South Africa’s ‘useless’ lifeline

While the extension of the African Growth and Opportunity Act (AGOA) has been extended, it is essentially rendered irrelevant by existing tariffs that undermine the agreement’s benefits.

These tariffs present a notable threat to South African exporters, with companies in the agricultural and manufacturing sectors, in particular, facing potential closures and job losses.

This is set to exacerbate South Africa’s already strained employment landscape, with the country requiring substantial reforms to ensure sustainable growth and competitiveness going forward.

Aluma Capital chief economist Frederick Mitchell explained that the extension of AGOA, valid from 30 September 2025 to 31 December 2026, comes at a precarious time for South Africa.

The AGOA was introduced in 2000 as a way for sub-Saharan African countries to gain duty-free access to the United States market for over 1,800 products, with specific sectors seeing immense benefits from the agreement.

However, the country has been under immense scrutiny from United States lawmakers, which put South Africa’s inclusion in the AGOA in jeopardy.

Luckily, on Tuesday, 3 February, US President Donald Trump extended the AGOA, with South Africa still included.

This was met with relief from Trade Minister Parks Tau, who welcomed the extension and noted its potential to bolster business stability in the country.

However, Mitchell pointed out that the current context presents a paradox – “while the extension technically exists, it feels almost irrelevant given the existing tariffs that undermine its benefits”. 

“As a result, businesses in these sectors face the grim prospect of losing market share in the US,” he explained. 

“Due to the high tariffs, firms may experience closures and significant job losses, exacerbating an already challenging employment landscape.”

Mitchell specifically pointed to the agricultural and manufacturing sectors, which face the brunt of US tariffs.

Under the US tariffs introduced in 2025, all South African agricultural products are subject to 30% tariffs. 

For the manufacturing sector, vehicles and auto parts face a 25% tariff, while all other manufacturing products are subject to a 30% levy.

The table below, courtesy of the Reserve Bank, shows all of South Africa’s export products that are subject to the tariffs imposed by the United States.

Agriculture in agony

Mitchell explained that the agricultural sector is a cornerstone of South Africa’s economy, employing about 920,000 people. However, the sector faces notable challenges from both domestic and external sources.

Externally, United States tariffs threaten to severely harm the competitiveness of South African agricultural exports.

The local agricultural sector is highly export-dependent, and the United States is a significant trading partner, with the US accounting for around 7.7% of the country’s exports in 2024.

Although agricultural exports account for only a small share of total exports, they are fully exposed to the new tariffs, with citrus, sugar, and wine among the most affected.

This is concerning, as it means South African products face a 30% tariff while competing products from other regions are subject to lower tariffs, making local products significantly less competitive.

In addition, South Africa’s agricultural sector faces pressure from both within and outside the country.

Domestically, Mitchell said, recent governmental policies have introduced additional layers of complexity for the agricultural sector. 

He pointed to new Broad-Based Black Economic Empowerment (B-BBEE) policies that require agricultural exporters to meet specific racial criteria to access export permits. 

“Critics argue that these measures unfairly disadvantage white-owned farms and could stifle the very growth that South Africa desperately requires,” he explained.

“Moreover, proposed amendments to water use licenses, which would necessitate a significant portion of shareholding to be allocated to black South Africans, threaten the operations of established agricultural producers.” 

“Both sets of policies risk harming the food security and sustainability of an industry that not only serves domestic needs but also has vital export markets, including the European Union, where specified quotas allow for predictable access.”

Manufacturing melancholy

Similarly, the local manufacturing sector faces threats from both domestic and external challenges.

Mitchell pointed to high electricity costs and regulatory hurdles, including stringent labour laws and high corporate taxes, within South Africa as creating fraught conditions for local manufacturers.

“The closures of key manufacturers like ArcelorMittal and GoodYear highlight the urgency for addressing systemic issues within the sector,” he said. 

“Transitioning towards a more competitive manufacturing landscape is essential to halt the alarming trend of de-industrialisation that threatens job security for countless families.”

The manufacturing sector’s struggles have been a long time coming, with South Africa’s fixed investment, from both the public and private sectors, having been in decline for years.

South Africa’s gross fixed capital formation, a measure of fixed investment, as a proportion of GDP, is currently at around 15%. Ideally, this figure should be between 20% and 25%.

Positively, there are signs of improvement in this regard, with the government implementing a R1 trillion infrastructure investment plan and the private sector also stepping in to lift fixed investment levels.

“Given the recent decline in public sector investment, with a focus on delivering existing projects rather than initiating new ones, the private sector has stepped in, increasing fixed investment in critical areas such as telecommunications and renewable energy,” Mitchell said. 

“This shift demonstrates resilience and a commitment to improving South Africa’s economic infrastructure.”

Overall, Mitchel said that while the AGOA extension provides some relief for South African exporters, “it is evident that substantial reforms are needed to ensure sustainable growth and competitiveness in both the agricultural and manufacturing sectors”.

“Addressing regulatory burdens, fostering an enabling environment for investment, and balancing transformation objectives with economic realities are paramount,” he said.

“In this way, South Africa can hope to navigate its complex international relationships while driving economic growth and job creation in the years to come.”