Finance and Economic Opportunities

1 (a)

 According to Wesgro, South Africa is able to export more than 6000 types of products to the United States without paying U.S. import tariffs. This is because of the preferential trade dispensation offered by the United States under the African Growth and Opportunity Act (AGOA) and the US Generalized System of Preferences (GSP). First instituted in the 1970s, this programme is designed to promote economic growth in developing countries by providing preferential duty-free treatment for over 3500 products from designated beneficiary countries around the world (with LDCs qualifying for an additional 1,500 products).  

 

Among others, the agricultural sector would benefit significantly from a continuation of AGOA as 70% of agricultural exports to the United States relied on AGOA in 2021. Moreover, 50% of footwear products, 49% of miscellaneous manufactures and 36% of forest products entered the United States under the programme. In addition, textiles and apparel (33%), chemicals and related products (31%), transportation equipment (16%), electronic products (14%) and energy-related products (13%) entered the United States under the AGOA programme.  

From an industry perspective, the motor vehicle industry would stand to benefit greatly from the continuation of AGOA. The export of motor vehicles from South Africa to the United States has consistently risen since 2018 and spiked by 30% in 2022. Other industries that would stand to benefit from AGOA continuation are iron and steel, aluminium and jewellery, wine and citrus. 

      1(b)

South Africa’s citrus export sector is a success story under AGOA, with the programme having enabled South Africa, and in particular, the Western Cape, to become one of the largest citrus suppliers to the United States in recent years. The Western Cape exports a diverse range of products to the U.S., with top exports in 2018 including steel, jewellery, engine components, citrus, wine, boats, and beauty products. 

Of the top 10 AGOA exports from SA to the US, five were exported from the WC with a share greater than 89% in 2021. This means that the WC province contributes and benefit significantly from AGOA/GSP preferences in 2021. Of the top 10 WC exports to the US in 2021, flat-rolled products of iron/steel dominated the list, reaching an export value of USD166.7m and growing at an average annual rate of 26% over the last five years, from 2017 to 2021. Moreover, 50% of the WC’s top 10 products at an HS4 level are AGOA eligible. When analysing it from an HS6 level, 6 out of the top 10 can enter the US under AGOA preference. 

        1(c)

 The risks are multifaceted – on the one hand, qualifying exports won’t be as competitive if import tariffs have to be paid in the United States. This may mean that US importers rather seek out similar imports from countries that have preferential access to the United States, either through a preference programme or through a Free Trade Agreement. It is important to keep in mind, however, that other factors besides import tariffs also contribute to competitiveness, such as, for example, cost of production and transport, exchange rate, counter seasonality, and quality.  On the other hand, if South Africa no longer qualifies for preferential access to the US market, this could also impact investor location decisions, as foreign investors may choose to set up their operations in a country from where their products will qualify for duty-free access into the United States.  

In a recent interaction that Wesgro has had with exporters, several companies exporting under AGOA indicated that they would be negatively impacted by the loss of AGOA benefits, and some indicated that it would lead to job losses. More in-depth research is however required to quantify the potential impact.

    2)

AGOA certainly contributes significantly to an already existing trade surplus with the United States. When AGOA-related exports are not accounted for (i.e. only considering no-preference exports), South Africa still maintained a trade surplus with the United States at an average annual trade surplus of $0.79 billion over the period 2001 to 2021. When including AGOA-eligible exports, this average annual surplus increases to $3.2 billion, with AGOA-eligible products accounting for an average annual share of 31% of South African exports to the United States.  

   3(a)

In the Western Cape, through Wesgro our trade promotion agency, ongoing work related to AGOA is done, whether ensuring that Western Cape exporters know about and are equipped to leverage trade preferences under AGOA, or doing periodic AGOA-related research.  

A strategy to support the extension of AGOA is underway. Wesgro has done an initial analysis of Western Cape exports under AGOA and has engaged with exporters regarding the importance of AGOA. Additional steps are being planned by the Department of Economic Development and Tourism and Wesgro to build upon this, including, inter alia,  

 

• Engagements with SA/USA Chamber of Commerce 
• Lobbying the President and the DTIC to raise the matter of AGOA  
• Corporate awareness amongst companies in the Western Cape that benefit from AGOA and who are at risk should it not be renewed  
• Engaging with other provinces to work together   
• Awareness drive in the USA of Western Cape products and benefits of AGOA  
• In-depth research on job creation and economic impacts of AGOA in the WC 

The Department of Economic Development and Tourism in partnership with Wesgro is in the process of establishing a provincial bilateral steering committee with DTIC who are the responsible National Department for trade negotiations. Work has already commenced to ensure that channels are in place for lobbying and advocacy work as it relates to all trade related negotiations and agreements with the relevant National Departments and agencies.

    3(b)

I understand that lobbying for the renewal of AGOA was high on the priority list when President Ramaphosa visited the United States and met with Pres Joe Biden in September 2022. The President also addressed certain members of Congress regarding the renewal of AGOA. The renewal of AGOA was also a topic of discussion during the US – Africa Leaders Summit in December in Washington DC.  

According to a DTIC Presentation to Parliament in November 2022, the AGOA-eligible countries in sub-Saharan Africa (SSA) have a common position on AGOA. This includes calling for the following: 

• Extend AGOA beyond its 2025 expiry, for an extended period 
• Improve product and country coverage and remove US non-tariff barriers 
• Opposition to “graduating” – i.e. excluding some SSA countries from AGOA 

In addition, these countries together call for US support for Africa’s industrialisation and integration efforts and encourage increased US investment in manufacturing and infrastructure. According to the DTIC, SA will host the AGOA Forum in 2023, and SSA will seek to influence the future direction and content of SSA-US trade and investment.  

However, we are concerned that the South African Government’s so-called neutral stance on the Ukraine invasion and recent military exercises with Russia may cause controversy and potentially place the renewal of this Act in jeopardy. These actions have received notable press coverage in US media outlets and a resolution “opposing the Republic of South Africa’s hosting of military exercises with the People’s Republic of China and the Russian Federation, and calling on the Biden administration to conduct a review of the United States-South Africa relationship” (H. Res 145) has been introduced in the United States Congress.