Michael Froman: Why trade is essential to pulling people out of poverty

Michael Froman: Why trade is essential to pulling people out of poverty

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Ambassador Michael Froman

Ambassador Michael Froman

This past week ONE held its annual Power Summit, with volunteers from all over the country descending on Washington to lobby Congress and to learn more about how they can lend their voices to end extreme poverty. We were privileged to have the opportunity to hear from U.S. Trade Representative Michael Froman on Sunday morning. In his remarks, Ambassador Froman presented clear arguments for why trade is an integral supplement to development programs, and is essential to pulling people out of poverty.

In the 1960’s through the mid 1970’s, the period just after independence for most African countries, economic growth was relatively strong. In 1980, sub-Saharan Africa had a 3.8 percent share of world exports; however, the following years were marked by persistent stagnation and, by 1998, the sub-continents share of world exports had dropped to just under 2 percent.

Over the last few years, Africa has again experienced a period of sustained economic growth. Between 1991 and 2011, developing countries’ share of world trade doubled, and nearly 1 billion people were lifted out of poverty. The IMF’s October 2014 Regional Economic Outlook predicts that growth in sub-Saharan Africa is expected to be around 5 percent for 2014 and grow to 5.75 percent in 2015. In fact, this growth momentum is particularly evident in low-income countries, where activity is forecasted to accelerate to 6.5 to 6.75 percent in 2014-2015.

The African Growth and Opportunity Act (AGOA) has been the primary vehicle through which the U.S. government has supported increasing trade between the United States and Africa. AGOA allows eligible countries to export more than 6,000 items, like apparel, automobiles, and a variety of petroleum products, duty-free into the United States, and allows the United States to provide essential trade-capacity building assistance to eligible sub-Saharan African countries. Between 2001 and 2013, the United States provided about $5 billion in trade capacity-building assistance to AGOA eligible countries. During this same time period, U.S. imports under AGOA increased by about 10 percent per year, from $7.6 billion to $24.8 billion.

But it’s not a one way street. The duty-free access provided under AGOA has created new economic growth in Africa, which in turn means new markets created that U.S. businesses can enter. Since AGOA’s inception in 2001, U.S. exports to sub-Saharan Africa have increased more than four times, from $6 billion to just over $25 billion.

Global Apparel Kenya (EPZ) Ltd.

Global Apparel Kenya Ltd. is an apparel manufacturing company located in the Athi-River, on the outskirts of Nairobi. The factory operates under AGOA, which allows the company duty free exports to the US.

 

It is clear that trade is good for both the African and U.S. economies. The problem is that AGOA is set to expire in September. If Congress fails to act, trade between the United States and Africa will drastically reduce, jobs will be lost, growth rates will plummet, and much of the progress we’ve seen over the past 13 years will halt. . Congress must act sooner rather than later, and extend AGOA for a period of 15 years. Business planning cycles are such that a long extension will provide the stability and assurance necessary for businesses currently benefiting from AGOA to continue and will encourage greater trade between the United States and Africa.

As Ambassador Froman said, “We know that trade fuels faster growth, facilitates investment, spurs development, and reduces poverty in developing countries, which translates into more jobs and increased incomes for the poor”. We couldn’t agree more. AGOA is a necessary part of the strategy for fighting poverty in Africa. Congress must not let this opportunity fall by the wayside.

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