{"id":396842,"date":"2011-04-25T15:48:13","date_gmt":"2011-04-25T15:48:13","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/04\/25\/rethinking-agoa-summit\/"},"modified":"2011-04-25T15:48:13","modified_gmt":"2011-04-25T15:48:13","slug":"rethinking-agoa-summit","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/04\/25\/rethinking-agoa-summit\/","title":{"rendered":"Rethinking Agoa Summit"},"content":{"rendered":"
\n
\n
\n

\"The<\/a><\/p>\n

David Punabantu<\/p>\n

25 April 2011<\/p>\n

\n

analysis<\/p>\n

AS Zambia awaits to host the African Growth and Opportunities Act (AGOA) Forum this year on June 8 and 9, it is hoped it would rejuvenate trade between Zambia and the US under AGOA.<\/p>\n

Trade between Zambia and the US has increased to about US$1.4 million in 2010 from $121,000 as recorded in 2009.<\/p>\n

Consequently AGOA to mostZambian businesspersons has been interpreted as a commodity export stimulus package for Africa, giving it an opportunity and gate way to earn US dollars by trading with the US.<\/p>\n

Hence AGOA has been cast as a commodity based incentive initiative. This is well illustrated in the views of the Organic Producers and Processors Association of Zambia (OPPAZ) chief executive officer Munshimbwe Chitalu who indicated Zambia can earn about $1.3 billion from groundnuts, another $25 million from honey and $450 million from pineapples and otherorganic exports through AGOA.<\/p>\n

Despite trade between Zambia and the US being insignificant, it must be remembered that AGOA was born at a time when China was not as economically strong as today.<\/p>\n

Therefore, the eco-political tone of AGOA has changed from a US viewpoint.<\/p>\n

The long term worries of AGOA for the US is what will happen if trade real grows within the AGOA framework? Will the US accept African nations exporting commodities to it in return for US dollars that end up in Africa? When these US dollars end up in Africa will they be spent in China on its cheaper commodities, making again China an even stronger economic power?<\/p>\n

Will the US then be forced to issue treasury bills to China to get back its liquidity to avoid another economic melt down as experienced in September 2008?<\/p>\n

The US is intending to increase its borrowing ceiling, but its Congress is yet to decide on the new level as Republicans and Democrats battle it out in give and take concessions.<\/p>\n

If the US fails to raise the borrowing ceiling, while trying to cut down on its expenditure, the US, government by June this year may default on its debts.<\/p>\n

Thus from an American policy point of view AGOA’s failing is a blessing, meaning no US dollar out flows that end up in China.<\/p>\n

However, for the US AGOA serves as a powerful public relations aphrodisiac to re-ignite theromanticism of US concerns for African economies in the face of growing Chinese influence over African economies and Africa’s resources.<\/p>\n

For African firms the infatuation of earning US dollars and concessional access to US markets is the carrot to escape local markets and their weak domestic currencies.<\/p>\n

A new AGOA<\/strong><\/p>\n

The principle foundation of AGOA is that it is meant to add value to African economies and not individual firms and this requires newpolicies that think outside the AGOA commodity box.<\/p>\n

A new approach in AGOA policies could serve as the magic wand to rejuvenate not only Africa’s economy, but the US economy to usher in a whole new era of prosperity to such an extent to rival the economic progress that the Chinese economy has made with its trade with Africa.<\/p>\n

The two keys words to this new era of prosperity between Africa and the US under AGOA are ‘commodity’ and ‘stimulus.’<\/p>\n

As noted in the current AGOA mindset, commodities are viewed as groundnuts,pineapples, honey etc but it must be realised that money too is a commodity that can be bought and sold.<\/p>\n

If AGOA is to stimulate economic growth in Africa, then as seen in the financial crisis of September 2008 ‘stimulus packages,’ as trillions of US dollars were pumped into the US economy to avoid a full blown meltdown, Africa currencies must be part of the AGOA formula.<\/p>\n

Money is important in economic growth as observed in the Industrial Revolution was not one of machinery that always existed, but financing the production of machinery and products.<\/p>\n

To this, the secret to the Industrial Revolution was in banking as British sterling pounds carried more assets than liabilities as compared prior to the Industrial Revolution.<\/p>\n

For AGOA to succeed a revolution in banking and finance between Africa and the US has to occur.<\/p>\n

From a Zambian point of view, allowing Zambian Kwachas to be accepted to be changed into US dollars in the US rather than in Zambia alone is the key to enhancing trade under AGOA.<\/p>\n

The question here is what would a US businessperson want with an African currency like a Kwacha? Well a Kwacha can buy a bar of copper without an out flow of US dollars from the US.<\/p>\n

