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
Botswana’s economy showed slight growth signs in the first quarter of 2021, following a devastating year in 2020.
During 2020, the entire second quarter was on zero economic activity as the country went on total lockdown in an effort to curb the spread of the virus.
Diamond trade plummeted to record low levels as global travel restrictions halted movement of both goods and people and muted trade.
The end result was a significant decline for the local economy, at an estimated 7 percent contraction, just marginally below the 2008/09 global financial crises.
According to figures released by Statics Botswana this week, the country’s nominal Gross Domestic Product for the first quarter of 2021 was P47.739 billion compared to a revised P45.630 billion registered during the previous quarter.
This represents a quarterly increase of 4.6 percent in nominal terms between the two periods.
During the quarter, Public Administration and Defence became the major contributor to GDP by 18.4 percent, followed by Wholesale & Retail by 11.4 percent. The contribution of other sectors was below 6.0 percent, with Water and Electricity Supply being the lowest at 1.6 percent.
Real GDP for the first quarter of 2021 increased by 0.7 percent compared to a contraction of 4.6 percent registered in the previous quarter.
The improvement in the first quarter 2021 GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.
The real GDP increased by 0.7 percent during the period under review, compared to an increase of 1.2 percent in the same quarter of 2020.
The recovery in the domestic economy was observed across majority of industries except Accommodation & Food Services, Mining & Quarrying, Manufacturing, Construction, Other Services and Agriculture, Forestry & Fishing.
The overall slow performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic.
The Non-mining GDP increased by 4.1 percent in the first quarter of 2021 compared to 4.0 percent increase registered in the same quarter of the previous year.
Agriculture, Forestry and Fishing industry decreased by 2.0 percent in real value added during the first quarter of 2021, relative to a contraction of 5.2 percent registered during the same quarter of 2020.
The main driver of the unfavorable performance stems from a decrease in real value added of Livestock farming by 3.0 percent.
Mining and Quarrying registered a decrease 11.4 percent in the real value added, this was mainly influenced by the drop in the Gold and Diamond real value added by 17.5 and 12.5 percent respectively.
Diamond production in carats went down by 12.1 percent while the tonnage of Gold produced went down by 17.5 percent.
The poor performance of the diamond sub-industry is attributed to the reduction in production due to a lower grade feed to the plant at Orapa in response to heavy rainfall and operational issues, including continued power supply disruptions.
With regard to Gold is due to diminishing resource base which affect production.
The Manufacturing industry recorded a decline of 7.4 percent in real value added during the first quarter of 2021, compared to a decrease of 2.3 percent registered in the corresponding quarter of 2020.
The deep low performance in the industry is observed in the two major sub-industries of Beverages & tobacco and Diamond cutting, polishing and setting by 57.0 and 38.5 percent respectively.
The reduction in Beverages is attributed to alcohol sale ban imposed during the quarter under review in order to reduce the spread of the COVID-19 virus. On the other hand, exports of polished diamonds went down by 24.9 percent compared to a decrease of 11.5 percent registered in the same quarter of the previous year.
The construction industry recorded a decline of 4.8 percent compared to an increase of 4.3 percent realized in the corresponding quarter in 2020.
This industry comprises of buildings construction, civil engineering and specialized construction activities. The industry is still showing signs of the consequences of COVID-19 pandemic. The industry recorded a negative growth of 7.4 percent in the previous quarter.
Water and Electricity Water and Electricity value added at constant 2016 prices for the first quarter of 2021 was P506.2 million compared to P378.2 million registered in the same quarter of 2020, recording a growth of 33.8 percent.
In the first quarter of 2021, Electricity recorded a significant growth of 62.4 percent compared to a decrease of 67.6 percent recorded in the corresponding quarter of 2020.
The local electricity production increased by 22.4 percent while Electricity imports decreased by 33.3 percent during quarter under review. The water industry recorded a value added of P231.3 million compared to P209.0 million registered in the same quarter of the previous year, registering an increase of 10.7 percent.
Wholesale and Retail Trade real value added increased by 11.4 percent in the first quarter of 2021 compared to an increase of 5.5 percent registered in the same quarter of the previous year. The industry deals with sales of fast moving consumer goods.
Diamond Traders recorded a significant growth of 112.7 percent as opposed to a decline of 22.7 percent recorded in the corresponding quarter last year. The positive growth is due to improved demand of diamonds from the global market.
