Officially enacted in 2000, the African Growth and Opportunity Act (AGOA) has shown promising results, with ITA (International Trade Administration) noting, “Since its implementation, AGOA has encouraged substantial new investments, trade, and job creation in Africa. It has helped to promote Sub-Saharan Africa’s integration into the multilateral trading system and a more active role in global trade negotiations. It has also contributed to economic and commercial reforms which make African countries more attractive commercial partners for U.S. companies.” 

For international business professionals looking into new markets, especially U.S. markets, this trade act is compelling in many ways. However, many details cannot be overlooked, and any international trade plans using AGOA require strict oversight, guidance, and strategy. That’s why FITT and our partner Africa Business Venture held a joint event on AGOA on July 7, 2021.

This event, Understanding the African Growth and Opportunity Act (AGOA) and How It Can Benefit Your Business with U.S. Trade featured CITPs, International Trade Lawyers and African Business Experts—each of whom gave insights into some of the most common questions about Africa, AGOA and international laws pertaining to business between Africa and the United States.  

With fantastic questions from attendees and detailed answers from the panelists, the event provided a wealth of information for anyone interested in AGOA, international trade in Africa, and overall global trade practices, highlighted below: 

Event Panelists:

• Host: Sonia Galat, Director, Africa Business Venture 
• Moderator: Rob Howard, CITP, Of Counsel, Canada, Givens & Johnston PLLC 
• James (Gar) Hurst: Partner, Givens & Johnston 
• Karl Miville de Chêne: CITP, MBA, Partner at TFO Canada 
• Nilesh Mistry: Customs & Trade Consultant Misca Advisors Ltd. 

Why was AGOA created? 

Karl Miville de ChêneKarl Miville de Chêne: CITP, MBA, Partner at TFO Canada:  

AGOA has been put in place in order to favour less developed countries in the southern part of the continent of Africa. These countries produce all kinds of things: edible food, minerals, arts and crafts and, also, technical objects. Now they’re producing cars and airplanes…you’d be surprised what they can offer. In regard to services, tourism, the IT and IP sectors in countries like Rwanda or Nigeria are humongous and can be used in many ways for American companies.

Now, one of the reasons AGOA was put in place was to be favorable to exporting African producers, but it also was put in place to build a commercial bridge between the United States and these parts of the African continent. There are all kinds of training and support trade missions in different African countries when they adapt to the AGOA requisite… [together] it helps create a better commercial environment.

What kind of services and products does Africa have to offer? 

Nilesh Mistry, Customs & Trade Consultant, Misca Advisors Ltd: 

In terms of products and services, Africa’s got a diverse range of products and services to offer. You’ve got tourism opportunities, you’ve got IT opportunities… Africa is really a growing continent, especially the youngsters who are getting into a lot of technology products that are really quite world-class. But, again, understanding a market means having to spend time in that market, having to do due diligence to find out who you can talk to and who can give you what you need.

You’ve got to be very careful. Yes, international trade is a good business, but it’s a very risky business and, as a business, you’ve got to ask, “How can I reduce and minimize my risks?” Don’t go in thinking, “I can make a lot of money.” Instead, go in asking “What are the risks involved and how can I avoid them?” Africa, like every other country, has its share of shocks, so  you can use distributors and agents, but make sure that you’ve vetted them thoroughly and know what they can offer you and what you can give them. 

What is required to be an AGOA-eligible country? 

 Rob Howard, CITP, Of Counsel, Canada, Givens & Johnston:

To be an AGOA-eligible country, a country has to prove that it’s establishing and following market-based economies and the rule of law. Things like the elimination of barriers to U.S. trade, investment protection of intellectual property, efforts to combat corruption, policies to reduce poverty, increasing the availability of health care and education, protecting human rights, worker rights, and the elimination of childhood labor practices.

When I first heard about AGOA, I thought, why would it be in the country’s best strategic interest to just lower all their tariff barriers and then not demand anything in return? The answer is, I think the U.S. is looking at this as a way to put forward their values and develop these relationships with countries. Kind of like Karl was saying, that’s in their best interest as well. 

