Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 13/08/2024

The Africa Growth and Opportunity Act (“AGOA”) has been a cornerstone of US-Africa trade relations since its inception in 2000. As AGOA approaches its renewal deadline in 2025, recent developments have underscored its significance for South Africa’s economic prospects and its broader constitutional and developmental goals. This article examines the current state of AGOA, its implications for South Africa and how these factors intersect with constitutional and economic advancement.

Understanding AGOA: Origins and Purpose

AGOA, enacted by the US Congress in 2000, fundamentally reshaped trade dynamics between the United States and sub-Saharan Africa. Designed to bolster economic relations, AGOA grants duty-free access to the US market for over 5 000 products from eligible African countries (35 countries as of 2023), including South Africa. This initiative aims to spur economic development and stability across Africa by enhancing trade and investment opportunities.

AGOA’s inception stemmed from a desire to support economic growth in sub-Saharan Africa through expanded market access. The Act initially set a 2008 expiration date, but its importance led to several renewals, with the most recent extension valid until September 2025. Each renewal has broadened AGOA’s scope, incorporating measures for better market access and infrastructure development support. These enhancements reflect AGOA’s evolving role in addressing Africa’s economic challenges and fostering deeper US-Africa trade relations.

For South Africa, AGOA represents a significant opportunity. The country benefits from duty-free access to a broad range of exports, including automotive, agricultural and textile products. This access not only boosts South Africa’s exports, but also stimulates economic growth and job creation. Key players in the ongoing AGOA discourse include the US administration, Congress and South African trade representatives. Their negotiations and strategies shape AGOA’s future, underscoring its critical role in South Africa’s economic strategy and international trade relations.

Recent Developments and South Africa’s Engagement

In July 2024, South Africa’s trade delegation, led by Minister of Trade, Industry and Competition Parks Tau and Deputy Minister Andrew Whitfield, played a pivotal role in the 21st AGOA Forum held in Washington, DC. This high-profile visit underscored South Africa’s commitment to advocating for AGOA and was crucial for its strategic interests.

The delegation aimed to secure a 16-year renewal of AGOA, emphasising the importance of the Act in enhancing trade relations between South Africa and the United States. The forum presented an opportunity for South Africa to reinforce its position as a key beneficiary of AGOA, with its economy heavily reliant on the duty-free access the Act provides. The support from President Joe Biden’s administration and members of Congress was a significant boost, reflecting a positive outlook towards AGOA’s continuation.

Moreover, the delegation addressed pressing concerns related to South Africa’s international relations, notably its ties with Israel, Russia, China and Iran. These geopolitical considerations were central to the discussions, as they potentially influenced US perspectives on AGOA’s renewal. By addressing these issues, South Africa aimed to align its foreign policy with AGOA’s strategic goals, thereby securing its trade benefits.

Challenges in AGOA Renewal Discussions

During the 21st AGOA Forum in July 2024, South Africa encountered several significant hurdles in its pursuit of renewing AGOA.

Firstly, the US had heightened concerns about South Africa’s foreign policy, particularly its growing relationships with Russia, China and Iran. These nations have been seen as geopolitical competitors to the US and South Africa’s engagement with them raised alarms among US lawmakers and trade officials. They worried that South Africa’s alignment with these countries could potentially undermine AGOA’s goals of fostering a stable and transparent trade environment. The US viewed South Africa’s partnerships with these nations as potentially contradictory to AGOA’s objectives, creating tension in the renewal discussions.

Moreover, there were specific issues related to South Africa’s stance on international conflicts and policies. For example, South Africa’s neutral or critical stance on the Israel-Palestine conflict was scrutinised. US officials and Congress members expressed concerns that South Africa’s foreign policy positions could reflect poorly on its commitment to AGOA’s trade principles, impacting its eligibility and benefits under the Act.

Trade representatives and members of Congress also questioned the effectiveness of AGOA in addressing trade imbalances and supporting South African industries. They debated whether the Act’s benefits were equitably distributed and if South Africa had maximised its potential under AGOA. These discussions included examining the impact of South Africa’s trade practices and economic policies on US interests.

The Financial and Economic Implications of AGOA

The financial and economic stakes surrounding AGOA’s renewal are considerable for South Africa. In 2022, exports of goods to the US dropped by 4% to $14,4 billion, though exports under AGOA and the Generalised System of Preferences (“GSP”) together grew to about 25% of total exports. Between 2018 and 2022, total exports to the US accounted for 8% of all South African exports, with exports under AGOA accounting for 1,7% of South Africa’s global exports. In 2022, exports under AGOA and GSP together represented approximately 2,4% of South Africa’s total global exports. If South Africa were to lose AGOA benefits, these exports would face increased tariffs, potentially escalating costs and diminishing competitiveness in the U.S. market.

Recent research by Yash Ramkolowan and others, utilising a computable general equilibrium (“CGE”) model, provides detailed insights into this potential impact. While the direct effect on South Africa’s total exports to the US could be around 2.7%, the most significant losses would be felt in specific sectors. For example, exports in the food and beverages sector might decline by 16%, while transport equipment could see a 13% drop. Other sectors such as fruit and vegetables and leather and clothing could experience reductions of 4,5% and 3,6%, respectively.

Despite these sector-specific losses, the overall impact on South Africa’s GDP is relatively minor, estimated at a mere 0,06%. This minimal effect stems from the generally low average tariffs on South African goods, which remain below 5% for most products. Additionally, South Africa’s export basket is now heavily weighted towards minerals and metals, which are less impacted by the loss of AGOA’s preferential treatment.

However, the potential loss of AGOA could have broader implications beyond direct export impacts. The uncertainty surrounding AGOA could dampen market confidence and deter investment. South Africa’s business confidence, as reflected in the RMB/BER Business Confidence Index, has been low, impacting private sector investment significantly. This loss could exacerbate these issues, potentially influencing economic stability and growth more profoundly than the direct tariff impacts alone.

Moreover, the US relies on South Africa for critical minerals, including manganese and platinum, vital for various industries. The ongoing discussion around AGOA highlights the need for including provisions related to critical minerals to maintain robust economic diplomacy and secure supply chains.

Thus, while the immediate economic impact of losing AGOA benefits may seem limited, the broader consequences for South Africa’s investment climate and international trade dynamics underscore the importance of maintaining and possibly enhancing AGOA’s provisions.