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TRADE RELATIONS

SA’s ever-closer ties with Russia jeopardise R60bn in annual exports to US under Agoa deal

SA’s ever-closer ties with Russia jeopardise R60bn in annual exports to US under Agoa deal
Images: iStock | Unsplash

South Africa exports an enormous amount of goods to the US annually – including vehicles, aluminium, chemicals, fruit, wine, ferroalloys, and even ice cream and edible ice. But now its privileged access via the Agoa deal could be at risk amid allegations that SA’s stand on the war in Ukraine is contrary to America’s national security or foreign policy interests.

South Africa stands to lose up to R60-billion a year in exports to the US if it forfeits its privileged access to the US market under the African Growth and Opportunity Act (Agoa) because of its ever-closer ties with Russia.

That was roughly the value of goods SA exported to the US under Agoa in 2022, according to US figures. About half of that was in motor vehicles – many of them high-end Mercedes-Benzes and BMWs – and about R8-billion was in agricultural products, much of it citrus and wine. Jewellery was another major export.

In 2022, SA exported about R275-billion in goods to the US, of which about 21.6% – or R59.59-billion – entered the US under Agoa, which provides duty-free access to eligible sub-Saharan African countries. Thirty-five of those are currently eligible. Countries can be removed for:

  • Human rights abuses, including waging war, for supporting terrorism or for raising unacceptable barriers to US trade.
  • Or for acting contrary to America’s national security or foreign policy interests.

It is the latter which could cause SA to be removed from Agoa, as many US legislators regard SA’s warming ties with Russia – including its alleged sale of weapons to Moscow – as undermining US national security interests.

Read more in Daily Maverick: Ukraine President Zelensky warns Ramaphosa against selling arms to Russia

Calculating precisely the financial loss of being cut out of Agoa is difficult. For example, the tariff benefit of Agoa for exports of autos to the US is about 10%, which means that if we lost Agoa privileges, US importers of our cars would have to pay an extra R3-billion or so for them.

This might price our cars out of the US market. 

And as Donald MacKay, CEO of XA Global Trade Advisors, points out in his latest blog, even if the motor manufacturers were stuck with South Africa as the location of their assembly plants in the short term, “when those new model investment decisions need to be made, this will be a factor in their decision making”.

That would cost us a lot of jobs. 

Trade statistics are notoriously hard to reconcile for various technical reasons relating to the point of calculation, exchange rates etc. So, MacKay’s calculations of South Africa’s exports to the US under Agoa come in much lower than those of the US. 

He totals exports to the US under Agoa in 2021 at R22.870-billion and in 2022 at R27.904-billion.

Of the 2022 figure, he says vehicle exports represented over half, at R15.320-billion; aluminium was next largest at R4.208-billion; then chemicals at R2.346-billion; fruit at R1.447-billion; wine at R802.48-million, ferroalloys at R611.89-million and – perhaps surprisingly – “ice cream and edible ice” was next, at R519.48-million. 

But according to US statistics, last year our total exports to the US under Agoa jumped by more than 50%, from R39.575-billion to R59.59-billion. 

In both years, SA enjoyed a healthy trade surplus – R191-billion in 2021, though declining to R150.89-billion in 2022.  

Agoa clearly contributed a large part of those surpluses since it gives SA duty-free access to the US market without requiring SA to reciprocate.

SA exported just more than R30-billion in vehicles to the US under Agoa, according to US figures. 

The high volumes of automobile exports to the US under Agoa are an important contributor to SA’s surpluses. Manufactured goods add value to raw materials and this added value boosts our export revenues.   

By contrast, South Africa consistently runs a large trade deficit with China, its largest single trading partner. Last year, that deficit was about R177.89-billion, up from over R94-billion in 2021. That is because we mostly sell raw materials to China and mostly import manufactured goods.

The relatively high component of manufactured, value-added goods in the basket of SA exports to the US (and also to the European Union, incidentally) also means that trade with those countries is creating more jobs and helping to boost industrialisation in SA. 

SA is, rather ironically, due to host the annual Agoa forum later this year, probably in November. It was originally due in September but the US didn’t want it to be held so soon after SA hosts the BRICS summit in late August – especially if Russian President Vladimir Putin is scheduled to be there.

Agoa is due to expire in 2025 when the US Congress will have to decide to either renew it or terminate the whole programme. As things stand, it seems likely to be renewed. But it’s not so clear that SA’s participation will also be renewed.

SA’s participation was already a little doubtful because we are Sub-Saharan Africa’s most industrialised economy, and Agoa is really intended to uplift poorer countries. Seychelles and Equatorial Guinea have already been “graduated” for being too well off. 

The Russian imbroglio could push us over the edge. 

