Axe hanging over South Africa’s neck

The United States Congress is set to review the eligibility of countries, including South Africa, for benefits under the African Growth and Opportunity Act (AGOA) next week, says Busi Mavuso, the CEO of Business Leadership South Africa (BLSA).

AGOA allows for duty-free access for South Africa to the US market; however, whether the country should have the privilege has come under question by political heavyweights in the US following South Africa’s ‘ambiguous stance on Russia.’

The CEO said that the Act brings with it billions of rands of economic activity in the form of exports as well as gives tens of thousands of people jobs.

On 13 June, a letter from prominent congressmen was sent to US officials responsible for national security and foreign relations, as reported by the New York. The letter urged for South Africa to be removed as the host country for the AGOA conference and raised concerns about South Africa’s role in the Act.

The letter remarked that the docking of the Lady R in Simon’s Town naval base and joint military drills with Russia “call into question (South Africa’s) eligibility for trade benefits under AGOA due to the statutory requirement that beneficiary countries ‘not engage in activities that undermine US national security or foreign policy interests”, said Mavuso.

According to Mavuso, a key factor undermining American goodwill is the government’s confusing actions and statements.

“If we care about AGOA eligibility and the tens of thousands of jobs it creates, then the time has come to clarify how we as a country do not threaten US security interests,” said Mavuso.

The CEO said from a diplomatic standpoint, the country must:

• Come out with the facts about Lady R, what it was doing docked in secret in South Africa and whether it was loaded with armaments
• Explain the landing of Russian aircraft at Waterkloof in Pretoria
• Set out a clear policy on the supply of weapons to Russia
• Set out a policy as to why the US should be able to trust that neutrality means South Africa would not ‘fan the flames’ of war.

Mavuso said that BLSA’s collaborator Business Unity South Africa (BUSA), is preparing a submission to the Congress arguing for South Africa’s continual inclusion under the Act.

“Eligibility will be determined before the end of the year, and the White House will announce which countries will continue to benefit under AGOA from next January. We have a narrow window of opportunity to make the case that it is in US interests to continue to give South Africa access to US markets,” Mavuso said.

She said that if we don’t get it right in the next few months, it will result in another significant blow to the economy.

Overblown?

While being cut from AGOA will undoubtedly be a blow to the economy, not everyone is convinced it will be as significant as it has been made out to be.

According to research conducted by RMB in June, AGOA-related exports account for such a small portion of South Africa’s total exports that the long-term impact is likely to be limited.

The group’s research shows that South Africa accounts for 54% of all AGOA-related exports to the US – a significant portion by any measure.

The US accounted for 6.9% and 8.8% of South Africa’s export value in 2019 and 2022 (excluding pandemic-related years) and is one of the largest destinations for the country’s exports.

In both 2019 and 2022, AGOA and GSP accounted for around a quarter of these exports, while AGOA alone accounted for 16% and 21%, respectively, in these years.

“This means that the combined proportion of SA’s total exports traded under these programmes was 1.7% and 2.2% over 2019 and 2022. In the case of AGOA, it was 1.1% and 1.8%, respectively,” RMB said.

“Thus, should SA be excluded from AGOA or AGOA and GSP combined, the total impact on exports is likely to be quite limited, with an initial shock dampened over time by continued exports despite higher tariffs or redirection of exports to alternative markets, or even increased exports despite this exclusion, as seen in the case of Ethiopia.”

However, the finance group admitted that, while the broader picture may not be as bad as it seems, different sectors will be hit harder than others.

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