- African Growth and Opportunity Act
TRALAC - Trade Law Centre
You are here: Home/News/Article/'South Africa sticks to protectionist policy while AGOA slips through our fingers'

'South Africa sticks to protectionist policy while AGOA slips through our fingers'

'South Africa sticks to protectionist policy while AGOA slips through our fingers'

Trade between South Africa and the United States by sector

Published date:
Sunday, 15 May 2022
Donald MacKay

South Africa is set to lose its preferential access to the US under the African Growth and Opportunities Act (Agoa) — a piece of American legislation allowing preferential access to the US market for African countries — when it expires in December 2025.

It isn’t likely that this can be avoided. But it doesn’t have to be this way.

We were never meant to benefit from AGOA, and if not for Nelson Mandela chatting with Bill Clinton in the late 1990s we never would have.

Lower import duties in the US for cars made in SA have been the most obvious reward, but exports of wine and citrus and other fruits have benefited too. However, that is now close to over and we are not doing much to plan beyond that point. 

It is up to the US to extend Agoa or not, or to extend it to selected countries in Africa but not necessarily SA, perhaps especially after our failure to denounce the Russian invasion of Ukraine. The US wants a trade agreement, a give-and-take similar to what we have with the EU, but trade, industry & competition minister Ebrahim Patel will not allow that to happen.

His predecessor, Rob Davies, was rabidly opposed to this idea too. This is a measure of how poorly we implement trade agreements, rather than whether a particular trade agreement is important.

graphic bday

Our position now seems to be that we would rather forgo access to big economy markets than allow them to have access to ours. This is the protectionist SA the presidency of Cyril Ramaphosa has been building, or rather that he has allowed Patel to build. Kenya, on the other hand, thinks it’s a great idea and is busy negotiating a trade agreement with the US as you read this. Botswana, Eswatini, Lesotho and Namibia have developed Agoa strategies to grow their exports to the US. We haven’t.

The first Agoa expired in 2015 and was extended for 10 years. It could be extended again, and we should be doing all we can to make that happen. But why don’t we export more value and variety to the US more than 22 years into Agoa? We know the government likes Agoa, because of the white-knuckled panic in 2015 when then president Barack Obama suspended our benefits because of a dispute over US chicken. After this suspension, SA’s anti-dumping duties on chicken were rebated for 70,000 tonnes of American chicken a year.

If we lose our preferential access under Agoa, the US will also lose its exemption from anti-dumping duties on chicken, which come in at a hefty R9.40/kg. The price of chicken will rise in SA, especially if imports from the EU are still suspended because of Avian flu. And the local industry will not pick up as much of this volume as it should because we have not cracked the puzzle of exporting our chicken breast meat to the EU or anywhere else.

This saga has been dragging on since 2016, with little to show in the way of real progress. Instead, we keep selling our chicken breast domestically at the same price as we do every other part of the chicken, in a 2kg frozen pack of mixed portions. Seventy percent of local chicken is sold that way, which means we lose out on the advantage of balancing the carcass (selling each cut to the market that will pay the most for it).

Local producers will say the Europeans don’t want to allow our chicken into their market, but this is unlikely to be true. Europe has to import as much as 900,000 tonnes of breast meat a year, mostly from Brazil and Ukraine. The chicken out of Brazil attracts a duty, while chicken from SA would not. What kind of exporter turns their back on low-hanging fruit like that? A crude one.

We appear set to let the balance of Agoa slip through our fingers because we believe we are somehow entitled to this preferential access, and when we have it we feel we don’t need to do anything with it. The US has given Agoa beneficiaries preferential access to about 6,500 products, yet in 2021, 53.21% of our exports to the US were focused on just the top five tariff codes (automotive and then four precious metals).

From 2010 to 2021, our total exports to the US had risen 13%, while US imports had climbed 10.5%. In rand terms. We should be selling more agricultural products. Wine. Olive oil. Fruit. Forget about textiles and clothing — that is what many other African countries sell in volume under Agoa, but between the unions and the bargaining council, we have destroyed this industry in SA.

Of the 6,500 products accorded preferential access to the US only the SA automotive sector is doing much. In fact, the 76 SA auto sector tariff codes accounted for almost 7% of total trade under Agoa in 2021. This is a fine accomplishment, but where are the rest? About 35 products account for 57.7% of our US exports, but excluding automotive, the bulk of this value is in precious metals and minerals. This is not bad, it just doesn’t require Agoa. And it means that after 22 years, Agoa is really restricted to the automotive sector. 

We have to change this, but to do that we need to shift our focus to competitiveness, and this is hard. Our industrial policies have ruined the economy. We launched the first Industrial Policy Action Plan (Ipap) in 2007, and in the intervening years per capita GDP has grown at the slowest rate since 1994. We have less industry now than when the first Ipap was released 15 years ago.

Identifying causality is a mix of black magic and magic mushrooms, but what we can say is that our industrial policies have not succeeded, even if they are not the cause of the problem. Successful industrial policies require a heavy hand (think apartheid SA, China now or South Korea in the 1960s) and subsidies. Subsidies matter because a strong protectionist focus makes for highly concentrated, uncompetitive industries. Despite the large duty preferences into the EU and US, we are still not competitive for most products.

The love child conceived on the back seat of the automotive industry is the subsidies given to the sector. Our taxes help us export cars, not our trade unions, Eskom or failing ports. We have great mining and agriculture, and if we stop scaring the miners and farmers, we would be even better. But at the aggregate level, we are not competitive.

