When the then US ambassador to SA Patrick Gaspard spoke to Business Day at the end of his term in 2016, he lamented that so much of his time was spent fighting about chickens.
At issue was the Africa Growth and Opportunity Act (Agoa), and whether the US Congress would allow SA to remain eligible for benefits under the act given its reluctance to allow poultry and meat imports from the US.
In the end Agoa was renewed in 2015, and Gaspard helped to broker a deal to keep SA in. But it is easy to forget how tough it was — and how controversial SA’s eligibility has always been, even before our bizarre stance on Russia’s war in Ukraine compounded it.
It is also worth remembering Gaspard’s warning at the time, that SA needed to start looking ahead sooner rather than later to cementing its trade and investment relationships with the US beyond the expiry of Agoa in 2025.
The thing about Agoa is that it is not a trade deal or agreement in any sense. It is an act of the US Congress that is essentially a form of development aid. It gave effect to the late 1990s’ “trade not aid” slogan by giving eligible African countries preferential access to the US market. Their exports to the US are not subject to duty. But the preferential treatment is asymmetrical: US exporters do not get duty-free access to African markets in return, in contrast to a bilateral trade deal such as the European Partnership Agreement.
African countries therefore have to meet the US’s human rights, foreign policy and other conditions to be eligible, and this is not guaranteed. Countries have been booted out before, usually for human rights abuses. In SA’s case, that it is a middle-income country, not a poor one, has always raised questions among US legislators about its eligibility. Now, its perceived support for Russia is driving away even those who used to support it. Agoa’s proponents in Washington are working hard to get the legislation extended.
Chances are that it will be, with or without SA, given the US’s desire to counter China’s (and Russia’s) influence in Africa.
It is also a low-cost item for the US, with a recent official report estimating less than 1% of US imports enter the country duty free under Agoa. SA accounts for almost half of that. About 9% of our total exports go to the US, which vies with China as our largest single export market.
Direct benefit
But how important is Agoa within the mix? It is surprisingly small, according to XA Trade Advisors’ Donald Mackay. SA’s duty-free exports under Agoa are about a third of its R188bn total exports to the US. But the average duty rate into the US is only 2.5%-3%. Mackay’s arithmetic is that the direct benefit of Agoa to SA is worth just R1.9bn in benefits. (That is the duty that does not have to be paid on those exports into the US.)
Of that, almost half goes to just five companies, according to the US report, which does not name them but lists sectors including automotive, chemicals and aluminium.
But that is the macro arithmetic. On a micro level Agoa’s importance for particular companies, sectors and regions is substantial. The 2%-3% edge that involves entering the US market duty free may not look like much. But it may well give SA exporters the edge they need to compete in a highly competitive market, especially for goods that are little different to oranges or table grapes or indeed cars produced by rival countries.
For the Western Cape, fruit and wine exports to the US under Agoa are hugely important, which is why premier Alan Winde went there to lobby for SA. A host of oped articles in Business Day lately have detailed why Agoa matters for export sectors such as the car industry. However it is not just about the numbers.
Health check
Even more important is what Mackay calls the signalling effect. Agoa acts as a kind of health check, signalling that the US is comfortable doing business with SA. That matters a great deal for SA in terms of its ability to attract trade and investment from the US. With our reputation already damaged by greylisting and the risk of secondary sanctions, losing access to Agoa would be even more reputationally disastrous.
It would be taken as confirmation of a serious breakdown in economic relations with the US. It is particularly serious given the absence of any alternative — which is one of the reasons SA should long ago have heeded Gaspard’s advice.
Kenya has done exactly that. Like SA, it is one of the big beneficiaries of Agoa. But over and above that it has negotiated a bilateral strategic trade and investment partnership with the US that is expected to be signed by early next year. But for American protectionism, Kenya would have a full trade agreement with its own duty-free access to the US market.
SA, sadly, has wasted the past eight years doing what seems to be very little to build more durable ties with one of its major trading partners. Now, its foreign policy stance risks losing it what advantage it had in accessing that market.
The Russia-Ukraine war has highlighted the extent to which SA’s foreign policy has never been about economic policy, as it is in other more growth and export orientated countries. But our economic policymakers do not seem to have done much either.
Trade, industry & competition minister Ebrahim Patel’s department is understood to have drafted an “SA beyond Agoa” strategy. But no-one has seen it. Meanwhile, he has been making last-minute efforts to beg the US to keep us in Agoa while having to counter dismissive comments from his colleague the foreign minister on its importance.
It certainly would have helped if Patel had been able to say he was in talks, as Kenya is, on a strategic partnership that would outlast Agoa. But it is too late now.
SA will export to the US with or without Agoa. But losing it will erode our already limited ability to compete for foreign trade and investment flows.
• Joffe is editor-at-large.
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