DONALD MACKAY: Russia ructions put SA at risk of losing vital Agoa benefits

The US ambassador to SA, Reuben E Brigety, accused SA of sending guns to Russia on board the Lady R, the suspicious embargoed Russian ship that sailed into Simon’s Town in December 2022 with its transponders switched off.

I doubt SA sent weapons to Russia, unless it was handguns stolen from the police armoury, but we are long past the point of that being the point. After a bollocking by international relations & co-operation minister Naledi Pandor, her department announced that Brigety had offered an “unreserved apology”, without ever saying what he apologised for.

This should be ignored. What matters is the Americans have put us on notice that if we say we are nonaligned we should start behaving that way. They don’t have an issue with countries that are actually nonaligned (think Austria), but none of our behaviour is neutral.

An anonymous SA government official made the astonishing statement to the Sunday Times that “the impression they are trying to create that we need [the Africa Growth & Opportunity Act (Agoa)] at all costs is bullshit. [Rather,] they need us because they can’t enter Africa without us, they can’t operate in any other African country without operating from SA. Their companies cannot be stationed in those countries because they know the rules of engagement are rough there, tax laws can change any time there.” 

If this is how government thinks, we are in deep trouble. Our total exports to the US account for 0.5% of its total imports, and most of that is minerals. The idea that SA is the gateway to Africa is pure delusion. Yes, we are still the most developed country in Africa (though working extremely hard to lose that appellation), but as our industrial policies become ever more protectionist and our infrastructure fails, other African states start to look more attractive.

Many African countries are friendly towards the West, with Kenya immediately coming to mind. The Kenyans are negotiating a trade agreement with the US that will provide them with significant trade benefits beyond what they achieve under Agoa. It would not surprise me to see Kenya replacing SA as the voice of Africa.

Economic impact

Right after the ambassador’s announcement the rand plunged to R19.32 to the dollar, a drop so severe that for a moment I thought Nomvula Mokonyane would be liberated from Luthuli House to get a grip on the capitalist running dogs of the forex markets.

But this is the least of it. I suspect our stance is less pro-Russia than it is anti-American, and America knows that. At any other time that is simply accepted, but amid a war that stance is considerably less tolerated. There is a real risk that US President Joe Biden will put SA into an out-of-cycle review under Agoa.

The current version of Agoa is 7.5 years into a 10-year cycle, at which point the US will decide whether it will be continued, and if so how it will look. An out-of-cycle review allows the US president to review the benefits granted to any beneficiary country and “terminate the designation of the country as a beneficiary sub-Saharan African country or withdraw, suspend or limit the application of duty-free treatment with respect to articles from the country”.

Because Agoa is US legislation, not a trade agreement, there is no responsibility to consult SA, though public hearings are held. The bar is low, and we may already be in breach of Agoa even without exporting arms to Russia. Section 104(a) (2) and possibly (3) of Agoa reads: “The president is authorised to designate a Sub-Saharan African country as an eligible Sub-Saharan African country if the president determines that the country — (2) does not engage in activities that undermine US national security or foreign policy interests; and (3) does not engage in gross violations of internationally recognised human rights or provide support for acts of international terrorism and co-operates in international efforts to eliminate human rights violations and terrorist activities.”

If such as a review is initiated, things will go south very quickly. The rand will tank further and our bond prices will increase. The SA Reserve Bank will push up interest rates to contain inflation and keep forex flowing into SA. Genera Capital investment specialist and Gibs professor Adrian Saville has calculated that the latest depreciation of the currency, if sustained, will add 1.8% to our inflation. This will get a lot worse if Agoa is suspended, even if only partially.

Agoa and SA trade with US

Our total trade with the US for 2022 was R260bn, but it is really our exports of R178bn (9% of our total exports) we need to worry about. Of this, R30bn benefited from Agoa, the portion we need to concern ourselves with. About R14bn of our Agoa exports are automotive. The Agoa automotive benefit is 10%, which means if we lose them importers of cars from the US will need to cough up an extra R1.4bn in duties annually. They won’t have a choice in the short term, but when those new model investment decisions need to be made this will be a big factor in their decision-making.

In August 2015 SA was subject to an out-of-cycle review because of how we treated American exports of beef, chicken and pork, with chicken being particularly contentious. SA agreed to the American demands, and US chicken began flowing again, so no Agoa benefits were suspended. Our agricultural exports were at risk in that dispute, but while important these are trivial compared to losing all of the benefits, or even just automotive.

Our predictably tardy response to Brigety is not helping. By the time we dust off a retired judge, set up the commission of inquiry and wait two years for a report, our Agoa benefits would already have run out.

Putin due in SA in three months

The Brics summit will soon be upon us, and it seems for now that Vladimir Putin is determined to arrive in person (though I doubt he will). According to the Mail & Guardian, Russia made it clear to SA that “[Y]ou are hosting or are not. If you are hosting, then host. If you don’t want to host, then it means you are no longer a member [of Brics].”

Government has spoken up Brics so much that it almost feels as if it’s a real thing. It is not. There is no Brics agreement. None of SA’s trade is affected by being a “member” of Brics, any more than it is affected by being a member of the G20. Our trade with Brics members is really trade with China and India, and this will continue whether we belong to Brics or not.

Talk of there being a Brics common currency is nonsense. You don’t have to love the dollar to know the economics of a Brics currency is not there — if nothing else, China’s yuan is still pegged to the dollar, and that will not change soon. Yes, more trade can and should happen in other currencies, but that doesn’t require the creation of a new currency or Brics membership. We are looking to trade off real, measurable benefits for the fever dream of a trade and currency bloc that will never exist.

SA is standing blindfolded on the edge of a precipice. Our trade with the US, EU and UK account for 36% of our total exports. If the US pulls the trigger on an out-of-cycle review we could lose a lot more than our car exports to America.

• MacKay is CEO of XA Global Trade Advisors.