Trade tensions between South Africa and the United States are rising, with US lawmakers and the White House making it clear that the country’s proximity and friendliness with Russia is putting its participation in AGOA at risk.
US lawmakers this week sent a letter calling on the White House to ensure that South Africa suffers the consequences of its military ties to Russia, which violates the US’ sanctions against the Ukraine invader.
While much of the tension has been attributed to the allegations that South Africa supplied arms to Russia during a stop of the ‘Lady R’ in Simonstown last year – allegations which, so far, remain untested with no evidence supporting them – it’s South Africa’s broader ties to Russia that have also been pulled into question.
This includes the country allowing sanctioned Russian vessels to land at its ports and airbases and participating in military training exercises with the nation on the anniversary of its invasion of Ukraine. By all measures, the country has been deepening its ties to Russia while much of the world is isolating it for its warmongering.
The impact of these ties to Russia has now moved from ‘maybe influencing trade agreements’ to officially putting their future into question.
Of particular concern is the African Growth and Opportunity Act (AGOA) – which sees South Africa benefit to the tune of billions of rands of trade with the US.
Nedbank economists peg the value of AGOA trade at around R50 billion per year.
The US formally said this week that there are “serious concerns with current plans to host this year’s AGOA Forum in South Africa” and that “actions by South Africa call into question its eligibility for trade benefits under AGOA”.
According to Investec chief economist Annabel bishop, this is the strongest public communication the US has given on South Africa’s allegiances to Russia, with AGOA’s “statutory requirement that beneficiary countries not engage in activities that undermine United States national security or foreign policy interests”.
The AGOA eligibility review process for 2024 is underway, and decisions have not yet been made, but the US has now openly questioned South Africa’s eligibility for the programme.
Playing with fire
Bishop said that the South African is “playing with fire”, having deepened its relationship with Russia over the last year to the detriment of its relationship with the US.
“South Africa needs to cease absolutely all and any military ties, relationships, and activities with Russia if it does not want to lose the AGOA trade benefits and face sanctions from Western countries that will decimate its economy, socioeconomic and major sources of government funding,” she said.
“South Africa is, worst case, risking becoming a bankrupt state for its relationship with Russia, which adds virtually nothing to the economy, state revenues, economic growth, job creation or socioeconomic stability and investor sentiment.”
She noted that the rand has depreciated on the news of the AGOA threat, halting its rapid gains recently
– which means South Africa will lose out on a potential fuel cut if the state’s allegiances with Russia had not negatively caught up with it, as per the US brief.
She said there remains poor understanding in South Africa of the “absolutely dire consequences” that pursuing a relationship with Russia will have on the country in the current geopolitical climate.
To illustrate the sheer impact this will have, the economist noted that South Africa imports and exports virtually nothing from Russia, at 0.2% and 0.1% – while risks losing up to 40% of its trade if sanctions are imposed against it by the West.
Nedbank economists pegged the total value of trade with the West in excess of R440 billion.
This would drive the economy into a deep, severe recession, extreme rand weakness and collapse in government finances, most likely bankrupting the state.
“South Africa will likely face its worst economic crisis if it undergoes full sanctions from the West,” she said.
Responding to the furore over the AGOA threat, the South African government said it has received no official communications from the US that indicate the agreements are under threat.
The state, under President Cyril Ramaphosa, has also moved to try and assure Western nations that South Africa remains neutral and that its foreign policy is not pro-Russia.