No-one else cares about the reasons for our lack of competitiveness. No-one outside SA cares about our unemployment rate, our collapsing infrastructure, corruption, BEE, minimum wages and red tape for business, except as factors to be considered when deciding where to place their capital. They don’t care if Jacob Zuma goes to jail or if our whole economy fails. They trade with us when we offer value, and when we don’t, they don’t.

  • MacKay is founder and director at XA International Trade Advisors.

Read related news articles

South Africa walks a tightrope on US relations

South Africa has been conducting a high-wire act in its relations with the United States (US). It is maintaining friendships with Washington’s enemies like Russia, Iran and China while trying to avoid disrupting its economic relations with America. Tensions came closer than ever to breaking point this month as the US House of Representatives’ Committee on Foreign Affairs passed the US-South Africa Bilateral Relations...

28 March 2024

Remarks by Deputy Treasury Secretary Adeyemo on the US-South Africa economic relationship

As Prepared for Delivery in Johannesburg, South Africa Thank you for the warm welcome. I want to express my gratitude to Consul General Spera and the American Chamber of Commerce for hosting me. I am honored to be joined today by South African Entrepreneurs that are building companies to unlock the economic potential of their country.  I owe my own presence here today to the inspiration I drew from South Africa. In the middle of the...

13 March 2024

South African president Ramaphosa meets with US congressional delegation

South African President Cyril Ramaphosa today, 21 February 2024, received for a visit from a bipartisan congressional delegation from the United States of America, in Tuynhuys, Cape Town. The delegation is visiting South Africa at the invitation of the Aspen Institute. The President and the US congressional delegation discussed the importance of the relationship between South Africa and the US, which manifests in strong economic,...

21 February 2024

US congress receives Bill to review South Africa relations

A bill has been submitted to the United States congress calling for a full review of the country’s bilateral relationship with South Africa following the International Court of Justice ruling that found it plausible that Israel has committed acts of genocide against Gaza. The bipartisan bill which was introduced by US Republican congressman John James and Democratic Party congressman Jared Moskowitz this week could threaten South...

09 February 2024

Fitch research unit expects better AGOA deal for South Africa

Fitch’s research arm, BMI, believes SA has done enough to get improved trade terms under the African Growth & Opportunity Act (Agoa), which it expects to be extended and modified before its expiry in September 2025. But it warns that the deal might be stillborn if Donald Trump is elected US president. The research think-tank said in a note it assigns a 65% probability that Agoa will not only be renewed but modified to the benefit of...

09 January 2024

South Africa: BLSA CEO calls for more companies to leverage AGOA opportunities

Many more South African companies could benefit from the African Growth and Opportunity Act (AGOA), which gives eligible countries access to US markets free of tariff barriers, business organisation BusinessLeadership South Africa (BLSA) CEO Busi Mavuso writes in her weekly newsletter. Apart from mainstream formal sector businesses, there are opportunities to enable more entrepreneurs, including women-led...

20 November 2023

US ambassador: AGOA is an opportunity to deepen ties between the US and South Africa

President Joe Biden last December at the US-Africa Leaders Summit affirmed that the US will elevate its relationship with Africa. The future is Africa. One example is its youthful population: the median age on the continent is 19. By 2050, one in four people in the world will be in Africa. The US wants them to be healthy and wealthy. What happens in Africa will affect the rest of the globe — and we want to work together to ensure it is...

09 November 2023

US Senator Chris Coons proposes AGOA extension by 16 years, immediate review of SA’s AGOA eligibility

Powerful US Democratic Party Senator Chris Coons is circulating a discussion draft of a Bill to renew the African Growth and Opportunity Act (Agoa) for 16 years that would also require an immediate “out-of-cycle” review of South Africa’s eligibility for Agoa. That could lead to South Africa being removed next year from the programme, which has provided considerable benefits to SA exporters to the US of cars, fruits and wine, in...

07 November 2023

AGOA benefits extend beyond trade [incl. VIDEO of Friday's opening session]

Economies in Sub-Saharan countries stand to benefit far more from the African Growth and Opportunity Act (AGOA) than notable trade statistics, says President Cyril Ramaphosa. “AGOA enhances the diversification of African economies, enabling them to export value-added products. By enabling African countries to have preferential access to the US market, this opportunity incentivises African countries to develop and export value-added goods...

06 November 2023

South Africa pins its hopes on an early 2024 US Congress renewal of AGOA

South Africa’s government is hoping that the process to renew the African Growth and Opportunity Act (Agoa) by the US Congress will be concluded by early 2024, ensuring that more than 20 African countries continue to have duty-free access to the world’s largest economy.   This is the first time that the South African government has given a timeline for when it hopes the US Congress might extend Agoa, which has been renewed twice...

05 November 2023

SA trade minister Patel expresses confidence at media briefing about South Africa’s continued inclusion in AGOA

Ahead of South Africa hosting the US-AfricaTrade and Economic Cooperation Forum – also called the AGOA Forum – from November 2 to 4, Trade, Industry and Competition Minister Ebrahim Patel on October 26 briefed the media on the state of readiness for the forum, expressing confidence that the South African government’s relations with the US were strong. Various South African stakeholders have been motivating for...

26 October 2023

You are here: Home/News/Article/'South Africa sticks to protectionist policy while AGOA slips through our fingers'