Uncertainty over future of AGOA poses a risk to investments in Africa

By Danilo Desiderio

A recent article published by Semafor raises concerns about the future of the African Growth and Opportunity Act (AGOA), a trade agreement that grants eligible sub-Saharan African countries duty-free access to the U.S. market. AGOA operates asymmetrically, allowing selected African nations to export a range of products to the U.S. without reciprocal market access requirements for American goods.

However, participation in AGOA comes with stringent conditions. Beneficiary countries must uphold a market-based economy that safeguards private property rights, establish an open and rules-based trading system, and minimize government interference through measures such as reducing price controls, subsidies, and state ownership of economic assets.

Additionally, they must eliminate barriers to U.S. trade and investment, protect internationally recognized human rights, and implement anti-corruption mechanisms.

AGOA’s Mixed Track Record

Over its 25-year existence, AGOA has delivered mixed results. While countries such as Kenya, Lesotho, Nigeria, Madagascar, and South Africa have reaped substantial benefits – along with Ethiopia prior to its suspension – other nations have seen more limited success.

Despite criticisms regarding its effectiveness in driving economic development and trade, many sectors of the African economy are advocating for its renewal, particularly as the program approaches its scheduled expiration in September 2025. However, the likelihood of AGOA continuing in its current form appears slim, given the policy stance of the new U.S. administration, which has shown a preference for implementing rather than eliminating tariff measures.

Potential for Restructuring

Nonetheless, there remains the possibility of AGOA being restructured rather than outright discontinued. Any revision, however, is expected to be more favorable to U.S. interests.

This aligns with US President Trump’s “America First Trade Policy” executive order, issued on January 20, which directs the U.S. Trade Representative, Treasury Department, and Commerce Department to review all trade agreements to ensure alignment with national priorities. The results of this review, set to be announced on April 1, 2025, will provide definitive clarity on AGOA’s future.

Economic Implications of AGOA’s Expiration

Beyond the policy considerations, AGOA’s potential termination carries significant economic implications. One major concern is its impact on investment attractiveness.

AGOA’s duty-free provisions have made African exports competitive in the U.S. market, and its discontinuation would introduce tariffs, reducing the appeal of African goods for American consumers. This could weaken export-driven industries and deter future investments, with sectors such as textiles, apparel, and agro-food production being particularly vulnerable.

Additionally, AGOA’s expiration could erode investor confidence in Africa. According to Statista, U.S. investments in Africa reached US$56.28 billion in 2023, continuing an upward trend from US$43.81 billion in 2020. Investors prioritize stability and predictability; therefore, the uncertainty surrounding AGOA’s renewal could prompt U.S. businesses to downscale or relocate operations, resulting in significant job losses, particularly in AGOA-dependent industries.

Supply Chain Disruptions

Another critical risk is the disruption of established supply chains. Many African businesses have integrated into U.S. supply networks through AGOA.

Ethiopia serves as a stark example – its suspension from AGOA in January 2022 led to the exit of 18 foreign companies, the loss of 11,500 jobs, and a US$45 million revenue shortfall in industrial parks. The abrupt loss of preferential market access severely disrupted supply chains and left Ethiopian businesses with little time to adapt to alternative markets or restructure operations.

The Path Forward: Diversifying Trade Partnerships

Given these challenges, African nations must act urgently to diversify their trade relationships. Strengthening partnerships both within and beyond the continent will be essential.

In this regard, the African Continental Free Trade Area (AfCFTA) presents a strategic opportunity. By enhancing intra-African trade and reducing reliance on external markets, AfCFTA can help mitigate the impact of AGOA’s potential termination.

This approach would not only fortify regional value chains but also create new investment opportunities critical to the industrialization of African economies.

Danilo Desiderio serves as the CEO of Desiderio Consultants Ltd in Nairobi, Kenya, specializing in African customs, trade, and transport policies. He is a customs and trade expert at the World Bank and a senior associate to the Horn Economic and Social Policy Institute (HESPI).