US President George W Bush has approved an expansion in the African Growth and Opportunity Act (AGOA), paving the way for increased investment and trading opportunities between Africa and the US. New provisions include tariff-free trade of “knit-to-shape” garments, such as socks and other apparel.

The Act, which first became law in May 2000 under the Clinton administration, gives preferential treatment to 36 countries in sub-Saharan Africa, allowing duty-free trade in textiles with the US. Although sometimes criticised as an act designed to win support for the US from developing countries, AGOA has bought substantial investment to the region.

As participation in the Act relies on free-market economics, political stability and the rule of law, it is also seen as an important tool in promoting development on the continent. It has led to increased FDI in textiles as foreign companies, particularly from Asia, move to take advantage of tariff-free trade.

Namibia has benefited from a $100m investment by Malaysian textiles conglomerate Ramatex. The company’s factory there aims to export 6 million garments to the US. Other investments have come from Malaysian and Taiwanese garment producers Rhino Garments and Tai Wah Garments. Operations opened by the companies should result in the creation of approximately 15,000 new jobs. Joy Sasman, director of Namibia Investment Centre, said Tai Wah was among the top seven producers for Nike in Europe and the US. Namibian trade and industry minister Hidipo Hamutenya said: “AGOA is attracting investors to our shores much faster than any other agreement has. Ramatex would not have set up here so fast were it not for this agreement.”

Reg Rumney, director of BusinessMap Foundation in South Africa, agreed that “countries in Africa have definitely benefited from AGOA”. He pointed to Lesotho, which has seen huge gains. There has been a 50% increase in textile exports from Lesotho in 2001/2002, and the sector is now the country’s biggest employer, with more than 40,000 workers.

Other countries to gain FDI in textiles are South Africa and Kenya. The EIU’s “World Investment Prospects” report emphasises the AGOA agreement has attracted substantial FDI in the textile sector in the Eastern Cape in South Africa.

In Kenya, 20,000 jobs have been created as a direct result of AGOA, according to the US commerce department. The two-year-old trade programme has triggered nearly $13m in new investments in Kenya, with nine factories established or reopened.

Organisations such as the World Bank’s MIGA and UNCTAD are working with countries to develop their understanding of the agreement. MIGA has a partnership with the Swiss government to implement a new in-depth programme of technical assistance, specifically designed to assist several African countries in positioning themselves to attract export-oriented FDI and therefore exploit AGOA tariff preferences. Mozambique, Ghana, Tanzania and Senegal are all targeted under this programme.

Under the new law, 8% of US apparel imports can come from Africa but it is unlikely this limit would be reached, as the continent does not have the manufacturing capacity to do so. However, it is hoped that AGOA will generate momentum for other types of trade laws to benefit investment in Africa. “This has led to greater integration in the world economy but it would be better if it focused on the strong sectors here, such as agriculture,” said Mr Rumney.

FDI flows to Africa increased from $6bn in 2000 to $11bn in 2001, with rising investments in Nigeria, South Africa and Morocco. However, according to regional estimates released by UNCTAD in July, other developing countries experienced decline from $240bn to $225bn in the same period.