By Meluleki Nzimande & Megan Jarvis, Partners at Webber Wentzel
THE hostile disposition of US President Donald Trump towards South Africa raises serious concerns about the possible exclusion of South Africa as a beneficiary of the African Growth and Opportunity Act (AGOA) which is set for renewal in 2025.
With South Africa consistently ranking as the top AGOA user, as well as the number one African agricultural exporter under AGOA, we look at the possible ramifications for agriculture.
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.
Impact of a potential AGOA loss
A November 2023 report published by the Brookings Institution, a non-profit organisation based in the US, detailed the potential impact of an AGOA exit for South Africa.
The report found that the impact of a loss of preferential market access under AGOA on exports and gross domestic product (GDP) would be small.
Their model estimated that, at worst, South Africa’s 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.
Nonetheless, whilst the impact 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 (NAMC). Between 2018 and 2022, the Western Cape accounted for 49% of South Africa’s overall agricultural exports to the US in terms of value.
Potential scenarios
We see three potential scenarios with regards 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 2025 and the 25% imposed earlier in respect of automotive vehicles.
South Africa loses the preferential treatment that it currently qualifies for under AGOA, and its goods are traded with the US in the same way as those of any other country outside of the AGOA agreement. If our goods are then not as competitive as those of other suppliers to the US market, then we can expect a decline in the volume of our exports to the US.
The US importer and the South African supplier absorb the duty, and the US consumer continues to benefit from good prices. Both the South African supplier and the US importer will be less profitable, but trade will continue bar the impact of liberation day tariffs.
The full duty and its inflationary effect is passed onto the US consumer. Trade continues, and the South African producer and US importer remain profitable. Yet they will lose a share of the US market. With the imposition of liberation day tariffs, this option seems unviable.
Exploring other markets
With preferential market access in the US ending, South African suppliers must examine opportunities in similar markets around the world – namely, Canada (which, like the US, is in North America), the European Union (EU) and the UK. 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.
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 impact.
Here, we can leverage regional agreements such as the SADC 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.
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.
