Lessons from Ethiopia’s AGOA suspension amidst US tariff uncertainty

In 2022, Ethiopia’s once-thriving apparel and textile subsector – centred in industrial parks such as Hawassa – suffered a major setback when, along with Guinea and Mali, the United States suspended the country’s eligibility for the African Growth and Opportunity Act (AGOA), which provides sub-Saharan African countries with duty-free access to the US market for over 1,800 products.

The suspension, triggered by the conflict in Tigray, abruptly ended Ethiopia’s preferential trade access to the US market, resulting in the loss of key buyers and a wave of factory closures. The impact was particularly severe in export-oriented garment factories, where thousands of low-income, primarily female workers were laid off. 

At the time, Hawassa Industrial Park alone employed over 35,000 workers, most of whom were producing for the US market. According to a recent study, within months of the suspension, 18 foreign companies ceased operations and at least 11,500 jobs were lost – many of which had been held by young women. 

Ethiopia’s exports declined after AGOA suspension

The value of Ethiopia’s exports to the US steadily increased until 2022 (Figure 1), largely driven by the rising output from industrial parks established across the country. According to data from AGOA.info, Ethiopia’s AGOA exports rose from USD 10.4 million in 2010 to USD 276.7 million in 2021 – this means that in the year before the suspension (2021), nearly 46% of Ethiopia's exports to the US entered duty-free under AGOA. 

Figure 1: Ethiopia’s exports to the US, 2017-2024

However, following the suspension of Ethiopia’s AGOA privileges in 2022, exports to the US declined sharply, falling by 31.7% in 2023. Some empirical studies estimate a 42% drop in US apparel imports from Ethiopia in just the first two months of 2023. 

A survey of 169 sample firms revealed that 28% experienced a reduction in exports to the US market shortly after the AGOA suspension. In response, 24% of the firms redirected their exports to a domestic market, while 14% shifted to other foreign markets. 

Notably, firms that had been utilising AGOA were disproportionately affected – 63% reported a decline in exports, and 39% were forced to lay off workers. This dramatic downturn underscores the significant trade impact of losing preferential access to the US market.

Other African countries have been impacted by US trade policies

In 2025, several African countries are facing significant challenges due to potential changes in US trade policies. For example, there is growing anecdotal evidence that Lesotho’s textile industry is under threat from a 50% tariff on denim exports, putting approximately 30,000 jobs at risk. 

In Madagascar, a 47% tariff on textile exports has jeopardised around 60,000 jobs, placing considerable strain on the national economy. Meanwhile, in Ivory Coast, anticipated US tariffs of up to 21% on cashew exports have triggered a sharp decline in demand from Vietnamese buyers, adversely affecting the livelihoods of local producers. These cases underscore the broader consequences of shifting trade dynamics and highlight the urgent need for African nations to build more resilient and diversified economies.

With recent changes in US tariff policies affecting many African countries, Ethiopia's experience with the AGOA suspension three years ago is expected to offer timely and valuable lessons. Research conducted by the International Growth Centre (IGC) and its partners on the aftermath of Ethiopia's AGOA cutoff highlights the risks such trade disruptions pose – and how targeted social protection measures can help soften the adverse impact, particularly for vulnerable groups such as young female workers.

Studying the outcomes of displaced Hawassa Industrial Park workers 

As Ethiopia and other low-income countries expand their formal manufacturing sectors through industrial parks and special economic zones, their workers remain highly exposed to shocks from global market shifts. Yet these workers rarely have access to robust social safety nets. 

To address this gap, a team of researchers from the IGC, together with partners from universities and the government, launched a rigorous empirical study to evaluate how different forms of job-loss support could mitigate the impact of displacement. The study, which centred around female factory workers laid off from Hawassa Industrial Park following the AGOA suspension, used both quasi-experimental and randomised methods to test the effects of different payment modalities.

The researchers followed 1,410 displaced workers and compared them to 403 workers still employed at a nearby unaffected factory over a 13-month period. Some displaced workers received additional job-loss payments – beyond legally mandated severance – either as a one-time lump sum or as equivalent-value monthly instalments. The team also surveyed workers' payment preferences and measured their willingness to pay for future job-loss insurance.

Job loss has persistent effects – but payments and insurance can make a difference

The three findings of the study were sobering, but instructive: 

1. Job loss had large and persistent effects.

Displaced workers were significantly less likely to be employed or to remain in urban areas like Hawassa, even a year later. Labour income was halved, and total consumption dropped by an average of 9% – rising to 20% among those affected for over a year – and extreme poverty nearly doubled.

2. Job-loss payments were structured to make a difference.

Workers who received monthly payments experienced smoother consumption over time and were better able to cope without leaving the labour market or migrating. In contrast, those given lump sums saw a short-term spending spike but little sustained benefit – in fact, their employment rates dropped further. 

Interestingly, despite these outcomes, many workers initially preferred lump-sum payments, perhaps due to immediate needs or low financial literacy. This means that having a choice between different payment modalities increases individual welfare, but at a cost to industrial employment. Policymakers, therefore, need to decide how to balance these objectives.

3. Workers value job-loss insurance and are willing to pay for it.

Around 90% of workers were willing to pay the actuarially fair rate, suggesting that mandating participation may not be necessary. While workers tend to overestimate the risk of layoff, willingness to pay remains high even among those with accurate expectations. This suggests a strong demand for such protection and the feasibility of contributory models even in low-income settings.

Protecting African workers: What can other countries learn from Ethiopia’s experience?

As the US trade policy toward African countries remains in flux, with rising tariffs and stricter eligibility reviews on the horizon, Ethiopia’s experience may be relevant once again. The 2022 AGOA suspension not only hurt national export earnings but also deeply disrupted the lives of thousands of workers – but the research shows that timely and well-designed job-loss support can significantly cushion the economic blow and support reemployment. 

For governments and development partners, the message is clear: economic transformation strategies must go hand-in-hand with social protection. Building basic, flexible job-loss insurance mechanisms – starting even with small-scale pilots – can help countries protect both their workers and the long-term promise of industrialisation.

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