South Africa’s captains of industry have urged the government to resolve the diplomatic fallout with the US, as it threatens billions of rand in trade and investment, which could cripple an already subdued economic growth trajectory.
This comes as Business Confidence Index (BCI) plunged to its lowest in nine months in South Africa amid lower trade volumes, fewer tourists and a weaker rand.
South Africa is on the verge of losing the benefits of the African Growth and Opportunity Act (Agoa) from the US government, due to the country’s decision to remain neutral in Russia’s invasion of Ukraine.
The SA Chamber of Commerce and Industry (Sacci) yesterday said the economic sensitivity of South Africa to international trade relations was evident from the substantial swing from a surplus on the trade account in the first four months of 2022 to a deficit in the first four months of 2023.
Sacci is the most broadly based representative national business body, representing more than 20 000 companies through its membership comprising more than 50 large corporations, and more than 50 local and regional chambers and 15 national associations.
Sacci CEO Alan Mukoki said this volatility affected business and investor confidence and eventually economic performance, employment and wealth.
Mukoki said threats of losing out on lucrative trade agreements might dent an crucial element of South Africa’s economic relationships and well-being.
“This calls for the government to ease speculations and remove lingering uncertainties. As a largely open economy, there is huge exposure to international trade and investment that necessitates global relations that take care of South Africa’s best economic interests,” Mukoki pointed out.
“With a global economy that is slowly recovering to perform optimally, it is essential that due attention be paid to place South Africa back on a trajectory attracting foreign investment and extend lucrative trade relations.
“A large part of the loss of business confidence could be regained by following the best economic and business interests of South Africa, and more attending to local structural impediments,” he said.
According to Sacci, business sentiment was at a low point at present.
Sacci’s BCI fell to a nine-month low of 106.9 index points in May, from 107.1 points in April – the lowest the BCI has been since August, 2022.
The chamber said the BCI also reflected a low-inspired outlook for several activities as suggested by a number of key performance indicators.
Although international developments and South Africa’s positioning towards global relations featured prominently during May, Sacci said it was mainly domestic issues like electricity load shedding that affected the business climate detrimentally.
A number of other socio-economic developments pertaining to health and service delivery also surfaced more desperately during May.
Sacci also said global economic matters and structural domestic economic issues further added to a tight and uncertain business environment.
US legislators have written to US Secretary of State Antony Blinken, asking the White House to move this year's Agoa Summit away from South Africa due to its deepening military relationship with Russia over the past year.
The US legislators said that though the Agoa eligibility review process for 2024 was still under way and that decisions had not yet been made, they were questioning whether a country in danger of losing Agoa benefits should have the privilege of hosting the 2023 Agoa Forum.
Trade union Solidarity has written a letter addressed to the US government not to remove South Africa from Agoa, and to reconsider its strategy to promote economic freedom and democracy in South Africa.
According to Solidarity Movement chairperson Flip Buys, South Africa’s removal from the list of countries that benefit from Agoa will have dire consequences not only for the country, but will have a wider adverse impact on regional stability.
“We seriously appeal to the US government not to punish South Africa economically, but to rather develop a policy to isolate certain political figures in South Africa and to institute punitive measures against these persons who, in an irresponsible way, are undermining South Africa’s non-aligned and neutral position,” Buys said.
Oxford Economics Africa head of macro-economics Jacques Nel said South Africa’s foreign affairs faux pas have been adding up and the chickens have now come home to roost.
“South African exports to the US under Agoa represented roughly 3.0% of South Africa’s total merchandise exports during 2022,” Nel said.
“The direct trade impact related to the potential loss of Agoa membership would be most regrettable, but the effects of broader sanctions would dwarf these trade consequences,” he said.
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