The U.S. House Committee on Ways and Means is currently considering the renewal and strengthening of the African Growth and Opportunity Act (AGOA).  AGOA is the cornerstone of the U.S.-African commercial relationship, and the African Union (AU) has called for a 15 year extension of the Act, from 2015 to 2030.  Since its enactment in 2000, AGOA has significantly contributed to Africa’s economic growth, social stability, and the emergence of a growing African middle class.  AGOA’s renewal is an opportunity for the House to strengthen the legislation and to foster U.S. commercial engagement in Africa by creating an increasingly stable, predictable framework for U.S. companies to enter and invest in African markets.

Currently, Africa accounts for a mere one percent of U.S. investments worldwide.  If AGOA is renewed, Congress will have the opportunity to increase U.S. investments in Africa by better aligning AGOA’s trade mechanisms with investment provisions that assist U.S. companies in capturing African market share.  By considering and passing new AGOA measures such as tax incentives reducing the risk-reward ratio for U.S. companies and incentives targeting African governments that restrict market access, the United States would considerably broaden its economic horizons in Africa.  In light of the increasing competitiveness of Chinese, Indian and European companies in Africa, the U.S. would be well-advised to strengthen investment channels into Africa’s fast-emerging economies.

Regional economic integration is a pivotal component of Africa’s economic development, and AGOA is well-positioned to facilitate the flow of goods and services across Africa’s borders.  From a U.S. perspective, this goal should be of particular importance in light of the Economic Partnership Agreements (EPAs) that the European Union (EU) is currently compelling African governments to sign by October 1–those that refuse to sign face losing their professional access to the European market.  The EPAs replace the EU’s non-reciprocal trade preferences with free trade agreements that threaten regional integration, give EU goods and services preferential access to African countries over commodities from neighboring African states, and discriminate against American companies and products by binding African countries to opening 80 percent of their markets to European goods and services over the next 10 to 20 years.  In February 2014, the EU initialed an EPA with the 16 countries belonging to the Economic Community of West African States (ECOWAS); last week, the five members of the Southern African Customs Union, Angola, and Mozambique agreed to sign an EPA.  The EU’s efforts to establish preferential access to African markets make the enhancement of AGOA’s non-reciprocal trade benefits program, which currently benefits 40 African states, essential to U.S. companies’ competitiveness throughout the continent.

Last year, the U.S. exported $24 billion worth of goods and services to Africa, thereby supporting more than 130,000 jobs in the United States.  However, U.S.-Africa trade relations have much room to expand.  U.S. investors should watch the developments of AGOA closely, as the Act’s destiny will significantly impact their access to African markets.  The current renewal process is particularly timely, given the upcoming U.S.-Africa Leaders Summit, which will bring over 40 African heads of state to the White House to discuss U.S.-Africa investment and trade from August 4-6.

This post can also be found on GlobalPolicyWatch, the firm’s blog on public policy and governmental affairs issues.