Secondly if AGOA allowed African currencies to be traded directly on US soil, Africa would start to economically communicate with the US at a cheaper price level.<\/p>\n

It means the US financial markets would have to treat African currencies as convertible currencies and let price determine the degree of convertibility.<\/p>\n

Thus if an American wanted goods fromZambia he or she would buy those goods in Zambian Kwacha meaning changing their US dollars into Kwachas just as Europeans do when buying goods from the US they need to change their Euros to US dollars first.<\/p>\n

This pushes US dollars inflows directly onto Zambia’s money markets to which every Zambian person and firm would have equal accessto buy and then externalise if they desire rather than into individual company accounts that side step Zambia’s money markets.<\/p>\n

By side stepping the market it reduces the available volume of US dollars on the market. This creates an artificial shortage which raises the cost of buying US dollars in Kwachas and increases the cost of doing business in Zambia.<\/p>\n

Consequently in currency cast AGOA system two exchange rates would manifest. The first would be in the US in which Kwachas would be changed into US dollars against which their supply and demand would create a US dollar\/Kwacha exchange rate in the US.<\/p>\n

Similarly the supply of US dollars in Zambia against Kwacha cover offered would give a Kwacha\/US dollar exchange rate in Zambia.<\/p>\n

If the exchange rates between the two countries vary, then exchange arbitrage, the buying of one currency in a cheap market and selling it in the dearer market would occur, to equalise quotations between both markets.<\/p>\n

Naturally a free cross rate floating exchange system would manifest driven by African currency trade to buy commodities between both countries.<\/p>\n

The current failure of AGOA is reflected in Zambia’s current exchange rate system. As observed the April 19, exchange rate parity of the US dollar and the Kwacha was about K4,710.21 per US dollar, while the sterling pound was worth K7,635.19.<\/p>\n

Dividing the Kwacha value of the sterling pound with the US dollar Kwacha value, one gets the exchange rate between the two Trans-Atlantic nations.<\/p>\n

This effect is known as a fixed cross rate and implies Zambia’s money markets have the same trade value and foreign exchange currency liquidities day in and day out as the two Trans Atlantic nations domestically in Zambia’smoney markets.<\/p>\n

The reality on the ground does not reflect this. This consequently over prices Zambian goods and inhibits trade with the US.<\/p>\n

However, using a free floating cross rate exchange system AGOA offers opportunities to both countries as noted in 1948.<\/p>\n

Then in 1948 the International Monetary Fund (IMF) managing director M. Gutt at Harvard University on the February 13, 1948, presented a paper entitled ‘The Practical Problem of Exchange Rates.’<\/p>\n

He said,”the official direct sterling-US dollar rate ruling in Britain and the US is one sterling pound to $4, but the lira-sterling and lira-US dollar direct rates are such that the sterling pound-US dollar cross-rate in Italy is one sterling pound to $2.6.<\/p>\n

Americans found it cheaper to purchase goods from the UK via Italy until the IMF stepped in and imposed the IMF fixed cross-rate system in favour of the UK and not Italy nor the US.<\/p>\n

Corporate Britain lost out on the increased consumer demand, as Americans demanded from the UK British products that appeared cheaper through the Italian money markets.<\/p>\n

Corporate America also had to pay more US dollars to import goods direct from the UK, rather than at a reduced cost via Italy.<\/p>\n

Corporate and ordinary Americans at the end of the day, because of the IMF fixed cross-rate system, had to pay out more US dollars for the pound, while corporate Italy lost out on US dollar in flows because the market price of the US dollar to the sterling pound was temporary in apseudo-free floating lira driven market system based on available lira liquidity against US dollar inflows, and sterling liquidity as found in Italy’s money markets as opposed to the different price levels set on the UK’s money markets that had different liquidities and cash flows.<\/p>\n

<\/p>\n

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Continued here:
\nRethinking Agoa Summit<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

David Punabantu 25 April 2011 analysis AS Zambia awaits to host the African Growth and Opportunities Act (AGOA) Forum this year on June 8 and 9, it is hoped it would rejuvenate trade between Zambia and the US under AGOA. Trade between Zambia and the US has increased to about US$1.4 million in 2010 from $121,000 as recorded in 2009. <\/p>\n","protected":false},"author":0,"featured_media":396843,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-396842","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-local-news"},"yoast_head":"\nRethinking Agoa Summit - Ghanamma.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ghanamma.com\/2011\/04\/25\/rethinking-agoa-summit\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Rethinking Agoa Summit - Ghanamma.com\" \/>\n<meta name=\"twitter:description\" content=\"David Punabantu 25 April 2011 analysis AS Zambia awaits to host the African Growth and Opportunities Act (AGOA) Forum this year on June 8 and 9, it is hoped it would rejuvenate trade between Zambia and the US under AGOA. 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