African Growth and Opportunity Act: Eligibility Process and Economic Development in Sub-Saharan Africa
Published: 2015-02-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Enacted in 2000 and set to expire in September 2015, AGOA is a trade preference program that seeks to promote economic development in 49 sub-Saharan African countries by allowing eligible countries to export qualifying goods to the United States without import duties. The act requires the U.S. government to conduct an annual eligibility review to assess each country's progress on economic, political, and development reform objectives in order to be eligible for AGOA benefits. AGOA also requires an annual forum to foster closer economic ties between the United States and sub-Saharan African countries.
GAO was asked to review various issues related to AGOA's economic development benefits. In this report, GAO examines (1) how the AGOA eligibility review process has considered economic, political, and development reform objectives described in the act and (2) how sub-Saharan African countries have fared in certain economic development outcomes since the enactment of AGOA.
GAO reviewed documents and interviewed officials from U.S. agencies to examine the relationship between the U.S. government's review process and AGOA reform criteria. GAO analyzed trends in economic development indicators for AGOA eligible and ineligible countries from 2001 to 2012, the latest year for which data were available for most countries.
section_title: What GAO Found
paragraphs: The U.S. government uses the annual eligibility review process required by the African Growth and Opportunity Act (AGOA) to engage with sub-Saharan African countries on their progress toward economic, political, and development reform objectives reflected in AGOA's eligibility criteria. Managed by the Office of the United States Trade Representative, the review process brings together officials from U.S. agencies each year to discuss the progress each country is making with regard to AGOA's eligibility criteria and to reach consensus as to which countries should be deemed eligible to receive AGOA benefits. Over the lifetime of AGOA, 13 countries have lost AGOA eligibility, although 7 eventually had it restored (see figure). To encourage reforms, the U.S. government will engage with countries experiencing difficulty meeting eligibility criteria and may specify measures a country can take. For example, U.S. officials met with Swaziland officials over several years to discuss steps to improve labor rights. However, Swaziland did not make the necessary reforms and lost eligibility effective in January 2015.
GAO analyzed data on economic development indicators for sub-Saharan African countries that were eligible and ineligible for AGOA in 2012; the results showed that eligible countries fared better than ineligible countries on some economic measures since the enactment of AGOA. The extent to which this outcome is attributable to AGOA, however, is difficult to isolate after additional factors are taken into consideration. Other factors, such as the small share of AGOA exports in the overall exports of many AGOA-eligible countries, the role of petroleum exports in recent income growth, the quality of government institutions, and differences in levels of foreign aid and investment, make it difficult to isolate AGOA's contribution to overall economic development. For example, AGOA exports are a small share of overall exports for the majority of AGOA-eligible countries. GAO found evidence that increasing energy prices may also have contributed to income growth within AGOA-eligible petroleum-exporting countries. GAO also found that AGOA-eligible countries on average had higher governance scores and received more foreign aid and investment compared with ineligible countries. These differences may have contributed to economic development in AGOA-eligible countries, but they may also have been facilitated by AGOA, a possibility that makes it difficult to isolate AGOA's impact on economic development.
section_title: What GAO Recommends
paragraphs: GAO is not making any recommendations.

section_title: Letter
paragraphs: Enacted in 2000, the African Growth and Opportunity Act (AGOA) seeks  to promote economic development in 49 sub-Saharan African (SSA)  countries by offering eligible countries enhanced trade preferences and  encouraging the elimination of trade barriers in those countries. AGOA is  a U.S. trade preference program that allows eligible SSA countries to  export qualifying goods to the United States without import duties. AGOA  is intended to promote free markets, stimulate economic development in  sub-Saharan Africa through export-led growth, and facilitate sub-Saharan  Africa’s integration into the global economy. The act requires the U.S.  government to conduct an annual eligibility review to determine whether a  country is making progress on economic, political, and development  reform objectives described in the act in order to be eligible for AGOA  benefits. AGOA also requires an annual forum that brings together  representatives of the United States and SSA countries to foster closer  economic ties.
With AGOA set to expire after September 30, 2015, we were asked to  examine a number of issues relating to AGOA countries’ trade expansion,  economic development, and factors affecting their trade with the United  States and other countries. In this report, the third in a series responding  to your request, we examine (1) how the AGOA eligibility review process  has considered and the AGOA Forums have supported economic,  political, and development reform objectives described in the act and (2)  how sub-Saharan African countries have fared in certain economic  development outcomes since the enactment of AGOA.
To examine how the U.S. government’s process for determining AGOA  eligibility and the AGOA Forums have supported reform objectives  established in sections 104 and 105 of the act, we reviewed AGOA  legislation and documents from the U.S. agencies that were relevant to  the AGOA eligibility criteria and the AGOA Forums. We also analyzed the  AGOA eligibility status for SSA countries since AGOA’s original  enactment to identify changes in eligibility from 2000 through January  2015. We also attended and observed 2014 AGOA Forum events. For  both objectives, we interviewed officials from the Departments of  Agriculture, Commerce, Labor, State, and the Treasury; the U.S. Agency  for International Development (USAID); and the Office of the U.S. Trade  Representative (USTR). These seven U.S. agencies are members of the  AGOA Implementation Subcommittee of the Trade Policy Staff  Committee (TPSC), and they provide reports on the sub-Saharan African  countries for consideration during the annual eligibility review.
