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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. However, its privileged access to the US market under the African Growth and Opportunity Act (Agoa) could be at risk due to allegations that SA’s stand on the war in Ukraine is contrary to America’s national security or foreign policy interests. In 2022, SA exported about R275-billion in goods to the US, of which about 21.6% entered the US under Agoa.
The tariff benefit of Agoa for exports of autos to the US is about 10%, meaning that if South Africa lost Agoa privileges, US importers of our cars would have to pay an extra R3-billion or so for them. Donald MacKay, CEO of XA Global Trade Advisors, points out that even if the motor manufacturers were stuck with South Africa as the location of their assembly plants in the short term, this would be a factor in their decision-making when those new model investment decisions need to be made.
MacKay's calculations of South Africa's exports to the US under Agoa are 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. Vehicle exports represented over half of the 2022 figure, with aluminium, chemicals, fruit, wine, ferroalloys, ice cream and edible ice being the most significant exports. Last year, SA exported just more than R30-billion in vehicles to the US under Agoa. Manufactured goods add value to raw materials, and this added value boosts export revenues.
South Africa consistently runs a large trade deficit with China, which is due to the high component of manufactured, value-added goods in the basket of SA exports to the US. The increased part of manufactured, value-added goods in the basket of SA exports to the US (and the European Union) also means that trade with those countries is creating more jobs and helping to boost industrialisation in SA. SA is due to host the annual A Agoa expiring in 2025, and the US Congress will have to decide whether to renew it or terminate the whole programme.
It is not clear if South Africa’s participation will also be renewed. Seychelles and Equatorial Guinea have already been “graduated” for being too well off, and depending on how the quarrel with the US over SA allegedly selling arms to Russia is resolved, South Africa could theoretically be removed before the 2025 overall Agoa expiry date through an “out-of-cycle review”.
Peter Attard Montalto, an economist at Intellidex, sees the indirect impacts of possibly losing Agoa as more extensive than the direct losses. The Office of Foreign Assets Control (OFAC) is the bureau that administers US sanctions. Agoa's immediate benefits are about 0.7% of GDP, which is meaningful regarding a balance of payments deficit expected this year of about -2% of GDP. Ofac estimates the addition of indirect and direct impacts might come in at about double this level. However, only about 25% of exports to the US are Agoa products, and trade would not stop – it would be hampered and get more expensive for American importers and more challenging for SA exporters.
The sentiment impact, particularly this, as a sign that relationship is worsening, would be more the issue here, with broader results than the direct impact.
This article is originally published by the dailymaverick.co.za