The Transport and Storage value added increased by 0.6 percent in the first quarter of 2021, compared to a 2.4 percent increase recorded in the same quarter of the previous year.
The slight improved performance of the industry was mainly attributed to the increase in real value added of Road Transport and Post & Courier Services by 4.3 and 2.1 percent respectively.
The slow growth was influenced by a significant reduction in Air Transport services of 69.7 percent due to reduced number of passengers carried. Rail goods traffic in tonnes went down by 6.4 percent and passenger rail transport was not operating during the quarter under review.
Accommodation and Food Services Accommodation and Food Services real value added declined by 31.7 percent in the first quarter of 2021 compared to a decrease of 4.4 percent registered in the same quarter of the previous year. The reduction is largely attributed to a decrease of 42.1 percent in real value added of the Accommodation activities subindustry.
The suspension of air travel occasioned by Covid-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry. COVID-19 restriction measures resulted in reduced demand for leisure and conferencing activities, as conferences are largely held through virtual platforms.
Finance, Insurance and Pension Funding industry registered a positive growth of 8.3 percent due to the favorable performance from monetary intermediation and Central Banking Services by 16.4 and 5.4 percent respectively during quarter under review.
It is still tough in the tourism industry — big players in this sleeping giant are not having it easy, but options are being explored to keep the once vibrant multibillion Pula sector alive until the world gets back to normalcy.
One of the primary measures against the spread of Covid-19 is to stay home; this widely pronounced precaution against the global contagion that has claimed over 4 million lives across the world is however a thorn in the flesh of one of the major industries in the global economy — the tourism sector .
This sector is underpinned by travel – an act which is the virus‘ number one mode of spread, especially across borders.
Chobe Holdings Limited, one of Botswana’s leading high end eco-tourism giants said its survival strategies are underpinned by well-crafted stakeholder engagements in the mist of these unprecedented times of muted trading activity.
“Throughout the COVID-19 pandemic, Chobe continued to invest in and strengthen its relationships with key stakeholders in both its traditional markets and the SADC region,” the company directors updated shareholders this week.
To keep the business afloat, the company which owns and operates some of the exquisite tourism destinations along the banks of the mighty Chobe said it has triggered its existing available debt financing avenues.
Chobe revealed that its current overdraft of BWP 25 million has been extended on favourable terms.
The company shared that it has negotiated a further USD 1.5 million (over P16 million) standby loan with a flexible settlement terms and preferable cost implications to the bottom line.
“We are confident that the Group has sufficient cash inflows, cash reserves and un-utilized prearranged borrowing in place to settle any liabilities falling due and support the smooth recovery of operations in the short and medium term,” the company directors said, noting that they will retain the flexibility to vary operations should market conditions change.
Early this year, Chobe announced that the ongoing crisis in the tourism industry forced the company to draw from its prearranged overdraft facility of P25 million to the extent of P11.6 million.
Last year Chobe’s occupancy levels around its lodges and hotels went down 89 percent. This resulted in unprecedented revenue decline of 93% to P27.78 million from the P373.94 million in the previous year ended February 2020.
Operating profits went down 159% with profit after tax down 170%, mirroring a loss of over P67 million.
Chobe management said during the last half of the financial year they have done all they could to contain costs across the company’s operations.
During the last half of the year Chobe’s marketing and reservations teams continued to pursue the “don’t cancel but defer policy”.
“We thus continue to hold advance travel receipts, to the value of about P34 million at the financial year end,” the company revealed early this year.
Chobe said it continues to engage Government, through HATAB and BTO to prioritize the vaccination of workers in the tourism sector.
“Throughout the pandemic we have ensured that employees are trained in and comply with COVID-19 infection mitigation protocols as well as ensuring that all visitors to our remote camps and lodges as well as our staff and contractors are tested for COVID-19 before reaching the camp or lodges,” the company said.
However, the company said vaccinating the tourism staff will provide the best way to ensure that both employees and guests are protected from the virus.
“We continue to manage our cashflow through stringent cost control measures, balanced against the protection of the Group’s physical assets and the wellbeing and retention of its people,” the company said.
Chobe has successfully retained its top management through the pandemic. To this end the company directors continue to closely monitor the Group’s recovery from COVID-19 and adjust salary reductions to support operations and aid retention.
Domestic and regional travel resumed during the second quarter of the 2020/21 financial year with the Group opening a strategic mix of camps and lodges.
