The African Growth and Opportunity Act (AGOA) is a market access arrangement between United States of America (USA) and Africa with broad objective of boosting exports from Sub-Saharan Africa to USA by eliminating tariff barriers on a large number of their exports.
The current 10-year extension of AGOA is set to expire in September 2025. This unilateral trade agreement provides duty free access to the US market to over 6,400 product lines and 1,800 new tariff line items in addition to the 4,600 The renewal through the AGOA Extension and Enhancement Act of 2015 covers the third country fabric (TCF) provision, which is a special rule that allows lesser-developed beneficiary countries duty-free/quota-free access into the U.S. for apparel made from fabric imported from non-AGOA beneficiary countries.
Although not considered to be a lesser developed country (LDC), Botswana qualifies for the TCF provision following the granting of the lesser-developed beneficiary countries status under AGOA. For a country to be eligible, the US President determines that it has met or is making continual progress toward establishing a market-based economy; rule of law, political pluralism, and right to due process; elimination of barriers to U.S. trade and investment; economic policies to reduce poverty; a system to combat bribery and corruption; and protection of internationally recognized worker rights items enjoying duty-free status on the U.S. Generalized System of Preferences (GSP) program.
The US as an Export Market
The United States is one the world’s largest importing countries. US importers are always looking for new products to import and resell. According to US Department of Commerce, US Imports were $2,895.3 billion in 2017, up $182.5 billion from 2016. Imports of goods increased $153.2 billion to $2,361.5 billion while those of services increased $29.2 billion to $533.9 billion in 2017. The top US imports include motor vehicles, crude oil, cellphones, computer chips, gasoline, motor vehicle parts, medicines and commercial vehicles.
Since 2010, textiles/apparel has been Botswana’s main AGOA beneficiary sector, constituting between 90-100% of total AGOA exports. During its peak, Botswana had over 10 textiles/apparel firms exporting under AGOA. In 2017 Botswana total exports to USA were P775.6 million, of which AGOA exports accounted for P9.9 million. Diamonds account for over 95% of total exports to the US. Currently Botswana does not have a single company that is benefitting from the AGOA preference.
Of the over 10 textiles/apparel firms that operated from Botswana, some companies have shifted focus towards South Africa while some have relocated with others having closed down. The National AGOA response strategy is an effort by government to ramp up exports into the US market.
Potential Benefits of AGOA For Botswana
Potential benefits for Botswana from the AGOA unilateral trade preference program include: Tariff advantage: Exports from Botswana have a significant tariff advantage over those from non-AGOA eligible countries, making Botswana products more competitive, e.g. some tariffs exemptions in the textiles/apparel sector under AGOA are as high as 30%. Wide range of eligible products: The AGOA Extension offers an increased range of eligible products (over 6,400 products lines) which allows a more diversified exports to U.S. by Botswana.
Opportunity for regional integration: AGOA facility provides an opportunity to create regional integration through the development of value chains, production sharing and collaboration to meet volumes required by the U.S. market and for pitching the region as one big market. Capacity building of associations and institutions: Local institutions will build their capacity and strengthen their process through technical assistance and technical capacity building provided by the various U.S. support agencies such as the regional trade and investment hubs and others whose mandate is to provide technical assistance in AGOA beneficiary countries to facilitate increased utilization of the program.
Promotion of women in social and economic development: The AGOA Extension and Enhancement Act, encourages the promotion of women in social and economic development. Increased participation of women in labour will help increase the quantity and quality of available labour for industries involved in international trade. Job creation: AGOA has been credited with the creation of over 300,000 jobs in Sub Saharan Africa since its inception hence increased utilization of AGOA by Botswana will result in more job opportunities for Batswana.
Long term relationships: Local companies that utilize AGOA will be exposed to the U.S. market and create strategic alliances and other relationships with their U.S. counterparts, which might continue after the expiry of the AGOA facility. Giving local companies international exposure: Participation in the U.S. market under AGOA gives companies the much-needed experience for entering other international markets.
What Can Botswana Companies Export Under AGOA?
The AGOA agreement provides export opportunities to over 6400 product lines as long as they meet the AGOA rules of origin requirements and are exported directly from a beneficiary country to the United States. Botswana has developed a National AGOA Response Strategy to guide implementation of the trade agreement. The specific objectives of this strategy are to advise the Government of Botswana on how to systematically take advantage of AGOA, to identify policy responses in targeted sectors to capacitate current and potential exporters in Botswana to increase exports under AGOA, to develop an ongoing consultative mechanism between the public and private sector players and to attract investment into identified sectors that can benefit from international trade.
