Looking Gift Horse in Mouth

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Last Updated 06/13/2011

Volume 12, Number 580

Published On June 12, 2011

Monday, June 13, 2011 10:58 pm

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F O R T U N E L AT E S T N E W S : A m e r ti -N e sh i to S t a r t G e n e r a ti n g 4 8. 5 M W N e x t W e e k

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Looking Gift Horse in Mouth

Ethiopia AGOA exports falling short of potential; in need of diversification

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Business Opportunity Cartoons Comic Strips The Fine Line Almeda Textile Factory is among the more than 90 local textile companies that are benefiting from the African Growth and Opportunity Act (AGOA), which allows trade duty waivers to 37 Sub-Saharan African (SSA) countries making progress in political and economic reforms. These countries enjoy the duty-free privilege to export a select basket of items to the United States (US). Almeda Textile exports 400,000 dollars worth of textiles to the US monthly; this is 600,000 dollars less than its one million dollar target. The textile factory, which was established in 1996, employs 6,000 workers and dedicates 85pc of its production to the local market. The company exports sportswear, particularly T-shirts as well as hospital and factory uniforms. Ethiopia qualified for AGOA in August 2001, becoming the 18th country to export garments and textiles to the US duty-free. Ethiopia also enjoys the privilege of exporting garments made from imported fabrics free from duties and quotas to the US market. The proclamation, which was issued in October 2000, designated 34 countries, including Ethiopia as eligible for the trade incentives offered by AGOA. Entertainment Movie Review Ethiopias exports under AGOA are primary agriculture products and textiles, which are declining annually; it stood at 30pc and 36.5pc of total exports, respectively, in 2010. The total export of Ethiopia through AGOA was 18 million dollars in 2008, 11.6 million dollars in 2009, and 10.4 million dollars in the same year. Slow production capacity and the industrys lack of attractiveness for investment contribute to declining exports in general and through AGOA in particular, according to people in the industry. The total exports through AGOA from SSA amounts to 44 billion dollars, with the top five exporters such as Nigeria, Angola, South Africa, Congo, and Chad. Gabon, the Democratic Republic of Congo (DRC), Lesotho, Kenya, Cameroon, and Mauritius followed. Agriculture contributed 55pc in 2008, 35pc of Ethiopias exports in 2009, and 20pc in 2010. During 2008, Ethiopia exported 152.2 million dollars to the US, which in turn exported 299.4 million dollars to Ethiopia. Out of the total, only 18 million dollars was exported through AGOA. The textile industry enjoys tax incentives, while the distribution of raw materials by the government is based on the production capacity of the factories as it has a quota. The industry is falling short of its targeted performance due to infrastructural problems of the Internet, the main connection facility with international traders and customers on the international market, according to Getachew Seyum, acting manager of Almeda Textile. AGOA offers tax incentives and the programme is not strict, so exporters should build their capacity to make the most of it, according to Emebate Tesfaye, rules of origin team leader at the Ethiopian Revenues and Customes Authority (ERCA). In 2009, US exports to Ethiopia decreased to 270.4 million dollars while Ethiopias exports significantly decreased to 112.9 million dollars. At the same time, exports through AGOA significantly decreased to 11.6 million dollars. This was due to the global economic crisis which saw demand in the US decrease. In 2010, US exports to Ethiopia significantly increased to 758.3 million dollars while Ethiopias exports to the US showed an increase of 127.3 million dollars. Export through AGOA faced shortfalls with only 10.4
Ethiopia exported 127.3 million dollars worth of commodities to the US in 2010. Out of this, eight per cent is exported under AGOA. Textile and agricultural products constitute 62pc and 30pc of commodities, which have gone through AGOA, respectively.

