Identifying the Trends and Issues of Zambia’s Exports to the US under the African Growth and Opportunity Act (AGOA)

The African Growth and Opportunity Act (AGOA) is a non-reciprocal preferential trade agreement granted to qualifying sub-Saharan Africa (SSA) countries on a wide range of listed trade commodities. Zambia, like many other African countries, has been one of the beneficiaries of this Act since its inception in 2000. The US government stated that this Act was intended to promote free markets, stimulate economic development in sub-Saharan Africa through export-led growth and facilitate sub-Saharan Africa’s integration into the global economy (USGAO, 2015). The Act first expired in 2015 and was extended for ten more years and is therefore expected to come to an end in 2025.

From different research carried out to assess the Act’s impact, Zambia has been listed several times as one of the beneficiary countries that benefits the least from this non-reciprocal preference agreement. This paper will therefore explore Zambia’s export trends to the United States and establish the possible causes of the results. This will inform shareholders and interested investors on how to best benefit from this Act and call for policy adjustments should the Act be extended.

 Figure 1 – Zambia’s Exports to the US

Source: World Integrated Trade Solution, 2023

The graph above depicts the export trends for each year starting in 1995 to 2021. The highest record was in 1995, followed by 2021. The years 1997, 1999 and 2006 recorded zero exports. Over the years, Zambia’s population has been growing, thus productivity and the Gross Domestic Product (GDP) of the country are expected to increase. This means that as a country, growth in trade is expected as both the demand and productivity increase entail growth in imports and exports, respectively. However, as seen in the downward sloping linear curve and the exports not showing a significant increase in exports after the introduction of AGOA in 2000, Zambia is not utilising the preferential treatment that the United States is offering. As alluded earlier, the goal of AGOA is to stimulate economic development in sub-Saharan Africa through export-led growth. According to the graph, Zambia’s exports to the United States show that a diagnosis needs to be made and suggestions offered on how to change this narrative.

Emanating Issues from the Trends

Some of the major issues Mutenyo and Moyo (2010) identified as to why some African countries (Zambia inclusive) seem not to be fully utilising the opportunity offered under AGOA include short time horizon, potential competition from other developing countries, and difficulty in mobilising private investment.

In terms of short time horizon, risk associated with the short and uncertain lifespan of the Act lowers the potential benefits substantially. Investors are concerned about making large investments, such as in efficient high-technology processing plants, as they may not recoup their capital before the expiry of AGOA. This also extends to the issue of difficulty in mobilising private investment.

In terms of competition from other developing countries, Zambia’s exports have little value addition making them less competitive in the United States market. Ndalikokule et. al (2006) give an example of other countries offering the full production chain, from initial production to the final products and being able to meet the demands of the globe. This therefore leaves Zambian products less competitive. This calls for the identification of sectors where Zambia can offer opportunities that small and medium enterprises (SMEs) and investors can seize.

Sectors Offering Opportunities

According to Zambia’s AGOA development initiative officially launched in 2016, the main sector promising viable opportunities in the US market under AGOA is the market for precious stones. Refined copper on the other end does not stand at any advantage as Chile and Canada are able to sell at competitive prices in the US market due to lower transportation costs. Therefore, where US exports are concerned, concentration should be on mining other precious stones.

The other sector offering opportunities but with some constraints is the production of cassava. US imports of cassava have been on the rise and considering Zambia’s great potential in cassava production, the sector presents an opportunity to export more. Some of the constraints currently faced in the sector include low production of the tuber, ineffective transport network and uncertainty in product purchase due to weak links between the supply and demand sides. However, the Zambia Development Agency (ZDA) was tasked with this in its strategy and with proper organisation, SMEs and investors could largely benefit from this sector.

Cashew nuts is the other sector that offers a great opportunity that the US market has large demands for. Unlike peanuts, which the US locally produces in large quantities and supplies to the world market, cashew nuts offer a great chance and Zambia has a comparative advantage in its production.

Exporting under the AGOA

With regards to the golden opportunities and many more that the AGOA offers, Zambia has been listed as one of the countries that is not fully utilising the opportunity the Act offers (Condon and Stern, 2011). SMEs and investors can take time to see what other products can be exported into the US market as this list covers over 1,500 product lines.

Product requirements to qualify for AGOA duty-free treatment:

1. Product/article must be deemed eligible under AGOA list of products which can be accessed here.
2. The product must pass the Rule of Origin (RoO) requirements, which require that a product be wholly obtained or substantially transformed in a beneficiary country with a minimum local content (local materials plus direct processing cost) of 35 percent. This RoO allows for accumulation of origin from more than one AGOA beneficiary. In addition to the general rules, specific rules apply to footwear and non-textile travel goods. An effective visa system with relevant procedures to prevent illegal transhipment and the use of counterfeit documents is also required for apparel and textile exports under AGOA. A certificate of origin is issued by the Zambia Revenue Authority (ZRA) and can be obtained from either the Customs International and Policy Office in Lusaka or the Assistant Commissioner, Customs Services in Ndola.
3. The product/article must be imported into the United States directly from the AGOA beneficiary country or be in a sealed container and addressed to a location in the United States if it must pass through another country. The product must meet the specific rule of origin requirements and must be accompanied by import documentation that claims AGOA benefits on the relevant shipping documents.
4. In the case of apparel products, beneficiary countries must adopt a US Government-approved visa system and domestic laws and enforcement measures to prevent illegal transhipment of the apparel and use of counterfeit documents. AGOA provides a special provision known as the third-country fabric provision that allows beneficiary countries with an annual Gross National Product of under $1,500, referred to as “lesser developed beneficiary countries” to use fabric inputs from any country.
5. In the case of agricultural products, regulations established by the US Department of Agriculture (USDA) to protect the health of the American public must be complied with.
6. For agricultural products export, the United States Food and Drug Administration (FDA) must be provided with advance notice of each shipment entering the United States to permit the agency to target inspections more effectively and help ensure the safety of those products. This calls for the requirement of the Sanitary and Phytosanitary (SPS) certificates. An SPS certificate is a legal document issued by an exporting country to certify that a shipment meets plant and animal health standards of the United States. This confirms that the shipment was inspected prior to export and found free of pests and diseases. In Zambia, this can be obtained from the Quarantine and Phytosanitary Service within the Zambia Agriculture Research Institute (ZARI) at Mount Makulu, Chilanga.
7. For the export of meat and livestock, the Veterinary Department under Zambia’s Ministry of Agriculture is responsible for the issuance of quality certificates. The exporter may also wish to refer to the United States Department of Animal Plant Health Inspection Service (APHIS) factsheet, which gives simple guidelines on this process and can be accessed from https://www.aphis.usda.gov/publications/plant_health/2012/fs_imp_food_pp….
8. For gemstones, a permit from the Ministry of Mines and Mineral Development is required.
9. The US importer must request duty-free treatment under AGOA on the relevant customs entry form (Form 7501) by placing a “D” in column 27 in front of the US tariff number that identifies the imported article.

Other relevant forms that would need to be filled out to accompany the shipment include a Customs CE Form 20 from ZRA, relevant permits (depending on the product), a packing list, consignment note, cargo manifest, commercial invoice, airway bill and bill of lading.

Protocol at the American Border

Once the shipment arrives in the United States, the importer of record (owner, purchaser, or consignee) or licensed customs broker designated by the owner, purchaser, or consignee, files entry documents for the goods with the port director at the goods’ port of entry. Imported goods are not legally entered until after the shipment has arrived within the port of entry and delivery of the merchandise has been authorised by United States Customs and Border Protection (CBP). It is the importer’s responsibility to arrange for examination and release of the goods.

Conclusion and Recommendations

Having established that Zambia has not fully utilised the opportunity offered under AGOA, which could be attributed to lack of sensitization and campaigns promoting its utilisation, the government and branches like the ZDA and ZRA need to take a leading role in advancing these sensitization campaigns. To encourage more production and export, the government of Zambia should provide incentives like tax breaks to sectors trying to utilise the chance offered by AGOA as this is likely to result in a massive increase in production therefore increasing their exports. This will eventually lead to more employment opportunities thereby reducing the unemployment rate that is devouring the nation currently.

Additionally, lessons from countries like Lesotho and Mauritius can be emulated where one specific industry is developed for the sake of utilising the opportunities under this Act. For example, it has been established that Zambia has a comparative advantage in exporting precious stones and cassava. Development and promotion policies in these sectors will lead to maximum utilisation of the opportunities offered under the Act.

References

AGOA.info. (2021). “Country Info: Zambia.” Retrieved from https://agoa.info/profiles/zambia.html.

Condon, N. & Stern, M. (2011). The Effectiveness of African Growth and Opportunity Act (AGOA) in increasing trade from Least Developed Countries: A systematic review. London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.

Embassy of the Republic of Zambia. (2023). “African Growth and Opportunity Act (AGOA) Frequently Asked Questions.” Retrieved from https://www.zambiaembassy.org/document/african-growth-and-opportunity-act-agoa-frequently-asked-questions.

International Trade Administration. (2022). “Trade Agreements.” Retrieved from https://www.trade.gov/country-commercial-guides/zambia-trade-agreements.

Mutenyo, J. & Moyo, N. (2010). Addressing Uncertainty to Spur Investment in Africa, AGOA At 10 Challenges and Prospects For U.S.-Africa Trade And Investment Relations, 8-11.

Ndalikokule, V., Biwa, B. & Kaakunga, E. (2006). Africa’s Export Performance under AGOA, How Can Namibia Further Benefit from AGOA, OP (2), 7-9.

The University of California, Los Angeles Anderson School of Management AMR Team 31. (2016). The Zambia AGOA Strategy Development Initiative: Facilitating the Implementation of a Sustainable Strategy Following the Reauthorisation of AGOA. UCLA, California.

United States Government Accountability Office. (2015) “African Growth and Opportunity Act. Eligibility Process and Economic Development in Sub-Saharan Africa.” Retrieved from http://.www.gao.gov/fraud net.htm.

Zambia Development Agency. (2023). “Other Initiatives and Trade Arrangements.” Retrieved from http://www.zda.org.zm/index.php/other-initiatives-and-trade-arrangements/