The National AGOA Response Strategy for Botswana has identified a number of sectors that could be developed in order to increase exports to the US. These include the Handicrafts, Meat & Meat Products, Textile/ Apparel, Natural/ Indigenous Products, Jewelry and Semi-Precious Stones and Horticulture & Agro-processing Products. Companies can check whether their products are eligible for AGOA preferences on HYPERLINK "http://agoa.info/about-agoa/products.html" http://agoa.info/about-agoa/products.html
How Can Companies Register for AGOA?
Prior to exportation, traders are required to register with the nearest BURS – Regional Office (Customs and Excise Division). In order for the goods to enjoy this trade concession, they must be processed or manufactured in Botswana as prescribed under the AGOA Rules of Origin (RoO). RoO are the requirements which set out the working and processing that must be undertaken locally in order for a product to be considered the “economic origin” of the exporting country. The salient features of AGOA's general (non-textiles and apparel) Rules of Origin are as follows:
The product must be imported directly from the AGOA-beneficiary country into the United States;
Items must be "growth, product or manufacture" of one or more AGOA-beneficiary countries (these requirements can be met jointly by more than one AGOA beneficiary – this concept is called ‘cumulation of origin’);
Products may incorporate materials sourced from outside countries (i.e. non AGOA-beneficiaries) provided that the sum of the direct cost or value of the materials produced in one or more designated AGOA-beneficiary countrie(s), plus the "direct costs of processing" undertaken in the AGOA-beneficiary countrie(s), equal at least 35% of the product's appraised value at the US port of entry;
Cost of local materials + direct cost of processing must >= 35%
In addition, a total of up to 15% of the 35% local content value (as appraised at the US port of entry) may consist of US-originating parts and materials. This concept is called “bilateral cumulation of origin”). In addition to compliance with RoO It would be worthwhile to have a clearing agent on the U.S. side. All shipments should include commercial invoice and Certificate of Origin, which specifies the Harmonized Tariff Schedule (HTS) code(s) for the product(s) being shipped. For textiles/apparel products only, an AGOA visa stamp is required, which is obtained from the Botswana Unified Revenue Services (BURS)
What Support is Available for Botswana Companies?
The Ministry of Investment, Trade and Industry has appointed Botswana Investment and Trade Centre to coordinate implementation of the National AGOA Response Strategy for Botswana. Various stakeholders such as government ministries, sector associations, business support institutions and the private sector all have specific roles in the implementation of the strategy. BITC supports the industry through its export development and promotion programs.
It promotes Botswana products in international markets by participating in outward and reverse trade missions. The outward trade missions include general and sector specific trade fairs, and contact promotion missions. BITC also capacitates exporters through the Botswana Exporter Development Programme (BEDP) which assist companies to reach export readiness status by providing technical and non-technical assistance. Other business support can be obtained from other institutions like Local Enterprise Authority, Botswana Development Corporation, Citizen Entrepreneurial Development Agency, Botswana Bureau of Standards and Botswana Unified Revenue Services.
Temo Ntapu is Director Research at Botswana Investment and Trade Cent
The Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent at a meeting held on October 21, 2021. Briefing members of the media moments after the meeting Bank of Botswana Governor Moses Pelaelo explained that Inflation decreased from 8.8 percent in August to 8.4 percent in September 2021, although remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent.
He said Inflation is projected to revert to within the objective range in the second quarter of 2022, mainly on account of the dissipating impact of the recent upward adjustment in value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.2 percentage points to the current level of inflation. Overall, risks to the inflation outlook are assessed to be skewed to the upside.
These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and lockdowns due to the COVID-19 pandemic; domestic risk factors relating to regular annual price adjustments; as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.
Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressure to inflation. These risks are, however, moderated by the possibility of weak domestic and global economic activity, with a likely further dampening effect on productivity due to periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants.
A slow rollout of vaccines, resulting in the continuance of weak economic activity and the possible decline in international commodity prices could also result in lower inflation, as would capacity constraints in implementing the ERTP initiatives. Real Gross Domestic Product (GDP) for Botswana grew by 4.9 percent in the twelve months to June 2021, compared to a contraction of 5.1 percent in the corresponding period in 2020.
