US anger could deal a huge blow to two of South Africa’s biggest sectors

 ·12 Jul 2023

South Africa being expelled from the African Growth and Opportunity Act (AGOA) could spell disaster for two of its biggest sectors – motoring and agriculture.

The AGOA Act allows many sub-Saharan African continues to trade certain products with the United States duty-free. The Act brings billions of rands into the economy and provides tens of thousands of jobs.

However, the relationship between South Africa and the US has been tense due to the former’s questionable non-aligned status regarding the war in Ukraine.

The American Ambassador to South Africa, Reuben Brigety, even accused South Africa of supplying weapons to Russia during the docking of the Lady R ship in Simon’s Town, Cape Town in December 2022.

In June, a letter from senior congressmen said that South Africa should be removed from hosting the AGOA conference and expressed concerns about South Africa’s inclusion in the Act – with a statutory requirement stating that beneficiary countries do not engage in activities that undermine US national security.

In a bid to not further upset the world’s largest economy, South Africa’s two biggest political parties have tried to calm tensions.

The Democratic Alliance made a formal submission to the US Trade Representative and argued that South Africa should be included in AGOA’s annual renewal.

Moreover, senior government officials – Finance Minister Enoch Godongwana, trade and industry minister Ebrahim Patel, and international relations minister Naledi Pandor – are travelling to the major G7 countries in a bid to ease tensions over the country’s stance regarding Russia.

The consequences

Being removed from AGOA will be disastrous for two sectors, in particular, the automotive and agriculture sectors.

DA Leader John Steenhuisenm said that South Africa’s removal from AGOA would cost 112,000 jobs in the automotive sector, with R435 billion in the automotive trade at risk.

The National Association of Automobile Manufacturers of South Africa (Naamsa) has noted that the US was South Africa’s second-biggest automotive export market in 2022, with vehicle and component exports totalling R24 billion.

Speaking to 702, John Hudson, head of agriculture at Nedbank, said that losing preferential treatment would significantly hurt the agriculture market.

Hudson said that agriculture accounts for 5% of South Africa’s total exports and totalled $12.8 billion (R235 billion) in 2022, with the sector experiencing record exports over the last three to four years.

He said that South Africa exports more than half of what it produces, making the US a significant market.

In particular, the citrus industry would face a significant setback if South Africa was kicked out of AGOA as it plans to expand. Approximately 9% of South Africa’s citrus crop currently goes to the US.

The Western Cape is a black spot-free zone, and the US is incredibly strict on its citrus being free of black spots.

The citrus industry is set to expand its total exports from 160 million cartons to 230-240 million cartons in the coming years.

“The US offers us great opportunity, but, on the same token, to lose that market means we are going to have to look for alternatives, and that doesn’t make any sense,” Hudson said.

Although being kicked off the agreement does not mean that trade with the US will completely stop, he said that it will make it incredibly hard for South African producers to remain competitive.

Out of proportion?

Despite it being clear that being kicked out of AGOA would hurt the economy, some have questioned whether such a scenario would be as detrimental as it is being made out to be.

According to research conducted by RMB in June, AGOA-related exports only account for a small fraction of South Africa’s total exports.

The US accounted for 6.9% and 8.8% of South Africa’s exports in 2019 and 2022, respectively.

In both years, AGOA and the Generalised System of Preferences (GSP) accounted for roughly 25% of these exports, whilst AGOA accounted for 16% and 21% in these years, respectively.

“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, looking at RMB’s data below, it is clear that agricultural products and transportation equipment have a much higher proportion of exports under AGOA.

“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 research 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”

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