To examine the relationship between AGOA eligibility and economic  development in sub-Saharan Africa, we analyzed data on economic  measures and indicators related to economic development, primarily  consisting of the World Bank World Development Indicators, World Bank  Worldwide Governance indicators, U.S. Census trade data, International  Monetary Fund trade data, and Organisation for Economic Co-operation,  and Development (OECD) data on foreign assistance. To assess the  reliability of these data, we reviewed publicly available documents on  these databases and conducted electronic testing for missing values and  outliers. We determined that these data were sufficiently reliable for our  purposes. We analyzed trends in selected economic development  indicators for SSA countries since AGOA was first implemented and  compared these trends across different groups of countries based on  AGOA eligibility status. For most of this analysis, we used the AGOA  eligibility status of SSA countries at the end of 2012 because that is the  most recent year for which data are available in the April 2014 edition of  the World Development Indicators to examine changes in economic  development across SSA countries. We refer to the 40 SSA countries that  were eligible for AGOA benefits at the end of 2012 as AGOA-eligible  countries and the 9 countries that were not deemed eligible that year as  AGOA-ineligible countries.of overall exports, we use year 2013 export data and the list of AGOA- eligible countries in 2013. Appendix I provides a detailed discussion of  our objectives, scope, and methodology.
However, in our analysis of the AGOA share  We conducted this performance audit from April 2014 to February 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: AGOA Benefits, Reform Objectives, and Eligibility Requirements
paragraphs: AGOA provides eligible SSA countries duty-free access to U.S. markets  for more than 6,000 dutiable items in the U.S. import tariff  schedules. SSA countries are defined in Section 107 of AGOA as the 49  sub-Saharan African countries potentially eligible for AGOA benefits listed  in that provision. As a trade preference program, AGOA supports  economic development in sub-Saharan Africa through trade and  investment and encourages increased trade and investment between the  United States and SSA countries as well as intra-SSA trade. In addition,  AGOA benefits may lead to improved access to U.S. credit and technical  assistance, according to the Department of Commerce’s website and  officials from the Departments of Commerce and Labor. AGOA authorizes  the President each year to designate an SSA country as eligible for  AGOA trade preferences if the President determines that the country has  met or is making continual progress toward meeting AGOA’s eligibility  criteria, among other requirements. For the purposes of this report, we  have organized the act’s eligibility criteria into three broad reform  objectives: economic, political, and development (see table 1).
In addition, the act requires that an SSA country be eligible for the  Generalized System of Preferences (GSP) in order to be considered for  AGOA benefits. The U.S. government’s African Growth and Opportunity  Act Implementation Guide states that an SSA country must also officially  request to be considered for AGOA benefits. Over the lifetime of AGOA,  47 of the 49 SSA countries listed in the act have requested consideration  for AGOA eligibility, according to USTR officials. Figure 1 shows a map  of Africa that identifies the 39 SSA countries that were eligible for AGOA  benefits and the 10 SSA countries that were ineligible for AGOA benefits  as of January 1, 2015.
section_title: The U.S. Government Uses the Eligibility Review Process and the AGOA Forum to Engage with SSA Countries and Encourage Reforms
paragraphs: The U.S. government uses the annual eligibility review process and forum  mandated by AGOA to engage with sub-Saharan African countries on  their progress toward economic, political, and development reform  objectives reflected in AGOA’s eligibility criteria. USTR manages the  annual consensus-based review process, which begins by collecting  information from the public and other agencies of the AGOA  Implementation Subcommittee. For SSA countries experiencing difficulty  meeting one or more eligibility criteria, the U.S. government may decide  on specific engagement actions to encourage reforms in specific areas.  Over the lifetime of AGOA, 13 countries have lost their AGOA eligibility,  although 7 countries eventually had their eligibility restored. The U.S.  government uses the annual AGOA Forum to further engage with  representatives from sub-Saharan Africa on challenges and encourage  progress on AGOA’s economic, political, and development reform  objectives.
subsections: section_title: The AGOA Eligibility Review Is an Interagency Process Based on Consensus
paragraphs: The AGOA Implementation Subcommittee of the TPSC conducts the  AGOA eligibility review annually to discuss whether a country has  established or is making continual progress toward AGOA’s reform  objectives and makes consensus-based recommendations on each  country’s eligibility. USTR’s Office of African Affairs oversees the  implementation of AGOA and chairs the AGOA Implementation  Subcommittee. The full TPSC must review and approve the  subcommittee’s recommendations. The recommendations are then  forwarded to the U.S. Trade Representative for review and approval.  Once the recommendations are approved, the U.S. Trade Representative  sends the recommendations to the President. The President makes the  final decision on AGOA eligibility. The flow diagram in figure 2 provides  an overview of the AGOA eligibility review process, organized into three  phases: (1) initiation and data collection, (2) development of  subcommittee recommendations, and (3) review and approval by the  TPSC, USTR, and the President.
Phase 1: initiation and data collection. Generally, USTR begins the  annual eligibility review process in September or October by requesting  that the agencies that form the AGOA Implementation Subcommittee— the Departments of Agriculture, Commerce, Labor, State, and the  Treasury; USAID; Council of Economic Advisers; and National Security  Council—provide information about each country’s progress on reform  objectives related to the eligibility criteria. USTR also requests public  comments at this time. These agencies generally prepare and submit  their reports to USTR by mid-October. State also distributes information  collected by overseas staff on progress made by SSA countries on  AGOA’s reform objectives to the other members of the subcommittee to  help inform the development of their reports. Subcommittee agencies  frequently provide in-depth information related to the AGOA eligibility  criteria that are most pertinent to their specific mission but may also  provide input related to other eligibility criteria. For example, while the  Department of Labor’s reports primarily focus on labor issues, its reports  on each country may also include information related to other eligibility  criteria, such as human rights and the rule of law. (Table 2 identifies the  primary focus of each subcommittee agency and the related AGOA  reform objectives and corresponding eligibility criteria.)