What’s the difference between qualifying for AGOA and claiming the country of origin? 

James (Gar) Hurst, Partner, Givens & Johnston: 

There are actually two different things: there’s qualifying for AGOA, which means that 35% of the costs have to be realized in the AGOA country. And then there’s shifting the country of origin which is a slightly different concept. There’s a number of rules and tests that have to be looked at but, essentially, the idea is this: if all you’re doing is repackaging, cleaning, washing, or, in some cases, just merely assembling already manufactured parts, then that is not going to be sufficient work in the country to determine the origin.

What is transshipment and why is it such a concern for US customs? 

James (Gar) Hurst, Partner, Givens & Johnston: 

Transshipment means a couple of different things. Most of the world thinks of transshipment as “Hey, you know, we took the ship from Legos to Rotterdam, and we took the container off of that vessel and put another vessel and went from Rotterdam to the United States. A lot of people think of that.

Transshipment in customs means something different. It means that you’re taking goods from one country, China, for example, and are trying to pass them off as products of another country. That’s important because a lot of goods from China are subject to extremely high duties—in some cases, well over to 300%—in the United States. So, there’s a real temptation there for those producers who now have lost their market to sell to anyone who will take it, then stamp Made in India or Made in Bangladesh, and then try to turn around and sell it to the United States. That is a crime. It’s a crime if you’re doing it fraudulently.

If you’re doing it just sort of negligently the problem is that those goods are still subject to those duties which can be a really nasty surprise for your customer when they’re importing these goods. And now, suddenly, the government comes to them and says, “Oh you owe us you know hundreds of hundreds of thousands or millions of dollars in duties that you weren’t expecting to pay—that would be a problem for profit margin.”

To discover more questions and answers about AGOA, watch the event recording. To learn more about FITT and Africa Business Venture’s partnership, read Looking to diversify? Here’s how and why you should consider entering African markets  

The post Understanding the African Growth and Opportunity Act (AGOA): Event Recap  appeared first on Trade Ready.

According to Renaissance Capital’s Global Chief Economist, Charlie Robertson, in an article with the Atlantic Council Organization, Africa has weathered COVID-19 far better than other areas in the world and “consequently, low interest rates in the West could push more institutional investors to chase high yields in Africa by increasing portfolio exposure in African fixed income and equities.”

His prediction isn’t far off from the overarching trends for the continent and its diverse range of countries on the rise, with forecasts for Africa revealing incredible growth and opportunities for international businesses looking into international investment and trade within the continent. Though the pandemic has certainly affected the short-term projections, the growth of Africa and its countries is still strong in the longterm. With that in mind, here are 3 reasons why Africa is ripe for international business:

Consumer spending is growing rapidly

By 2030, the number of consumers in Africa is expected to reach an explosive 1.7 billion. Currently, the continent already has a whopping 1.2 billion consumers who, fueled by a growing middle class, are eager to spend their money and engage in international trade as their region experiences an unprecedented economic boom (Brookings 2018).

The growth of Africa’s economies can be attributed to its young and growing population and workforce and incredibly fast urbanization rate—the fastest in the world, in fact. These factors have created a lucrative opportunity for international businesses seeking to get in on the action, most notably with consumer spending, which is projected to rise to $2.1 trillion by 2025 and $2.5 trillion by 2030. In 2015, consumer spending across the continent already totalled $1.4 trillion, with South Africa, Nigeria and Egypt making up more than half of that number.

There are also extremely fast-growing consumer markets in countries like Kenya, Cote d’Ivoire and Ghana, which are benefitting by increasing technology use and internet usage rates. Moreover, the launch of the Africa Continental Free Trade Area (AFCTA) will make trade within the continent easier, bolstering a host of new business opportunities and growth both for domestic and foreign investments.

Urbanization is explosive, and this means lots of business potential

In the same upward trend, countries like Egypt will experience rapid urbanization growth, with the latter’s urban population increasing by nearly double (46.3%) the pace of their rural population, from 38 million people in 2015 to 54.5 million in 2030 (Euromonitor, 2019).

