Does AGOA's third country rule damage African textile production?

The African Growth and Opportunity Act (AGOA) has facilitated significant growth in Africa's textile and apparel industry, but also created challenges stemming from its third country fabric rule. While AGOA has attracted foreign investment, stimulated jobs, and enabled African economies to export garments to the US duty-free, it hasn't led to the development of vertically integrated textile industries as hoped by many governments.

This is largely due to the third country fabric provision, which allows countries to export garments duty-free even if their yarn and fabric are imported from outside Africa. This provision has reduced start-up costs, shortened supply chains, and enabled African producers to compete in the global market, primarily with manufacturers from Asia, including China, Taiwan, South Korea, and India.

Consequently, many African countries have developed strong garment assembly industries but remain heavily dependent on imported fabrics and accessories, limiting their contribution to the value chain. The third country provision has also made African apparel sectors more vulnerable to uncertainties surrounding AGOA's future. South Africa, one of AGOA's largest beneficiaries, exemplifies this.

Despite being a significant exporter to the US, it was excluded from the third-country fabric provision due to its higher level of economic development and thus failed to develop a significant apparel export industry under AGOA. Countries like Kenya, Lesotho, Madagascar, Ethiopia, Mauritius, and Eswatini have benefited the most from AGOA's textile preferences.

These countries established competitive apparel export industries, attracted substantial investments, and created thousands of jobs. Their success can be traced back to earlier investments driven by trade preferences such as the Multi-Fibre Arrangement (MFA), which protected textile manufacturers in developed countries from Asian competition up to the 1990s.

AGOA capitalized on this by becoming the new engine of growth for Africa's garment sector. However, upon the dismantling of the MFA in 2005, African manufacturers faced direct competition from Asia. Despite this, AGOA became the growth driver for African apparel. Countries like Lesotho, Eswatini, and Kenya leveraged their proximity to South Africa and regional customs unions to bolster supply chains.

However, Kenya's textile industry suffered when AGOA eligibility was revoked in 2010 following a military coup, leading to job losses and factory closures. Ethiopia, with its ambitious industrialization strategy and textile parks, was also impacted when it lost AGOA eligibility in 2022 due to the Tigray conflict.