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South Africa hopeful that Obama support is indicative of a positive vote from Congress

By Jed Michaletos

Johannesburg, 5 July 2013 - With the end of colonialism and the gaining of independence by African states came the need for proper integration of these economies into the global economy. The method of integration had to change from one of dominance to one based on bilateral or multi-lateral trade negotiation. Many developed economies soon came to a realisation that the international trade playing field needed levelling with a view to ensure that the less developed countries (LDC) played a meaningful role within the global economy. As a result of this several trade agreements were concluded with the sole purpose of providing quota and customs duty free access to products of African origin into the developed markets.

One such agreement is the African Growth and Opportunity Act (AGOA) introduced by the United States of America (US) Congress at the dawn of the new millennium. The AGOA seeks to grant LDCs the opportunity to gain access into United States of America (US) market through preferentially admitting products originating from the LDCs (inclusive of South Africa) quota and customs duty free. Other reasons for the introduction of AGOA include promoting a free market system, expanding US-Africa trade relations as well as stimulating economic growth within the LDCs.

Being a beneficiary under AGOA, South Africa has been able to gain a strong foothold within global markets through trading with the United States, allowing the country to diversify its exports towards value-added products which have a greater job potential. South Africa’s trade with the US has increased considerably since 1999, a year prior to the introduction of AGOA. The US remains one of South Africa’s biggest trading partners mainly due to the product preferential access under AGOA. A major percentage of South Africa’s export business is heavily reliant on South Africa’s continued access to the US market.

However, AGOA is due to expire at the end of September 2015 and concerns have been raised by the South African government, including industry, over continued media coverage suggesting that South Africa may be excluded from participating under AGOA due to its relatively developed and sophisticated economy. The stated rationale is that that AGOA is primarily meant to benefit only the LDCs with the view to assist in the development of their economies. As soon as such economies achieve a level of development and sophistication, such countries should in principle be excluded from benefitting under AGOA. South Africa’s view is, however, that the withdrawal of AGOA will be counterproductive to Africa regional integration and will adversely affect the economy which is evidently dependent on the export to the US. South Africa is also in favour of AGOA being rolled over a significant period (i.e. 15-20 years) for certainty sake which will lead to increased foreign direct investment.

During his visit to South Africa, the US president Barack Obama expressed his support for the extension of AGOA beyond 2015 as well as South Africa’s continued inclusion therein. However, as has been widely reported, the AGOA re-authorisation decision lies with the US Legislature (Congress) a body which is known to be autonomous from the influence of the White House. In acknowledgment of this fact, the South African government is continuing to lobby with the relevant Congress-persons for the country’s export to continue benefitting under AGOA. As a result a number of visits have been scheduled by the South African Minister of Trade and Industry, Rob Davies together with the president of the American Chamber of Commerce in South Africa, Jeff Nemeth, for later this year to the United States to continue the lobbying effort.

We are confident that AGOA will be extended beyond 2015 and that South Africa will remain a beneficiary in the short to medium term. However, the question whether the AGOA will be extended over a significant period remains doubtful purely because the US may want to use the shorter review period to assess the level of development of the beneficiaries with a view to evaluate whether such economies should continue to benefit under AGOA. South Africa is likely to be the first casualty in this regard but only during the next review in the long term. This view is based on the fact that South Africa has not really prepared appropriately for this eventuality and Congress is likely to consider this in deciding on the re-authorisation. It is, however, imperative that during the next phase of AGOA  South Africa begins looking at alternative ways of ensuring that their products remain relevant to the US consumers post AGOA.

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Kerry Naidoo
Deloitte & Touche
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