Since the United States (US) ambassador to South Africa (SA) Reuben Brigety alleged that there is irrefutable evidence that SA supplied arms to Russia in December 2022, there has been increasing anxiety over what these allegations could mean for the country from an economic and, particularly, international trade point of view.

One of the major concerns is SA’s potential exclusion from the African Growth and Opportunity Act (AGOA). AGOA is US legislation that gives duty-free access to the US market for African states.

This Act is extremely valuable to our agricultural sector. The tariff-free access effected by AGOA enables South African producers, with their lower production costs, to be competitive, making it viable for them to enter the single biggest consumer market in the world. AGOA is due for review in 2025 when it expires, but the US can unilaterally review our benefits sooner. Should SA be excluded from AGOA, we will lose this cost advantage, since tariffs under the Most-Favoured-Nation regime will apply.

But it’s not just the AGOA trade benefits that are under threat. Nedbank’s Economic Unit points out that the potential economic and trade costs of damaging relations with the US would be significant and could also extend to US allies. If there is a complete breakdown of SA–US relations, the European Union (EU) will likely follow the US. SA has strong trade links with both the US and EU – the EU as a bloc is our largest trading partner, while the US is our third-largest trading partner among individual countries after China and Germany. Worse still, if these important Western trade partners impose sanctions, SA risks losing up to 40% of its trade, which would drive the economy into a deep, severe recession, extreme rand weakness and collapsing of government finances.

Existing trade agreements are vital for SA’s access to major markets

According to the Nedbank Economic Unit, about 25% (R59,2 billion) of SA’s exports to the US benefit from both AGOA and Generalized System of Preferences, while a significant 98,7% (R429,2 billion) of exports to the EU benefit from the European Partnership Agreement. The mining, manufacturing and agricultural sectors are the main beneficiaries of these trade agreements. Total trade with Russia contributes a mere 0,2% to GDP, so it’s obvious that there is much more to lose from possibly severing relationships with the US and EU.

These figures are aligned with those of the Agricultural Business Chamber of SA (Agbiz) – SA exports about half of its agricultural production in value terms, totalling a record $12,8 billion in 2022. Russia is a small market for these, accounting for just 2% of SA’s agricultural exports over the past five years.

Steps are being taken to open new markets. For example, Agbiz chairs the BRICS Agribusiness Working Group and the private sector in all five BRICS countries support the plan to move BRICS beyond a political grouping and reap trade benefits. Matters on the agenda include bilateral trade agreements but, from a purely economic vantage point, the obvious approach in an increasingly uncertain world is to nurture relationships with countries with which SA already has strong economic ties.

Citrus and wine are particularly vulnerable

Since citrus is one of the major beneficiaries of AGOA, the Citrus Growers’ Association (CGA) is one of many stakeholders urging government to resolve the matter urgently. Nine percent of SA’s citrus is exported to the US and, while this may appear a small percentage, this market is one with immense growth potential. This is demonstrated by the fact that exports almost doubled from 60 000 tons shipped in 2020 to 112 594 tons shipped to the US last year. These exports brought in R1,6 billion in export revenue last year – which would clearly be under significant threat in the absence of AGOA – and a major concern is the thousands of rural jobs that would also be impacted: an estimated 35 000 local jobs throughout the supply chain as well as an additional 20 000 jobs in the US are sustained by US–SA citrus exports.

The CGA estimates that SA’s citrus growers could potentially grow production to a total of 260 million cartons by 2030. This would bring the sector’s contribution to the economy to 240 000 jobs and R50 billion in revenue. Although there is potential for the expansion of markets in Thailand, Vietnam, Japan, India and the Philippines, the organisation says that losing the US as a key market, which clearly offers such great potential for expansion, would be a major blow to their industry.

SA Wine NPC is similarly concerned about the potential impact of the termination of AGOA and noted in a statement that the dramatic fall of the rand against the dollar following the allegations indicates how seriously international markets view these claims. South Africa annually exports R10,5 billion worth of wine to 125 countries and the US is one of SA’s top-five exporting markets with wine exports totalling R800 million in 2022. This equates to a tax benefit of up to R57 million, assuming the duty-free system was used for all SA wine imports. However, SA Wine NPC believes that it’s not only this benefit that could be negatively affected. These allegations also pose a risk to the wine industry in terms of tourism, continued wine exports and our reputation as a credible role-player in the international trade environment. Plus, the wine sector employs 269 069 people across the value chain, of which 80 173 work on farms and in cellars – many of whom will be vulnerable if AGOA is terminated.

Western Cape applies damage control

With most of both citrus and wine exports to the US originating in the Western Cape, it is this province that benefits, and stands to lose, the most from AGOA. For this reason, Western Cape Premier Alan Winde, along with a delegation of other provincial government officials, recently visited the US to negotiate on this matter with top US officials.

International trade and the global economy form a highly integrated, complex, free market system in which South Africa operates and from which it currently benefits. Our only hope of rebuilding our beleaguered economy is to safeguard the country’s access to direct foreign investment and ensure our ongoing market access to the world’s fastest-growing economies. Potentially alienating our biggest and most important trading partners is not the way to go about achieving this.