In phase 1 of the eligibility review process, USTR also publishes a notice  in the Federal Register requesting public comment on SSA countries  eligible to receive AGOA benefits. In 2013, USTR received 11 comments  from a range of sources, including SSA governments, SSA private  companies, a U.S. industry organization, a private U.S. citizen, a  federation of U.S. unions, and a coalition of trade associations. The  Federal Register notice and a presidential proclamation that finalizes  eligibility decisions are the only components of the eligibility review  process that are public.
Phase 2: development of subcommittee recommendations. USTR  compiles the information provided by each subcommittee agency in  phase 1 into a paper on each country. These papers also include broad- ranging information that USTR staff provide and any public comments  that USTR receives in response to its notice in the Federal Register.  USTR distributes the country papers to members of the AGOA  Implementation Subcommittee for review and discussion at the  subcommittee meeting.
Typically, the AGOA Implementation Subcommittee convenes in  November to review each country’s progress in establishing or making  continual progress toward AGOA’s reform objectives. Usually, over a  period that may range from a few days to a few weeks, the subcommittee  works through each agency’s priorities and viewpoints on each country’s  progress on the eligibility criteria, according to agency officials. The  duration of this phase varies depending on how quickly the agencies can  reach consensus. Any differences in perspective regarding countries’  progress are discussed and consensus-based recommendations are  reached. For example, the U.S. Department of Agriculture has regularly  raised concerns about progress on economic reform objectives in certain  SSA countries, such as import bans and procedures to control pests and  diseases in agricultural products. Countries have received démarches or  letters for such issues; however, the subcommittee has not recommended  that a SSA country lose its AGOA eligibility because of market access  issues, according to USTR officials.
Phase 3: review and approval by the TPSC, the U.S. Trade  Representative, and the President. The subcommittee’s  recommendations are presented to the full TPSC for review and approval.  After the TPSC reaches consensus, USTR staff prepare a decision  memorandum for the U.S. Trade Representative’s approval. The TPSC,  the U.S. Trade Representative, and the President have the authority to  modify the subcommittee’s recommendations, according to agency  officials. The U.S. Trade Representative prepares a decision memo with  recommendations to the President for approval. Then, generally in  December, the President issues a proclamation that implements any  changes to SSA countries’ AGOA eligibility status. The proclamation is  published in the Federal Register.
section_title: Annual AGOA Eligibility Review Encourages U.S. Government Engagement with SSA Countries on Reforms
paragraphs: Regardless of a country’s eligibility status, the U.S. government uses the  eligibility review as one of many tools to initiate conversations with SSA  countries about economic, political, and development reforms, according  to agency officials. The subcommittee reviews each country individually,  considering each country’s particular situation, to determine how best to  encourage progress toward specific eligibility criteria. The TPSC reviews  the subcommittee’s recommendations and makes the ultimate decision  on specific actions the U.S. government can take to encourage countries  to address particular concerns related to the eligibility criteria. For  example, the TPSC may determine that the relevant U.S. ambassador, or  other U.S. government official, should meet with appropriate country  representatives. Other possible actions include issuing démarches or  letters that describe the eligibility criteria concerns and outline actions the  country may take to address those concerns. In some cases, the TPSC  may recommend specific steps a country should take to maintain or  restore its AGOA eligibility. After the TPSC’s concerns are communicated  to the country, relevant U.S. government officials manage engagement  with the country and report back to the subcommittee on the country’s  progress.
Although the eligibility review is annual, interim eligibility reviews may be  held to gauge the progress countries are making on specific eligibility  criteria. For example, in October 2011, an interim review reinstated  AGOA eligibility for Côte d’Ivoire, Guinea, and Niger. All three countries  had lost AGOA eligibility because of undemocratic changes in  government and then regained eligibility following free and fair elections.
The following example illustrates how the U.S. government uses the  eligibility review process to engage with SSA countries on issues related  to specific reform objectives:
Swaziland was deemed eligible for AGOA in January 2001. However,  several years ago, the U.S. government began engaging with  Swaziland on concerns related to internationally recognized labor  rights through a series of letters and démarches issued by USTR and  State. Over the course of several years, Swaziland made some  progress on labor issues, but conditions related to labor rights later  deteriorated. U.S. government officials met several times with  Swaziland officials to discuss steps to improve labor rights, including a  USTR-led interagency trip in April 2014. In particular, the officials  were concerned that Swaziland had failed to make continual progress  in protecting freedom of association and the right to organize. The  U.S. officials were also concerned by Swaziland’s use of security  forces and arbitrary arrests to stifle peaceful demonstrations, and the  lack of legal recognition for labor and employer federations. Despite  U.S. efforts to engage with the country’s government, Swaziland failed  to make the necessary reforms. In June 2014, an interim review  resulted in the President declaring Swaziland ineligible, effective as of  January 1, 2015.
section_title: Since 2000, 13 Countries Have Lost Eligibility as a Result of Not Meeting Certain Eligibility Criteria; 7 Have Regained Eligibility
paragraphs: Over the lifetime of AGOA, 13 SSA countries have lost their AGOA  eligibility for not meeting certain eligibility criteria, although 7 of these  countries eventually had their AGOA eligibility restored. As of January 1,  2015, the 49 SSA countries fell into four categories based on their history  of AGOA eligibility. (App. II provides a list of the SSA countries by  eligibility status.)
