AGOA is under review, and many are hoping the US will not suspend the benefits that SA enjoys Photo Africa Trade Development Center
South Africa/US – Next week, the US Congress will review legislation that provides duty-free access for certain African countries to their vast market. This legislation, known as AGOA (African Growth and Opportunity Act), has played a crucial role in boosting South Africa’s exports, ranging from motor vehicles to citrus fruits.
The economic activity generated by these exports amounts to billions of rands and supports numerous jobs in the country. However, the United States is now scrutinising AGOA, particularly in relation to South Africa’s ties with Russia. The United States government has expressed alarm over South Africa’s involvement with Russia, leading to demands from US legislators to impose sanctions on South Africa. While the exact outcome remains uncertain, a likely step for the US would be to suspend some or all of South Africa’s benefits under AGOA. said Donald Mackay from XA International Trade Advisors.
The benefits of AGOA for South Africa
Should the US decide to suspend some or even all of the benefits that AGOA provides, it would undoubtedly harm South Africa’s economy and have significant repercussions for various industries. If AGOA is suspended, the larger companies, particularly in the automotive sector, would be severely affected. Smaller and medium-sized enterprises, although exporting smaller volumes, would also experience significant harm.
“We export about R188 billion to the US. Of that, about R62 billion is under AGOA. The benefit, in other words the size of the duty reduction when those goods landed in the US, is about R1,9 billion a year. Most of that benefit concentrates in a very small number of companies. Automotive would be hit quite hard. If we go beyond the very bigger businesses into the smaller and medium companies, even though their volumes are much smaller, I think the harm they would feel would be far greater. Things like citrus for example, could be easily replaced by citrus coming in from South America.”
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The potential consequences for South Africa
In the event of a suspension of South African exports, the United States has various options available to compensate for the loss. The US is not heavily reliant on South Africa for any specific products. The potential suspension of South Africa’s benefits under AGOA would have far-reaching implications for the country’s economy. Given the current state of the South African economy, which heavily relies on exports, any negative impact would be detrimental.
“We really can’t afford to keep getting these things wrong. After the greylisting, we had our debt downgraded to junk status a couple of years ago. All of these things cumulatively start to take a really significant toll on the economy, and I think we could simply not afford to have yet one more misstep that costs us a couple of billion rand again. Jobs would be lost, particularly in the agricultural sector where workers are more vulnerable than in many others. I don’t know how many jobs would be lost but it’d be hard to think that there would be no job consequences.”
It is important to note that South Africa exports only 9% of its total exports to the US, which accounts for just 0.3% of US imports. This trade imbalance gives the United States significant leverage as they can easily replace South African goods with imports from other countries.
The role of government and business in addressing the issue
The resolution of the AGOA review and the potential negative impact on South Africa’s exports rests primarily in the hands of the government. Foreign policy decisions and negotiations are the responsibility of the government, and it is crucial to separate the ruling party’s interests from the interests of the country and its people.
“It’s important here for the ruling party to kind of recognise that they are running the government, but they are not government and that blurring of the lines I think is what is creating the problem … I’m hoping absolutely nothing [comes out from this review] and that things just kind of go quiet. We simply don’t know at the moment. So, things are very tense between South Africa and the US, and I think neither side has dealt with this in the ideal way, but we simply don’t know right now. I am concerned that we could be placed out of cycle review. This would essentially say that they have some concerns and are thinking of suspending some or all of South Africa’s benefits.”
There would be a 60-day period to allow South Africa and the US public to comment on the verdict or outcome before the US Congress takes a decision. A scenario that Mackay hopes we never see.
South Africa must carefully navigate the situation, recognising the importance of balancing business interests, government responsibility, and international relationships. The resolution of this issue will require strategic decision-making and cooperation between various stakeholders to safeguard South Africa’s economic well-being and preserve job opportunities.
Donald Mackay spoke to Inayet Wadee on how much trade takes place between South Africa and BRICS and whether losing trade with the US to keep trading with Russia is the smart thing to do. Listen to that discussion here:
