghana National Chamber of Commerce and Industry (GNCCI) and the USAID’s West African Trade Hub (WATH) held the first in a series of information and education workshops on May 27 at the Fiesta Royale Hotel, Accra.
resent at the well-attended event were Dr Ekwow Spio-Garbrah, the Minister of Trade and Industry, MelinderTabler-Stone, the Charge d’Affaires of the US Embassy in Accra, Joe Mensah, the Board Chair of AMCHAM and the Country Manager of Kosmos Energy, Angela Kyerematen-Jimoh, an executive of AMCHAM, KwesiAmanfu, Head of Special Projects at the GNCCI, Jeff Povolny, Chief of Party of the WATH, Directors of MoTI, Simon Madjie, Executive Secretary of AMCHAM, Ghanaian business people, policy makers, among others.
AGOA is a US legislation that accords duty-free treatment to over 6,400 products exported by 37 beneficiary Sub-Saharan African (SSA) countries into the US. It also provides beneficiary countries with the most liberal access to the US market than any other country or region that has not negotiated a free trade agreement with the US. The AGOA Act was passed in 2000; the Act expired in June 2015; and has been extended to 2025. Despite the Act coming into force in 2000, Dr Spio-Garbrah, who was the Ghanaian ambassador to the USA at the time of the congressional debates on the AGOA Bill, said discussions on the Bill began long before it became public. “I used to be Ghana’s ambassador to the United States and indeed it was during my era, between the years 1994-1997, during the Clinton Administration that the whole concept of AGOA was first mooted and when some of us as ambassadors had to meet on a monthly basis to begin to take strategic decisions on what Africa’s position should be in coming up with the AGOA agreement,” the Minister disclosed.
The objective of the workshop was to increase awareness of exports under the AGOA for members of both chambers, and is part of the WATH’s efforts to make companies and enterprises in Ghana more competitive and ready to take maximum advantage of AGOA. Aside providing quota-free access to the single largest market in the world, it provides beneficiary countries with a significant competitive advantage over non-AGOA countries which must pay normal tariff rates to the US government. This is especially true in the cases of the products with very high US tariff rates on apparel (clothing), footwear and agricultural produce. AGOA can provide export diversification and help local business people to build partnerships with their US counterparts and increase their supply value chains.
Ghana has reaped some benefits from the AGOA initiative which Melinda Tabler-Stone, the Charge d’Affaires of the US Embassy in Accra, remarked. “Since 2001, these [AGOA apparel exports] have expanded from a US$250,000 to more than US$9 million last year. With investment partnerships from US companies, and technical assistance from the USAID, we fully expect to see another large increase in exports in 2016 with the potential to provide employment for thousands of people.” Gerald Nyarko-Mensah, the Director of Export at the MoTI, gave a historical account of Ghana’s performance under AGOA from its inception until now. In 2001, Ghana had a modest beginning with a total of US$390,000 exports. In 2002, the government established the Presidential Special Initiatives (PSI) which has nine government-supported factories specifically to export, using the AGOA scheme, the country made revenue of US$1.2 million. All these companies were exporting apparel to the US. By 2006, there was an astronomical revenue generation of US$9.5million from 10 AGOA-exporting factories which employed 4,000 workers in total.
Global economic crisis
From 2007, the global economic crisis (better known as the Credit Crunch) which hit many developed economies had a very crushing effect on the AGOA-exporting factories in Ghana. The cut-back on spending in the US and the sub-prime mortgage problems meant that demand reduced drastically. Between 2007 and 2009, eight AGOA factories were closed down and export revenues declined to US$500,000. Sadly, companies that had applied to start production under the AGOA programme refused to actualise their plans. In an effort to revive the AGOA, in 2010, and with the help of the WATH, another AGOA company called Lucky 1818 was established. The company, however, was closed down in 2015, with the country losing US$2 million in revenue annually, with a loss of 450 jobs. In January 2014, also with the help of the Trade Hub, Dignity/DTRT (Do The Right Thing) Apparel—a Ghanaian-American joint venture started operations in the AGOA enclave in Adjabeng, Accra, with 85 employees. DTRT uses synthetic fibres (polyester, viscose, satin, etc.) to make T-shirts, polo shirts and others for the US market duty-free. By mid-2015, DTRT had 1,300 employees and made US$2.5 million in export earnings within six months. By the end of 2015, the company got US$7 million, employing about 1,500 jobs, mostly women.
