Even before conclusive answers are forthcoming to charges that South Africa has supplied Russia with weapons (let alone before the mooted judicial inquiry issues its findings), now is the time to explore the possibility of real economic damage to the US-South Africa relationship.

As the issue is now, there are four possibilities regarding the question of secret arms shipments from SA to Russia. 

First would be that there were secret shipments by plane (at Waterkloof Air Force Base) and/or ship (at Simon’s Town’s naval base on the Lady R) to Russia of military materiel of South African origin.

In that scenario, the US ambassador would be correct in calling it out as a violation of South Africa’s publicly stated neutrality and its military export regimen — even if Reuben Brigety chose a public forum rather than more usual diplomatic channels to protest it.

US Treasury Secretary Janet Yellen, in her February visit to SA, reportedly warned about the negative effects of any kind of weapons deal with Russia. It should also be noted that major European nations are strongly supporting Ukraine and they will also be particularly unhappy about any proven military transfers to Russia. They may also have their own ideas about appropriate responses towards South Africa in that case.

Second is the possibility that no shipments of weapons from SA to Russia have actually taken place (and no proof will be forthcoming from the Americans). In such circumstances, the South African government will have been right to protest over those allegations.

This would be the case even if South Africa’s claims of neutrality are increasingly threadbare, given the country’s positions in the UN against any condemnation of the invasion, the joint naval exercises with Russia that were concurrent with the invasion of Ukraine, visits to Russia by senior SA civilian and military officials (and vice versa), and announcements from the Kremlin regarding a warm phone conversation between presidents Cyril Ramaphosa and Vladimir Putin — all promising future cooperation.

Third is a possibility that such shipments were arranged in a secret, sub rosa (let’s call it “off-the-books”) fashion with the willing connivance of some officials, even if that transgressed official policy about weapons sales and transfers to belligerents, along with the stated official neutrality of South Africa in the Ukrainian conflict. 

Fourth is the more ominous possibility that the South African government chose to obscure the transfers, hoping circumstances would be sufficiently opaque for it to be impossible to know for certain what transpired, even as the partnership with Russia gains momentum.

With that latter scenario, and with the lack of any serious rebuttal, so far, from the South African side about any arms transfers, such circumstances will continue to roil things in the run-up to a highly contentious BRICS Summit in South Africa in August.

That event could see Putin arrive in the country, despite an outstanding arrest warrant from the International Criminal Court and South Africa’s duty to carry out an arrest under its own laws.

Given such a roster of possibilities, it is important to examine how things  — given three of those possibilities — could affect US-South African relations.

Impact on trade and investment

One key thing to keep in mind is that there is a distinction between direct governmental actions and decisions by private businesses in response to this further cosiness between Russia and South Africa.

The impact on bilateral trade and investment also matters, despite the fact those outcomes come from a multitude of private choices. Those, in turn, are largely based on the local environment and competition for trade and investment from elsewhere, rather than on government orders.  

As with most Western nations, the US government can sometimes encourage companies to engage in new foreign investments, but rarely can it mandate such decisions. (The influence of the government in easing the path for an investment like Pepsi’s in the Soviet Union is an outlier to this pattern.)

More important are the impacts of incentives to enter certain sectors or projects and loan guarantees that become part of the larger tapestry of foreign development assistance supporting local economic growth and investment, such as the US’s Power Africa initiative. (The East Asian model is often different. There, independent foreign investments may well get some government “guidance.”) 

Sometimes, of course, there can be a carry-over from sanctions regimens put in place, such as those now in force against Russian firms or other foreign firms with significant dealings with problematic Russian enterprises, as per the schedules of the US Treasury Department’s Office of Foreign Assets Control or other nations’ equivalents. Secondary sanctions can also impinge on foreign investments and other activities in countries beyond the nation targeted.

South African history offers the example of disinvestment by US firms as a result of the 1986 Comprehensive Anti-Apartheid Act. Nevertheless, the increasingly troubled South African landscape and growing public pressure in the US on private enterprises to divest holdings here in the latter days of the apartheid era probably had more and broader impacts on investors. 

Despite those who like to see collusion between Western governments and businesses, a decision about new investments largely rests on a company’s understanding of local circumstances. There are evaluations (and risk analyses) of the stability and competence of the local government, the capabilities of utilities, other public services such as transportation and communications, or problems with corruption and public security, rather than anything the foreign government home-base of a company might weigh in on investment decisions.