The increase in output is attributable to the expansion in production of both the mining and non-mining sectors, resulting from an improved performance of the economy from a low base in the corresponding period in the previous year. Mining output increased by 3 percent in the year to June 2021, because of a 3.2 percent increase in diamond mining output, compared to a contraction of 19.3 percent in 2020. Similarly, non-mining GDP grew by 5.4 percent in the twelve-month period ending June 2021, compared to a decrease of 0.7 percent in the corresponding period in 2020.
The increase in non-mining GDP was mainly due to expansion in output for construction, diamond traders, transport and storage, wholesale and retail and real estate. Projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a rebound in economic growth for Botswana in 2021. The Ministry projects a growth rate of 9.7 percent in 2021, moderating to a growth of 4.3 percent in 2022. On the other hand, the IMF forecasts the domestic economy to grow by 9.2 percent in 2021; and this is expected to moderate to a growth of 4.7 percent in 2022. The growth outcome will partly depend on success of the vaccine rollout.
According to the October 2021 World Economic Outlook (WEO), global output growth is forecast at 5.9 percent in 2021, 0.1 percentage point lower than in the July 2021 WEO update. The downward revision reflects downgrades for advanced economies mainly due to supply disruptions, while the growth forecast for low-income countries was lowered as the slow rollout of COVID-19 vaccines weigh down on economic recovery. Meanwhile, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID-19 growth levels.
The South African Reserve Bank, for its part, projects that the South African GDP will grow by 5.3 percent in 2021, and slow to 1.7 percent in 2022. The MPC notes that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment. These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme.
In addition, the successful implementation of ERTP should anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which have recently fallen to an estimate of P47.9 billion (9.8 months of import cover) in September 2021. Overall, it is projected that the economy will operate below full capacity in the short to medium term and, therefore, not creating any demand-driven inflationary pressures, going forward.
The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response. In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent. Governor Moses Pelaelo noted that the Bank stands ready to respond appropriately as conditions warrant.
The Special Economic Zones Authority (SEZA) recently launched the Mayor’s forum. The Authority will engage with local governments to improve ease of doing business, boost investment, and fast track the development of Botswana’s Special Economic Zones (SEZs).
The Mayors Forum was established to recognise the vital role that local authorities play in infrastructure development; as they approve applications for planning, building and occupation permits. Local authorities also grant approvals for industrial licenses for manufacturing companies. SEZA Chief Executive Officer (CEO) Lonely Mogara explained that the Mayor’s Forum was conceptualised after the Authority identified local authorities as critical partners in achieving its mandate and improving the ease of doing business. SEZA intends to develop legal instructions for different Ministries to align relevant laws with the SEZ Act, which will enable the operationalisation of the SEZ incentives.
“Engaging with local government will bring about the much-needed transformation as our SEZs are located in municipalities. For us, a good working relationship with local authorities is the special ingredient required for the efficient facilitation of SEZ investors, which will lead to their competitiveness and ultimate growth,” Mogara stated.
The Mayors Forum will focus on the referral of investors for establishment in different localities, efficient facilitation of investors, infrastructure and property development, and joint monitoring and evaluation of the SEZ programme at the local level. SEZA believes that collaborating with local authorities will bring about much-needed transformation in the areas where SEZs are located and ultimately within the national economy. Against this background, the concept of hosting a Mayors Forum was birthed to identify and provide solutions to possible barriers inhibiting ease of doing business.
One of the key outcomes of the Mayors Forum is the free flow of information between SEZA and local authorities. Further, the two will work together to change the business environment and achieve efficiency and competitiveness within the SEZs. Francistown Mayor Godisang Rasesigo was elected as the founding Chairman of the Mayors Forum. The forum will also include the executive leadership of all city, town and district councils, among them Mayors, City or Council Chairpersons, Town Clerks and District Commissioners.
Mogara explained that initial efforts would engage the local government in areas that host SEZA’s eight SEZs: Gaborone, Lobatse, Selebi Phikwe, Palapye, Francistown, Pandamatenga and Tuli Block. Meanwhile, Mogara told WeekendPost that they are confident that a modest 150 000 jobs could be unleashed in the next two to five years through a partnership with other government entities. He is adamant that the jobs will come from all the nine designated economic zones.
This publication gathers that the Authority is currently sitting on about P30 billion worth of investment. The investment, it is suggested, could be said to be locked up in government bureaucracy, awaiting the proper signatures for projects to take off. Mogara informed this publication that the Authority onboard investors who are bringing P200 million and above. He pointed out that more are injecting P1 billion investments compared to the lower stratum of their drive.