Eligibility lost and regained. Seven countries had lost AGOA  eligibility at some time in the past but later regained it. Five of the  countries experienced coups, one country lost eligibility after its  President extended his term in violation of the country’s constitution,  and one country lost eligibility because of political unrest and armed  conflict. All seven countries had their AGOA beneficiary status  restored following a return to democratic rule. (Fig. 3 provides  additional information regarding SSA countries that have lost and  regained AGOA eligibility.)
Eligibility lost and not regained. Six SSA countries have lost and  not regained AGOA eligibility. One lost eligibility following a coup;  three were deemed ineligible because of concerns about human  rights abuses; one lost eligibility because of issues with labor rights;  and one country lost eligibility following political violence and armed  conflict. (Fig. 4 provides additional information regarding SSA  countries that have lost and not regained AGOA eligibility.)
Eligibility never lost. About two-thirds of SSA countries, 32 of 49  countries have maintained their AGOA eligibility status since it was  first granted. Six of 32 were not deemed eligible when AGOA was  originally enacted in 2000. Although these countries had expressed  interest in the AGOA trade preference program, they did not initially  satisfy the eligibility criteria but later obtained eligibility for benefits  under AGOA at different times.
Never eligible. Four SSA countries have not been eligible for AGOA.
Somalia and Sudan have not expressed official interest in the AGOA  trade preference program, according to agency officials. Zimbabwe  and Equatorial Guinea have not been deemed eligible because of  concerns related to AGOA’s eligibility criteria.
section_title: The AGOA Forum Promotes Trade and Investment Relations between the United States and Sub-Saharan Africa; Some Forum Activities Also Support AGOA Reform Objectives
paragraphs: The AGOA Forum is required under AGOA. Its purpose is to foster close  economic ties between the United States and SSA countries; however,  the forum also supports AGOA reform objectives by holding sessions that  specifically address AGOA eligibility criteria. The AGOA Forum is  generally held in alternate years in the United States and sub-Saharan  Africa and supports AGOA’s reform objectives by facilitating high-level  dialogue between the U.S. and SSA governments. The forum also  engages the business community and civil society organizations.  Generally, the forum takes place over 2 to 3 days and includes three to  eight plenary sessions and several breakout sessions as well as  workshops. Speakers are typically high-level U.S. and SSA government  officials; however, speakers also include officials representing  organizations such as the African Union and the United Nations  Economic Commission for Africa. A number of U.S. congressional  delegations have also participated in the forum. Civil society and private  sector groups such as the Economic Justice Network and the African  Cotton and Textile Industries Federation also actively participate in the  forums.
The theme of the AGOA Forum changes from year to year, but the  discussions are centered on strengthening the economic connection  between the United States and sub-Saharan Africa. For example, the theme of the December 2003 forum, hosted by the United States was  “Building Trade, Expanding Investment” and the theme of the August  2013 forum, hosted by the Ethiopian government, was “Sustainable  Transformation through Trade and Technology.” The 2014 AGOA Forum  consisted of a 1-day ministerial meeting that took place during the first  U.S.-Africa Leaders Summit in Washington, D.C. This summit included  leaders from SSA countries and other parts of Africa. (Table 3 provides  the location and theme of each AGOA Forum from 2001 through 2014.)
Although the annual AGOA Forums are trade-oriented, they also facilitate  further engagement between the United States and SSA countries  through dialogue about the reform objectives reflected in AGOA eligibility  criteria. Throughout the years, AGOA Forum workshops have focused on  a number of the eligibility criteria, including good governance, intellectual  property rights, health care, and labor rights. For example, at the 2013  AGOA Forum in Addis Ababa, a session co-chaired by Liberian and U.S.  senior government officials highlighted the importance of labor rights in  achieving economic growth. As another example, breakout sessions at  the 2009 and 2011 AGOA Forums focused on the relationship between  good governance and the investment environment. During the forums,  U.S. and SSA government officials also hold bilateral meetings to discuss  specific issues related to AGOA’s reform objectives and eligibility criteria,  according to agency officials.
section_title: AGOA-Eligible Countries Have Fared Better than Ineligible Countries on Some Economic Development Indicators, but AGOA’s Impact on Economic Development Is Difficult to Isolate
paragraphs: AGOA-eligible countries have fared better than ineligible countries on  some economic development indicators since AGOA was enacted,  according to our analysis of economic data for SSA countries that were  eligible and ineligible for AGOA in 2012; however, AGOA’s impact on  economic development is difficult to isolate when additional factors are  taken into consideration. Other factors—such as the small share of AGOA  exports in the overall exports of many AGOA-eligible countries, the role of  petroleum exports in recent income growth, the quality of government  institutions, and different levels of foreign aid and investment—make it  difficult to isolate how much economic development can be attributed to  AGOA. For example, AGOA exports are a small share of overall exports  for the majority of AGOA-eligible countries, a fact that could limit AGOA’s  impact on economic development in these countries. We found evidence  that increasing energy prices may also have contributed to income growth  within AGOA-eligible countries: from 2000 through 2012, the top three  AGOA-eligible petroleum-exporting countries had a much higher growth  rate for income per person than other AGOA-eligible countries. We also  found that AGOA-eligible countries on average had higher governance  scores and received more foreign aid and investment compared with  ineligible countries. While these differences may have been facilitated by  AGOA eligibility, they may also have contributed to economic  development in AGOA-eligible countries, a possibility that makes it  difficult to isolate AGOA’s impact on economic development.