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million dollars from Ethiopia. The industry, which has the comparative advantage of cheap labour, low production costs, and 300,000ht of potentially arable land, utilised less than one per cent of the potential due to infrastructural problems, according to Endalkachew Sime, secretary-general of the Ethiopian Textile Association & Garment Manufacturers Association (ETGMA). Ethiopias performance lags behind that of Kenya as well. US exports to Kenya reached 345 million dollars in 2010, while Kenyas exports to the US stood at 311 million dollars of which 225.5 million dollars were under AGOA. However, Ethiopia is performing better than Uganda and Djibouti. In 2010, Uganda exported 57.7 million dollars to the US, while it exported only 3.3 million dollars through AGOA. The US exported 85.2 million dollars to Uganda in the same year. Also in 2010, the US exported 122.2 million dollars to Djibouti, which in turn exported only three million dollars to the US, of which 192,000 dollars was under AGOA. Problems of quality, transport cost (up to 12,000 Br per kilometre of a six-metre container to Djibouti Port), accessibility of raw materials, and low production rates are also contributing to the industrys shortfall in making use of AGOAs benefits effectively, Endalkachew explained. Most chemicals are imported from Europe and China while the local cotton does not meet the AGOA quality requirements; these play a role in hampering trading under AGOA, Getachew said. The Ministry of Industry (MoI) is establishing a training facility for exporters to better access the market. Endalkachew also believed that the industry, which has seen investors from Asia, does not attract investors from the US; this might be an opportunity for local traders to create a joint venture (JV) with foreign traders. AGOA applies to more than 6,400 items, but Ethiopias exports are based on primary and semi processed goods. Ayka Addis Textile & Investment Group contributed to the export revenues when textiles reached 40.1 million dollars over the past nine months. These escalated Aykass market share to 23 million dollars from the total transaction. In addition to AGOA, Ethiopia has signed 12 other bilateral trade agreements along with Japan and China with the view to alleviate international trade barriers, including Common Market for Eastern & Southern Africa (COMESA). The government and the private sector should collaborate to attract more investors who might potentially increase Ethiopias market share for AGOA, said Endalkachew. However, to increase its market share, there must be diversification of exports instead of a concentration on agricultural products and textiles, Marta Belete, lecturer in international trade law at Addis Abeba University (AAU), told Fortune. The country should integrate the supply chains from production to export, and standardise exported items while also increasing local production of raw materials, she said. The 10th AGOA Forum, which was held on Thursday and Friday, June 9 and 10, carried the theme of enhancing trade through increased competitiveness and saw over 600 participants, including Hillary Clinton, US Secretary of State. The conference represents a progressive US trade and investment policy towards Africa. It aims to reduce barriers of trade, increase diversification of export items, and create jobs while increasing opportunities for the society. Hence, the conference included a session for the private sector, civil society, and participants from African Womens Entrepreneurs Programme (AWEP). The total trade export and imports between the US and SSA countries increased by 32pc since 2009/10. The export to SSA increased by 13pc, to 17 billion dollars mainly due to the export of vehicles. US products go to five top African destinations which also showed an increase in their market share. Exports to Liberia increased to 101pc, Kenya to 45pc, Gabon to 42pc, Ghana to 37pc, South Africa to 26pc, Nigeria to 10pc, and Angola to nine per cent. The total exports of SSA accounts for 65 billion dollars, 67pc of the exports. On the other hand, imports from SSA in the same fiscal year, increased by 39pc to reach 65 billion dollars. The increase is mostly due to 40pc imports of crude oil covering 81.4pc of total US imports from SSA. US imports from Nigeria increased by 60pc, from Angola by 28pc, from DRC by 60pc, and from Gabon by 80pc. Imports from South Africa also grew by 40pc, largely due to diamonds, while imports from Ghana (mainly cocoa) rose by 103pc. During 2010, AGOA imports were 44 billion dollars, a 31pc increase over 2009. The increase was mainly due to a 33pc increase in AGOA petroleum imports, according to the international trade administration department of commerce in the US. Petroleum takes the largest portion of AGOA imports from SSA, with a 91pc share covering 40 billion dollars. Almeda Textile, which plans to change its internal market oriented trade by increasing its international market exposure, will face a challenge in breaking the market constraints which is tied up with a myriad problems of an infrastructural and productive nature.
By EDEN SAHLE FORTUNE STAFF WRITER

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