SEZA’s mandate hinges on the nine Special Economic Zones – being Gaborone (SSKIA), whose focus is of Mixed-use (Diamond Beneficiation, Aviation); Gaborone (Fairgrounds) for Financial services, professional services and corporate HQ village; Lobatse for Beef, leather & biogas park; Pandamatenga designated for Agriculture (cereal production); Selibe Phikwe area which is also of a Mixed-Use (Base metal beneficiation & value addition), Tuli Block Integrated coal value addition, dry port logistics centre, coal power generation and export; Francistown is set aside for International Multimodal logistics hub/ Mixed Use (Mining, logistics and downstream value-adding hub); whilst Palapye is for Horticulture.
The knowledge economy buzz speaks to SEZA’s agenda, according to Mogara. The CEO is determined to ensure that SEZA gets the buy-in from the government, parastatals and the private sector to deliver Botswana to a high economic status. “This will ensure more jobs, less poverty, more investment, and indeed wealth for Batswana,” quipped the enthusiastic Mogara. SEZA was established through the SEZ Act of 2015 and mandated with establishing, developing and managing the country’s SEZs. The Authority was tasked with creating a conducive domestic and foreign direct investment, diversifying the economy and increasing exports to facilitate employment creation.
De Beers rough diamond production for the third quarter of 2021 increased by 28% to 9.2 million carats, reflecting planned higher Production to meet more robust demand for rough diamonds. In Botswana, Production increased by 33% to 6.4 million carats, primarily driven by the planned treatment of higher-grade ore at Jwaneng, partly offset by lower Production at Orapa due to the scheduled closure of Plant 1.
Namibia’s Production increased by 65% to 0.4 million carats, reflecting the marine fleet’s suspension during Q3 2020 as part of the response to lower demand at that time. South Africa production increased by 34% to 1.6 million carats due to the planned treatment of higher grade ore from the final cut of the Venetia open pit and an improvement in plant performance. Production in Canada decreased by 13% to 0.8 million carats due to lower grade ore being processed.
Demand for rough diamonds continued to be robust, with positive midstream sentiment reflecting strong demand for polished diamond jewellery, particularly in the key markets of the US and China. Rough diamond sales totalled 7.8 million carats (7.0 million carats on a consolidated basis) from two Sights, compared with 6.6 million carats (6.5 million carats on a consolidated basis) from three Sights in Q3 2020 and 7.3 million carats (6.5 million carats on consolidated basis) from two Sights in Q2 2021.
De Beers tightened Production guidance to 32 million carats (previously 32-33 million carats) due to continuing operational challenges, subject to the extent of any further Covid-19 related disruptions. Commenting on the production figures, Mark Cutifani, Chief Executive of De Beers parent company Anglo American, said: “Production is up 2%(1) compared to Q3 of last year, with our operating levels generally maintained at approximately 95%(2) of normal capacity.
The increase in Production is led by planned higher rough diamond production at De Beers, increased output from our Minas-Rio iron ore operation in Brazil, reflecting the planned pipeline maintenance in Q3 2020, and improved plant performance at our Kumba iron ore operations in South Africa. “We are broadly on track to deliver our full-year production guidance across all products while taking the opportunity to tighten up the guidance for diamonds, copper, and iron ore within our current range as we approach the end of the year.
“Our copper operations in Chile continue to work hard on mitigating the risk of water availability due to the challenges presented by the longest drought on record for the region, including sourcing water that is not suitable for use elsewhere and further increasing water recycling.” On Wednesday, De Beers announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the eighth sales cycle of 2021. The company raked in US$ 490 million for the cycle, a slight improvement when compared to US$467 million recorded in 2020 cycle 8.
Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group has continued to implement a more flexible approach to rough diamond sales during the eighth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration. As a result, the provisional rough diamond sales figure quoted for Cycle 8 represents the expected sales value from 4 October to 19 October. It remains subject to adjustment based on final completed sales.
Commenting on the cycle 8 sales De Beers Group Chief Executive Officer Bruce Cleaver said that: “As the diamond sector prepares for the key holiday season and US consumer demand for diamond jewellery continues to perform strongly, we saw further robust demand for rough diamonds in the eighth sales cycle of the year ahead of the Diwali holiday when demand for rough diamonds is likely to be affected by the closure of polishing factories in India.”