Ed Royce Outside Witness Testimony: House Ways & Means Committee AGOA Hearing
By Ed Royce | July 25, 2024
Thank you Chairman Smith and Ranking Member Blumenauer for the opportunity to submit testimony to the Ways and Means Trade Subcommittee for this important hearing, “Looking Beyond 2025 for Trade with Sub-Saharan Africa, Haiti, and Others.”
The United States is facing a formidable array of global challenges, as adversaries become increasingly brazen in their attempts to weaken U.S. influence and actively work against our interests. Not since the height of the Cold War rivalry with the Soviet Union over forty years ago has America faced such significant threats to its global leadership. As global powers like China and Russia expand their presence in Africa through investments, trade, and military cooperation, maintaining and strengthening U.S. influence on the continent is necessary to safeguard U.S. interests and to promote our values.
These international challenges and threats come at a time when the U.S. economy is under-performing, making it all the more critical to focus on strengthening the economic ties with Africa, a continent home to approximately 1.4 billion people and a middle class that has grown rapidly in recent years, This growing middle class is driving demand for goods and services, contributing to economic diversification, and playing an important role in shaping the future economic and political landscape of the continent.
As Chairman of the House Foreign Affairs Subcommittee on Africa, I worked with my Republican and Democratic colleagues to secure bipartisan and bicameral support to pass AGOA almost 25 years ago and saw firsthand the consequential impact it had in forging a paradigm shift for U.S. trade with Africa. I witnessed the transformative power of economic growth in Africa and AGOA’s role in helping to drive that growth while also fostering stability and strengthening our bilateral ties with the nations of Africa. Since its passage, AGOA has been the foundation of the economic relationship between Africa and the United States and extending it beyond 2025 must be a central tenet of U.S. strategy on the continent.
Following the initial passage of AGOA, Africa began a period of substantial economic growth that persisted for a decade. From 2000-2010, real GDP grew at an average rate of 5.1 percent annually, up from an annual average of only 2.5 percent in the previous decade. Growth slowed to 3.3 percent per year between 2010 and 2019 and has been further hampered by global events such as the COVID-19 pandemic and the Russian invasion of Ukraine, underscoring the importance of exploring ways to strengthen AGOA during discussions over its renewal.
In addition to advancing economic progress, AGOA has encouraged governance reforms and political stability. By linking trade benefits to adherence to the rule of law, respect for human rights, and market-based economic policies, AGOA has incentivized improved governance across Africa. These reforms have fostered environments conducive to democratic growth and mutual trust, enhancing the foundation for long-term collaboration.
However, despite these successes, much potential remains unrealized. Many African countries still face significant barriers such as inadequate infrastructure, limited access to finance, and challenges in meeting U.S. market standards. To address these issues, we need innovative tools and strategies that go beyond the current scope of AGOA. As we continue to prioritize economic growth in Africa through AGOA, we must also work to unlock the power of the free market as the only lasting solution to eradicate extreme poverty and assist our AGOA partners on their journey to move from aid to trade. The Millennium Challenge Corporation (MCC) and the U.S. International Development Finance Corporation (DFC) represent the tip of the spear when it comes to U.S. Government efforts to spur investment, trade, and economic growth in developing countries, and both must be at the forefront of our efforts in Africa.
Economic diversification is a priority for many African countries and a pillar of the African Union Agenda 2063, which is the AU’s own plan to transform Africa into a “global powerhouse of the future.” In countries that have successfully industrialized, manufacturing growth has led to the movement of large numbers of workers from the agriculture and informal sectors into higher paying jobs, increasing the prosperity of those workers’ families and communities. The export of labor-intensive manufactured goods is central to economic growth and by providing privileged access to the U.S. market, AGOA has helped accelerate African exports in certain sectors such as apparel in Kenya and automobiles in South Africa.
However, only 13% of U.S. investment in Africa is in manufacturing and the utilization of AGOA benefits remains highly concentrated in the energy sector, with a few exceptions such as the examples noted above. As we look toward a renewal of AGOA, we must explore ways to further incentivize the growth of the manufacturing base in Africa by leveraging important U.S. development tools such as the DFC, which have great potential to work in complement to AGOA’s incentives. To date, DFC investment in Africa has been concentrated on sectors such as infrastructure, finance, health and agriculture, but DFC also has the authority to work in key manufacturing sectors that would catalyze sustainable growth.
