What would US sanctions mean for SA businesses?
|Published
By Richard Firth
American economist Thomas Sowell once said: “The first lesson of economics is scarcity: There is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
While there have been many treatises written about the accuracy of this statement, current events playing out in South Africa prove that it is at least half true. When it comes to politics, economic concerns are usually disregarded – or at the very least, ignored in favour of political manoeuvring.
South Africa’s support of Russia amid the ongoing war in Ukraine has led to the USA threatening to level sanctions against the country. Despite the very real threat, and the very real negative consequences that could arise as a result of sanctions, many South Africans seem unaware of the potential impact it could have on their lives.
Sanctions could kill your IT systems
I write this as a technologist, a software engineer and the CEO of MIP Holdings. We recently received accreditation from Gartner as one of only 15 policy administration systems that they would recommend in the financial services sector in Europe, Middle East and Africa. We are the only African software company on the list.
It is in the context of my experience in the technology sector that I am looking at what US sanctions would mean to the industry in South Africa, and therefore to every South African company, personal computer, municipality or state institution.
Every piece of software that runs on any computer hardware is dependent, right now, on US technology companies supplying licenses for the systems to run successfully.
To put this into perspective, for software to operate successfully on hardware, whether it be operating systems, financial systems, banking systems, billing systems, manufacturing systems or compliance systems, each has to be licensed.
At their most basic level, each of these systems needs a database. 100% of all computer system applications running today in the world use databases like Microsoft SQL Server, MySQL, DB2, Progress or Sybase.
All of these products are designed, built and owned in the US, and every one of these systems need user, access or license codes to operate. These access codes are confirmed in real-time every time a user accesses a computer system or uses a piece of machinery.
All modern cars, for example, utilise this type of technology to ensure that licenses are paid up, the software or databases are valid and versions are up to date. If a license code is de-activated for any reason, the device – no matter how big or small – will stop working!
Detrimental consequences
Should sanctions be levied against South Africa by the USA, it’s most likely that they would be imposed at an individual level, rather than more broadly. This would remove the risk that licences could not be purchased or renewed for mission-critical systems.
However, should the US government decide to apply broader sanctions that include software licences, no municipality would be able to collect money, no tax office would receive money, no company could pay their employees and no company would be able to bill their customers!
This scenario is almost the same as water and electricity being cut-off at the same time.
This is not just an idle threat – we saw the detrimental consequences of sanctions first-hand in Iran during the exploratory phase of a contract with one of the country’s mobile network operators.
As a result of sanctions, licences for the necessary software were unobtainable, except through illegal options, so MIP walked away from what would have been a lucrative deal.
What’s AGOAing on?
Just the threat of sanctions has already caused potential problems with South Africa’s existing US trade agreements. Naledi Pandor, Minister of International Relations and Co-operation, has proposed that the country moves to a BRICS currency to circumvent trading in dollars, and there have been numerous reports that South Africa may have its host status revoked for the upcoming annual forum for the African Growth and Opportunity Act (AGOA).
The AGOA Act provides duty-free access to the US trade market for about three dozen African nations. South Africa exported about R60 billion worth of goods to the US through AGOA last year.
The current AGOA agreement is due to expire in 2025, so many are concerned that the threat of removal will be used to push South Africa’s political backing away from Russia to a more neutral approach.
However, Thomas Stamey, a student at the Cornell University in New York, did research on behalf of RMB to see if the impact of being kicked out of AGOA is as serious as people think.
He found that South Africa represented 52% of all AGOA exports in 2022, but that removal won’t be as damaging as has been stated.
“AGOA is a fraction of South Africa’s exports. The US represented 9.4% of South Africa’s exports in 2022 and AGOA exports were only 20.7% of US exports. So AGOA was 1.95% of South Africa’s total exports in 2022. Agriculture in South Africa had 66.6% of its exports to the US under AGOA,” he explained in an interview.
AGOA may be a relatively small piece of the South African economic pie, but every company and individual in the country needs access to the computer systems that run their day-to-day lives.
Should the US impose far-reaching sanctions, doing business will become that much harder, leading to a knock-on effect that would set South Africa back decades.
Richard First is the CEO of MIP Holdings.
BUSINESS REPORT