And depending on how the quarrel with the US over SA allegedly selling arms to Russia is resolved, South Africa could theoretically even be removed before the 2025 overall Agoa expiry date, through an “out-of-cycle review” – in much the same way that SA was provisionally suspended from some Agoa benefits in 2015 after slapping extra import duties on US meat. 

“SA is standing blindfolded on the edge of a precipice,” MacKay writes. 

“Our trade with the US, EU and UK accounts for 36% of our total exports. If the US pulls the trigger on an out-of-cycle review, we could lose a lot more than our car exports to America.”

Peter Attard Montalto, an economist at Intellidex, sees the indirect impacts of possibly losing Agoa as likely being larger than the direct losses. 

“Highly targeted sanctions against involved individuals or, say, (arms manufacturer) Denel, would have limited economic impact (and the US has sanctioned SA individuals before) but would dent sentiment and likely reinforce the additional risk premia now in markets overall.”

He adds that sovereign-level sanctions – against the whole government – are very improbable as they would require proof of “a grand Cabinet-authorised conspiracy to arm Russia, which is not what is alleged here. It is only that type of very broad-based sanction that would see a meaningful impact on the economy, and is just not how Ofac works in anything but the most extreme scenarios.”

Ofac, the Office of Foreign Assets Control, is the bureau that administers US sanctions.

“Agoa’s direct benefits are about 0.7% of GDP, which, in terms of a balance of payments deficit expected this year of about -2% of GDP, is meaningful – though the overall direct GDP benefit is not huge … it is in more labour-intensive industries and industries with long and integrated high local content and labour absorptive supply chains like vehicles and agriculture,” Montalto says.

“This is why we would estimate the addition of both indirect and direct impacts might come in at about double this level. We should, however, remember that only about 25% of exports to the US are Agoa products and trade would not stop – it would simply be hampered and get more expensive for American importers and more challenging for SA exporters. 

“Again, the sentiment impact in particular of this, as a sign that relationship is worsening, would be more the issue here, with broader impacts than the direct impact.” DM

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Comments - Please in order to comment.

  • Miles Japhet says:

    The bigger impact would be the affect on overall business and investor confidence.
    Given the recent insane job reservation BEE quotas plus all the other major governance failures, the Russian fiasco could well be the straw that breaks the camels back – the poor will get poorer.

  • Ronnie Veitch says:

    I don’t believe any comment could do justice to the situation. Stuck for words!

    • Confucious Says says:

      And with load shedding destroying the manufacturing sector, SA will have to import even more! Significantly high inflation is imminent!

  • Alex P says:

    As a South African, my experience is as if I am in a car driven with utter recklessness. In real life, I’d urgently exercise some of my options. However, it feels as if our nation is frozen in horror as we go around yet another almost fatal bend, seeing the cliff edge approaching rapidly as the list of disastrous policies and blunders stack up in full view of the world.

    Is it prudent for us as a nation to delay any further exercising our right to call for accountability and sound leadership until the elections in 2024? We might not make it till then, or what’s left of our wrecked-car-country might not be repairable by future generations.

    Is it possible to guide the government, in no uncertain terms, on how we want the car to be driven as a nation?

    Can we find it in ourselves to shout out a “NO!! NOT IN OUR NAME!!” and insist on what we as Citizens require the government to prioritize, or face severe punishment at the elections?

    We are a diverse population with wide-ranging views, but surely there must be a core of values and practices we could agree on.

    What about calling for a National Referendum on a selected list of key issues, such as (fill in your top three)? What else can be done? What about a targeted Tax Revolt or a self-imposed withdrawal of taxable productivity? What about internationally calling for sanctions, like the last time the government of the day had to take notice?

    Let’s wake up from our horrid stupor and as a society agree to make a social compact.

    • William Kelly says:

      Until we do we are doomed. Remember that these dreadful corrupt come from among us. They didn’t materialise out of thin air. We created them.

    • Philip Wernberg says:

      How would we have a Tax Revolt when PAYE is given to SARS by our Employers. We would have to get everyone’s buy in. Sanctions on the ANC cadres and leaders would be the answer.

      • Alex P says:

        A harder option is for every tax payer and business to withhold work for which you are paid for an agreed period, say for one day, ideally on the same day. The idea is that this reduces by one day the taxable output of all who protest. Yes, it will get you in the wallet, but the collective effect and message it sends can’t go un noticed.

    • Helen Lachenicht says:

      I can’t remember the exact words: When good people do nothing, evil will prevail?

    • T Mac says:

      Good idea. Maybe a return to the protests like we had over Zuma when everyone got onto the streets would send the message.

