SA is safe in AGOA, unless it shoots itself in the foot

I'M attending the AGOA Forum at Nasrec in Johannesburg this week as a member of the media. The US delegation at the forum is led by Trade Representative Katherine Tai and includes members of Congress and  business delegations. About 2,000 representatives from 35 African countries are at the gathering.

South Africa's interests are mostly represented by trade minister Ebrahim Patel, who was optimistic last week about the forum's aims: “What we want to do is to provide a platform where we can reflect on the African continent, the USA and AGOA, and to see how we can get even more out of the trade relationship by complementing the agreement with a common African point of view. The objective is to renew AGOA for an additional 10 years.”

As expected — and due to the controversy of the Lady R incident — initial discussions in Nasrec's corridors had little to do with international trade between South Africa and the US. The conflict in the Middle East hangs like a wet blanket over everyone's minds and there is a fear that the value of the African Growth and Opportunity Act (AGOA) will be hijacked by inappropriate activist statements.

But it's more likely that finance minister Enoch Godongwana's medium-term budget on Wednesday will determine the atmosphere of the discussions at Nasrec. It is clear that the risks of high government spending and South Africa's growing fiscal debt burden can no longer be swept under the rug. The approximately 700 US companies doing business in South Africa are keeping a close eye on international credit rating agencies and the International Monetary Fund's (IMF) final judgment on our government finances.

Still, the rand strengthened after Godongwana's speech and several analysts agreed that at least at the National Treasury there is a commitment to fiscal discipline. Godongwana's refusal to grant state-owned enterprises further access to the feeding trough was in defiance of public enterprises minister Pravin Gordhan's needs, and there was an indication to provincial administrations that they will have to better manage existing allocations before they can expect more assistance from the Treasury.

Disagreement in cabinet

A few weeks ago, we referred in Vrye Weekblad to tension in the cabinet between Godongwana and his colleagues — led by Khumbudzo Ntshavheni, minister in the presidency — over the finance minister's letter to provincial administrations in which he warned them the Treasury is under tremendous pressure. Since then, it has become clear Godongwana did not succumb to pressure from his cabinet colleagues to keep the realities of our budget deficit and the necessary fiscal austerity out of the public conversation for the sake of next year's national and provincial elections.

In his “family meeting" on Monday, President Cyril Ramaphosa did not say anything about the Americans' visit to Nasrec this week but it was clear that he, like Godongwana, realises there are no euphemisms left with which to conceal the country's shrinking tax base and increasing financial difficulties.

In his conversation with South Africans, which began with a reference to the victorious Springboks and ended with a mention of the Proteas' World Cup campaign in India, Ramaphosa said the state has been spending more than its income since the global financial crisis of 2008. In this period, the economy has not grown at a rate that supports rising government expenditure. Ramaphosa quoted Godongwana as saying 18 cents from every rand the government collects in revenue is used to service our national debt. This means we are now paying more interest than we budget for the police.

We already know the ANC is vulnerable in the no-man's land between political policy and bureaucratic implementation, but Ramaphosa's proposed solution will be approved by the IMF and the Americans at the AGOA forum: “In the end, faster and inclusive growth is the only solution for unemployment, poverty and inequality.”

But back to Nasrec. AGOA is part of a US trade policy that was enacted in 2000 and ratified by President Bill Clinton on May 18 of that year. The law was passed in the US Congress with significant bipartisan support. The purpose was and is to promote economic and trade relations between the US and African countries south of the Sahara. The greater goal is to strengthen economic ties with Africa.

Since the Lady R debacle, and after a letter to the White House by four members of the US Congress questioning South Africa's political commitment to AGOA, it has been widely speculated that the country's  preferential trade access under AGOA might be suspended. In retrospect, one wonders if this possibility was exaggerated hysteria. Ramaphosa's initially open support for the cause of Russia's Vladimir Putin, and Naledi Pandor's fling with Hamas, would probably never have pushed Joe Biden and Anthony Blinken as far as suspending our AGOA benefits.

Four countries removed

In the past week, Biden removed four African countries — Uganda, the Central African Republic, Gabon and Niger — from the agreement, for reasons related to human rights violations and failure to make progress on democratisation. Biden said Uganda, which passed anti-gay criminal laws this year, including the death penalty for people involved in certain same-sex acts, was violating internationally recognised human rights.

Niger and Gabon's governments were overthrown in coups this year, which is counter to AGOA's provisions that continuous progress must be made in establishing and protecting political pluralism and the rule of law. Earlier this year, the US suspended foreign aid to Gabon and Niger. The Financial Times points out that Niger's deposed president, Mohamed Bazoum, was a close ally of the Americans in the war against Islamic extremism in the Sahel. The Central African Republic probably lost its AGOA status due to its links with the Wagner paramilitary group.

AGOA allows trade preference to eligible African countries. This includes duty-free and quota-free access to the US market for a variety of products. It also provides technical assistance and capacity-building programmes to help African countries benefit from these concessions. AGOA has already been renewed several times — with amendments and extensions — by the US Congress. In the most recent renewal, it was extended until 2025. Over the years, it has been amended to include more product categories and make it easier for countries to qualify for the benefits.

The agreement offers some South African exporters duty-free and quota-free access to the US market. South Africa is America's largest trading partner in Africa, with exports to the US worth $15 billion in 2022. AGOA has been instrumental in promoting South African car exports to the US.

We also export a range of agricultural products to the US, including fruit, nuts, wine and processed foods. The agricultural sector has benefited significantly from AGOA. The textile and clothing industry has been a major beneficiary of AGOA trade preferences, and chemicals and pharmaceuticals are among South Africa's exports to the US. Although mineral products are not common in AGOA, South Africa does export mineral and metal products to the US. The same applies to industrial and electrical machinery as well as medical equipment.

I have never been able to say with certainty what the Americans' real interest in Africa is. Diplomatic ties probably enable the US to build political alliances and promote supposed democratic values and policies on the continent. Several African countries experience tremendous security challenges, including the presence of extremist groups. Perhaps stability in Africa is crucial to US national security and partnerships like AGOA are an effort to combat international crime and terrorism.

Colonial patterns

In a discussion months ago in front of an audience at North-West University with Anil Sooklal, the Department of International Relations and Cooperation's ambassador at large, I pointed out to him that South Africa's trade relations with the US lead to the strengthening of our economy's value and supply chains, while our exports to China, for example, largely replicate the patterns of colonial trade relations.

China is trying to strengthen its global influence and build political alliances with African countries, which makes it possible to gain support in international forums such as the UN. BRICS is a telling example of Xi Jinping and China's pursuit of a bipolar or perhaps a multi-polar world order, but the economic underpinning of such a system is based on access to Africa's primary resources rather than on the development of value and/or supply chains.

Discussions with delegates at the AGOA forum have convinced me South Africa is at no risk of being removed from AGOA when the agreement is reconsidered in 2025. Unless, of course, our national debt burden leads to a collapse of the rand and exponential inflation gives rise to interest rates that drive up the cost of capital to the point where our value and supply chains buckle under the pressures of uncertainty and distrust. But should we get to that point, we will actually have removed ourselves from the agreement, and could hardly blame the Yanks.

♦ VWB ♦

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