Africa: AGOA Trade Deal Discussions – South Africa Must Navigate Relations With the US and China with Caution.

South Africa’s economic relationships require careful consideration to avoid being entangled in the escalating tensions between China and the US. To achieve this, South Africa should make use of the 2023 Agoa Summit to enhance its diplomatic ties and protect its economic interests. The conference, held in Johannesburg from November 2-4, will bring together the US and 35 sub-Saharan African nations to strengthen trade and investment connections through the Africa Growth and Opportunity Act (Agoa). Agoa is a US legislation that grants trade preferences to eligible countries in sub-Saharan Africa. The geopolitical landscape, characterized by Russia’s conflict in Ukraine and the China-US trade war, has led to heightened tensions between the east and the west. South Africa’s neutral stance during the Ukraine war has faced criticism, with some US congressmen advocating for the relocation of the Agoa Forum from South Africa. The recent expansion of the Brics summit, a group comprised of Brazil, Russia, India, China, and South Africa, to include 11 member states, challenges American dominance and potentially threatens its hegemony. South Africa must skillfully manage its international relations to safeguard its economic interests while tackling complex issues such as espionage, China’s Belt and Road Initiative, climate change, and territorial disputes in Hong Kong, Taiwan, and the South China Sea. As China has become the largest bilateral official lender to sub-Saharan Africa, with the region’s external debt to China increasing from less than 2% in 2005 to over 17% in 2021, Agoa presents a potential challenge to China’s interests on the continent. China aims to encourage African countries to prioritize its agreements over those with the US. It is necessary to evaluate the actual benefits derived from the Agoa agreement and determine its impact on South Africa. Agoa was initially approved for 15 years by the US Congress in May 2000, and it was extended until 2025 by former President Barack Obama. It will undergo review again in 2024, heightening the significance of the upcoming summit. A bill has been introduced to extend Agoa by an additional 20 years until 2045, aiming to counter China’s growing influence in Africa and maintain preferential access to US markets for sub-Saharan African nations. In 2021, the US was South Africa’s second-largest export destination worldwide, largely due to Agoa, with China and Germany ranking first and third, respectively. As for imports, China and Germany were the top sources, with the US ranking third. The total trade volume between South Africa and the US reached its peak at $24.5 billion in 2021, with a trade surplus of $9.3 billion in South Africa’s favor. Agoa facilitates duty-free entry for approximately 20% of South Africa’s exports to the US, equivalent to 2% of its global exports. South African investment in the US has more than doubled since 2011, reaching $3.5 billion in 2020. American foreign direct investment in South Africa has also increased by over 70% during that period, amounting to $10 billion. This positions the US as the fifth largest source of FDI for South Africa in 2019. The manufacturing, finance and insurance, and wholesale trade sectors have attracted significant American investments, contributing to the country’s economic growth. Major American multinational companies operating in South Africa employ approximately 148,000 individuals. The benefits offered by Agoa include duty-free and quota-free access for a wide range of South African products, with a specific positive impact on the textile and apparel industry. Sub-Saharan African countries also receive duty-free access to the US market for over 1,800 products, in addition to more than 5,000 products covered by the US Generalized System of Preferences program. Furthermore, Agoa supports export diversification, particularly for agricultural products, textiles, and manufactured goods, which aids in improving South Africa’s balance of payments and trade account. The program also provides capacity building assistance and technical programs to help South African businesses meet US standards, enhancing their competitiveness globally. Additionally, the economic development and poverty reduction goals of Agoa align with South Africa’s development objectives. Balancing economic interests presents a significant challenge for South Africa, as China is the largest consumer of its commodity exports, making it a key influencer of the rand exchange rate. Moreover, China and Russia’s efforts to promote de-dollarization and establish their own system challenges American interests. Therefore, South Africa must navigate its relations with the US and its Brics partners, China and Russia, with caution. While maintaining strong ties with the US through Agoa, South Africa aims to avoid being caught in a difficult position between China and the US. The outcome of the November summit will have far-reaching economic implications for the country.