South Africa is putting half its trade with the world at risk because of its relations with Russia, with hundreds of thousands of jobs on the line.
Head of agriculture at Nedbank commercial banking, John Hudson, told CNBC Africa that South Africa risks losing its trade with the United States and its allies due to its relations with Russia.
The European Union and the United Kingdom would most likely follow the United States in imposing sanctions if the world’s premier superpower deemed it necessary.
This would put 50% of South Africa’s global trade at risk, with the country’s agricultural sector hit particularly hard.
South Africa exports 160 million cartons of fruit annually and is expected to grow to 260 million cartons in the near term.
Roughly 10% of this goes to the United States, placing a significant amount of foreign exchange earnings at risk and local jobs as the sector is labour-intensive.
Hudson expects South African farmers to find other markets to compensate for the export shortfall if the country were removed from the African Growth and Opportunity Act (AGOA).
Some of Nedbank’s agricultural clients plan to export to other regions as the uncertainty over access to the US market threatens their businesses.
Even if sanctions are not applied, South Africa’s risk premium and cost of doing business in the country have already risen.
This prohibits further investment from foreign companies and even prevents local companies from engaging in long-term investments.
An increased risk premium will raise the country’s borrowing costs and negatively impact its ability to service its debt.
Locally, clients will be unable to pay off their debt, said Hudson, which will put banks under pressure with rising amounts of bad debt on their books.
The agricultural sector is particularly vulnerable to rising borrowing costs as it relies heavily on debt to fuel its growth.
US and Africa trade expert Laird Treiber echoed Hudson’s comments, saying South Africa will lose thousands of jobs and export revenue.
Treiber also said that the country had not used the AGOA agreement to its full potential, with very few resilient value chains created from exporting goods to the United States.
He also dismissed claims that South Africa would be removed from AGOA because it is a middle-income country and not because of its relations with Russia.
“There is no question that South Africa-Russia relations have raised issues in Washington”, Treiber told Newzroom Afrika.
These issues must be resolved between South Africa and the United States before the country can consider renewing its position in AGOA.
However, Treiber also said the United States would lose if South Africa is removed from the agreement or sanctioned.
The United States imports significant amounts of South African citrus, vehicles, industrial equipment, and minerals.