Johannesburg - Politicians and officials in the US were “listening quite intently to the story about Africa industrialising and the importance of regional integration”, Trade and Industry Minister Rob Davies told Business Report yesterday.
Davies is in Washington this week to persuade US politicians to extend South Africa’s trade access under the African Growth and Opportunity Act (Agoa), due to expire in 2015.
Agoa was signed into law in 2000 and originally covered the eight-year period from October 2000 to September 2008, but amendments in July 2004 extended its term to 2015. There is a debate in the US about Agoa’s extension beyond that date and South Africa’s continued participation.
On a recent visit to Africa, US President Barack Obama promised to support South Africa’s inclusion in the face of opposition from US interest groups who argue the scheme should benefit only poor countries. South Africa is classified as a middle-income economy.
US companies also complain about the tariff disadvantage they face in relation to their European competitors because of a trade agreement between South Africa and the EU. This concern could see South Africa lose benefits under the generalised system of preferences (GSP).
Davies said people in the US “are getting the message” about the opportunities created by the industrialisation of Africa and the importance of a regional market to promote it.
He has explained that the benefits South Africa derived under Agoa contributed to development not only in the country, but to the broader region.
A failure to extend the benefits would reduce intra-regional trade, undermine economic integration in southern Africa and disrupt regional value chains through which companies in one country sourced inputs from neighbouring countries.
Regional value chains are important in the continent’s attempts to diversify economies, which have been heavily resource dependent, into manufacturing, according to Brendan Vickers, the chief director for international trade at the Department of Trade and Industry (dti).
Speaking yesterday at a presentation on Agoa arranged by Tips, an independent, non-profit economic research institute, Vickers said 98 percent of South Africa’s exports entered the US duty free under various schemes. Of these, 27 percent were under Agoa, 18 percent were related to GSP and 55 percent entered under the World Trade Organisation’s most favoured nation rules.
Products exported under Agoa and GSP combined contribute 2.8 percent to manufacturing gross domestic product (GDP) and 11 percent to manufacturing employment, according to a dti study. Most of the benefits flow to the automotive industry. US Department of Commerce figures show South African sales of transportation equipment to the US were worth just under $2.2 billion (R21.6bn) last year.
According to Tips, failure to renew Agoa would undermine the domestic automotive industry, “with implications for employment”. Tips said the automotive sector had one of the highest job-creating capabilities in the manufacturing industry. It was the fifth-largest manufacturing employer, directly employing 36 000 people and supporting 274 500 intermediate jobs.
While South Africa hoped to sell the message that the benefits flowed both ways, the US was by far the more important partner, Vickers said.
According to dti research, South Africa was the US’s 40th largest import partner and 35th biggest export destination last year. But among individual countries, the US is South Africa’s second-largest export market and the fourth-biggest source of imports.
South Africa’s top exports to the US include motor vehicles and parts (29 percent), non-ferrous metals (23 percent), iron and steel (10 percent), chemicals (9.5 percent) and other mining products (5.8 percent).
Imports from the US include machinery and mechanical appliances (31 percent); vehicles and parts (12 percent); chemicals and man-made fibres (10 percent); transport equipment (9 percent) and professional and scientific equipment (8 percent).
There are also two-way flows of foreign direct investment (FDI). The US accounts for 7.6 percent of total FDI to South Africa, while the US attracts 4.3 percent of South Africa’s total FDI to the world. Vickers highlighted Sasol’s $16bn to $21bn gas-to-liquids project in Louisiana, which Sasol says is one of the largest FDI projects in the US.
Davies will also argue that there are important security dimensions to Agoa, which encourages African countries to strengthen the rule of law, improve intellectual property rights, remove barriers to trade and investment and protect human and worker rights. - Business Report