It is not a disaster if SA is kicked out of Agoa

‘Republicans are uncomfortable with South Africa’s cosiness with China, and Democrats are uncomfortable with South Africa’s cosiness with Russia’

RYK VAN NIEKERK: We have been discussing the possible impact upon the economy of South Africa being kicked out of the Agoa [African Growth and Opportunity Act] agreement with the US. Although America has for long been muttering about South Africa’s participation, South Africa’s apparent support for Russia has added fuel to the fire and various commentators have painted an extremely dark picture and said that it would be an absolute disaster should that happen.

Rand Merchant Bank [RMB] has however published a very interesting document, which says the impact would not be as serious as many people think.

Thomas Stamey is on the line. He is a student at Cornell University in New York, and he did a part of this research on behalf of Rand Merchant Bank.

Thomas, thank you so much for joining me. First of all, could you give us a brief history of Agoa and the GSP [Generalised System of Preference], and why the US introduced these programmes in the first place?

You can also listen to this podcast on here.

This interview was originally aired on RSG Geldsake (in English).

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THOMAS STAMEY: Yes, thank you for having me. First of all, Agoa was passed at the end of the Clinton administration. It was part of the ‘trade, not aid’ policy that Clinton had. So from 2000 on it has faced a lot of amendments and renewals. But essentially the goal has been to initiate economic development in sub-Saharan African countries. GSP is a similar policy.

Agoa essentially extends duty-free privileges to over 1 800 products originating from sub-Saharan African countries.

GSP does the same for over 5 000 products to developing countries around the world. So essentially South Africa has enjoyed the privilege of being in both programmes for the past several decades.

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RYK VAN NIEKERK: I also see that South Africa has probably been the biggest beneficiary of the programme because our economy is the most developed and we have the products to export to the US. Do you have any indication of the extent of the benefits South Africa has enjoyed and is currently enjoying?

THOMAS STAMEY: Yes. Essentially South Africa represented 52% of all Agoa exports in 2022. So of the over 30 countries that participate in the programme still, of all these exports over half of them came from South Africa.

So South Africa definitely utilises the programme the most – and that’s actually been some of the discussion that’s been happening in Washington surrounding the renewal of Agoa.

Essentially Washington lawmakers are looking at ways to increase utilisation rates in other countries, and sort of back off from more developed countries like South Africa.

RYK VAN NIEKERK: So what could the impact on our economy be if the US kicks us out?

THOMAS STAMEY: It’s hard to be sure whether or not South Africa will be removed. But one thing that’s clear is that it really won’t be as damaging as has been stated in recent media coverage. Agoa, it’s important to remember, is a fraction of a fraction of South Africa’s exports. The US represented 9.4% of South Africa’s exports in 2022, and Agoa exports were only 20.7% of US exports. So Agoa was 1.95% of South Africa’s total exports in 2022.

Now really the pain will be felt on a sector-by-sector basis with a removal from Agoa.

Agriculture in South Africa had 66.6% of its exports to the US under Agoa. So sectors like that which are very exposed to Agoa will certainly feel the loss of duty-free privileges to the US.

But really it’s not all doom and gloom for a sector like agriculture.

In the past, Ethiopia was removed from Agoa in 2022. Its textile and apparel industry had 97.6% of its exports under Agoa in 2021. And when Ethiopia lost Agoa, that industry had its exports to the US grow 32.4% in the following year. So really an industry that was heavily exposed to Agoa didn’t just survive losing the programme, it actually thrived.

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RYK VAN NIEKERK: Was Ethiopia the only country to have been kicked out of Agoa?

THOMAS STAMEY: No. In 2022 Ethiopia was removed, Mali was removed, Guinea was removed. There have been many countries that have been removed over the years, but always with the goal of essentially getting [their] status reinstated later on.

It’s important to remember that Agoa doesn’t benefit just the countries that participate in it, it also benefits the US.

It allows duty-free imports to the US, so many businesses in the US are reliant on the programme as well.

RYK VAN NIEKERK: How significant are those duties which we are currently exempt from?

THOMAS STAMEY: Well, again, it really will vary by sector. [Of] these thousands of tariff lines some are just a couple of percentage points. Some are done, for instance, in agriculture. Some citrus export duties can be a couple of cents on the kilo. In manufacturing, for vehicles it can be in the low percentages.

But really without Agoa South Africa should still expect to maintain GSP when that programme gets renewed, because it’s very likely that it will be renewed.

And even if South Africa loses both Agoa and GSP, South Africa enjoys the ‘most favoured nation’ or ‘normal trade relation’ tariff rates, as they’re called, which means that South Africa would have essentially very low tariff rates that allow it to remain competitive with most of the US’s other markets.

RYK VAN NIEKERK: Just lastly, how much does politics play a role in the US’s decision – or will it play in the final decision? Would it only be an economic decision from the US side, or will politics play a part?

THOMAS STAMEY: Essentially in the law it says that it is at the sole discretion of the president. There is congressional oversight. That is, the president needs to notify Congress, but it will be President [Joe] Biden’s decision whether or not South Africa gets removed from Agoa during his term.

That being said, it has been the stance of his administration through public comments by Secretary [of State Antony] Blinken, Secretary [of the Treasury Janet] Yellen and US Ambassador Katherine Tai – who is the trade representative for the US – that South Africa’s relationship with the US and specifically South Africa’s place in Agoa is important and valued by the US.

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So really these partisan stances – of course, both parties in the US are uncomfortable with South Africa’s neutrality, the state of neutrality. Essentially Republicans are uncomfortable with South Africa’s cosiness with China. Democrats are uncomfortable with South Africa’s cosiness with Russia.

So it really is [that] both parties are feeling a little bit uncomfortable, but at the end of the day it will be President Biden’s decision. And he seems to appreciate South Africa being in Agoa.

RYK VAN NIEKERK: Thomas, thank you so much for your time.

That was Thomas Stamey, a student at the Cornell University in New York who did this research on behalf of RMB.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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