A comprehensive domestic, regional and international marketing plan was put in place to support these openings.
International travel resumed in the first quarter of the 2021/22 financial year with occupancies forecast to steadily increase, albeit from a low base, through the second quarter.
The company is optimistic that forward bookings are strong for the 2022/23 financial year.
“There is pent-up demand from our traditional source markets to travel now, but this is tempered by uncertainty and access constraints,” the company stated.
“Both the domestic and international markets are sensitive to such uncertainty, and it is critical that both the private and public sector work together to develop and publish clear, authoritative and consistent travel information in order to build confidence”
Chobe entered the pandemic with the Shinde camp rebuild in progress — one of its high end camps and this was completed in the first half of the 2020/21 financial year accounting for the majority of the Group’s capital expenditure for that period.
De Beers Group, the world’s leading rough diamonds producer by value and Botswana’s partner in the diamond business, ramped up its production in the second quarter of 2021, in response to stronger demand for rough diamonds in the global markets.
The London headquartered diamond mining giant revealed in its production report this week that rough diamonds output increased by 134% to 8.2 million carats in the three(3) months of quarter 2 2021, “reflecting planned higher production to meet stronger demand for rough diamonds”.
This was against the backdrop of curtailed demand in the same quarter last year, mirroring the impact of Covid-19 lockdowns across southern Africa during that period.
In Botswana, where De Beers sources majority of its rough diamonds through partly government owned Debswana, production increased by 214% to 5.7 million carats. The percentage jump mirrored planned low production in the second quarter of 2020 where output was adjusted to market demands and implemented Covid-19 protocols.
Debswana operates four (4) Mines: Jwaneng Mine- being its flagship producer and largest revenue contributor. Jwaneng Mine which is the wealthiest diamond mine in the world by value is envisaged for multi-billion expansion to an underground operation in future to stretch its existence by few more decades.
The underground project which is anticipated to cost a whooping P65 billion will be the world‘s largest underground diamond mine.
The company which accounts for over 65 % of De Beers’s global production also operates Orapa Mine- one of the world’s largest by area, Letlhakane Mine currently a tailings treatment operation and Damtshaa Mine which is under care and maintenance following market shrink in 2020.
Namibia production decreased by 6% to 0.3 million carats, primarily due to planned maintenance of the Mafuta vessel which was completed in the quarter and another vessel remaining demobilized. In Namibia De Beers sources diamonds both in land and marine through Namdeb and Debmarine respectfully.
In South Africa-the spiritual home ground of De Beers Group, production increased by 130% to 1.3 million carats, due to planned treatment of higher grade ore from the final cut of the Venetia open pit, as well as the impact of the Covid-19 lockdown in Q2 2020.
Production in Canada increased by 14% to 0.9 million carats, primarily reflecting the impact of the Covid-19 measures implemented in Q2 2020.
De Beers said consumer demand for polished diamonds continued to recover, leading to strong demand for rough diamonds from midstream cutting and polishing centers, despite the impact on capacity from the severe Covid-19 wave in India during April and May.
Rough diamond sales totaled 7.3 million carats (6.5 million carats on a consolidated basis), from two Sights, reflecting the impact of the reduced Indian midstream capacity on Sight 4, compared with 0.3 million carats (0.2 million carats on a consolidated basis) from two Sights in Q2 2020, and 13.5 million carats (12.7 million carats on a consolidated basis) from three Sights in Q1 2021.
The H1 2021 consolidated average realized price increased by 13% to $135/ct (H1 2020: $119/ct), driven by an increased proportion of higher value rough diamonds sold.
While the average price index remained broadly flat, the closing index increased by 14% compared to the start of 2021, reflecting tightness in inventories across the diamond value chain as well as positive consumer demand for polished diamonds.
Full Year Guidance Production guidance is tightened to 32–33 million carats (previously 32-34 million carats (100% bases)), subject to trading conditions and the extent of any further Covid-19 related disruptions.
When commenting to 2021 quarter 2 production figures, Mark Cutifani, Chief Executive of Anglo American- De Beers parent, said the entire Anglo American Group delivered a solid operational performance supported by comprehensive Covid-19 measures to help safeguard the lives and livelihoods of its workforce and host communities.
“We have generally maintained operating levels at approximately 95% of normal capacity and, as a consequence, production increased by 20% compared to Q2 of last year, with planned higher rough diamond production at De Beers” he said.