subsections: section_title: Since AGOA’s Enactment, AGOA-Eligible Countries Have Had Higher Income per Person and Slightly Higher Growth Rates Compared with Ineligible Countries
paragraphs: Both before and since AGOA was enacted in 2000, income per person  has been higher in AGOA-eligible countries, on average, compared with  ineligible countries. The average annual income per person for 37  AGOA-eligible countries was $876 in 2000, prior to AGOA’s  implementation, and $1,132 in 2012. The variation in income per person  among the eligible countries was large; for example, in 2012, Seychelles  had the highest income per person at $14,303 and Burundi had the  lowest at $153. For 8 AGOA ineligible countries, average annual income  per person was $353 in 2000 and $450 in 2012. Among the ineligible  countries, income per person also varied widely. In 2012, Equatorial  Guinea had the highest income per person at $14,199, whereas the  Democratic Republic of Congo had the lowest at $165. The average  annual growth in income per person was slightly higher in AGOA-eligible  countries: eligible countries’ income per person on average grew 2.2  percent per year from 2000 to 2012, compared with 2.1 percent per year  in ineligible countries. Figure 5 shows trends in annual income per person  from the enactment of AGOA through 2012, for eligible and ineligible  countries. (For additional details on each country’s annual income per  person before and after AGOA, see app. III.)
section_title: AGOA’s Impact on Economic Development Is Difficult to Isolate after Additional Factors Are Considered
subsections: section_title: Exports under AGOA Accounted for a Small Proportion of Overall Exports for Most AGOA Countries
paragraphs: Exports under AGOA have accounted for a small proportion of exports for  most AGOA-eligible countries. Our analysis shows that in 2013 AGOA  exports accounted for less than 0.5 percent of overall exports for the  majority of countries—for these countries, the small proportion of AGOA  exports in their overall exports could limit AGOA’s impact on economic  development. Figure 6 shows the number of AGOA-eligible countries in  2013 separated into categories based on the level of their exports under  AGOA, as a share of their overall exports.
For example, 4 of the AGOA-eligible countries had no AGOA exports at  all in 2013, and in the same year, AGOA accounted for less than 5  percent of overall exports for 26 other AGOA-eligible countries. In 2013,  AGOA accounted for more than half of overall exports for only 1 country,  Chad, a top petroleum exporter among AGOA-eligible countries.
section_title: Rising Energy Prices Affected Income Growth Rates of Top Petroleum Exporters among AGOA-Eligible Countries
paragraphs: While AGOA-eligible countries have had higher income per person than  ineligible countries, the fastest growth in income per person has been  concentrated in a few petroleum-exporting AGOA-eligible countries. From  2001 to 2013, petroleum products accounted for over 80 percent of U.S.  imports under AGOA. Among AGOA-eligible countries, we identified  Nigeria, Angola, and Chad as the top three petroleum exporting countries  based on trade data in 2013. These countries collectively accounted for  90 percent of all petroleum exports to the United States under AGOA in  2013. When we separated out these countries in our analysis, we found  that from 2001 through 2012 the top three AGOA-eligible petroleum  exporting countries as a group had, on average, slightly lower levels of  annual income per person compared with all other AGOA-eligible  countries considered as a group: $960 versus $1,026. However, figure 7  shows that from 2000 through 2012, these top three petroleum exporters  had a much higher average annual growth rate as measured in income  per person compared with the other AGOA-eligible countries: 4.5 percent  per year versus 1.4 percent per year. The difference in income-per- person growth between the top three petroleum exporters and the other  AGOA-eligible countries can be explained partly by rising energy prices.From 2000 through 2012, global prices for petroleum increased by 272  percent.
Prior to AGOA’s implementation in 2000, the group of SSA countries  eligible for AGOA benefits in 2012 had higher governance scores than  ineligible countries. Academic studies have found a positive relationship  between the quality of governance institutions and economic growth.  Therefore, gains in economic growth since 2000 among AGOA-eligible  countries may have been driven to some degree by governance that was  more conducive to economic development. We analyzed two measures of  institutional quality from the Worldwide Governance Indicators that  capture some aspects of the security of private property, namely scores  for the rule of law and political stability. We found that AGOA-eligible  countries had substantially higher scores on both rule of law and political  stability in 2000 than countries that were not eligible for AGOA (see fig.  8). Pre-existing differences in institutional quality scores could explain in  part why AGOA-eligible countries on average had higher annual income  per person and slightly higher growth in annual income per person after  the implementation of AGOA.
According to our analysis of the AGOA eligibility review process, given  that governance is considered in the annual AGOA eligibility review,  AGOA-eligible countries may also have benefited from an ongoing  incentive to sustain or improve the quality of their governance institutions.  Figure 8 shows that the differences in governance scores between  eligible and ineligible countries in 2012 were similar to those in 2000.  These persistent differences in the quality of governance institutions  could also have contributed to the differences in economic growth  between AGOA-eligible countries and ineligible countries after the  implementation of AGOA.
section_title: AGOA-Eligible Countries Have Received More Foreign Aid and Investment than Ineligible Countries
paragraphs: AGOA-eligible countries on average have received more foreign aid per  person and higher foreign direct investment (FDI) than ineligible countries  since the implementation of AGOA. The different levels of foreign aid  and FDI, which could play a role in economic development and poverty  reduction, also may have contributed to the differences in income per  person between AGOA-eligible countries and ineligible countries that we  observed. Moreover, according to our analysis of aid and investment  flows to SSA countries (below), being eligible for AGOA may have  improved the ability of countries to attract aid and investment.
