South Africa to motivate for AGOA renewal for Africa’s development
South Africa to motivate for AGOA renewal for Africa’s development
Engineering News | 27th September 2023
By: Schalk Burger
South Africa will motivate for the extension and renewal of the US preferential trade framework the African Growth and Opportunity Act (AGOA) for itself and other African countries on the basis that AGOA benefits individual countries and drives broader development on the African continent, Trade, Industry and Competition Minister Ebrahim Patel said this week.
Speaking during a joint briefing to the select committee and portfolio committees of Parliament on September 26, he said participating African countries, regional value chains and the US derive benefits from AGOA, including access to the US market for African goods and opportunities for US companies to increase their export of goods to African value chains, some of which benefit from AGOA exports back to the US.
"African countries seek the renewal of AGOA as a key means to promote African industrialisation and market access to the US. This also frames South Africa’s efforts to secure the renewal and extension of AGOA.
"Preferential access to the US market for sub-Saharan African goods, and indirect access through regional value chains, present opportunities for job creation and economic development and AGOA serves as a platform for companies to move up the value chain in manufactured products.
"AGOA allows the 34 participating African countries and South Africa to export goods to a significant consumer market," he said.
AGOA, meanwhile, helps the US to secure access to critical minerals, product value chains and investment opportunities; provides US consumers with cheaper products; and enables the US to contribute to African economic development as part of building a more inclusive global economy, Patel highlighted.
The benefits to South Africa from AGOA include job creation in agriculture and manufacturing, export earnings and economic development, which are crucial given the need to expand growth and job creation.
"AGOA provides an important opportunity and helps to ensure that we not only export raw materials in the form of minerals, but gain access to global markets for manufactured goods," he said.
"South Africa’s participation in AGOA also supports and benefits economic development in the Southern African region, with neighbouring countries providing key inputs for finished products that are exported to the US from South Africa under AGOA, including wire harnesses for vehicles from Botswana, car seats and materials from Lesotho and rubber from Côte d’Ivoire," he emphasised.
South Africa is working to secure a renewal and extension of AGOA, including through direct engagement between government and business representatives, and by lobbying members of the US Senate and Congress across party-political lines.
It was also working within regional and continental organisations to develop a common position for Africa on AGOA, and was working with South African Ministers and provinces to develop a common position on AGOA for the country, Patel detailed.
"South Africa values its economic relations with the US and it continues to be an important one for us, with the capability to be scaled up further. South Africa also provides the US with 25% of all its imports of nine critical minerals, including manganese and platinum," he said.
"In many of our engagements with US industries and political leaders, we show how economic relations with the African continent are critical, as the US is dependent on critical minerals from other parts of the world, with a large portion from the African continent."
Therefore, AGOA is not only a one-way economic reationship where African countries can access the US market, but also one where the US is able to rely on raw materials from Africa, he said.
"Additionally in our discussions, we focused on the need for African industrialisation and beneficiation, and on getting more US companies to invest on the continent for it to process its own raw materials.
"This is so that we have greater job creation, gross domestic product growth and broad-based development impacts that flow from balanced economies, which have large manufacturing bases and are not dependent on commodity price cycles.
"We also pointed out, in particular, that it is in critical minerals value chains where US companies can make an impact on the positive contribution of critical minerals to African economies," Patel said.
TRADE & DEVELOPMENT
"AGOA is an important means of promoting development in South Africa and the African continent."
When looking at the trade profiles of countries that have successfully industrialised, one of the striking features is trade with direct neighbours, Patel said.
"European Union countries conduct about 70% of their trade with neighbours, while countries in South-East Asia and North America also trade similarly significant proportions regionally.
"Historically, the African continent’s intra-Africa trade has been very limited and the clear reason for it is because of a focus on mineral and oil production. One oil producer would not sell oil to another oil producer, and a copper production-focused economy would not have much to trade with an economy that focuses on producing platinum.
"Trade is fostered when economies are diversified, and will happen when more manufacturing takes place across Africa. African industrialisation will foster greater trade between African countries and greater trade will support African industries, mutually reinforcing each other."
Therefore, part of South Africa’s strategy to derisk investments and economies is to focus on supporting the development of African markets, he added.
Additionally, the African Continental Free Trade Area (AfCFTA) will benefit AGOA and broader development of the continent, as the AfCFTA would help to overcome the structural trade flows created by many African countries being resource producers.
This is also why South Africa is focused on supporting the AfCFTA, he said.
"Part of the challenge for African countries is that, if they are only exporters of raw materials, then they are not benefitting from AGOA to the extent they can because many raw materials are not covered by AGOA, or have low import duties, making the benefits from duty-free access marginal.
"Because the AfCFTA aims to drive the industrialisation agenda in Africa, it provides the opportunity for more integrated regional value chains to be developed. Benefits to South Africa’s car manufacturing from more competitive regional value chains would lead to benefits for US consumers when buying cars.
"Diversification of economies greatly increases trade with external and neighbouring economies. For example, some US companies supply components to the South African automotive manufacturing industry for vehicles sold across the world," he highlighted.
Further, scale was important for Africa’s industries and one which AGOA enabled. Building up the efficiency and competitiveness of sectors to create a stronger manufacturing base would mean that African countries would be less dependent on preferential access to markets, but the scale of the addressable market was important to support their ability to compete globally, he added.
"Our focus as South Africa includes promoting greater African integration through the AfCFTA as an important driver of future growth. Africa’s integration is pressing and is part of the focus of South Africa’s trade relations," Patel emphasised.