In addition, analyses of the possibilities for a company’s growth, increase in market share and likelihood of profits, as well as access to adjacent markets all factor into investment decisions — rather than government diktats. Increasingly too, factors such as environmental and social impact and sustainability affect decision-making.

SA’s parlous domestic circumstances

It is unlikely the war in Ukraine will directly affect foreign business interests in South Africa — even US ones — unless South Africa becomes visibly active as a proponent of Russia’s military efforts.

Instead, domestic circumstances inside South Africa matter more. The near-collapse of rail transport, the electrical power grid and policing, and an increasing inability by the government to articulate consistent pro-growth policies for its most important export earnings sectors like mining will do more to dissuade investment than the current bilateral imbroglio between the US and South Africa about possible arms shipments to Russia.

Even with all these concerns, the American Chamber of Commerce in South Africa notes, “The United States is an important source of South African FDI [foreign direct investment]. It features as South Africa’s fourth-largest investment partner, after the United Kingdom, the Netherlands, and Belgium. It is also a critical trade partner to South Africa, as the third largest market for South African exports and the third largest source of South African imports.

“Trade in goods between the two countries was worth US$13.2 billion in 2019, while trade in services was valued at US$4.6 billion in the same year. [A] study of inbound U.S. capital investment between 2003 and 2021 showed no decline in the COVID-19-ridden year of 2020. In fact, the R7.2 billion in capital investment was the highest in the nearly two decades covered by the study. 

“Even more impressively, inbound investment for 2021 had already exceeded the total 2020 figure within the first six months of the year. Previously, the best year had been 2007, when inbound FDI from the United States was R6.2 billion.”

By contrast, the numbers for Russian investment in South Africa and bilateral trade are close to rounding errors. In the aggregate, more than 75% of South Africa’s total economy is tied in with the US, the UK and Western Europe.

While it is true that all elements of a nation’s foreign policy should not be held captive solely to its trade and investment ties, FDI and trade are crucial to its national growth and the improved welfare of its citizens. They must be a key element of a nation’s foreign policies. Policies designed to aggravate one’s trading and investment partners should be avoided if at all possible, especially if such policies become disputes that permeate and sour the entire relationship.

Crucially, things are significantly different for explicitly government programmes. Here, the current dispute, if not resolved appropriately, can increasingly matter as things remain unresolved. Such decisions may well be subjected to domestic political considerations in the US, or become part of larger international strategic goals. In such cases, feeding antagonisms and mistrust can have real consequences.

Two vital programmes

Perhaps the two most important programmes to be concerned with are South Africa’s access to US markets duty- and tariff-free under the African Growth and Opportunity Act (Agoa) and the major funding provided over two decades in the Pepfar programme to combat HIV/Aids. Let us look at these two programmes in more detail to help evaluate the risks for South Africa, should an uncomfortable truth emerge about weapons sent to Russia.

Agoa is not a bilateral or international trade treaty — it is a US law. It was passed by Congress and signed into law, first by President Bill Clinton and then renewed periodically by later presidents and Congress as a unilaterally granted benefit to African nations. It is set to expire in 2025. Its provisions are entirely at the determination of the US government. There are no international mechanisms that apply.

Agoa allows African nations to export to the US thousands of product lines, without additional costs of duties and tariffs, thus making them more competitive than other exporters. Since its inception, South Africa has probably been the most successful nation on the continent in exploiting this window — and many of its exports under this status have been value-added products, including cars and components, processed agricultural products and wine.

Most other beneficiaries have largely exported primary commodities and handicrafts to the US under Agoa rules. At present, 35 of the continent’s nations are eligible for this benefit, with the remainder disqualified on a variety of grounds, including human rights issues and a lack of transparency of the government.

The website coordinating US government data on the Agoa notes, “The African Growth and Opportunity Act (Agoa) is a United States Trade Act, enacted on 18 May 2000 as Public Law 106 of the 200th Congress. Agoa has since been renewed to 2025. The legislation significantly enhances market access to the US for qualifying Sub-Saharan African (SSA) countries. Qualification for Agoa preferences is based on a set of conditions contained in the Agoa legislation. In order to qualify and remain eligible for Agoa, each country must be working to improve its rule of law, human rights, and respect for core labor standards.”

Turning to South Africa specifically, recent figures put Agoa’s specific value to the economy at about $1.75-billion per year in export revenue, and that is worth at least 62,000 jobs, many of them skilled or technical ones.  

