South Africa is likely to remain eligible for the African Growth and Opportunity Act (AGOA) – but it must act quickly to ensure that it benefits from the free trade agreement.
Earlier this year, South Africa’s relationship with the world’s largest economy hit a boiling point after US Ambassador Reuben Brigety accused South Africa of supplying arms to Russia.
Tensions have since simmered following a Ramaphosa-endorsed investigation, with South Africa looking likely to remain eligible for AGOA when its list of nations is published on 1 January 2024 – giving South Africa access to US markets free of tariff barriers.
Continued eligibility for South Africa is particularly good news for two sectors – agriculture and transportation.
“We see that a significant proportion of SA agricultural exports to the US fall under AGOA and, if excluded from AGOA, these exports would potentially struggle to compete with other AGOA members (or beneficiaries of other US trade programmes),” RMB’s researchers previously said.
“Transportation is another sector that benefits from duty-free exports to the US. Interestingly, we do not expect that this sector would be as hard hit as, say, the agricultural sector, given the specialisation in vehicle lines manufactured in SA.”
However, following a session between organised businesses on the opportunities presented by AGOA, Business Leadership South Africa (BLSA) CEO Busisiwe Mavuso said that more South African businesses could benefit from AGOA.
“Apart from mainstream formal sector businesses, there are opportunities to enable more entrepreneurs, including women-led businesses and SMEs, to benefit. They may need support to build their export capacity, but the market is waiting for them once they do,” Mavuso said.
“This is, I think, an under-exploited mechanism for small business development that those working to support small businesses should be exploring.”
She also noted that the African Continental Free Trade Agreement could offer better regional outcomes, potentially changing the dynamic in how AGOA and Africa engage.
“The trading block could allow better specialisation in comparative advantages on the continent, improving the offering to US markets. But planning could enable substantial further benefits – if we properly think about what the African export basket should look like in 2040,” she said.
That said, during the session, many noted that African markets are slow in taking up opportunities offered by free trading agreements and tariff-free access to major markets.
“We need to analyse why that is the case and plan to fix it. Network industries are part of it – if you can’t access ports to send goods out, it doesn’t matter how favourable the trading relations are,” she said.
“But there also needs to be promotion of the opportunities and support for the local business sector to develop the capacity to take advantage of them. Business and government must take the initiative to prepare that and not wait another year before doing the necessary work.”