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Fitch research unit expects better AGOA deal for South Africa

Fitch research unit expects better AGOA deal for South Africa
Published date:
Tuesday, 09 January 2024
Kabelo Khumalo

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 SA’s exports, saying a renewal of 10-20 years is likely, as it provides a long enough time frame to foster stability in trade.

“We believe that there is scope for alterations to the agreement that will promote additional export volumes from SA. The US is an important trade partner of SA, being its second-largest individual export partner after mainland China.

“SA is also Africa’s largest individual exporter to the US.

“Nonetheless, SA’s main export partners are relatively diversified, comprising a mix of European, Asian and North American powerhouses.

“SA goods exports totalled $123bn in 2022. Of this, 8.9% went to the US and only a fifth of these goods benefited from Agoa preferences in 2022.

“Therefore, Agoa accounted for only 1.9% of SA’s global goods exports in 2022, suggesting that the benefits of Agoa are quite limited, with only around $3bn worth of SA exports benefiting from Agoa preferences.”

SA hosted the 2023 Agoa forum in Johannesburg last November. During the forum, African and American representatives led by Katherine Tai discussed extending and modifying the Agoa agreement.

The lead-up to the summit was characterised by diplomatic tensions between Pretoria and Washington over the latter’s close ties to Russia.

In particular, relations between the two countries soured after SA’s participation in military drills with both Russia and China in March 2023 and allegations by the US ambassador to SA in May that Pretoria had provided arms to Russia in December 2022. An investigation launched by President Cyril Ramaphosa later found no merit in the allegations.

There were attempts by some US legislators to have the forum moved from SA. The legislators pointed to SA’s perceived closeness to Russia in its war with Ukraine as the reason behind the request.

BMI says the decision by the SA authorities not to host President Vladimir Putin in person at the Brics conference in August 2022, coupled with SA’s conclusion of the investigation into the arms allegations, helped to ease tensions.

BMI sees a 30% probability that Agoa will be renewed in its current form, a scenario that it said will not suit SA.

“Renewing the agreement as it stands, while beneficial, could mean missing out on opportunities to refine and boost trade. An unchanged renewal would be less favourable for SA exports to the US,” the research firm said.

“Under this scenario, we expect limited scope for significant increases in the rate given SA’s slow progress in developing a national Agoa exporting strategy, stringent rules of origin and a number of products not yet designated under the programme,” it said.

The entity warned that a possible Trump election later in 2024 might spell doom for the future of Agoa.

“While Agoa is expected to be renewed before it expires in September 2025, a second Trump candidacy may result in a shift of political priorities away from Africa, increasing the risk that Agoa is not renewed beyond its current expiration date.

“SA’s close ties with Russia will remain a source of tension between the markets.”

The former president is leading in many opinion polls.

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