South Africa will host the African Growth and Opportunity Act (Agoa) Forum this month and will face the possibility of being booted from the United States trade agreement over the local close ties to Russia.

According to legal experts at Webber Wentzel, South Africa benefits enormously from the US-African agreement, with the estimated total value of South African goods exported to the US under the auspices of Agoa amounting to almost R60 billion in 2022.

Agoa is a law passed by US Congress providing various Sub-Saharan African countries that meet certain eligibility criteria, including South Africa, with preferential access for over 1,800 specified items to the US market.

“Agoa is significant in US-South Africa trade relations and, in the wider geopolitical context, has brought with it increased scrutiny of South Africa’s relationship with the US on the one hand, and Russia and China on the other,” the firm said.

In recent months, South Africa’s closer ties to Russia amid the latter’s ongoing war in Ukraine has brought the Rainbow Nation under even more intense scrutiny.

South Africa’s hosting of joint maritime military exercises involving China and Russia; allegations that South Africa provided arms to Russia; and the entire will-they-won’t-they saga surrounding Russian president Vladimir Putin’s arrest warrant have all brought the country into unique focus.

“Some commentators have sought to use these events to point to a rupture in the US-South Africa relations,” Webber Wentzel said.

“The efforts of the South African government, political parties, civil society, and business leadership to allay the concerns of their US counterparts have highlighted the value they place not only on bilateral relations with the US but also on the preferential market access which goods originating from South Africa enjoy under Agoa.

“These efforts will hopefully facilitate amicable and productive discussions at the Agoa Forum and improve the chances of South Africa retaining its status as one of the Agoa beneficiaries, well into the future,” it said.

Realistic views

While South Africa is a clear beneficiary of the Agoa, it is also important to keep a realistic perspective on the matter.

According to Webber Wenzel, even if South Africa is booted from the policy, trade with the US will still continue – and many other trade agreements, both preferential and not, still exist.

In May 2023, according to SARS figures, South Africa’s top-three trading partners were China, Germany, and the US.

“The significance of the US market is that it buys many South African value-added goods and processed minerals, and not merely raw materials, which obviously benefits the South African manufacturing sector as well as other Sub-Saharan countries that sell inputs to South Africa,” the firm said.

The main exports that benefit from Agoa include motor vehicles, agriculture (fruit and nuts), articles of jewellery, ferroalloys, beverages, and spirits.

“It is important to appreciate, however, that goods exported under Agoa account for under one-third of South Africa’s exports to the US. That means that if the country lost its Agoa beneficiary status it could continue to export to the US market, but all items would be subject to normal import duties,” it said.

Agoa is one of four key international economic relationships to which South Africa is a party for South African companies seeking access to bigger markets.

The other three are the Economic Partnership Agreement (EPA) with the European Union (and post-Brexit, a separate EPA with the UK), the Agreement Establishing the African Continental Free Trade Area (AfCFTA) and BRICS.

“Trade with BRICS countries is not on preferential terms. However, qualifying South African goods traded under the EPAs, AfCFTA and Agoa are eligible for duty-free benefits.

“At the upcoming Agoa Forum, the parties are expected to discuss renewal, exports, potential new members, and potential exits. The business sector – which is ultimately the most important element – will have an opportunity to give input.”

Low risk – but still a risk

Given the strenuous efforts South Africa has made to foster renewed confidence in US-South Africa relations, the risk of the country losing its Agoa benefits solely due to geopolitical tensions is generally considered low.

“In many respects, South Africa remains highly eligible for Agoa status,” the law firm said, highlighting three key reasons.

• Firstly, one of the primary objectives of Agoa is to promote increased trade and investment between the US and Sub-Saharan African countries. This would be undermined if South Africa were stripped of beneficiary status. There would be only two other mature African economies on the list (Nigeria and Angola – both oil exporters) that remain able and incentivised to use raw materials from other beneficiary countries to achieve Agoa’s primary objectives.

• Secondly, South Africa meets most of the criteria, which include having market-based economies, following the rule of law and political pluralism, eliminating barriers to US trade and investment, protecting intellectual property, and taking steps to tackle corruption, provide health care and education and protect human rights.

• Thirdly, with an unemployment rate above 30% (or over 40%, depending on the definition), it is clear that South Africa is still in need of the trade opportunities that Agoa provides to stimulate economic growth and development.

Despite the solid case for South Africa to remain, Webber Wentzel noted that Agoa was always intended to have a limited lifespan and South Africa could graduate out of Agoa status in the foreseeable future.

Because of this, and the risk of global uncertainty, local businesses should be developing the relevant strategies to deal with it already.

“Companies should certainly take advantage of duty-free access to the US market for qualifying products, but they should also consider how to adapt their pricing, if the loss of preferential tariffs under Agoa materialises, and consider other avenues for trade under the EPA, AfCFTA and BRICS.

“In an economic climate characterised by uncertainty, it is prudent for South African exporters to create more resilient businesses by improving their competitiveness and diversifying their export portfolios.”

• Commentary by Meluleki Nzimande and Chandni Gopal from Webber Wenzel.

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