The third in a series of webinars sponsored by Access Bank that focus on trade in Africa looked at what happens if South Africa loses preferential trading access to the USA in 2025. The webinar was presented by Donald Mackay, founder and director of XA International Trade Advisors, and Dr Judy Smith-Höhn, Director of the Tutwa Consulting Group.
The African Growth and Opportunities Act (AGOA) is US legislation that gives preferential access to the US market for African states. The first version of this legislation was created in 2000, when the mood in the US was that aid into Africa was not working as well as it was intended, due mainly to corruption on the continent. It was felt that a better option would be to open up the US market to let product in, rather than simply sending aid money to African countries.
The first version of AGOA came to an end in 2015 and was then extended for a further 10 years. In this current second version, there have been some adjustments, including the ability for a selective suspension of certain benefits in particular countries.
As it stands, AGOA is due to expire in 2025, and it’s not known at this stage whether it will be extended. If it’s not, how will this affect South Africa? To answer this question, we looked at data since 2010 to determine how we have utilised AGOA since it was implemented.
To preface this, it’s key to realise that not everything we export to the US is a beneficiary of AGOA. In fact, as a percentage of our total trade with the US, we’re exporting less now under AGOA preferences than we were in 2010. There was a surge in 2021 but that was mostly all platinum – and that win sits within one or two companies rather than the mining sector as a whole.
Some of the other main takeaways are:
If we look at our pattern of trade under AGOA, we see that our export basket contains not just primary products but also some value-added goods including vehicles, aluminium, iron, steel and, to a lesser degree, wine and oranges. While these last two are small they’re important, as this is where much of our future US export growth probably resides.
This begs the question: why isn’t South Africa selling more agricultural products, given that we’re such competitive producers? One reason may be because many South African companies are as yet unaware of the benefits of exporting to the US.
Overall, we have outstripped our growth with products that do not benefit from AGOA. For example, in the fruit and nut sector, exports of those products without AGOA benefits have grown by 365% over 12 years, compared with only 72% growth for products with them. Within alcoholic beverages, wine has AGOA benefits and has grown by 34%, but other alcoholic products without them have increased by 321% in USD terms. This tells us that our growth on products not requiring AGOA benefits are inherently more competitive.
The biggest winner from AGOA has been the automotive sector who have used this legislation as well as possible. Having said that, although it is a large beneficiary of AGOA, at the aggregate level our automotive exports to the US have been dropping off.
Many people complain that the US treats South Africa unfairly with AGOA, but the reality is that South Africa has done very little with the benefits we’ve been granted for these last 22 years.
So, in the intervening period between now and 2025, it’s important to understand the AGOA preferences we have now, and focus on building a beach head into the US market in preparation for when this legislation ends. While the rand could depreciate enough by this time to offset the duty being removed, we shouldn’t be passive about it.
Irrespective of what happens with AGOA, the US is a huge market and there are lots of benefits of trading with them that we’re currently doing little with. For example, we have products we’re trading successfully into other regions that we’re not moving into the US. Going forward, with or without AGOA, it’s important for us to focus on finding ways to penetrate this large and very valuable export market.
If you enjoyed this article, don’t forget to check out the rest of the Trade in Africa webinar series.
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