    • Anne Swart says:

      ANC blurring the line between party and state, along with cadre deployment is the problem. A tax revolt will affect the poorest, as the ANC/state would simply delay, or not pay social grants. Calling for sanctions against individuals would be the best option.

    • Absolutely correct but how to make it happen?

    • Hermann Funk says:

      I could not agree more with you. Many of us have been challenging citizens through this platform and others that we have the power to chase these thieving bastards into the see but it appears that they don’t see it that way.

    • Bob Dubery says:

      I share your concerns, but I would steer clear of a tax revolt (even if Helen Zille said she felt like starting one). Our recent history suggests that these kinds of revolts don’t end well because even if they are started from a position of principle, they quickly become money that we don’t have to spend, and when the reason for the revolt is removed we will be reluctant to resume paying.

      Next year is an election year, and our best response (or endorsement) will be the government we choose.

  • Pet Bug says:

    R60-billion is but chump change for the ANC cadres and Mitläufer mafia and elite outfits.
    SA has lost anything north of R1,000-billion over what, 10 years, to corruption and state capture.
    Workers don’t siphon off chunks of their hard-earned dosh to ANC coffers, unlike the mafia elite. Better to have R100-billion in hand than having Citizens in jobs.

    And if Russian oligarchs will bankroll the ANC, what’s not to like?

  • Errol Price says:

    Strange that the author of this article is unable to fathom why the government would put the rights under Agoa at risk.
    Agoa merely strengthens South Africa’s balance of payments.
    When deals are done with the coterie of thugs in the Kremlin, including Putin, of course, the ” commissions ” get paid into private bank accounts in Dubai and the petty cash can be brought home to be deposited under the sofa.
    It is really no contest

  • Michael Shepstone says:

    Just one more example of the ANC utter disregard for our people. As long as Russia is paying their salaries, they don’t care about the complete chaos loss of the AGOA agreement could bring to the country.
    If we are shunned by USA, it is highly likely that the EU would follow, leading in turn to massive disinvestment and even the possible collapse of our automotive industry amongst others!

  • William Kelly says:

    Well constructed and objectively considered. The issues are that there will be job losses – in the future as the OEMs pull back and eventually out – they cannot make NEVs thanks to policy and the muppets in charge will be running around with their heads on fire trying to spin the loss of AGOA as minor. As it is they cannot organise a piss up in a brewery let alone get any actual work of consequence done. I’ve called the OEMs as gone within 10 years – death by 1,000 slow cuts, and the canary in the gold mine is Stellantis.

    • Mark Gory Gory says:

      Sadly , the comrades will be retired or dead in expensive caskets in 10 years. All that remains is the ruins of what was……africa all over

  • robmorley says:

    The other thing at risk and not just because of Russia links but deliberate policy is the promised funds for green energy transition- I know this is being looked at due to SAs ongoing obsession with coal.

  • Llewellyn Curlewis says:

    what does Cosatu have to say about all of this – I have not seen any concern

    • Hilary Morris says:

      Cosatu is an even bigger sick joke than the ANC. Their opinion, I suspect, is largely irrelevant to anyone other than their members.

    • D'Esprit Dan says:

      They’re planning a massive national shutdown and protest march for when the auto industry exits South Africa. They will demand that not only must the plants stay open, but employ more people and give them 20% salary raises to boot! A useless irrelevance, the unions.

  • Jane Crankshaw says:

    ……and that’s just the beginning – wait until the EU find an alternative to our SA exports, they’re our biggest trading partner and I very much doubt the BRICS countries can fill the gap an EU pullout would leave!!!!! How dumb are the ANC lol!

  • Frederik van Niekerk says:

    Our gullable comrades with their obsolete fixations are not going to change – not even in the face of fact and evidence. We have to get rid of them at every opportunity, notably the text election. South Africa’s have had enough of this stupidity and arrogance.

  • D'Esprit Dan says:

    It would appear that the ANC, SACP and COSATU are hellbent on taking South Africa back to a pre-industrial age. Why, I don’t know, but at every turn they make it more and more difficult to run an efficient, profitable business that creates jobs. If it isn’t piling on the red tape, it’s refusing to open the economy to investment. If it isn’t crushing labour regulations, it’s one set of targets after another to meet race and gender goals. If it isn’t destroying the logistics infrastructure of the country so we can’t trade, it’s finally now destroying our access to key global markets for purely ideological reasons. It is treasonous, But it is also typical of a regime that cares not one iota about ordinary citizens – just swaggering across the global stage pretending to be important, whilst dragging their 1950s ideology along as a dance partner. Pure evil.

  • James S. Henry says:

    So RSA trade surpluses with the US roughly financed your soaring trade deficits with China and Russia since 2020? Good to know. We have yet another reason to question why AGOA’s generous trade subsidies are justified.

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