South Africa benefited immensely more from trade with the US than Russia and must tread carefully not to imperil trade deals in place, such as the African Growth and Opportunity Act, which is up for renewal next year, the Agricultural Business Chamber of South Africa (Agbiz) said yesterday.
It was referring to the US’s accusation last week that South Africa had supplied military equipment to Russia, which has raised diplomatic tensions between the two countries, leaving a great deal of uncertainty about political and trade relations between the two countries.
This comes as over the past year, South Africa has indirectly felt the effects of Russia's invasion of Ukraine through the disruption of various commodity supply chains and the subsequent price surge, specifically of grains, vegetable oils, fertiliser, Brent crude oil and natural gases.
The organisation’s chief economist, Wandile Sihlobo, said the matter would likely be ventilated through diplomatic channels over the coming days and weeks, and it remained unclear where this would settle.
“While this unfolds, it is worth briefly looking at South Africa's economic ties with the rest of the world. South Africa benefits immensely more from trade with the US than Russia. Therefore, from a purely economic standpoint, the reasonable step to take in a world of uncertainty is nurturing relationships with countries with which a country has strong economic ties,” Sihlobo said.
According to data from Trade Map, the US was South Africa's second-largest export market last year, accounting for 9% of South Africa's total exports. China was the leading export market, accounting for 10% of South Africa's total exports. South Africa's other important export markets include Germany, Japan, the UK, the Netherlands, Mozambique, India, Botswana, Belgium, Namibia, Zimbabwe and Zambia.
The chief economist said Russia was one of the least important export markets for South Africa's total merchandise, accounting for a mere 0.2% of South Africa's exports last year. For the past five years, South Africa's total exports to Russia averaged 0.4% of the total per annum.
Agbiz said in the current uncertainty in the global geopolitical environment, South Africa should ideally deepen relationships with countries that serve the country's economic interests and, by extension, support employment domestically.
Sihlobo said: “Tensions with the US could present a significant economic downside for South Africa. The first channel is the negative sentiment against a country allegedly arming an invader and the loss of credibility on the view that South Africa is non-aligned in the Russia-Ukraine war.
“There are already anecdotal stories about specific companies delaying investments in fear of rising geopolitical tension and South Africa's position in the war. The country's political leadership should build on the work of the President's annual investment conferences on attracting foreign direct investment to drive manufacturing and other sectors and job creation in South Africa.”
From an agricultural perspective, trade was as important as South Africa's agriculture exports roughly half of its products in value terms, totalling a record $12.8 billion (R247bn) last year.
Maize, wine, grapes, citrus, berries, nuts, apples and pears, sugar, avocados, and wool were some of the top exportable products. Russia was said to be a small market for these, accounting for just 2% of South Africa's agricultural exports over the past five years.
Sihlobo said Africa remained a leading market, accounting for 37% of South Africa's agricultural exports in that period. Asia was the second largest agricultural market, accounting for 27% of exports, followed by the EU, the third largest market, accounting for 19%. The Americas region was the fourth largest, accounting for 7%, and the remaining 10% went to the rest of the world. The UK was one of the leading markets within the 'rest of the world' category.
The products of exports to these markets were primarily the same, with Africa and Asia importing a reasonably large volume or value of maize. Meanwhile, exports to other regions were mainly fruits and wine.
He described the US also as an important agricultural trading partner, accounting for an average of 4% of South Africa's agricultural exports over the past five years. Fruits, nuts, processed vegetables, wine, dairy products, industrial alcohol, and fruit and vegetable juices were some of the agricultural products that South Africa exports to the US.
These products benefited from duty-free access to the US under the African Growth and Opportunity Act (Agoa). This was due for renewal next year. Other industries, such as automobiles, benefited more than the agricultural sector through Agoa market access, Sihlobo said.
“Overall, South Africa is a small open economy highly integrated with the global economy through many complex channels. This means that the political leadership should position the country in an attractive way for investments and gaining market access to the world's growing economies,” Agbiz said.
Regarding the US’s allegations, Vinpro and WoSA said last week that the immediate market reaction to the allegations made by the US’s Ambassador in South Africa relating to South Africa supplying arms to Russia, was a dramatic fall of the rand against the dollar, indicating how serious the international markets consider these claims.
Vinpro and Wines of South Africa (WoSA) said they believed the government's response was unsatisfactory and brought intense uncertainty that would put the local economy, which was currently reeling under the enormous impact of load shedding and which was expected to shrink by as much as 2% of the gross domestic product (GDP) growth forecast-under even more pressure. This was something South Africa and, especially, the wine industry could not afford right now.
South Africa is the ninth largest wine producer in the world and produces approximately 4% of the world's wine. The wine industry annually contributes more than R55 billion to the country's GDP and employs 269 069 people across the value chain, of which 80 173 work on farms and in cellars.
The two organisations said these allegations, if true, would have a significant negative impact on the economy and might jeopardise the trade relations, especially what it called the much-needed continued access to US markets created under the Agoa, which would be renegotiated for a further period soon.
BUSINESS REPORT