Nedbank commercial banking agriculture head John Hudson has shared his unease over the potential fallout following South Africa’s alleged supply of arms to Russia in December 2022, as alleged by US ambassador to South Africa Reuben Brigety earlier this year.

He highlights a major concern as being that South Africa could well be excluded from the African Growth and Opportunity Act (Agoa), which is US legislation that gives duty-free access to the US market for certain African States.

This piece of legislation is extremely valuable to South Africa’s agriculture sector, since it enables tariff-free access for South African producers, which, in turn, ensures lower production costs and more competitiveness.

Agoa is due to be reviewed in 2025 when it expires, but the US can unilaterally review it sooner. Should South Africa be excluded from the Act, it will lose this cost advantage, which would impact on how it can access the single biggest consumer market in the world.

It is not just the Agoa trade benefits that are under threat if South Africa is found to be aiding in an illegal war, Hudson states, explaining that the economic and trade costs of damaging relations with the US can extend to US allies.

“If there is a complete breakdown of SA-US relations, the European Union (EU) could follow suit, with which South Africa also has strong trade links. Worse still, if these important trade partners impose sanctions, South Africa risks losing up to 40% of its trade, which would drive the economy into a deep and severe recession, extreme rand weakness and collapse of government finances,” Hudson notes.

Nedbank finds that 25%, or R59-billion worth, of South Africa’s exports to the US benefit from both Agoa and generalised system of preferences, while a significant 98%, or R429-billion worth, of exports to the EU benefit from the European Partnership Agreement.

The mining, manufacturing and agriculture sectors are the main beneficiaries of these trade agreements.

In contrast, total trade with Russia contributes a mere 0.2% to gross domestic product and comprises just 2% of South Africa’s agricultural exports over the past five years, so there is much more to lose from severing relationships with the US and the EU.

The Citrus Growers’ Association has also advocated for government to resolve the matter urgently and provide clarity on the arms allegations, since citrus is one of the major beneficiaries of Agoa.

About 9% of South Africa’s citrus is exported to the US and, while this is still a small percentage, the market holds immense growth potential. For example, citrus exports nearly doubled from 60 000 t shipped in 2020 to 112 594 t shipped to the US in 2022.

The association says losing the US as a key market would be a major blow to the citrus industry.

Similarly, industry body SA Wine is concerned about the potential impact of the termination of Agoa, and says the dramatic fall of the rand against the US dollar following the allegations indicates how seriously international markets view these claims.

South Africa exports R10.5-billion worth of wine every year to more than 120 countries, with the US being one of the top five export markets. Wine exports to the US totalled R800-million in 2022, which equates to a tax benefit of R57-million that government stands to lose if it does not act more decisively in this matter.

Additionally, the arms to Russia allegations could negatively impact tourism, as it tarnished the reputation of South Africa as a credible role-player in the international trade environment.

With most of both citrus and wine exports to the US originating from the Western Cape, it is this province that stands to lose most from the exclusion of Agoa. For this reason, Western Cape Premier Alan Winde and other provincial government officials recently visited the US to negotiate on this matter with top US officials.

Hudson concludes that international trade and the global economy form a highly integrated, complex free market system in which South African operates and from which it currently benefits.

“Our only hope of rebuilding our beleaguered economy is to safeguard the country’s access to direct foreign investment and ensure our ongoing market access to the world’s fastest-growing economies.

“Potentially alienating our biggest and most important trading partners is not the way to go about achieving this.”