The hostile disposition of the United States’ President Donald Trump towards South Africa raises serious concerns about the possible exclusion of the country as a beneficiary of the African Growth and Opportunity Act (Agoa) which is set for renewal in 2025. <\/p>\n
With South Africa consistently ranking as the top Agoa user, as well as the number one African agricultural exporter under Agoa, there will be ramifications for the sector.<\/p>\n
A law implemented in 2000 by the US, Agoa, establishes a unilateral trade preference programme, allowing certain exports from South Africa and many other eligible sub-Saharan African countries to enter the US market, duty-free.<\/p>\n
Under Agoa, two-thirds of South Africa’s agricultural exports to the US benefit from tariff-free treatment. Since its inception, South Africa has exported more than $7 billion (R125 billion) worth of agricultural products to the US. This is according to a November 2023 US department of agriculture\u2019s Foreign Agricultural Service report, titled Agoa Supports South African Agriculture.<\/p>\n
A November 2023 report published by the Brookings Institution, a nonprofit organisation based in the US, found that the effect of a loss of preferential market access under Agoa on exports and GDP would be small.<\/p>\n
The institution\u2019s model estimated that, at worst, South Africa\u2019s total exports to the US would fall by about 2.7%, with the biggest losses felt by the food and beverages, the transport equipment, and the fruit and vegetable sectors. Yet, in total, a loss of Agoa benefits would lead to a GDP decline of just 0.06%, the paper argued. Agriculture would constitute just a percentage of that.<\/p>\n
Nonetheless, while the effect as a percentage of total GDP might not be excruciatingly large, it would affect provinces where agricultural exports are a prominent source of income. The Western Cape is by far the province that benefits most from Agoa trade, according to figures from the National Agricultural Marketing Council. From 2018 to 2022, the Western Cape accounted for 49% of South Africa\u2019s overall agricultural exports to the US in terms of value.<\/p>\n
Mpumalanga\u2019s agricultural sector is Agoa\u2019s second largest beneficiary, accounting for at least 15% of South Africa\u2019s total agricultural exports in 2022. Gauteng, Eastern Cape and KwaZulu Natal round off the five provinces that most benefit from Agoa in terms of agriculture.<\/p>\n
Regardless, our overriding message is to keep calm and keep moving in the face of a potential threat to Agoa. We are in the same position as anybody else is in the world when it comes to uncertainty around US economic relations as demonstrated by the “liberation day” tariffs announced by Trump. Should South Africa lose access to Agoa benefits, doing proactive groundwork should soften the blow.<\/p>\n
Potential scenarios<\/strong><\/p>\n We see three potential scenarios with regard to the future of Agoa. The viability of these scenarios is seriously challenged by the imposition of a 30% “liberation day” tariffs against all South African imports into the US effective 5 April and the 25% imposed earlier in respect of automotive vehicles.<\/p>\n In practice, the South African producer and US importer may bear a share of the duties\u2019 costs, in which case the US consumer will remain in a net neutral position. Alternatively, the consumer could shoulder a portion too, splitting the burden three ways.<\/p>\n Be prepared<\/strong><\/p>\n To determine the best option, modelling these different scenarios is advisable. South African suppliers should examine their sectors, understand their tariff risks and talk to their importers to negotiate deals. Regardless of which scenario plays out, the agricultural sector should diversify and explore other markets \u2014 it is always beneficial to grow the market for our goods.<\/p>\n The basket of goods we supply to the US is broad, made up of raw materials, semi-processed goods and processed goods \u2014 finished products. Therefore, on value-added goods, this means there is a positive economic effect on South Africa, which is not the case when trading with China to who supply primarily raw materials.<\/p>\n Citrus and fruit, vines, nuts, avocados and beef are among South Africa\u2019s main agricultural exports to the US. Those working with this produce should know which tariffs specifically apply to them. Liaising with importers is advisable to ensure supply chain agreements are in place and that they have appropriate contractual arrangements giving them rights to exit depending on which circumstances unfold.<\/p>\n South African suppliers must examine opportunities in similar markets around the world \u2013 namely, Canada, the European Union and the United Kingdom. South Africa has economic partnership agreements with the EU as well as with the UK, which both provide a large range of our goods preferential market access.<\/p>\n On our continent, most of our agricultural and other exports are value-added goods. It is therefore advisable to increase our trade with other African countries to maximise the net positive economic effect.<\/p>\n Here, we can leverage regional agreements such as the Southern African Development Community Protocol on Trade as well as the Agreement Establishing the African Continental Free Trade Area (AfCFTA), enabling us to trade on preferential terms with other African states.<\/p>\n With Trump destined to ease sanctions to Russia, it could also potentially become a workable market for the export of South African agricultural products. Should the EU follow the US (which seems unlikely in the short term), trade with Russia will be open. <\/p>\n Additionally with Johannesburg set to host the upcoming G20 Summit in November, we could leverage the Business 20 (B20), the official G20 dialogue forum with the global business community, potentially accessing new markets.<\/p>\n The immediate opportunity, whether Agoa stays or goes, is to start building new relationships while still strengthening existing relationships with the US. <\/p>\n Agricultural exporters must build relationships with their importers, and deal with the relevant organisational bodies for products in the US and South Africa to take a co-ordinated approach, so that there are viable alternate scenarios. <\/p>\n Diversification and competitiveness are always a vital enabling mechanism.<\/p>\n Meluleki Nzimande and Megan Jarvis are partners at Webber Wentzel.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" The hostile disposition of the United States’ President Donald Trump towards South Africa raises serious concerns about the possible exclusion of the country as a beneficiary of the African Growth<\/p>\n\n
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