So if DTRT is this successful, why did the earlier companies under the PSI collapse? Nyarko-Mensah explained that there were other factors. “It may not be the only reason but it is a significant reason because export business like any other business is all about money and margins. The apparel industry generally is a high volume, low margin sector and so anything you can do to increase your margin helps your competitiveness. The earlier noble attempts probably should have studied their segments well because many of the earlier companies were focusing on cotton and some of them even started before the upsurge of imports from China. So when that started to happen [Chinese imports] there was simply no chance in terms of prices. Because the buyers were offering prices which, if you look at the high cost of doing business in Ghana at those prices, you might not make it or become vulnerable and anything little shock will let your business go down.”
Nyarko-Mensah said that “for the main PSI companies, most of their products were cotton-based; now those who attempted with other fabrics realised that you even need a different set of machinery altogether, it is not the same machinery that can sew the synthetic fabrics like polyester….” Crucially, DTRT’s high import savings on synthetic fibres has earned more foreign exchange for Ghana than was achieved by the 14 factories under the PSI from 2002 to 2014. So despite the influx of imports from China, a problem the former PSI companies faced, why is DTRT able to compete? “They are facing the same price competition but they are able to compete because the duty savings from AGOA regime are higher and that is what is making them survive. Because it is about 32 per cent that the competitor has to pay [when exporting to the USA market because they don’t enjoy AGOA]. The competitors cannot lower their prices more than a certain threshold if they still have to pay the 32 per cent, so despite the high cost of production in Ghana, the duty savings is helping them to lower the prices to about the same level as the Chinese or even lower so they are able to compete favourably,” said he.
20,000 units a day
Based on its 2016 projections, the factory now produces 20,000 units a day and its target is to achieve US$14 million in export revenue and create 3,000 jobs. What is limiting it is unavailable factory space. The low capacity of DTRT in the face of increased demand means it outsources over US$30 million orders to Asia. Nyarko-Mensah explained how the DTRT is expanding to keep the US$30 million orders from Ghana. “The issue is a little complex. The current factory they are in now is what they were allocated under the PSI and all of the remaining PSI companies that run into difficulty, 80 per cent of them are now not operating. However, those non-operational companies have not vacated their premises, they are still holding on with the hope of reviving. The realities of today are different-a total overhaul is needed, you have to train new staff, change into new machinery and equipment because the machinery of these non-functional companies were cotton-based. When DTRT started, they had to move out all the cotton-suited machinery in the factory space allocated to them before they installed their own synthetic-fibre machinery. A particular space that has been earmarked for DTRT is still in occupation of one of the PSI firms, the said firm wanted DTRT to rent,” he said. He went on: “the difficulty has been the behaviour of some of the firms in not meeting their rent obligations and creating a bad image for them. The PSI factories in Tema are in the same situation and the only option left for them [DTRT] is to rent private property but looking at the high cost, they can only outsource their orders to Asia.”
In his presentation, Jeff Povolny, the Director of the Accra-based WATH, showed that Africa in general accounts for only one per cent of the AGOA programme uptake globally. In Africa, Ghana performs rather poorly. Of the 14 countries in Africa partaking in the AGOA programme, Ghana’s annual earnings of US$9 million made it the 14th ranked in Africa. A number of reasons account for the low uptake of AGOA in the country despite its existence for 16 years. A lack of will and policy commitment to it is one of them. “It is one thing for government officials to go and negotiate sometimes for years for agreements such as AGOA or EPA and it is another thing for the country and citizens, especially the private sector, to take advantage of these agreements that have been negotiated with much difficulty and much cost to really translate these agreements into real benefits for the nation,” Dr Spio-Garbrah remarked.
