DONALD MACKAY: Beware backlash from top trading partners to SA support for Russia

Admiring China’s foreign policy posture towards Russia, President Cyril Ramaphosa recently stated that “the ANC detests the domination by a single state or its nation’s military, economic power, and social and cultural influence over how the rest of the world ought to conduct itself regarding the recent political developments across the globe”.

China and SA claim to be nonaligned in the Russia-Ukraine war, but the difference between the effects of their stance could not be starker. China is the world’s second-largest economy, and SA is literally a rounding error at 0.25% of global GDP. As SA makes decisions about the war in Ukraine we should be aware that our actions are being closely watched by Ukraine’s allies, particularly the US and EU.

The EU, the world’s biggest economic bloc, accounts for 22% of SA’s exports, and the US, the world’s biggest single economy, for 9%. Add the UK (7%) and SA exports 36% of everything it sells abroad to these three regions. Russia accounts for just 0.23%. SA’s exports to the EU and US comprise less than 0.5% of their respective imports.

In the recent UN vote on whether Russia should withdraw from Ukraine, 144 countries voted for (31 were African — 22% of the total vote but 66% of the African vote); 31 abstained, including SA and 15 other African states; and seven voted against the resolution (the usual reprobates, including North Korea, Eritrea and, of course, Russia). The rest did not vote. Almost two-thirds of SA exports go to the countries that voted for Russia to leave Ukraine, 26% to the abstentions and 0.31% to the scoundrels.

I assume a conscious decision was taken to vote this way, presumably by the same creme-de-la-Kremlin who decided to play war games with a country that just started a war. I am unsure of the rationale, but no-one thinks SA is nonaligned (a legitimate position if it behaved that way). Maybe SA is trying to impress China or give the finger to “the West”, but we no longer punch above our weight diplomatically. SA’s saving grace may be that no-one cares much anymore.

Market control

The African Growth & Opportunities Act (Agoa) will be reviewed at the end of 2025, and in the best, but now unlikely scenario SA will retain its current benefits. More likely is that benefits will be reduced. In the worst case SA will be removed as a beneficiary. Agoa is a stroke of foreign policy genius because it’s US legislation, not a trade agreement. If countries wish to benefit they need to comply with the rules of the act or lose their benefits. As Francois Fouche pointed out in a brilliant article on Agoa in the Financial Mail, SA would not be the first to be relegated out of Agoa (“Trading down? SA’s game of Russian roulette”, March 16).

To understand SA’s vulnerability, the country has to understand which of its exports it has market control over (those that they can only buy from SA). Those products will be fine no matter what happens. These are mostly minerals and precious metals, accounting for 47% of SA’s exports to the US.

However, SA also export products that are only competitive due to Agoa. By value, almost all of this is automotive. No-one would simply shut their factory because they have lost Agoa benefits. However, when the next car model’s production destination needs to be assessed, losing the benefits would definitely be part of the calculus. SA’s exports under Agoa are a bit less than 20% of its exports to the US for 2022. The car industry cannot simply replace lost US exports with exports elsewhere.

Almost half SA’s exports to the US are things it digs out of the ground. Some of these fall into the first category, such as chrome and platinum, in which SA has been blessed by having most of the world’s reserves. For the rest, countries such as Australia would be happy to take SA’s place. They will replace our wine too. They already have a trade agreement with the US, and countries such as Kenya are well on their way to follow suit. SA started trade agreement negotiations with the US in 2004, but as soon as Rob Davies took over as trade & industry minister he shut them down, probably for good.

Citrus industry

SA’s pattern of exports to the EU is not much different — lots of stuff we dig out of the ground, followed by automotive and some agricultural goods. Just like the US, these are heavily concentrated in a tiny number of companies. The trade agreement with the EU gives SA some protection as it cannot simply withdraw benefits, but we may find it takes a very long time for the newly negotiated improved access for things such as wine to materialise.

And SA can expect more varieties of the false coddling moth problem, which now plagues its citrus industry due to all the new hoops it has to jump through, to raise their head. Then there is the Carbon Border Adjustment Mechanism in Europe to tax trade in carbon-intensive goods. According to Our World In Data, SA is the world’s most carbon-intensive energy producer, so that will become a large problem soon.

SA’s saving grace is that the Southern African Development Community (including the Southern African Customs Union) accounts for 21% of its exports, just 1% below those to the EU. The rest of Africa, which is meant to be opening up under the African Continental Free Trade Agreement, accounts for 2% of exports. But Africa, packed to the back teeth with minerals, doesn’t buy what SA sells to the US and Europe. They are also mostly poor, and so are limited in how much they can buy.

Whether Russia wins or loses its war, SA’s behaviour now will feed into how its largest trading partners view it. We could probably get a pass on our recent military exercise blunder, but if we host Vladimir Putin in SA for the Brics meeting in August in defiance of the International Criminal Court, we will have crossed a line. That will be one SA will struggle to walk back from, unless it arrests him.

I doubt SA will face direct sanctions, but the slow burn of the bridges between us and the West will continue. Business will bear the brunt of the government’s stance. If this is not adequately dealt with, the economic and social implications will be severe.

• MacKay is CEO of XA Global Trade Advisors.