Ethiopia’s access to trade benefits under the African Growth and Opportunity Act (AGOA) is at stake as the United States threatens to review the eligibility of the country if the ongoing conflict in northern Ethiopia remains unaddressed. Mixed opinions are circulating and if Ethiopia’s removed from the preferential trade agreement. Many industrial workers will more likely to lose their jobs and experts express a need to get another option, writes Yared Nigussie of Origins Business.
Ethiopia’s long established relationship with the United States has been through in its worst time, according to political analysts. The war in northern parts of Ethiopia that lasted for a little less than a year has tested their ties.
In a bid to enforce ceasing ongoing war in the north, the US implemented measures such as travel bans against the government officials including those involved in the war.
Also, on September 2021, President Joe Biden signed an executive order threatening sweeping new sanctions that aim to stop the escalating war in northern Ethiopia and allow urgently needed humanitarian aid to flow into the region.
The recent trend signals adamantly implementing such measures. Another possible sanction is on the horizon before November 1: whether or not to extend Ethiopia’s eligibility for duty-free imports allowed under the U.S. African Growth and Opportunity Act (AGOA).
AGOA brings Ethiopia hundreds of million dollars in hard cash annually and, more importantly, directly generates employment for about 100,000 people, mostly women in southern Ethiopia working in textile factories that export to United States. In 2020, Ethiopia secured $525 million from AGOA. Through the trade balance was in favor of the US, which exported $868 million worth commodities to Ethiopia the same year, according to a data from agoa info website.
Aviation accounts for over 80 percent of U.S. exports to Ethiopia. Prior to the spring of 2020, the sector had been growing rapidly with rising demand for air transportation, both passenger and cargo, according to US Country Commercial Guides 2020 report. Ethiopian Airlines imports aircraft, motor, spare parts, flight equipment has created 115, 000 jobs in the US.
It was in last week that Katherine Tai, U.S. global trade representative, said Washington would “soon” decide on Ethiopia’s status under the AGOA.
Meanwhile, a video released from Office of the Prime Minister highlights a woman named Saron working in an Ethiopian garment factory using the Twitter hashtag #LetHerWork. It says she is one of hundreds of thousands young women employed in Ethiopia’s AGOA-dependent industrial parks.
“With the potential for AGOA sanctions, losing this opportunity not only means loss of occupation, but also driving millions into poverty,” a voiceover states. “And women like Saron would face forced marriage and illegal migration”.
“Those who are campaigning to expel Ethiopia from the preferential trade agreement should be cognizant that they are pushing the industrial workers out of their job,” Sandokan Debebe, CEO of Industrial Parks Development Corporation IPDC warned.
Moreover, other officials argue that such a shift to remove Ethiopia from the quota free trade platform would cost poor Ethiopians the highest.
“Whatever concerns one may have about the security situation in Ethiopia today, removal of AGOA eligibility would only worsen the condition of ordinary Ethiopians who have no connection to the Tigray conflict,” wrote Mamo Mihretu, a senior policy advisor to Ethiopian Prime Minister Abiy Ahmed and Ethiopia’s chief trade negotiator on Foreign Policy.
Sandokan shares similar concern with Mamo. “If Ethiopia losses AGOA eligibility, more than 85 thousand lower-incomers, mostly women will bear the brunt of it,” he said.
Excluding the two Industrial Parks in Tigray, which were completely looted during the ongoing war in Tigray region, the 24 parks directly employ 85,000 work forces. Most of these employees migrate from rural areas while others are returnees from the Middle East.
Industries at Hawassa Industrial Park (HIP) manufacture leather and textile products, and the US is a destination for over 90 percent these products.
To support industrialization in sectors where Ethiopia has a comparative advantage, such as textiles and garments, leather goods, and processed agricultural products, Ethiopia plans to increase installed power generation capacity by 8,320 MW, up from a capacity of 2,000 MW, by building three more major dams, and expanding to other sources of renewable energy. In 2017, the government devalued the Birr by 15 percent to increase exports and alleviate a chronic foreign currency shortage in the country.
Pertaining actors have also expressed their concern over the US planed move to expel Ethiopia from AGOA.
The American Chamber of Commerce (AmCham) said it has concerned over the latest move of US government on Ethiopia that threatens to impose economic sanction and may suspended the country for African Growth and Opportunity Act (AGOA) pact.