Tariff preferences alone
Tabler-Stone also added her voice to the challenges Ghana faced. “The provision of tariff preferences alone will not be sufficient to realise the significant new trade and investment opportunities that Ghana needs. The policy environment matters … an effective export strategy will need to look beyond tariffs to seriously tackle critical issues that limit Ghana’s international competitiveness such as high interest rates, lack of affordable and reliable energy services, and excessive road blocks along key transport corridors.” Some entrepreneurs exported to the US market and paid full duty. The Trade Minister acknowledged this fact. “It is the responsibility of the government such as ourselves and our public servants to break down these agreements into digestible portions for the business community to understand. Which are these 5,000 product lines eligible under AGOA? Which particular sectors of the economy can truly benefit from the US market? What kind of studies has been undertaken on the US side to know what type of market opportunities we can take advantage of? Maybe it is because we are not willing to pay huge amounts of money for this type of research.”
Povolny confirmed that “the experience in the last 5-8 years in Ghana has been that many operators of export potential businesses seem to be not aware of the AGOA Act, or if they are they do not know how to use it,” he said. To increase the awareness of AGOA and how it works, Povolny said more education is in the pipeline. “We also publicised much information about how to use the AGOA act, as well as how to comply with other requirements for exporting, for example, processed food stuffs to the US. There will now be a series of technical workshops on specific specialised topics to help exporters comply with, and take advantage of the AGOA act. Topics to be covered will be: Importance of Packaging and Labelling, Quality and Standards, Customs and Documentation, Costing, Pricing, Productivity, Finance, Trade Shows Preparation and Participation, Logistics. GNCCI will have the schedule for the upcoming technical workshops,” he said.
Anthony Nyame-Baafi, the Director of Bilateral and Multilateral Trade at the Ministry of Trade, presented that going forward, the Ministry was undertaking desk research on AGOA success stories in other African countries to see how Ghana can reproduce same. Nyame-Baafi further explained that a new AGOA Response Strategy (ART) had been set up in line with the National Export Development Strategy target, with increasing Ghana’s non-traditional exports from US$2.5 billion to US$5 billion annually. KwesiAmanfu of the GNCCI said that an ATRC had been established by the GNCCI with a fund of US$14,800 from the USAID to support their activities aimed at improving Ghana’s chances under AGOA.
Third Country Fabric (TCF) Initiative
A ‘new AGOA’, or Third Country Fabric (TCF), was established in 2015 such that fabrics not available in an AGOA-exporting country could be imported and used for AGOA exports. Jeff Povolny explained this further. “The Third Country Fabric provision is, in fact, also a renewal, but a separate act, really, so it gets special attention. This is because it gives a significant advantage to African apparel manufacturers over apparel made in other parts of the world. It applies to Ghana, therefore Ghanaian companies may import fabric made in Asian countries, which they can manufacture at the lowest cost, and then add value by making clothes and then export the clothes to the US. So the fabric enters Ghana duty free, value is added, clothes are exported duty free to the US. This is advantageous because the fabric with the highest duty, synthetic fabric such as polyester knitted fabric is in high demand in the US clothing market. The duty can be as high as nearly 33 per cent of the invoice value. Thus AGOA is structured to encourage investment in the apparel industry in African countries.”
Povolny told GB&F why apparel has a soft spot on the AGOA programme. “Quite simply, the apparel and textile industries have been the basis of industrial development and growth in national economies for over 250 years! The textile mills were the start of the industrial revolution in Great Britain in the 1700s, in the US New England textile industry, then in the southern US. But the industry learned that the limiting cost factor is always labour because the international cost of capital, the machinery to make the fabric will be pretty much the same. So the industry seeks other cost advantages,” he said. “Clothing is complicated, the human body is not easy to cover elegantly, beautifully, or even simply. Too many curves, etc.So sewing clothes must be done by hands operating a machine. Ghana labour is very competitive with Asian countries, and coupled with AGOA, there is a huge opportunity for the apparel industry in West Africa to take off and provide good jobs and raise the standard of living here,” Povolny added.
By Anthony Sedzro, GB&F
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