Why Agoa’s renewal won’t move the needle for SA trade

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JEREMY MAGGS: The US House of Representatives has overwhelmingly approved a three-year extension of the African Growth and Opportunity Act; we know it better as Agoa.

It’s a trade programme that has long underpinned duty-free access to the US market for sub-Saharan exporters. But with strained US-South Africa relations, questions linger about whether Pretoria will remain in the deal and what this means for jobs, for exports and broader diplomatic ties.

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I want to give you a perspective from Donald MacKay, he’s a trade expert from XA Global Trade Advisors. He’s been with us on the programme on many occasions in the past.

Donald, at first glance, and welcome to you, Agoa’s extension looks positive, but how much of the benefit is assured for South Africa, given the current geopolitical tensions? It’s not a home run just yet, is it?

DONALD MACKAY: No, definitely not. In fact, at this point I think it’s quite unlikely that South Africa will benefit from this extension, so I’m guessing most of it would go to the other African states.

JEREMY MAGGS: Where does that leave South Africa then?

DONALD MACKAY: Well, Agoa is not really the problem. South Africa has the very large 30% duties, (that’s) the problem. The benefit under Agoa is in fact rather modest. It averages out at around 3.5%.

Even if we got Agoa, that would take us down to 26.5% and that’s hardly going to move the needle on anything. I think whether we’re in or out of Agoa, that is just inconsequential at this point.

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JEREMY MAGGS: It’s more about the optics and the symbolism then, is what I’m hearing you might be saying.

DONALD MACKAY: Yes, very much so. But in many ways Agoa was always about the optics and symbolism. Agoa was never a big give out of the US. It was largely a political tool that the US could create the impression of giving something, whereas in reality very little was ever let go. That hasn’t really changed in my mind.

JEREMY MAGGS: Whether we are in or out, we still have the reality of US tariffs. I’ve already referenced bilateral tensions that exist and are seemingly ratcheting up. How was the calculus then changed for South African exporters? Donald, what are you hearing about what they’re doing? How have strategies changed or how has intent been altered?

DONALD MACKAY: We must perhaps split the exports into two. The bulk of our exports to the US are precious metals, platinum, gold, that sort of thing. Those are unaffected by this. It’s on the manufactured and agricultural goods we take a hit.

Really there, the impact out of Agoa is on a handful of agricultural products, table grapes, wine and so on. So South Africa has to begin forging relationships with other markets.

The US has become an incredibly unreliable trading partner to absolutely everyone, and you cannot build your business growth export strategy on a partner that can change their mind on a whim. I think the strategy, and we certainly see this with our clients, is a lot of effort being put into saying, where else can we send our product.

JEREMY MAGGS: All well and good. You talk about forging relationships and I absolutely understand that. But every other market around the world that might be playing in that same sector, Donald, is doing exactly the same thing. How easy or how difficult is it for a South African exporter to do that and maybe to differentiate?

DONALD MACKAY: Oh, it’s difficult, and it’s made more difficult because we’re so uncompetitive at producing almost anything. We have the Eskom problem. We have ports that are broken. We have incredibly high crime rates and that sort of thing.

Read: Tau upbeat about Agoa’s continuation

So we’re not creating an environment where even a really efficient manufacturer can thrive, because the minute you have to put your goods onto a vessel, you suddenly have to deal with our ports, and that is like an export tax on everything. So no, it is an enormous problem, without a shadow of a doubt.

JEREMY MAGGS: So how do you change that environment then? I’d also maybe throw into the mix of this conversation that Transnet is starting, albeit very slowly, to affect something of a turnaround, particularly when it comes to port efficiency.

DONALD MACKAY: Yeah, that’s true, and I’m enormously supportive of what they’re doing. But it is going to take a very long time to fix. This is going to be years in the making. It’s a step in the right direction, but I’d argue that step has been taken 15 years too late. Still better late than never, but this is not a quick fix. To fix our ports is going to take a very long time.

JEREMY MAGGS: You talk, Donald, about exporters then having to forge relationships. What support, if any, can they expect from government? Or are you sensing among your client base that it’s at this point almost a case of every person for themselves?

DONALD MACKAY: Well, I think the promises made versus what is happening in reality means that for most companies, you are going to have to do most of the work yourself. Government has promised to help desk, which sometimes works and sometimes doesn’t.

But the reality is that government is very poorly prepared for what President Trump has unleashed on South Africa.

I think the options from a government perspective are very limited. Having said that, we see lots of private sector companies that have definitely taken the bull by the horns and have worked very hard, in some cases successfully, into getting their product into new markets.

JEREMY MAGGS: Donald, those private sector companies that have managed to succeed against all odds, what have they done? Is there a blueprint? Is there a template?

DONALD MACKAY: No, there isn’t. For some of them, they are just naturally competitive producers. I guess the companies that have been exporting in the past are typically already competitive. Otherwise, they wouldn’t export.

So for the guys who are shifting from one market to another, in many cases they understand how the game is played. But for new exporters, this has now truly become a time of nightmares.

If you’re trying to export for the first time, even if you’re a really large business, this is a complicated problem to solve and you’re mostly on your own.

JEREMY MAGGS: If you’re a small or medium-sized enterprise, are you sensing that maybe that appetite for export against this backdrop that you’ve outlined for me is waning or diminishing?

DONALD MACKAY: Well, I think the appetite remains, but executing on it is incredibly difficult. We must remember the whole world, including South Africa, is becoming unbelievably protectionist. Nobody wants foreign products in their market, even when they really need it.

Read: Where Trump’s tariffs will hurt most

We see countries like Botswana, for example, once again banning a whole lot of South African agricultural products. This is unfortunately the pattern and we’re no exception. We’re incredibly protectionist at the moment, and so is the whole world, which is of course harmful to everyone.

JEREMY MAGGS: Final question, if companies are looking for those new markets, then where should they be accelerating their efforts? Is it China or is it the European Union? Is it other countries within sub-Saharan Africa and the broader continent? Where is the least risky place, do you think, to start?

DONALD MACKAY: That depends on the product. There are big opportunities in China for agricultural goods, for example, but hard to get them in.

Europe is wanting to do more with South Africa. We’ve got a very long, very good relationship with Europe, and Europe has got to be explored.

Also, Europe has been keeping a lot of Chinese products out of their market, which means we’re not up against the world’s most competitive manufacturer of almost everything in all of the European markets. So certainly, I think we could expand our growth with areas like Europe.

Our opportunities, to my mind, lie predominantly with agricultural goods.

I think in that space, we’re very, very good at farming. We need to do more of it. Pretty much any country that buys agricultural goods, we’re standing in line to offer a competitively priced product.

JEREMY MAGGS: Always appreciate your insight. Donald MacKay from XA Global Trade Advisors, thank you very much indeed.

Read:
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