Last week was a bombshell week in the world of US-SA relations. Allegations that SA supplied the Russians with weapons became public through a round of megaphone diplomacy. The rand subsequently tanked, and we are all left wondering what will happen next.
It is a complex relationship at the best of times. The dids and did-nots of the 1980s remain etched into the minds of those who govern SA today. On the other hand, SA is the biggest beneficiary of the Africa Growth & Opportunities Act (Agoa), the US’s preferential trade programme. An SA delegation recently visited the US, and part of the discussions included the extension of trade benefits.
When you throw in alleged weapon sales the waters get decidedly muddy. The SA government’s official position is that there is no record of arms being loaded for Russia. Then again, little in the “dodgy” department happens on the record (for example, the work of the Guptas).
As for the future SA-US relationship, well that is complicated too. Sir Isaac Newton developed some insights in the world of physics that can also be applied to international relations and economic diplomacy. In his first law of motion he states that an object will stay in uniform motion, in a straight line and at the same speed, unless compelled to change.
In other words, speeds and trajectories only change with intervention, and staying on the current trajectory would be economically self-defeating for SA. Here’s what’s at stake:
- 9.7% of SA exports valued at $14bn (R268.8bn) go to the US, making it the second biggest buyer of SA goods.
- From 2016- 2021 the US was the fastest growing export market, with exports rising by 139% or $8.1bn (R155.5bn). That is nearly double the increase of the second-fastest growing market, India. Japan, which has also sanctioned Russia, was the third-fastest growing export market, increasing by $4.77bn or 133%.
- Six hundred American firms operate in SA. Some, such as Ford Motor Company, provide employment and contribute significantly to SA’s exports.
What intervention could change the trajectory of the US-SA relationship? First, SA desperately needs to return to a position of genuine non-alignment. In 1994 SA joined the Nonaligned Movement, a group of 120 countries that are not formally aligned with or against any major power bloc. Just as SA does not need to cosy up to the US, it does not need to cosy up to Russia. You can honour national sovereignty without jeopardising relations with a trade ally.
Second, SA needs to take responsibility for whatever happened in Simon’s Town in December 2022. An inquiry is a classic delaying tactic, one we have seen used all too often in recent years. Yet the faster any wrongdoing on SA’s part is acknowledged the faster this chapter can be closed.
Already the depreciation of the rand from R18.20 to R19.20/$ will drive up the national import bill by R122bn and add 1.8% to prices through inflation. Extending this saga unnecessarily risks continued (and potentially increased) price inflation, which ultimately affects the pockets of all South Africans.
Third, SA cannot under any circumstances host Vladimir Putin while there is a warrant for his arrest by the International Criminal Court. Hosting him could have far wider ramifications than bilateral economic consequences. SA could jeopardise $21bn (R 413bn) in exports to countries that have implemented sanctions against Russia, including the US, UK, EU, Canada, Australia and Japan.
Tens of thousands of jobs could be affected in labour-intensive sectors such as agriculture (fruit and vegetables are the biggest export to the EU), automotive vehicle and component manufacturing, and mining. This would undermine decades of economic gains and the established goal of increased exports.
While SA would be the bigger loser economically, it is still in US interests to improve its relationship with SA, particularly as it remains a gateway to a continent that is of growing significance to the global world order and is expected to be home to a quarter of the world’s population within the next 35 years or so. US President Joe Biden has rightfully been a fierce advocate of giving the AU a permanent spot in the Group of 20.
Yet intervention is not entirely straightforward given that SA has subinvestment grade credit ratings, was recently greylisted by the Financial Action Task Force for not being compliant with international standards on money laundering and terrorist financing, and has been home to state capture.
For US intervention to be palatable to SA it must both support those in power and remedy the economy. Health and education aid, while helpful, do not meet both criteria. However, the energy sector does, and it provides a clear area for co-operation.
Energy crisis
From an economic standpoint the energy crisis is the single biggest impediment to investment, growth and job creation. It has been cited as a driver in sovereign credit rating downgrades, which has in turn increased the cost of capital and deterred future investment. There is a significant investment and infrastructure financing gap in the energy sector.
From a political perspective, it is in the direct interest of the governing ANC to address the energy crisis given that the party has been rapidly losing the confidence of the electorate. In 2006 it captured 67% of the vote nationally, but by 2011 this had fallen to 64% and 54% in 2016. Each election has seen a new low. In the 2021 local government elections it received less than half of the vote for the first time in SA’s democratic history, and that trajectory has not changed.
The ANC now only holds a governing majority in two of SA’s eight metropolitan areas and is reliant on coalitions in the other five, including Johannesburg. Energy is regularly at the top of the list of voter frustrations.
SA needs to drastically, and rapidly, increase its power supply. The shortages are eroding decades of financial, economic and social gains. Collaborating on energy could be a strategic win for the ANC as it could help the party regain some credibility with voters and the larger international business community.
If the US can create incentives and use derisking mechanisms to bring in energy investments from US firms it could be a win for both sides and a basis for a more positive long-term relationship.
Whatever happened in Simon’s Town that night was deeply unfortunate, but it has served to illustrate that turning around this relationship is in the interests of both the US and SA. For the latter, the economic consequence of conflict could be significant. Yet with the right approach to intervention we can deviate from the current trajectory of a rapid downward spiral.
• Dr Baskaran (@gracebaskaran), an American development economist who lived in SA for seven years, is a bye-fellow in economics at the University of Cambridge.
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