The AmCham has more than 100 US affiliates companies that invest in Ethiopia or have commercial partnership with Ethiopian business like the aviation industry. Ermias Eshetu, Board President of AmCham said that member companies which invested in Ethiopia have been affected in the past two years because of the Covid-19 pandemic.
“Most of the member companies’ investments that engaged on various sectors including the textile and garment sector have been gravely affected by the pandemic, while they have been supported through different instruments at least to keep their employees that are mostly women from lay off,” he said.
“If the current policy direction of the US government that is threatening to exclude Ethiopia from AGOA would continue it would devastate the activity of companies and the investment climate in Ethiopia,” Ermias explained.
Sandokan has a similar concern with Ermias. “The companies operating at HIP were struggling to keep their employees despite the challenging situations they have been through,” he averred.
Regardless of the looming decision and associated fears, some heads of the manufacturing industries feel optimistic.
Raghavedra Pattar is CEO at Nasa Garment PLC, among the factories in Hawassa Industrial Park (HIP). His factory is in the list of top exporters of textile products, which are 99 percent exported to US through the AGOA privileges.
“Last year Nasa garment garnered $6 million, and in 2021/2022 we are expecting to earn $25 million from the exports to the US,” Raghavedra Pattar told journalists who paid a visit to the HIP last week.
“AGOA benefited US consumers more than exporting countries like Ethiopia. Hence, I feel the US government is not going to make changes to AGOA privileges. We are confident nothing will happen,” he opined. Nasa garment have 1,400 workers in two factories inside HIP. He went on saying, “We export to the US and orders we are receiving are soaring. We have no market problem so far.”
Mr. Pattar’s company has invested over $7 million to start business initially.
Close to 70 percent of the products in HIP shipped to the US market, according to IPDC. Ethiopia’s AGOA privileges attract investors to conduct businesses here, says Dawit Weldemariam, Investment Promotion Advisor at IPDC.
He said: “If Ethiopia is going to be removed from AGOA, it is likely that the investments will reconsider their decision of continuing business in Ethiopia and workers will lose their jobs”.
If a decision to remove Ethiopia from AGOA is implemented, its buyers would lose appetite in Ethiopian goods, since the price hikes as Ethiopian goods enter the US market with taxes.
On the other side, Waseem Siddirui, CEO of Epic Group, says: “The threat of delisting Ethiopia from AGOA is eminent and contains tangible danger that could end his business in Ethiopia.”
Epic Group has created jobs for 2300 people. As the company has already started expansion projects, this year’s pending AGOA authentication is casting its shadow on its future activities.
“We’ve to wait to be sure of the fate of Ethiopia’s upcoming eligibility to AGOA,” he explained.
Officials at the US Embassy in Addis Abeba were not available to a comment.
There are 23 parks in HIP. Three of them are from Ethiopia. Belgium, China, France, Sri Lanka, and the US companies are operating, too. Total number of direct employees in the park is 30,000 and another 30,000 indirect jobs.
Mesfin Tegenu, Chairman of the American-Ethiopian Public Affairs Committee (AEPAC), a voluntary, non-profit public affairs organization, articulated his opposition of US planned rejection of Ethiopia from the AGOA in a letter written to congressional representative.
“Removal of Ethiopia from the Act would jeopardize the country’s economic and social prosperity, deprive the US of access to high-quality goods, and seriously damage US-Ethiopian relations at a time when we need to be strengthening such a vital bond,” the letter reads.
“As many of the manufacturers are US companies in Ethiopia, suspension of Ethiopia from AGOA eligibility will also seriously jeopardize American investments in Ethiopia,” the letter further addressed.
By the same token, AmCham has been supporting AGOA’s continuity since the proposal broadcasted in media’s. They have been working along with Senators at US to solve the problem.
Hibret Lemma, General Manager of Industry Owners Association at HIP for his part described: “If AGOA dismissal is becoming effective, we’ll be looking for other viable markets”. His opinion is also propagated by Dawit.
Diversifying the sectors is among an alternatives to deal with the looming measurement, as Dawit puts it. “The enterprises will too find another alternative through their channels”.
Sandokan for his part said, “We and friends of Ethiopia are lobbying to convince the US for a continuation of AGOA.”