As South Africa appears to be 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, economists yesterday warned of the consequences to the already strained economy.
This comes as a group of both US legislators wrote to US Secretary of State Antony Blinken, asking the White House to move this year's Agoa Summit away from South Africa.
In a letter dated June 9 addressed to Blinken, Trade Representative Katherine Tai and National Security Adviser Jacob Sullivan, the legislators said South Africa's government had formally taken a neutral stance on Russia's unlawful invasion of Ukraine, but had deepened its military relationship with Russia over the past year.
On top of this, they said they were concerned that South Africa would host the BRICS Summit where the government aimed to strengthen its ties with China and Russia, and was working to facilitate the participation of Russian President Vladimir Putin, despite the outstanding arrest warrant issued by the International Criminal Court (ICC).
“We are seriously concerned that hosting the 2023 Agoa Forum in South Africa would serve as an implicit endorsement of South Africa’s damaging support for Russia’s invasion of Ukraine and possible violation of US sanctions law,” they said.
“Further, these actions by South Africa call into question its eligibility for trade benefits under Agoa due to the statutory requirement that beneficiary countries not engage inactivities that undermine United States national security or foreign policy interests.”
The US legislators also said that though the Agoa eligibility review process for 2024 was 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.
In spite of this, the Department of International Relations and Co-operation has remained adamant that there are no plans to move the Agoa Forum from South Africa to another country.
Agoa provides eligible sub-Saharan African countries with duty-free access to the US market for more than 1 800 products, in addition to the more than 5 000 products that are eligible for duty-free access under the Generalised System of Preferences programme.
Russia accounts for 0.2% of South Africa’s global export trade, the US, UK and EU combined 35%, and China around 9%.
Investec chief Annabel Bishop said the loss of benefits from Agoa and secondary sanctions from Western countries were a big threat to South Africa’s industrial production, economic growth and existing jobs.
Bishop said South Africa needed to cease absolutely all and any military ties, relationships and activities with Russia if it did not want to lose the Agoa trade benefits and face sanctions from Western countries that would decimate its economy, socio-economics and major sources of government funding.
“South Africa imports and exports virtually nothing from Russia, at 0.2% and 0.1%, while risks losing up to 40% of its trade if sanctions are imposed against it by the West, which would drive the economy into a deep, severe recession, extreme rand weakness and collapse in government finances, most likely bankrupting the state,” Bishop said.
“South Africa will likely face its worst economic crisis if it undergoes full sanctions from the West. South Africa has been playing with fire for its economy in participating in naval exercises with Russia and other activities.
“South Africa is, worst case, risking becoming a bankrupt state for its relationship with Russia, which adds virtually nothing to the economy, state revenues, economic growth, job creation or socio-economic stability and investor sentiment.”
Bianca Botes, a director at Citadel Global, recently also warned of the consequences of South Africa losing Agoa.
“South Africa faces the risk of losing some of its favourable trade terms, which will have a detrimental effect on South Africa’s export market,” she said.
Christo van der Rheede, the CEO at Agri SA, also said recently that citrus exporters in South Africa were aware of Agoa and consider it important because the duty savings helps them remain competitive in the US market despite shipping costs.
Agri SA also noted that, if South Africa were no longer to be part of the agreement, 33% of production in one local citrus region, and an even higher percentage of revenue, would be at risk.
"A risk to revenue and the production scale for any industry translates to a risk to jobs. The International Trade Commission’s report reviewed three academic studies – all of which found that losing the preferences afforded by Agoa had a negative consequence for employment. One of the studies looked at the potential impact of the loss of Agoa on the South African wine industry, finding that it would cause job losses not only in wine production but also in the wine tourism industry,“ Van der Rheede said.
Meanwhile, Western Cape Premier Alan Winde is leading a group of provincial government and business representatives to Washington DC to further promote the Western Cape as a trade and investment destination of choice.
Winde said if South Africa lost its Agoa eligibility it would be a major setback for the entire economy, but the Western Cape’s economic losses would be higher than the rest of the country due to higher trade tariffs, which have been tempered by the act.
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