Our analysis shows that on average AGOA-eligible countries received  more foreign aid per person than ineligible countries. We analyzed data  on country programmable aid (CPA) from the Organisation for Economic  Co-operation and Development (OECD). According to the OECD, CPA  captures the main cross-border aid flows to recipient countries and  excludes some forms of official development assistance that are neither  fully transparent to, nor manageable by, recipient countries, including  humanitarian aid in response to crises and natural disasters, and debt  relief provided by donor nations. The United States allocated an  estimated $7.04 billion in U.S. bilateral aid to Africa in fiscal year 2014.  The aid was intended to help SSA countries in areas including health;  climate change; food security; and, more recently, power. From 2000 to  2012, AGOA-eligible countries received more than twice as much aid per  person on average than ineligible countries (see fig. 9).
AGOA-eligible countries on average also received more FDI than  ineligible countries. According to a 2014 U.S. International Trade  Commission report, global inflows from FDI into SSA countries increased  almost sixfold between 2000 and 2012. We analyzed FDI as a share of  a country’s gross domestic product (GDP) to take into consideration the  size of the country’s economy. From 2001 to 2013, the amount of FDI  each SSA country received relative to the size of its overall economy  varied considerably. For example, among SSA countries that were net  recipients of FDI in 2013, Burundi received FDI amounting to less than  half a percent of its GDP (the lowest in sub-Saharan Africa), while Liberia  received FDI amounting to about 57 percent of its GDP (the highest in  sub-Saharan Africa). From 2001 through 2013, AGOA-eligible countries  received FDI that on average amounted to about 5.6 percent of GDP,  while ineligible countries averaged about 2.7 percent. (See fig. 10.)
Being eligible for AGOA may help a country attract aid and investment.  For example, AGOA eligibility can be seen as a signal of a relatively  stable political environment as well as advantages in tariff treatment for  certain products. According to a recent report by the U.S. International  Trade Commission, AGOA has signaled improvements in the business  and investment climate in SSA countries, and has contributed to  increasing FDI flows to these countries. Additionally, the International  Monetary Fund reported in June 2014 that in Swaziland uncertain  prospects for AGOA eligibility could affect investment and employment in  the textile sector. Similarly, Ethiopian government officials in the Ministry  of Trade said that AGOA has helped to attract foreign direct investment to  Ethiopia.
section_title: AGOA’s Impact on Economic Development Is Difficult to Isolate
paragraphs: Our analysis of factors contributing to economic development in SSA  countries and review of academic literature suggest that isolating AGOA’s  impact on overall economic development is difficult. We found that on  average, AGOA-eligible countries have had higher annual income per  person and slightly higher growth rates in annual income per person than  ineligible countries; we also found evidence suggesting that AGOA  eligibility might be associated with other factors that also can positively  affect development. For example, our review of academic literature  indicated that increased FDI could enhance countries’ economic growth,  and our analysis demonstrated that on average AGOA-eligible countries  receive more FDI inflows relative to the size of their economies.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. We provided a  draft of this report for comment to the Departments of Agriculture,  Commerce, Labor, State, and the Treasury; USAID; and the Office of the  U.S. Trade Representative (USTR). The Departments of Labor, State, the  Treasury, and USTR provided technical comments, which we have  incorporated in the report, as appropriate.
We are sending copies of this report to appropriate congressional  committees; the Secretaries of Agriculture, Commerce, Homeland Security,  Labor, State, and the Treasury; the Administrator of USAID; and the U.S.
Trade Representative. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) how the African Growth and  Opportunity Act (AGOA) eligibility review process has considered and the  AGOA Forums have supported economic, political, and development  reform objectives described in the act and (2) how sub-Saharan African  (SSA) countries have fared in certain economic development outcomes  since the enactment of AGOA.
To examine how the U.S. government’s process for determining AGOA  eligibility and the AGOA Forums have supported reform objectives  established in sections 104 and 105 of the act, we reviewed the AGOA  legislation and documents from the seven U.S. agencies relevant to the  AGOA eligibility criteria. We analyzed the AGOA eligibility status of SSA  countries and the implementation of AGOA Forum activities since  AGOA’s original enactment to identify changes in eligibility from 2000  through January 2015. We also attended and observed 2014 AGOA  Forum events.
To address both objectives, we interviewed officials from the Departments  of Agriculture, Commerce, Labor, State, and the Treasury; the U.S.  Agency for International Development; and the Office of the U.S. Trade  Representative (USTR), all of which are the members of the Trade Policy  Staff Committee’s AGOA Implementation Subcommittee that generally  prepare the sub-Saharan Africa country reports for the annual eligibility  review.
