GHANA AND AGOA: RECENT SUCCESSES WITH A DIVERSE

UNCLAS SECTION 01 OF 02 ACCRA 001391

SIPDIS

SENSITIVE

DEPT PLEASE PASS FOR TREASURY LUKAS KOHLER
USTR FOR LAURIE-ANN AGAMA
COMMERCE FOR MARIA RIVERO
MCC FOR ROD NORMAN

E.O. 12958: N/A
TAGS: ETRD EINV KMCA GH
SUBJECT: GHANA AND AGOA: RECENT SUCCESSES WITH A DIVERSE
APPROACH, BUT EXPORTERS STILL FACE HUGE CHALLENGES


Summary
--------------

1. (SBU) In 2004, Ghana increased its exports to the U.S.
under the African Growth and Opportunity Act (AGOA) by over
85%, to over $74 million dollars -- accounting for over 50%
of Ghana's total exports to the U.S. In 2005, USAID's West
Africa Regional Program's Accra-based West Africa Trade Hub
(WATH) has helped Ghanaian firms land contracts with major
U.S. retailers, including Wal-Mart. Ghana's AGOA exports are
diverse, with apparel contributing just 10% of the total.
AGOA's share of Ghana's total exports is under 3%, and
potential exporters face erratic supplies, lack of access to
capital, high transport costs, tight delivery schedules, and
corrupt and congested ports. Although Europe will remain
Ghana's dominant trading partner for the foreseeable future,
Ghanaian exporters are finally beginning to take advantage of
preferential market access under AGOA. End Summary.

West Africa Trade Hub (WATH) Successes
--------------

2. (U) The Accra-based Trade Hub, under the USAID-West Africa
Regional Program, covers 20 countries. WATH helps West
Africa take advantage of global trade opportunities,
including working to build the capacity of export-ready
companies to develop their products and market them to
potential U.S. buyers. WATH targets many sectors, but is
clients in the apparel sector have increased sales from
$700,000 in 2004 to potentially more than $4 million in
2005-2006.

Notable Successes
--------------

3. (U) WATH client Belin Textiles (BTI) is run by Mauritian
Berty Fong, and partially financed through the GoG's
Presidential Special Initiative (PSI). WATH provided support
and booth space at the ASAP Global Sourcing Show in Las Vegas
in February. At the show Fong struck a deal with one of
Wal-Mart's major apparel vendors (Whitewater) that led to a
contract for $2 million worth of apparel. Whitewater also
connected BTI with a supplier whose quality standards already
meet Wal-Mart's. According to Fong, the entire system can be
easily expanded to other factories supported by PSI as orders
increase.


4. (U) WATH sponsored Ghana's CAN & KAA fish smoking company
to attend the International Boston Seafood Show in March.
When the owner was unable to attend, WATH still marketed his
products with brochures and photos, generating a $10,000 test
order. If the test order goes well CAN & KAA could land an
order for monthly shipments. CAN & KAA has been in business
for over 20 years, selling locally and exporting to Europe
and has the excess production capacity required by the US
customer.

Trade Numbers Small But Growing
--------------

5. (U) As a percentage of total exports ($2.6 billion in
2004),Ghana's AGOA exports are still tiny at 3%. However,
the diversity of products that Ghana exports under AGOA makes
them less vulnerable to changes in world markets than other
African countries' apparel-heavy AGOA trade. The largest
contributors are energy related products, primarily petroleum
by-products from the Tema Oil Refinery (TOR),which accounted
for over 50% of 2004 AGOA exports. Textiles, forest
products, and agricultural products all make fairly equal
contributions of between $5-7 million each. All sectors
increased in 2004 except forest products. (NOTE: non-AGOA
eligible forest product exports are up 30% YTD in 2005 over

2004. END NOTE.)

New Textile Opportunities Come Too Late For Local Suppliers
-------------- --------------

6. (SBU) During the June 22 Trade and Investment Framework
Agreement meeting hosted by USTR in Washington, Commerce
officials said the USG would consider including some "batik"
print machine-made textiles unique to Ghana under AGOA's
Title 9 provisions for traditional crafts. Ghana's larger
textile manufacturers could benefit from batik qualifying
from Title 9 benefits, but it may be too late for some of
them. Inexpensive imports have flooded the country recently,
including some copyrighted Ghanaian designs counterfeited
right down to the copyright mark itself. Joapong Textiles--
another PSI enterprise partially owned by the GoG --has
already closed with the loss of 1,000 jobs. Other textile
and apparel companies may also close before they can take
advantage of any new opportunities.

Serious Hurdles for Small and Medium Size Exporters
-------------- --------------

7. (SBU) Despite the help of WATH and other donors, most
exporters still face serious hurdles to taking advantage of
enhanced market access under AGOA. Supply chains for local
raw materials can be erratic. Newly established and unproven
companies have almost no access to capital. For established
businesses, credit is prohibitively expensive, with interest
rates running as high as 25% for short-term loans.
Corruption in the ports further degrades the return on
exports. One source involved in major reconstruction at the
port of Tema claims it can cost as much as $1,000 in bribes,
on top of normal fees, to move a container either into, or
out of, the port. The ports are congested, and connecting
transport routes are inadequate. There has also been an
increase in freight diverted to Ghana from neighboring
countries due to local conflicts. As demand on the transport
sector has increased, so have prices, and it is becoming more
difficult for smaller importers to manage costs.


8. (SBU) Large U.S. customers with worldwide sourcing options
naturally dictate the terms of contracts with small
suppliers. Most contracts impose stiff penalties for late
shipments or poor quality. In order to land large contracts
with U.S. importers, small Ghanaian companies often risk as
much as an entire quarter's production on one order. With
razor-thin margins the consequences of late delivery can be
dire. One small Ghanaian furniture manufacturer lost a
entire quarter's profit when intermittent supply of raw
materials and problems with transport delayed the delivery of
an order for Pier One. As a result, the company returned to
its tried and true customers in Europe. (Note: European
orders are usually much smaller, and shipping is faster and
cheaper. End Note)


9. (SBU) Ghana's government is betting on the agricultural
sector as the main engine for future economic growth. The
agriculture sector is the focus of Ghana's draft proposal for
the Millennium Challenge Account, and the PSI program is also
heavily focused on agriculture. However, it has been tough
going for Ghana's agricultural exporters to break into the
U.S. market. Already faced with overwhelming competition
from established exporters in Latin America, they are just at
the beginning of the process of raising quality and standards
to the level of stringent U.S. SPS standards. In the short
to medium term, Ghanaian exporters of agricultural products
will continue to target the European and regional West
African markets.

Comment
--------------

10. (SBU) Ghanaian companies are increasingly pursuing
opportunities afforded under AGOA's preferential market
access, but face huge obstacles and great risks. These firms
are challenged by the same factors that face foreign
investors: excessive government bureaucracy, endemic petty
corruption, inadequate infrastructure, and shortage of
qualified labor, in addition to lack of capital and
unreliable supply chains. Therefore, most small and medium
size enterprises in Ghana assume a risk averse attitude. We
will continue to see increasing exports to the U.S. under
AGOA (and non-AGOA exports),as companies gradually gain
experience in the U.S. market, find niches where they are
competitive, and slowly expand their capacity. However,
Europe will remain the export market of choice for most
Ghanaian companies due to its proximity, lower SPS
requirements, and manageable order sizes. End Comment.
YATES