South Africa’s poor competitiveness to blame for US trade failure

South Africa has not benefitted significantly from being a member of the United States’ African Growth and Opportunity Act (AGOA) due to the country’s declining economic competitiveness. 

This is feedback from GIBS Professor Adrian Saville, who spoke to Newzroom Afrika during the three-day AGOA Summit in Johannesburg. 

AGOA provides duty-free access to the American market for most agricultural and manufactured products from African member states. 

“The spirit of AGOA is to provide the opportunity to facilitate economic growth through industrial trade with the biggest market in the world,” Saville said. 

The aim of this is to increase the competitiveness of African economies, including South Africa, to a point where they no longer need preferential access to the US market. 

“The imperative is to turn the idea into action. That is where things start to become interesting if we start to look at whether there is evidence of success.” 

According to Saville, South Africa has not made full use of AGOA despite the West and, more recently, the US being the country’s most important economic partner. 

Through an economic lens, not much has actually happened, with no examples of new industries that have emerged or trade volumes that have increased because of the agreement. 

“Read at face value, the agreement has had, at best, a marginal impact,” Saville said. 

However, this is not due to the failure of the United States but rather, “this is a result of South Africa’s sagging competitiveness”.  

South Africa’s participation in world trade has consistently declined for the past 40 years. There is nothing new about the country’s falling economic competitiveness. 

Notwithstanding the preferential access South Africa has to the US market, the country has been failing to produce exports competitively for decades. 

Saville’s warning that South Africa is losing its competitiveness echoes that of the CEO of Africa’s largest bank, Sim Tshabalala. 

Following the presentation of the bank’s interim results earlier this year, Tshablala said South Africa is falling behind the rest of the continent. 

Tshabalala explained that South Africa is involved in a global competition with its African counterparts and other emerging markets for scarce capital to drive economic development. 

“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund Eskom and Transnet, and finance corporate projects.”

The most significant factor in attracting capital is the country’s risk premium, which dictates the returns an investor should expect for taking on the risk of investing in a given country. 

This directly impacts a country’s ability to raise capital and the companies that operate in it. As this premium increases, which it has in South Africa, it makes it more difficult to attract investments in local businesses and finance the government’s deficit. 

“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa,” Tshabalala said. 

The critical factor is the rate at which the economy is growing. South Africa is expected to grow at less than 1% in 2023, while other African countries will average greater than 3% growth. 

“What does this mean? It means that we are losing our national competitive advantage. We need to grow faster and get people healthier and wealthier,” Tshabalala said. 

A wealthier population will also generate more capital to invest locally and drive further economic growth. 

“We are growing at 0.8%. Other countries are growing much faster. Where do you think that money is going to go? It is going to go to other countries and not South Africa.”

The biggest impediments to South Africa’s economic growth are an unstable electricity supply, logistical inefficiencies, and crime and corruption.