Overall, by 2025, more than 190 million people in Africa are predicted to live in urban areas, accounting for about 45 percent of the population at that time. This matters because consumers are more dominant in the city: “per capita consumption spending in large cities in Africa is on average 79 percent higher at the city level than at the national level,” states McKinsey & Company in their report Lions (still) on the move: Growth in Africa’s consumer sector.

What does this mean for businesses looking to explore African markets?

In a word: potential—and lots of it.

The countries in Africa that are part of lucrative emerging markets are many. They include countries such as Botswana, Nigeria, Kenya, Ghana, Tanzania, Mozambique, Uganda, Zambia and Ethiopia—the latter with an economic growth rate of 9.8%  a year from 2008/09 to 2018/19 and a real gross domestic product (GDP) growth rebound to 9% in 2018/19, according to the World Bank.

International investments are on the rise

International businesses should note that investments for the continent are on the rise too. The United Kingdom and China have increased their investment stocks in Africa by 10 percent, up to $49 billion and $46 billion, respectively, according to UNCTAD, signalling a vast potential for many countries in the continent that can capitalize and leverage these investments to their benefit. For China’s investments specifically, experts believe that they could help increase commodity prices and generate wealth creation for many countries, lifting Africa’s economy as a whole in the near future.

As many hail market diversification as a business recovery strategy in 2021, Africa and its 54 countries offer a world of opportunity on their own. For those who haven’t looked into it in the past, there is no better time than now, as it offers unlimited potential and growth that so many other countries, like China and the UK, have already recognized.

This is a joint post in coordination with Africa Business Venture who provided the original stats and material. Read their full article: What we can expect from Africa consumer spending in the future.

Want to learn more about Africa Business Venture and how to enter African markets? Read our TradeReady article: Looking to diversify? Here’s how and why you should consider entering African markets.

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Diversification is crucial, even more so in the current global business climate where instability is increasing. When looking at new markets to pursue, the African continent offers many opportunities through its various markets, regions, and growing economy.

FITT and Africa Business Venture have partnered to help the international trade community gain knowledge and prepare to launch or grow their businesses with confidence anywhere in the world. Together we will be launching new initiatives to help businesses diversify and learn about valuable market opportunities within the 54 African markets and beyond.

Sonia Galat, Director of Africa Business Venture and Founder of Pacific Trade Global Carolina Vasquez, discuss the key elements to consider when entering new markets, and explore valuable countries in Africa for businesses to consider as they determine their next move.

Sonia: Let’s start with diversification. What does it mean and why is it so important for businesses especially right now?

Carolina: It’s a risk reduction strategy that involves adding products, services, customers and markets to the business portfolio of the company. It’s important to remember, don’t put all your eggs in one basket. If for some reason, one single market fails – success in others elements of our business portfolio will reduce the impact on the business, especially in situations like COVID-19. It’s very important to have a diversification strategy.

Watch Sonia and Carolina’s full interview

Sonia: Can you give me a bit of insight into what the starting point is? And how should businesses prepare to enter new markets?

Carolina: Well, entering a new market requires time, research and a lot of patience for businesses to be successful. Market research is the most important task. Don’t make assumptions and take the time to do a detailed market analysis or else your product or service could fail in a new market.

Understand the cultural taste preferences, the laws and regulations, and where your product will have a competitive advantage. Consider all the factors that might affect your business in order to mediate and to reduce the risk in that new business venture.

The business owner needs to be familiar with the entire process, and the more they understand the whole process for the product to get to that new market, the better they will be aware of the challenges and how to deal with them.

You don’t have to learn all these things the hard way, and that’s why training is so important.

Sonia: What are some of the strategies businesses can use to enter new markets, and how can they select the right strategy, especially when they want to go to emerging markets such as Africa?

Carolina: Businesses can build all their product service offering using their own resources in that target market, or they can collaborate with partners that are already established in that market to form a strategic alliance. They can also work with a representation agency or distributors. And the advantage of that is that those partners are already there and know the market and the regulations that may apply to your company’s product.