To examine the relationship between AGOA eligibility and economic  development in sub-Saharan Africa, we analyzed data on gross domestic  product (GDP) per capita and total population from the World Bank World  Development Indicators. We used data from the April 2014 version of the  World Development Indicators. We compared population-weighted  average GDP per capita at the end of 2012 for AGOA-eligible countries  versus ineligible countries, as well as for the top three AGOA-eligible  petroleum exporting countries versus other AGOA-eligible countries. We  also compared average annual growth rates in annual income per person  from 2000 to 2012 for AGOA-eligible versus ineligible countries, as well  as for the top three AGOA-eligible petroleum exporting countries versus  other AGOA-eligible countries. To study sub-Saharan African countries’  exports under AGOA as a share of total exports as well as the value of  petroleum exports to the United States under AGOA, we used U.S.  Census trade data on imports by trading partners and imports by product  from 2013. We used data on countries’ total exports from the International  Monetary Fund’s Direction of Trade Statistics and International Financial  Statistics databases. We calculated AGOA-eligible countries’ shares of  AGOA and Generalized System of Preference (GSP) exports in their  overall exports to study how the value of exports under these trade  preference systems compared with the value of overall exports for AGOA- eligible countries in 2013. To study differences in the quality of  governance institutions between AGOA-eligible and ineligible countries,  we analyzed data on governance from the World Bank Worldwide  Governance Indicators, comparing average scores for Political Stability  and Rule of Law in 2000 and 2012 between AGOA-eligible and ineligible  countries. To describe the differences in the amount of foreign  development assistance and foreign direct investment received by  AGOA-eligible and ineligible countries, we used data on country  programmable aid from the Organisation for Economic Co-operation and  Development (OECD) and foreign direct investment (FDI) as a  percentage of GDP from the World Development Indicators. We  compared yearly averages of aid per capita (from 2000 to 2012) and net  FDI inflows as a percentage of GDP (from 2001 to 2013) between AGOA- eligible and ineligible countries. To assess the reliability of these data, we  reviewed publicly available documents on these databases and  conducted electronic testing for missing values and outliers. We  determined that the data were sufficiently reliable for our purposes. We  also reviewed a judgmental sample of peer-reviewed academic literature  related to economic development, foreign direct investment, foreign aid,  and the impact of trade preference programs.
Country classifications. For most of the analysis, we defined AGOA- eligible countries as the 40 SSA countries that were deemed eligible for  AGOA benefits as of the end of 2012. Nine SSA countries were ineligible  for AGOA benefits as of the end of 2012. We chose 2012 as the base  year for this classification because it was the latest year for which data on  GDP per capita were available for the SSA countries in the April 2014  version of the World Bank World Development Indicators. The only  exception is that for the analysis of the exports under AGOA as a share of  total exports from AGOA-eligible countries, we defined AGOA-eligible  countries as the 39 countries that were deemed eligible for AGOA  benefits as of 2013 because we analyzed 2013 trade statistics.
GDP per capita. To study differences and depict trends in income per  person between selected groupings of countries, we used the World  Development Indicators annual GDP per capita series, expressed in year  2005 U.S. dollars. Thirty-seven out of 40 countries eligible for AGOA  benefits in 2012, and 8 out of 9 ineligible countries, reported complete  GDP per capita data from 2000 and through 2012. Djibouti, São Tomé  and Principe, and South Sudan were excluded from the AGOA-eligible  group because of missing data. Somalia was excluded from the ineligible  group due to missing data. Within each country grouping, we took the  weighted average of countries’ GDP per capita, where the weights are  given by the share of a country’s population in the overall group’s  population. The weighted average GDP per capita is a measure of the  yearly income of the average individual in the country group. Equation (1)  shows that the weighted average GDP per capita is equivalent to  summing up the GDP of every country in the group and dividing by the  total group population:  Where 𝑛 denotes the number of countries in the group, 𝑦𝑖 refers to gross  domestic product of country i, and 𝐿𝑖 refers to the population of country i. (1)
AGOA export share. To examine the magnitude of AGOA exports  relative to the total exports of each AGOA-eligible country, we used U.S.  Census data on imports by trading partners. We calculated the value of  imports under AGOA (i.e., imports that received duty-free access claiming  AGOA preference benefits) and imports that received duty-free access  under GSP. Since AGOA was established as a program for SSA  countries that builds on GSP, we analyzed exports from AGOA-eligible  countries to the United States under both programs together. AGOA  countries continue to have duty-free access to the commodities covered  under the GSP although that program expired in 2013. We computed the  AGOA (including GSP) share of exports relative to total exports for each  AGOA-eligible country in 2013, and graphically tabulated countries  according to their AGOA export share. In this analysis, both the exports  data and the definition of AGOA eligibility are from 2013. We used data  from two International Monetary Fund databases, Direction of Trade and  International Financial Statistics, to determine total exports for each  country.
Top three AGOA-eligible petroleum exporters. The top three AGOA- eligible petroleum exporters were Nigeria, Angola, and Chad, which  collectively accounted for 90 percent of all petroleum exports to the U.S.  under AGOA in 2013, based on U.S. Census data on AGOA imports by  product. Since AGOA was established as a program for SSA countries  that builds on GSP, the 90 percent statistic refers to exports of petroleum  from AGOA-eligible countries to the United States under both programs  together. AGOA countries continue to have duty-free access to the  commodities covered under the GSP although that program expired in  2013. AGOA-eligible countries minus the top petroleum exporters refer to  the remaining 34 AGOA-eligible countries.
Governance. To examine differences in the quality of governance (also  known as “institutions”) between AGOA-eligible and ineligible countries,  we reviewed a judgmental sample of empirical academic literature that  provided evidence that property rights and political stability can promote  economic growth. We judgmentally identified two measures of  institutional quality from the Worldwide Governance Indicators that may  capture aspects of the security of private property, namely scores for the  rule of law and political stability. We compared the simple average of  scores in 2000 and 2012 for AGOA-eligible countries versus ineligible  countries. We rescaled the indicators to range from 0 to 5, with higher  scores indicating better perceptions of governance.
