South Africa playing Russian roulette – threatening the worst economic crisis in its history

 ·28 Jul 2023

South Africa risks becoming bankrupt for its relationship with Russia, which adds virtually nothing to the economy, state revenues, economic growth, job creation, socioeconomic stability, and investor sentiment.

This is according to Investec chief Annabel Bishop, who commented on the dire consequences of entertaining relations with Russia – a country that has continued to push war with Ukraine.

Concerns arose when the United States of America (USA) formally indicated that South Africa was in danger of being ousted from the African Growth and Opportunity Act (AGOA), losing its trade benefits due to its love of Russia.

In a letter to the US Secretary of State Antony Blinken at the beginning of June, US legislators said 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”.

This development came as US Intelligence suggested that South Africa’s government has deepened its military relationship with Russia over the past year, as accusations suggested a Russian cargo vessel subject to US sanctions docked in South Africa where the government covertly supplied Russia with arms and ammunition that could be used in its illegal war in Ukraine.

On top of this, South Africa held joint military exercises with Russia and China, authorised a Russian military cargo plane (also subject to US sanctions) to land at a South African air force base, and continues the push to host the BRICS Summit, where the government aims to strengthen its ties with China and Russia.

This love for Russia might be justifiable if there were massive economic upsides to strengthening ties with the Russian Federation. However, it’s the exact opposite.

Russia accounts for a paltry 0.2% of South Africa’s global export trade, while the US, UK, and the EU account for a combined 35%, with China only around 9%.

This means South Africa is risking over 40% of its export revenue (R612 billion). This would wipe out approximately 10 to 15% of its GDP – which stands at roughly R4.6 trillion, according to Stats SA.

The government doesn’t seem to care

According to Bishop, there remains poor understanding in South Africa of the dire consequences pursuing a relationship with Russia will have on the country in the current geopolitical climate.

This is evident in the fact that South Africa’s ambassador to Russia called for the country to forge an even closer relationship with Russia on Wednesday (26 July) on the sidelines of a Russia-Africa summit in Saint Petersburg, Bloomberg reported.

“Russia is isolated; it can’t trade fluidly with Europe because of sanctions. Africa then becomes quite important for Russia as a trading partner,” said Ambassador Mzuvukile Maqetuka, adding South Africa must up investment and trade with Russia.

Bishop noted that if South Africa loses its trade benefits due to sanctions by the West, this would “drive the economy into a deep and severe recession, followed by extreme rand weakness and the collapse of government’s finances, most likely bankrupting the state”.

SA will likely face its worst economic crisis to date if it undergoes full sanctions from the West,” she added.

US legislators also warned in the letter that 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 and significant sources of government funding.

Read: Over 100 businesses pledge to save South Africa from the brink of collapse

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