Tawanda Karombo
Tensions with the United States could propel South Africa to depart from the African Growth and Opportunity Act (Agoa) agreement, a development that could also have regional ramifications and add to uncertainties dogging the government of national unity.
Bilateral tensions have ratcheted up between South Africa and the US under President Donald Trump in the past few weeks. The US has cut aid advances to South Africa while there is increasing consensus that the simmering tensions will culminate in South Africa leaving Agoa.
“Our baseline view is that South Africa Africa will exit AGOA (but) we can't however, tell you with any certainty when that will be the case,” said Gina Schoeman, South Africa economist for Citigroup, on Tueday.
Scheoman added that South Africa was likely to exit Agoa next year if negotiations with the US over the rising tensions failed to yield bilateral agreements.
Agoa is up for renewal in September and many analysts think that it was unlikely that the US will renew it dfor South Africa, given the tensions between the two countries.
Agoa provides eligible sub-Saharan African countries with duty-free access to the US market for more than 1 800 products, in addition to the more than 5 000 products that are eligible for duty-free access under the Generalized System of Preferences program.
Agriculture, particularly citrus and wine, manufacturing, mining, automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs, and commercial ship repair, are among the major beneficiaries of Agoa in South Africa. Agoa is estimated to have created or sustained around 250 000 thousands of jobs in South Africa.
A well calculated decision to exit Agoa by South Africa in 2026 will leave some room for companies enlisted under the program to adjust for the departure.
According to Schoeman, an advance notice will help South African companies to re-arrange their operations to avoid any stop shocks.
With South Africa ranking as one of the biggest partners under Agoa in Africa, there are risks that the US will stop Agoa completely if South Africa exits the program.
“So there's also that continental trade risk that South Africa needs to take into account when it negotiating,” explained Schoeman.
It is not just geopolitical uncertainties that are posing headwinds for South Africa. Domestic disagreements within GNU partners, particularly the ANC and DA over the budget tabled by Finance Minister Enoch Godongwana, were also raising the country risk profile.
Continued GNU disagreements over the budget will mean that “the uncertainties that have evolved from it are likely to sustain” for longer. This was likely to worsen risk perceptions of SA as an attractive destination for investment.
“If that (diagreements) occurs, you're going to add risk premium to the country. That's how simple this gets,” said Schoeman.
Some international investor groups were already questioning whether the budget disagreements would lead to the collapse of the GNU.
Although the pressure is on from the GNU and US/SA tensions, Europe appears to be warming up its relations with South Africa.
According to Schoeman, “the EU is coming out very much in support of its South Africa” ties and relations.
“The EU is finding allies across the world because they themselves are in opposition in some ways against the Trump administration in the US and one of the allies that they seem to be finding support through is South Africa,” she explained.
Nonetheless, the US was also set to reduce its funding for development and multilateral finance institutions, a situation that could also some of South Africa’s funding flows from these institutions.
Schoeman said Citigroup was concerned of the ramifications that could follow if the Trump administration reduced any funding to the International Monetary Fund and the World Bank.
She said it was important to understand the possible impact of of the US’ reduction in funding to international finance institutions as development financiers have been pivotal in relation to their support for South Africa’s reform agenda.
BUSINESS REPORT