Investment Opportunities Available in the African Growth Opportunity Act (AGOA) in Tanzania

 Tanzania’s National AGOA Strategy supports trade related public and private sector players to maximize their utilization of the benefits provided by AGOA. It outlines key sectors and product categories on which Tanzania should focus to increase its trade with the U.S. With the enactment of the AGOA Extension and Enhancement Act (AEEA),  2015 to 2025, Tanzania is poised to reap its benefits. A key benefit is the third country fabric provision, which allows textiles eligible African countries to use fabrics from anywhere in the world in garments destined for the U.S.

 During consultations between the East African Community (EAC) ministers of trade, industry, finance, and investment and the U.S. trade representatives held on February 15, 2015, in Washington DC., each EAC Partner State agreed to develop its own national AGOA strategy. The objective of the strategies is to guide the region in developing specific sectors and products for export to the U.S. market to increase trade under the AGOA preference. Tanzania completed its first draft strategy in August 2015. The draft triggered a request by the Ministry of Industry, Trade, and Investment (MITI) to the East African Trade and Investment Hub (the Hub) for additional support to facilitate an extensive process of stakeholder buy in. The consultant engaged for this purpose led a team of five MITI officials in consultations with public and private sector stakeholders at the national and sub national level in four regions Morogoro, Arusha, Mbeya, and Mtwara as well as the Zanzibar side of the Union. The result is a revised strategy document with five sections.

The first section introduces the Tanzanian context, including the political economy, a background on AGOA and the AEEA. Further, it includes an overview of the sub-Saharan African (SSA) region,  the impact of  AGOA and the structure of the strategy document. Section two provides the rationale for a Tanzanian AGOA Strategy, linking the same with the second cycle of the 15-year Long Term Perspective Plan (LTPP 2016/17 to 2020/21) and its industrialization theme embedded in the Integrated Industrial Development Strategy (IIDS). Section three presents the strategic vision and mission to enhance Tanzania’s capacity to seize  AGOA market opportunities.   

Section four delivers the actual strategy, starting with the identification of four sectors – 1.) garments and textiles, 2.) handicrafts, 3.) leather and leather goods, and 4.) agro-processing that could be competitive in a U.S. market, under AGOA. The section undertakes a rapid analysis of the current situation for each of the four sectors based on production capacity in place and exporting performance founded on country time series and regional comparative analysis. The section also identifies issues of concern to stakeholders and challenges Tanzania needs to address to perform better and fully utilize the opportunities that are accessible under AEEA, 2015. Top among those concerns is the need to improve the business environment and address institutional limitations to drive economic transformation. In addition, cost competitiveness issues caused by limited reliability and access to utilities and transportation represent important obstacles for market expansion as well as the lack of key competencies. Tanzanian companies must cultivate to stand out among competitors. This section concludes the analytical work with sectoral objectives and targets to ensure achievement.

Finally, section five provides recommendations for an effective institutional framework for coordinated trade strategy implementation. The section draws upon lessons from international experience such as the export development council model and the trade support network concept pioneered by the International Trade Centre (ITC).


Garments and Textiles Sector

For the garments and textiles sector, the strategy looks at Tanzania’s relative performance over the recent past, with a peak export of garments worth US$25 million in 2015, which confirms potential.  AEEA preferences and lower labor costs are prompting firms operating in China to consider relocating in Eastern Africa, with a preference for Ethiopia, Kenya, and Tanzania. China’s holdings in the garments and textile industry are valued at US$60 billion. Key factors for attracting foreign direct investment (FDI) and stimulating domestic investments in the sector include access to land for the development of export processing zones (EPZs) and rental space for operators inside and outside EPZs at competitive tariffs and access to natural gas at regulated prices to provide cheaper power and skills development. The strategy argues for stimulating initial investments in the garments sub-sector and backward integration into mixed cotton-synthetic fabrics, a s well as investments in a design capacity. 
 
Handicrafts  Sector - Home Decor and Fashion Accessories 

 

Tanzania is producing a wide range of original handicraft products not found elsewhere. Products include basketry, mats, ceramics, beads, pottery, hand woven textiles and woven products, toys, jewelry, bags, ornaments, leather products, paintings, drawings, batiks, wood carvings and mask-craft, among others. These items are produced in almost all districts in Tanzania and are a major source of employment for vulnerable groups including women and youth. 

Within the EAC, notable exporters of handicrafts are Kenya and Rwanda, with Kenya featuring re-exports from Tanzania. Concerns for market expansion include lack of skills and competencies, informal production systems and limitations in product design, standards, and grading.  Solutions include investment promotion and development of industrial parks, cluster development, business incubator schemes, and promotion of business associations.

Leather  Goods and  Footwear Sector

Export data for 2014, published in the National Strategy for the Leather Sector, demonstrates that Tanzania is the 14th largest exporter of hides and skins in Africa overall and the 12th largest in SSA. Total hides and skins exports for 2014 were worth US$21 million. Despite the abundance of this raw input, Tanzanian exports of value added leather goods and footwear to the EAC region were a mere US$200,000.00 for each group compared to Rwandan exports of US$5.2 million, equivalent to 8.2% of regional trade. Lack of skills and technology undermine Tanzania’s great potential in this sector. Required measures include attraction of FDI and promotion of domestic investment.


Agro processing Sector


The strategy identifies three specific priority groups of products: 1.) horticulture, 2.) spices and 3.) edible nuts. Prevailing challenges include limitations in primary production capacity for compliance with standards and quality along the value chain, meeting product volumes, and delivery schedules. Market linkages are in place and working for fruits, vegetables, and floriculture, but need to strengthen.  

Cluster initiatives are key to addressing challenges in spice production and contract farming to raise productivity in cashew nuts. In general, productivity is the main issue for cashew nuts and spice is.  Other challenges include current
 Tanzanian practices for the registration of necessary inputs, such as fertilizers and pesticides. As it stands today, it may take up to three years to get approval, by which time some inputs may no longer be useful.  Equally concerning is the current capacity to carry out product testing and field inspection and certification to verify sanitary and phytosanitary standards (SPS) required by importing countries.
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Cross cutting Issues

The strategy reviewed the state of the business environment relevant to each sector and developed specifically, fast track recommendations that respond to all sector needs. Cumbersome business registration and licensing procedures and the multiplicity of taxes, fees, and other charges are common impediments across all four sectors. The absence of an effective institutional framework and institutional capacities for coordinating and driving the trade development agenda remain critical constraints. Best practice instruments available in Tanzania are the Export Development and Cluster Competitiveness Councils.
 A s a short term intervention, we recommend the establishment of an inter-institutional technical working group (TWG) supported by a secretariat that will be located inside MITI. A time-bound, decision-making process calls for MITI management to approve the strategy within one week of submission of the final version of the strategy and the TWG to kick-start implementation by developing a program and identifying requisite resources.