Aid and foreign direct investment. To examine differences in the  amount of development assistance received by AGOA-eligible versus  ineligible countries, we used annual data from the OECD on country  programmable aid. According to the OECD, country programmable aid  (CPA) is the proportion of aid that is subjected to multiyear programming  at the country level, and hence represents a subset of official  development assistance (ODA) flows. CPA is equivalent to gross ODA  disbursements by recipient but excludes spending that is (1) inherently  unpredictable (humanitarian aid and debt relief); or (2) entails no flows to  the recipient country (administration costs, student costs, development  awareness and research, and refugee spending in donor countries); or (3)  is usually not discussed between the main donor agency and recipient  governments (food aid, aid from local governments, core funding to  nongovernmental organizations, aid through secondary agencies, ODA  equity investments, and aid that is not allocable by country). CPA counts  loan repayments among the aid transferred from donor countries to  developing countries. We represented country programmable aid in per  person units by dividing the program aid total by the total population of  the country. Data on population were from the World Development  Indicators. We computed the simple average of aid per person in each  year from 2005 to 2012 for AGOA-eligible countries and AGOA ineligible  countries.
To examine differences in the amount of foreign direct investment  received by AGOA-eligible versus ineligible countries, we used annual  data on net inflows of foreign direct investment as a percentage of GDP  from the World Bank World Development Indicators. We computed the  simple average of these series in each year from 2001 to 2013 for AGOA- eligible countries and AGOA ineligible countries. In using the FDI data,  we checked for outliers and missing values and identified Equatorial  Guinea as an outlier based on comparisons with data from other sources;  values for Equatorial Guinea’s net FDI inflows as a percentage of GDP  were omitted from the calculation of the average.
We conducted this performance audit from April 2014 to February 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: African Growth and Opportunity Act (AGOA) Eligibility Status for Sub- Saharan Countries as of January 2015
paragraphs: Central African Republic (eligible Oct. 2, 2000; ineligible  Jan. 1, 2004)
Congo,  Democratic Republic of  (eligible Oct. 31, 2003;  ineligible Jan. 1, 2011)
Congo,  Republic of  (eligible Oct. 2, 2000)
Côte d’Ivoire (eligible May 16, 2002; ineligible Jan. 1,  2005; eligibility regained Oct. 25, 2011)
Gambia, The (eligible Mar. 28, 2003; Ineligible Jan. 1,  2015)
Guinea (eligible Oct. 2, 2000; ineligible Jan. 1, 2010;  eligibility regained Oct. 25, 2011)
Guinea-Bissau (eligible Oct. 2, 2000; ineligible Jan. 1,  2013; Eligible Dec. 23, 2014)
Madagascar (eligible Oct. 2, 2000; ineligible Jan. 1,  2010; eligibility regained June 26, 2014)
Mali (eligible Oct. 2, 2000; ineligible Jan. 1, 2013;  eligibility regained Dec. 23, 2013)
subsections: section_title: Swaziland (eligible Jan. 17, 2001; ineligible Jan. 1, 2015)
section_title: Appendix III: Annual Income per Person (GDP per capita) in Sub-Saharan African Countries in 2000 and 2012 and AGOA Eligibility Status in 2012
paragraphs: Inflation-adjusted U.S. dollars (2005 base year)
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Christine Broderick (Assistant  Director), Ming Chen (Assistant Director), Rhonda M. Horried (Analyst-in- Charge), Michael Hoffman, John O’Trakoun, Qahira El’Amin, Giselle  Cubillos-Moraga, Thomas Hitz, David Dayton, Oziel A. Trevino, Jill Lacey,  and Ernie Jackson made significant contributions to this report.
section_title: Related GAO Products
paragraphs: African Growth and Opportunity Act: USAID Could Enhance Utilization by  Working with More Countries to Develop Export Strategies. GAO-15-218  Washington, D.C.: January. 22, 2015.
Foreign Assistance: USAID Should Update Its Trade Capacity Building  Strategy. GAO-14-602. Washington, D.C.: September 10, 2014.
African Growth and Opportunity Act: Observations on Competitiveness  and Diversification of U.S. Imports from Beneficiary Countries.   GAO-14-722R. Washington, D.C.: July 21, 2014.
Sub-Saharan Africa: Trends in U.S. and Chinese Economic Engagement.  GAO-13-199. Washington, D.C.: February 7, 2013.
Foreign Assistance: The United States Provides Wide-ranging Trade  Capacity Building Assistance, but Better Reporting and Evaluation Are  Needed. GAO-11-727. Washington, D.C.: July 29, 2011.
U.S.-Africa Trade: Options for Congressional Consideration to Improve  Textile and Apparel Sector Competitiveness under the African Growth  and Opportunity Act. GAO-09-916. Washington, D.C.: August 12, 2009.
International Trade: U.S. Trade Preference Programs: An Overview of  Use by Beneficiaries and U.S. Administrative Reviews. GAO-07-1209.  Washington, D.C.: September 27, 2007.
Foreign Assistance: U.S. Trade Capacity Building Extensive, but Its  Effectiveness Has Yet to Be Evaluated. GAO-05-150. Washington, D.C.:  February 11, 2005.