African Growth and Opportunity ACT (AGOA) Workshop
August 12, 2003

Remarks by the USAID Director, Dr. Kiert Toh

When the organizer of this workshop, the Kenya Association of Manufacturers, asked me to give a few remarks at this workshop, I asked him what he would like me to talk about. He suggested that I talk about Trade, Growth, Development, and Poverty Reduction; the African Growth and Opportunity Act (AGOA); and Aid, or how USAID can assist in trade and development in Kenya – all of course in no more than ten minutes.

Let me focus my remarks on two things. First, I would like to say a few words about trade and AGOA, particularly, how AGOA has enhanced trade opportunities for Kenya. Second, I would like to outline a few general thoughts on how the Kenya Government might consider aid for trade and development.

Trade and AGOA. Openness to trade has long been seen as an important policy instrument to promote growth and development. It also helps reduce poverty. But this may require specific policy interventions. These policy interventions cannot be one-size-fits-all; they must be country specific. Nonetheless, it suffices to say that the weight of evidence indicates that openness to trade is good for growth and that growth benefits the poor. There may be exceptions, which need to be addressed by specific policy measures, but there is no evidence that openness or growth systematically hurts the poor.

The African Growth and Opportunity Act is a major U.S. initiative towards Africa. AGOA offers increased preferential access for African exports to the United States, provides incentives for improved economic policymaking, and assists countries to respond more positively to the challenge of globalization. To date, AGOA, according to some studies, has contributed to Africa’s non-oil export growth by between 8 and 11 percent.

The importance of trade and openness to Kenya is unquestionable. Trade, exports and imports, accounts for 45 percent of GDP (or about $5 billion) in 2002. As the third largest economy in sub-Saharan Africa, after South Africa and Nigeria, together with a strong private sector, innovative and hard-working entrepreneurs, Kenya can continue to benefit from trade as an important source of growth, employment, and income.

Although the overall economy stagnated during the past few years, Kenya’s exports registered strong growth in 2001 and 2002. Kenya is a major beneficiary of AGOA. AGOA exports increased by nearly five times, from $30 million in 2000 to $140 million in 2002, largely as a result of a significant increase in garment exports. There is certainly potential for Kenya to further benefit from the AGOA initiative by diversifying its export base.

This is one of the reasons why this workshop can contribute to raising awareness of additional benefits from the AGOA. I hope all of you will take advantage and make use of the knowledge and information you receive from this workshop.

Aid for Trade and Development. Mr. Minister, let me now share a few general thoughts with you on how the Kenya Government might consider aid to promote a conducive environment for trade and development. As have been pointed out by several studies, Kenya’s relatively strong export performance over the past two years will not likely be sustained without further improvement in productivity, cost competitiveness, and export diversification, particularly when AGOA’s preferential access enters its phase-out period, beginning in 2005 and ending in 2008. The Kenya Government may want to consider the following:

First, the Government could consider an in-depth competitive assessment of sector or industry specific taking into account competitiveness factors such as: (a) wage and non-wage labour costs in relationship to labour productivity; (b) infrastructure – such as access and costs of electricity, water, communications, local and international transportation; (c) access to competitively priced raw materials, both from local production and imports; (d) access to foreign capital and management and marketing expertise; (e) corporate tax rates; and (f) customs procedures.

Second, the Government may want to identify opportunities to diversify or strengthen its export base. Support for trade diversification strategies may call for a broad range of trade capacity building assistance to improve the overall environment for trade and investment, such as (a) projects that help to privatise and improve the quality and lower costs in transportation, telecommunications, and other key services sector; (b) strengthen the transparency, predictability and quality of commercial laws and institutions; (c) reduce customs and other transaction costs; and (d) improve access to information and analysis on international market opportunities.

Third, globalization, market liberalization and regional trade and integration are providing challenges and opportunities for trade, regionally and internationally. A number of issues need to be addressed to facilitate the process of market liberalization and trade. They include better understanding and more informed on the WTO rule-based approach to trade, market development, harmonization of trade procedures, establishing uniform quality grades and standards for major commodities, eliminating tariff and non-tariff barriers to trade. These initiatives will need to be facilitated and sustained.

Finally, there is the issue of how trade can help the poor. This will touch upon the ability of the poor households to respond to new opportunities presented by trade. Much of this will be influenced by the location of the poor, their demographic structure, and the gender, health status, education and assets of the poor households. For long-run benefits to accrue in terms of poverty reduction, reasonable supply responses are essential. These will be aided by complementary public policy and investment that will enhance the productivity of the poor.

The majority of the working poor in Kenya are in rural areas and earn their livelihood from agriculture and small and micro enterprises (SMEs) in the informal sector. Examples of complementary policy and investment that the Government may want to consider include: investment in rural roads to ensure that agricultural production can be efficiently connected to markets; property rights to encourage investment in the land; appropriate extension and mechanisms for the dissemination of market and technical information; and the development of markets for credit, agricultural inputs; promotion of private sector led business development services for the informal sector; and policy, legal and institutional framework that facilitates the growth of SMEs in the informal sector to become “formal” enterprises.

Mr. Minister, when AGOA was signed into U.S. law in May 2000, there was a lot of talk about “trade not aid” and then talk about “trade and aid,” I prefer to call what I outlined above as “aid for trade and development,” with the emphasis on development. In the coming months, USAID hopes to work closely with your ministry, other ministries and agencies in the government, as well as private sector to collaboratively develop a program for trade and development. My colleagues and I look forward to reviewing some of the ideas above with you and to transforming them into a program of action and support for trade and development.

I wish you all a productive and successful workshop and look forward to your recommendations.

Thank you.

<<Back to list of speeches>>