<blurb> South Africa must proactively plan its exit from the African Growth and Opportunity Act (AGOA). The country’s declining exports to the US, dependence on subsidised industries and vulnerability to Trump’s tariff threats demand a strategic exit plan, says Donald MacKay, CEO of XA Global Trade Advisors.
I will eat my hat if we get to the end of 2025 and South Africa still benefits from AGOA – the US legislation giving preferential access to the American market for most African states.
AGOA is not a trade agreement and, although valuable, I believe the cost of the preferential access is beginning to outweigh the benefits. The decision our politicians need to make is whether we are better off waiting for the axe to fall or whether we should choose the time and terms of our exit.
I don’t believe grovelling before President Trump will accomplish anything. Trump seems determined to punish South Africa for things we mostly haven’t done but, in a world untroubled by facts, this doesn’t seem to bother the First Citizen.
Before we hit the panic button, let’s look at the AGOA facts.
What do we export to America?
Around half of what South Africa exports to America is rocks on ships (minerals). This is the same for most of the world, apart from the rest of Africa.
We export less to the US than we used to. Our total exports have dropped by 21% over three years to US$8.5 billion. About 7% of these exports go to the US.
Despite this drop, our exports under AGOA have grown largely because we are selling more cars to the US. Exports under AGOA account for 48% of all exports to America – up from 33% in 2022.
The 7% of our total exports to America equates to 0,44% of its total imports in 2024. We are literally a rounding error. Add the rest of Africa and we are still below 1%. This is why AGOA is so politically powerful. No matter what the US does with AGOA access, it cannot impact the US market one way or the other.
What is the cash value of AGOA, I hear you ask? Around US$134 million per year in duties saved by American importers. Not nothing but hardly material. These benefits are highly concentrated (11 companies account for 70% of the benefits and two of those are in the auto industry).
Automotive – 42% of our AGOA exports (subsidised) went to the automotive industry, saving car buyers in America US$47 million in duties in 2024. One local car producer accounts for 73% of those benefits and two make up 94%. Because the import duties on cars into the US are only 2,5%, the benefit is commensurately small. If we lost our benefits, between the producers and the buyers, they would eat the 2,5% duty (the European Union pays the 2,5% and still moves cars in volume). A far bigger risk is that Trump looks at our 25% customs duties on cars from America and decides that cars from South Africa should also pay a 25% tariff. He calls these reciprocal tariffs but most experts call it insanity.
Aluminium – 13% of our AGOA exports (subsidised) – the next biggest category (mainly unwrought so primarily not fabricated aluminium) made sense in the 90s when South Africa was awash in cheap electricity. Getting investors to build power-hungry businesses to consume the excess power made sense. So much sense, in fact, that they received their electricity at a hefty discount and still do. South Africa doesn’t have the bauxite required to make aluminium so this is imported. Our electricity is added and the aluminium billets are exported. This is not immaterial as 25% of our aluminium goes to America.
It is rumoured that the Hillside aluminium smelter in Richards Bay pays 17 cents per kWh for electricity while the rest of us pay around R1,95 per kWh. For reasons that make no sense, the actual size of the discount is kept secret. But Hillside consumes around 5% of South Africa’s power, which is a lot. If Trump really wants to play the reciprocal tariffs game, he should be dropping his duties on unwrought aluminium, given we have zero duties.
If Trump pushes the tariff up to 25% for everyone, we will lose some volume to local producers but there is nowhere near enough capacity to take up the slack and it’s not obvious there will be a rush to invest in more smelters. The current nameplate capacity in America is around 650 000 tons a year although only 50% of this is used. The new Century Aluminum Company will add 428 000 tons to the system when completed. It will also be paid US$500 million in subsidies from the Department of Energy so that certainly makes the investment a lot more appealing.
America imports around four million tons of aluminium a year. Putting up a smelter takes years. Century Aluminum will break ground this year and finish in 2030 so, when Trump increases the aluminium tariffs to 25%, capacity doesn’t magically appear. The price of aluminium in the US will shoot up. AGOA makes no difference here. As far as I know, South African exports of aluminium attracted the 10% duty imposed by Trump in 2018 and trade still flowed.
Iron and steel – 9% of AGOA exports (mostly subsidised) to America is mostly produced by mini-mills, which receive R8,5 billion per year in subsidies. They will call for more if AGOA goes but they always call for more. There is way too much steel capacity in the market, which is a problem needing to be addressed. Much of the capacity ends up dumped in foreign markets, including the US.
Fruit and nuts – 6% of AGOA exports (not subsidised) – exporters will really feel the pain although the rand value is much smaller. Our top three exports in this category under AGOA are all subsidised but our agricultural goods are not and this is a very big difference indeed. It is an indictment on South Africa’s competitiveness that our top three exports to the US are all subsidised.
Our options are stark:
- Grovel and hope Trump takes mercy on this country (don’t hold your breath).
- Panic and scream until our AGOA benefits are removed.
- Plan an orderly exit from AGOA and start the process of withdrawing under our own terms.
I know which option I prefer.