The authoritative Brookings Institution think tank, in evaluating the success of Agoa, noted, “Twenty years after Agoa was first adopted, we see that it has created long-term, sustainable growth by stimulating the private sector and creating jobs in a region where many countries are battling high unemployment, thereby addressing structural challenges the region faces. Additionally, in choosing a regional approach for the trade agreement, Clinton empowered both big players like South Africa and smaller players like Lesotho. In many ways, this approach aligns with the ‘trade not aid’ mantra.

“Although Agoa has been extended twice, most recently until 2025, it has come under threats over the last four years, as tariffs were imposed on key steel and aluminum products and duty-free access was suspended for apparel imports from Rwanda. Any further disruptions to Agoa could devastate the region, particularly in the medium to long term as economies seek to recover from the impact of COVID-19.

“In South Africa, Agoa has contributed to substantially increasing export-led job creation in many sectors, including automobiles and agriculture ($553 million and $364 million, respectively, in 2019). Agoa has boosted South African agricultural exports such as wine and citrus, the latter of which is one of the agriculture sector’s most labor-intensive sectors. An analysis by the University of South Africa found that in 2017, the U.S. imported roughly $59 million — or 10 percent — of its wine from South Africa, which is a sizable share given global competition.”

A key challenge for Africa is that the act itself, or, rather, its renewal or continuation after 2025, is under a cloud in Washington — the target of protectionist members of Congress who are increasingly reluctant to extend non-reciprocal trade benefits to other nations. South Africa as a beneficiary has also been challenged, given its status as a middle-income nation when the benefits were primarily supposed to flow to the less developed nations on the continent.

More recently, given South Africa’s refusal to condemn Russia’s invasion of Ukraine, combined with its continuation of senior bilateral talks with Russia about growing military cooperation, its joint naval exercise with Russia, and now, potentially, its supply of military materiel to Russia in the midst of its Ukraine invasion are contributing to feelings that South Africa may no longer deserve Agoa certification. Such feelings could also push Congress further along in declining to extend the act at all — for the entire continent. Given Agoa’s positive impact on the South African economy, such a determination would be a serious blow to a country struggling with extraordinary levels of unemployment and infrastructure problems. 

The recent mission to Washington led by national security adviser Sydney Mufamadi apparently did little to dispel such concerns. And announcements of further high-level talks for additional cooperation between SA and Russia are not going to improve matters. Some Washington observers suggest South Africa’s continued participation in Agoa’s tariff-free entry, while it still has a year-and-a-half to run, may be in real trouble unless the weapons question is resolved soon. 

Pepfar in less danger

Fortunately, the situation with Pepfar is less dire. In a recent visit by several Democratic and Republican senators to South Africa, the visitors reaffirmed the critical importance of Pepfar as a unique programme tying together US government participation with South African government and private resources to deal with the disease.

Pepfar’s South Africa office notes for South Africa, “US funding for Pepfar grew from $2.2-billion in FY 2004 to $7-billion in FY 2022; FY 2022 funding includes $5.4-billion provided for bilateral HIV efforts and $1.6-billion for multilateral efforts ($50-million for UNAIDS and $1.56-billion for the Global Fund). As the Covid-19 pandemic continues to have profound effects across the world, Pepfar has acted to respond to Covid in countries that receive support in order to minimise HIV service disruptions and leverage the programme’s capabilities to address Covid more broadly.”

While no one is suggesting, yet, that if the weapons claim is found to be true, the US would retaliate by ending its Pepfar participation in South Africa, it is entirely possible that if the relationship stumbles further, and if South Africa is ever more aggressively acting sympathetically towards Russia, congressional voices might well be raised, calling for cuts in the programme in South Africa, to shift funding to poorer nations, but nations seen as more sympathetic towards the US preoccupation with supporting Ukraine in its time of troubles.

The longer the cloud of confusion and suspicion hangs over what may or may not have been a weapons transfer to Russia, the greater the pressure may be to dial back some of that open-ended help to South Africa. The halo of the rainbow nation and the late Nelson Mandela’s place in creating it has long since faded away in Washington, save for old stalwarts of the anti-apartheid movement, but they have little influence in the capital these days.

The landscape there now is a preoccupation to rally the world to stave off a Ukrainian defeat, to cope with an increasingly assertive China in the Pacific and beyond, and, of course, to focus on the upcoming US election and increasingly acrimonious arguments over culture war issues, the country’s economic circumstances and immigration across the Mexico/US border.

The sensibilities of South Africa as a self-declared neutral nation, eager to grow relations with a BRICS partner now engaged in a brutal war barely register in Washington now. DM