When it comes to the future of US-SA relations, the debate has been dense: multilateral convenings, trade agreements and political alliances. But little has been said about SA’s critical comparative advantage in this situation.
Last week a bipartisan group of US policymakers wrote to President Joe Biden, ambassador Katherine Tai and national security adviser Jake Sullivan asking for punitive measures against SA for its alleged support for Russia.
In the first instance the letter asks for the African Growth & Opportunity Act (Agoa) Forum to be moved away from Johannesburg where it was to be held later in 2023. More subtly, it interrogates the merit of continuing SA’s Agoa benefits beyond 2025.
Regardless of where you fall on the substantive content of the letter, it brings an important question to the fore: are unilateral trade preferences adequate leverage to motivate geopolitical decisions?
Regarding the continent, 10 or 15 years ago I would have advocated a firm “yes”. The African private sector was nascent, international aid was the prime form of engagement, and preferential trade agreements essentially functioned as industrial policy. But that was before the world realised just how critical what we now call “critical minerals” would become. And before African countries realised how powerful the earth under their feet was.
There’s no disagreement that SA benefits from preferential access to the US market through Agoa, particularly in labour-intensive sectors such as automotive components and machinery manufacturing. But the contribution to exports is relatively small, amounting to just 10.3% of goods sent to the US.
The real jackpot sits in a place I was privileged to call home for two years: the platinum belt. In 2021 SA exported $6.98bn in platinum to the US. That was half of all exports to the US, and we have has two distinct benefits here: SA has a near-monopoly on the platinum market, with nearly 90% of the global share, and it benefits from the fact that the two other countries who have relatively small platinum reserves are both pariahs on the international economic stage — Russia and Zimbabwe.
In essence, if you want platinum, you should be in SA’s good graces. And then there’s manganese. My column last week highlighted a few need-to-knows about the metal: that it’s impossible to make steel without manganese, it’s not substitutable, and SA is sitting on more than 70% of the world’s ore reserves.
Thus far the US has managed to sidestep relying on SA’s manganese. Between 2017 and 2020 it imported 67% of its manganese from Gabon and 18% from SA. From a mining investment point of view it’s unlikely that we will see an overnight boom in SA given the state of Eskom and Transnet. But SA’s manganese will remain in the purview of both investors and governments looking to build supply chain security. The world needs manganese and SA has the biggest supply of it.
I’ll circle back to my original question now: are unilateral preferences adequate to motivate geopolitical decisions? I’d fall short of providing a binary answer — but I would say they are certainly losing their clout as resource-rich countries quantify the value of what’s underground.
Mineral resources are equalising the playing field. The key factor US and EU policymakers have had in their favour is the size of their market, and gaining access to these large markets has been a significant benefit to developing countries. But the presence of critical minerals has also left international investors vying for the attention of policymakers in African and Latin American countries.
The rhetoric from Johannesburg has been deafening. Commentary has overwhelmingly been concentrated on the fact that SA is going to have the carpet pulled out from beneath it if/when its Agoa benefits are withdrawn due to our government’s erratic behaviour.
There are two purely economic reasons why this will play out differently. The first is simple supply and demand — 2023 is the first year in many that there will be a global platinum deficit, and some forecasts suggest this could increase by up to 1.5-million ounces in 2024 — a tripling of 2023’s deficit. Recycling and the circular economy won’t be able to meet that deficit, and the world can’t afford to lose SA’s production. The story for manganese is similar.
The second is that unilateral trade preference programmes don’t carry the same punitive weight for economies such as SA as they do for Lesotho or other small economies. It’s indisputable that losing Agoa would come with significant political consequences. It would also have some economic fallout for sectors such as automotive manufacturing.
SA is endowed with a rich supply of critical minerals, and they may provide a barrier of economic protection.
• Dr Baskaran (@gracebaskaran), a development economist, is a bye-fellow in economics at the University of Cambridge.
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