As an example, the apparel industry has historically been key to developing countries looking to boost export diversification and climb the global value chain into more advanced manufacturing sectors and AGOA was specifically designed to support growth in apparel exports. AGOA's third country fabric provisions have been the primary competitive advantage for Africa's apparel exports to the United States and apparel imports from AGOA beneficiaries have risen from $953 million in 2001 to up to $1.76 billion in 2022. This growth in African apparel exports to the United States is clearly significant, but competition from other producers–particularly China–slowed down an initial boom in exports that occurred during the first few years under AGOA. Now, with China’s global market share in apparel exports in decline, Africa’s apparel sector has a real opportunity to seize the unique potential presented by AGOA benefits.
However, the DFC is currently not leveraging the development impact of the apparel sector due to outdated economic assumptions regarding the industry from the 1970s when the DFC’s predecessor agency, the Overseas Private Investment Corporation (OPIC), was established. When Congress passed the BUILD Act of 2018, we provided the DFC with modern financial tools, significantly more resources, and a renewed purpose to harness the development impact of the private sector. The DFC has an opportunity to embrace this new mandate by partnering with U.S. brands and retailers to support AGOA partner countries as they work to address constraints to investment in the apparel sector. DFC also should look to invest in other high potential sectors in Africa such as pharmaceuticals and critical minerals that would not only boost economic growth but also help U.S. firms diversify supply chains in these important sectors away from China. As noted in a recent Carnegie Endowment report, there is a major opportunity to increase the minerals and metals trade between the United States and Africa both in terms of volume and composition by investing in the processing and refining of these commodities on the African continent, which will also reduce U.S. dependence on China.
Both the MCC and the DFC require expanded tools and authorities to maximize their development impact in a broader set of countries. USAID also has a critical role to play in supporting economic growth. USAID has long made substantial investments in Africa in health, education, and agriculture that have helped promote human flourishing. However, USAID must do more to support market-based economic growth through increased investments in programs that improve governance and financial management, as well as trade and investment.
Two other tools we have to increase AGOA utilization and trade and investment flows between the US and Africa are the U.S. Trade and Development Agency (USTDA) and Prosper Africa. For nearly 30 years, USTDA has connected African project sponsors and U.S. companies, bringing innovative private sector solutions to development challenges. USTDA has supported project investments across Africa in critical sectors, such as health, transportation, energy and technology. Prosper Africa is a Presidential-level national security initiative to catalyze two-way trade and investment between the U.S and Africa. The initiative draws on and supplements the resources of 17 U.S. Government Agencies and Departments to drive new commercial transactions at scale - connecting Africa to America’s deep capital markets and dynamic supply chains. Prosper Africa represents the evolution toward a more partnership and private sector- led relationship between Africa and the U.S.
Placing economic growth at the center of our development policies aligns with our strategic interests. A prosperous and stable Africa contributes to global economic stability, provides new markets for U.S. goods and services, and fosters a more secure international environment. Economic growth can also mitigate the root causes of conflict and migration, promoting peace and stability both regionally and globally.
Although the focus of my testimony is on AGOA and the importance of the U.S. relationship with Africa, many of these principles are just as important to Haiti, our neighbor in this hemisphere that is at a critical juncture. Now more than ever, U.S. investors and producers in Haiti, and the Haitians that rely on these investments for their jobs, need the certainty that Haiti HOPE/HELP provides. The HOPE/HELP program is critical to the Haitian economy, and its renewal must be at the center of our efforts to help stabilize that country.
While AGOA has laid a strong foundation for U.S.-Africa relations, it is crucial to recognize and address the unrealized potential that remains. By utilizing new tools and strategies, we can build on AGOA's successes and create a future of shared prosperity, security, and mutual respect. I urge this committee to support the continued evolution of AGOA to fully realize its potential for the benefit of both the United States and Africa. We must renew AGOA and consider complementary initiatives to enhance AGOA's impact, such as encouraging greater focus by DFC in key industries such as apparel, targeted investments in infrastructure, and increased support for trade capacity-building programs at USAID and MCC. These efforts will empower more African countries to maximize AGOA's benefits, unlocking further economic growth and deepening our ties with the continent.