Experts and the automotive industry believe that the African Growth and Opportunity Act (AGOA) will not be renewed and believe that South Africa should look at other markets to support the auto industry.
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As the African Growth and Opportunity Act (Agoa) faces uncertainty over its renewal in September, South Africa's automotive industry is bracing for turbulence, with experts on Tuesday warning of significant repercussions if the preferential trade programme is allowed to expire.
The Agoahas been a cornerstone for the country’s automotive sector, providing duty-free access to the lucrative United States market. Without it, the local automobile landscape could face dire consequences.
Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers (Naacam), stressed the critical role that Agoa has played in not just boosting export growth, but also attracting vital investments into South Africa’s automotive sector over the past two decades.
“Agoa provides South African automotive component and vehicle manufacturers with preferential, duty-free access to the US market. This has not only supported export growth but also contributed to attracting investment into the sector,” Moothilal said.
In 2024, South Africa exported an impressive R24 billion worth of vehicles and R4.3bn in components to the US, affirming the nation's position as the second-largest exporter of automotive components after Germany.
This trade relationship is not merely transactional; it is vital for job creation and economic stability in a country grappling with high unemployment rates.
“The benefits of Agoa are not just sectoral; they extend across the economy through export growth, employment, industrial diversification, and regional development,” Moothilal said.
“Losing Agoa would create headwinds at a time when the country and its partner countries on the African continent need to solidify their industrial base and promote value-added exports.”
Professor Raymond Parsons, an economist at the North-West University (NWU) Business School, echoed these sentiments, arguing that the likely non-renewal of Agoa indicated challenges extending beyond just the automotive industry.
He cautioned that South Africa must immediately explore new and existing international alliances to pivot towards alternative markets.
“Economic negotiations with America will also need to be recalibrated and stabilised. New trade negotiations with America may yield some possible new agreements or compromises,” Parsons said.
“But the future of the automotive sector will also depend on SA as a whole now developing a different mindset and strategic thrust about how its overall economy can be more competitive in alternative markets, including within Africa.”
Dr Noluthando Phungula, an international relations expert from the University of KwaZulu-Natal, said that the loss of Agoa was sure to reshape South Africa's trade dynamics, adding that the automobile industry was going to be impacted.
Phungula said the industry has been already seeing a shift away from global giants towards Chinese manufactured vehicles.
“This is evidenced by the major closing down of many of these global brands throughout South Africa. This shift may offer new opportunities for South Africa's automotive industry,” she said.
Waldo Krugell, an economics professor at the North-West University, said South Africa's auto exports could face a 25% tariff into the US independent of Agoa.
“It will also apply to components. This is true for all exporters to the US, so it is not only our loss of price competitiveness. The impact will be on everyone when demand in the US falls. Americans will simply buy fewer of the more expensive cars,” Krugell said.
“The exporters of completed cars can try to sell in other markets, but component manufacturers will struggle. They are producing components that are made to be part of a very specific value chain, and if those orders decrease, no one else wants that transmission or dashboard or leather seat or whatever.”
BUSINESS REPORT