Carolina: Sonia, I understand you advise clients on entering African markets. What are the most common myths that you hear from people about doing business in Africa?

Sonia: There are some persistent myths indeed when it comes to Africa. The first myth is that Africa is a country.

People tend to forget that it’s actually 54 countries, with 54 different markets and sets of regulations. So every time a company is looking to go to Africa, I always ask, where exactly do you want to go?

The other myth I want to talk about is that it’s too complicated to do business in Africa. Yes, it’s not always easy to do business in Africa, but this is the same thing as going to any emerging market. You will have some challenges that you need to learn about to mitigate the risks. So those are the main myths, which can be easily mitigated with good preparation and a willingness to learn.

Carolina: In your opinion, how can companies prepare to export specifically to Africa? How can they select the country/market to enter?

Sonia: I think the first thing that companies have to do is educate themselves. There are lots of great resources out there to do that with. On the Africa Business Venture website, we’ve got a lot of articles, industry insights, podcasts and other resources that can really give a deep understanding of and knowledge about Africa and the way to do business in Africa. Another great resource is the World Bank’s website, where they provide reports on the ease of doing business in African countries.

The second element to how to get prepared to export to Africa is to tap into your local network. Reach out to your local chamber of commerce or a foreign chamber of commerce near you, or simply reach out to your state agencies.

A lot of people don’t know that they can contact embassies abroad and simply ask them, “how can I enter that specific market?”

The final element is, more than in any other region in the world, you need to develop a local network. This is where intermediary research such as Africa Business Venture resources, but also local firms or consultancy firms can really help you with the local knowledge that can really help you in terms of implementing any project.

Carolina: In which markets in Africa are you seeing opportunities for businesses today?

Sonia: I could spend hours talking about that, but because as I said, its 54 countries, it really depends on your industry. So, if you’re in consumer goods, you will tend to go to the largest consumer markets in Africa, which are Nigeria and South Africa. But in general, for consumer goods, you’ve got a rise of the middle class, but they are underserved in terms of products that they can purchase.

If you are in renewable agribusiness and infrastructure development in general, well Africa is game on in the sense that all of the African countries do have the same issues, which are a poor network, poor infrastructure and low access to electricity. So there are plenty of opportunities for companies, and one way to tap into that potential is to go through tenders that are issued by local governments.

If you have a company that is involved in agribusiness, for instance, you will also be more than welcomed.

A trend we see in African countries is the necessity to transform agricultural products into finished goods. So there’s more and more willingness to welcome foreign investors to create local manufacturing.

East Africa including Kenya and Rwanda are hubs for FinTech and tech solutions opportunities. What a lot of people don’t know is that Rwanda would like to become the laboratory of Africa, and very welcoming to new tech solutions.

Carolina: There is also an Africa Continental Free Trade Area (ACFTA). What is this area? And what does it mean for businesses?

Sonia: In terms of international business development, ACFTA is the biggest trade deal that has ever been signed. It has been signed by 54 countries and the purpose of it is to create a trade bloc similar to the European Union, but for the African continent. It was signed in 2019, but currently there are about 30 countries that have ratified the agreement. What is amazing with this trade agreement is that governments finally recognized the need to have a common set of rules regarding the transport of goods and individuals among each other.

Africa is a continent that is exporting a lot, but actually the trade within the continent is minimal. And this is because, as I mentioned, it’s 54 countries with 54 different sets of regulations and that makes it very complicated for businesses to tap into opportunities. Now with this trade agreement, they are definitively targeting those issues, integrating the markets. And that will make it even more interesting for businesses that position themselves right now to tap into those new markets.

Africa Business Venture is an organization dedicated to working with businesses entering African markets, connecting them with local expertise, advice and solutions. They allow companies to take advantage of new opportunities in Africa using their exclusive online platform and deliver a secure environment to help companies manage risks and unlock Africa’s value.

Want to know more?

Learn how to plan for market entry and explore opportunities for your business in Africa.

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