President Ramaphosa, in admiration of China’s foreign policy posture on Russia, stated that “the ANC detested the domination by a single state or its nation’s military, economic power, and social and cultural influence over how the rest of the world ought to conduct itself regarding the recent political developments across the globe.”
China and South Africa claim to be non-aligned in the Russia – Ukraine war, but the difference between the impact of China and South Africa’s stance couldn’t be starker. China is the second largest economy in the world, and we are literally a rounding error at 0.25% of global GDP.
As South Africa makes decisions about the war in Ukraine, we need to be aware that our actions are being closely watched by Ukraine’s allies, particularly the USA and the EU.
Our patterns of trade
The EU, the biggest economic bloc in the world, accounts for 22% of our exports and the USA, the world’s biggest single economy, accounts for 9%. Add the UK (7%) and we export 36% of everything to those three regions. Russia accounts for 0.23%. Our exports to the EU and the USA make up less than 0.5% of their respective imports.
In the recent United Nations vote on whether Russia should withdraw from Ukraine, 144 countries voted for them to withdraw (31 were African – 22% of the votes, but 66% of the African vote), 31 abstained, including South Africa and 15 other African states, and seven for them to remain (the usual reprobates, such as North Korea, Eritrea and of course Russia). The rest didn’t vote. 65% of our exports go to the countries that voted for Russia to leave Ukraine, 26% to the abstains and 0.31% to the scoundrels.
I assume a conscious decision was taken to vote this way, presumably by the same crème-de-la-Kremlin, who decided to play war games with a country that just started a war. I am unsure of the rationale, but no one thinks we’re non-aligned (a legitimate position if we behaved that way). Maybe we’re trying to impress China or give the finger to ‘the West’, but we no longer punch above our weight diplomatically. Our saving grace may be that no one cares anymore.
The implications of the direction we are taking
The African Growth and Opportunities Act (Agoa) will be reviewed at the end of 2025 and in the best but unlikely scenario, we will retain our current benefits. More likely, we will see a reduction in benefits and in the worst case, we will be completely removed as a beneficiary. Agoa is a stroke of foreign policy genius because it’s American legislation, not a trade agreement. If countries wish to benefit, they need to comply with the rules of the Act or lose their benefits. As Francois Fouche pointed out in his brilliant article on Agoa, we would not be the first to be relegated out of Agoa.
To understand our vulnerability, we have to understand which of our exports we have market control over (they can only buy from us). Those products will be fine no matter what happens. These are mostly minerals and precious metals and account for 47% of our exports to the USA.
Then we export products which are only competitive because of Agoa. By value, almost all of this is automotive. No one would simply shut their factory because they have lost Agoa benefits. However, when the next car model’s production destination needs to be assessed, losing the benefits would definitely be part of the calculus. Our exports under Agoa are less than 20% of our exports to the USA for 2022. The automotive industry cannot simply replace lost US exports with exports elsewhere.
Almost half our exports to America are things we dig out of the ground. Some of these fall into the first category, such as chrome and platinum where we’ve been blessed by having most of the world’s reserves, but for the rest, countries like Australia would be happy to take our place. They’ll replace our wine too. They already have a trade agreement with the US and countries like Kenya, are well on their way to tie up an agreement with them too. We started trade agreement negotiations with the US in 2004, but as soon as Rob Davies took over as Minister of Trade and Industry, he shut that down, probably for good.
Our pattern of exports to the EU doesn’t look much different. Lots of stuff we dig out of the ground, followed by automotive and some agricultural goods. Just like America, these are heavily concentrated in a tiny number of companies. The trade agreement with the EU gives us some protection as they can’t simply withdraw benefits, but we may find it takes very long for the newly negotiated improved access to things like wine to materialise. And expect more varieties of the false coddling moth problem, which currently plagues our citrus industry, to persist. Also, the Carbon Border Adjustment Mechanism in Europe to tax the trade carbon-intensive goods. According to Our World In Data, we are the most carbon intensive energy producer in the world, so that’s going to be a large problem quite soon.
Our saving grace is that SADC (including SACU) accounts for 21% of our exports, just 1% below the EU. The rest of Africa, which is meant to open under the AfCFTA, is 2% of our exports. But Africa, packed to the back teeth with minerals, doesn’t buy what we sell to the Yanks and the Europeans. They are also mostly poor and so are limited in how much they can buy.
Whether Russia wins or loses, our behaviour now will feed into how our largest trading partners view us. We would probably get a pass on our recent military blunder, but if we host Putin in SA for the Brics meeting in August, we will have crossed a line, which I think we will struggle to walk back from unless we arrest him. Lol.
I doubt we will face direct sanctions, but the slow burn of the bridges between us will continue. Business will bear the brunt of the government’s stance. If this is not adequately addressed, the implications will be severe.
This is the stuff we think about. If you trade to any significant degree globally call us. We would love to discuss ways you can de-risk from this looming problem.