South Africa: AGOA row threatens to stall automotive sector

South Africa: AGOA row threatens to stall automotive sector
Published date:
Monday, 26 October 2015
Author:
Roy Cokayne

The festering inter-governmental trade squabble between the US and South Africa is threatening to seriously dent the automotive industry’s lucrative trade with the US.

This follows a report last week that the US had vowed to press ahead with a review that could cut South Africa’s access to the Africa Growth and Opportunity Act (Agoa) trade benefits after South Africa missed a key deadline for resuming US poultry imports.

The South African government later denied it had missed a deadline for resuming imports, claiming instead that the deadline that had been missed by both countries related to an agreement on new animal health and safety rules.

Duty benefits available on exports into the US through Agoa have benefited trade between the two countries.

 

SouthAfrica automotive exports AGOA640px

 

Automotive trade

There has been a 264.4 percent increase in automotive exports from South Africa to the US between 2001, when Agoa commenced, and 2014, according to the National Association of Automobile Manufacturers of South Africa (Naamsa) and National Association of Automotive Component and Allied Manufacturers (Naacam).

In the same period, automotive exports from the US to South Africa increased by 397.5 percent, while total automotive trade between the two countries increased by 309.1 percent to R28.96bn, the organisations said in a submission in August to the Agoa implementation sub-committee of the Trade Policy Staff Committee, in response to the “out of cycle” Agoa review of South Africa.

Duane Newman, a director of Cova, a tax and government incentive advisory services company, said the US was a large investor in South Africa and Agoa had created further export opportunities for many businesses, especially in the automotive sector.

“It is vital that all stakeholders do their best to ensure these investments, and ultimately the jobs, are protected,” he said.

Azar Jammine, the chief economist at Econometrix, said there was a little bit of ambiguity about the stumbling blocks for Agoa. He said they might not be linked as much to poultry issues and a more serious threat to Agoa was the proposed legislation that would limit foreign ownership of private security companies in South Africa.

He believed there was a lot of posturing by both countries and was unsure whether the US was trying to retaliate “for the anti-US stance the South Africa government seems to be playing with all the time”.

BMW South Africa is the biggest potential loser from any loss of Agoa benefits.

Tim Abbott, the managing director of BMW SA, said this month that its plant in Rosslyn in Pretoria would produce 72 000 3-Series models this year that were exported all around the world, with about 42 percent exported to the US.

The BMW board of management member responsible for sales and marketing, Ian Robertson, said the planning was far advanced for the manufacture of a new model at the Rosslyn plant.

However, Robertson stressed this decision was not dependent on the renewal of Agoa.

He said the benefits of Agoa were viewed as “the cherry on the top” because it was not a good business case if production and investment decisions were dependent on them.

Norman Lamprecht, the executive manager at Naamsa, said the US was an important export destination for South Africa’s automotive industry and the top destination for vehicle exports in recent years.

He said automotive exports to the US would continue in the short term if Agoa disappeared, but had cost implications.

Economic anchor

Lamprecht expressed confidence that the South African government would sort out the disagreements before the US made any recommendation to either include or exclude South Africa from Agoa.

Edward Makwana, a BMW SA spokesman, said the group supported Agoa as a successful vehicle to promote African exports and strengthen Africa’s political and economic development. “We see Agoa as a political and economic anchor in the region that supports economic and political development in the country,” he said.

Makwana said BMW SA was unable to comment further until a final decision was reached by the US Congress at the end of next month.

 

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