Exploring the benefits of Preferential Trade Agreements in the context of South African based SEZs: Spotlight on AGOA

The OR Tambo International Airport SEZ is one of 11 SEZs presently gazetted in terms of the South African Special Economic Zone Act.

Approved as designated areas set aside for targeted economic activities, the purpose of the South African SEZ programme includes the attraction of foreign as well as domestic investment, the promotion and establishment of industrial activities in select sectors or industries, innovation uptake, enhanced regional development as well as the production and export of products from South Africa to global markets. It is in respect of the latter that South African SEZs can explore opportunities available through Preferential Trade Agreements (PTA) for the enhanced export of goods manufactured locally for the international market.

Once such PTA or programme is the African Growth and Opportunity Act (AGOA).

With the recent US – Africa Business Summit held in Botswana from 11-14 July 2023 at which private and public sector stakeholders from U.S and African countries engaged and provided insights on trade related issues, this paper unpacks the Africa Growth and Opportunity Act, its trade performance and applicability to the OR Tambo International Airport SEZ.

The African Growth and Opportunity Act

The African Growth and Opportunity Act (AGOA) was initially enacted in 2000, and has since been extended twice, with the latest extension coming to an end in 2025. The Act provides competitive market access to eligible sub-Saharan African countries: through the provision of duty-free trade of designated goods into the US market. County eligibility is determined by the country’s commitment towards upholding the rule of law, eliminating barriers to trade with the US and protection of human rights. On the other hand, eligible goods should either be fully extracted or sufficiently manufactured in an AGOA eligible country and imported directly to the US.

Beneficiaries of AGOA and it’s trade performance

Since the enactment of AGOA, 36 sub-Saharan countries have benefited from the programme (as of 2023, only 35 countries are eligible), with close to 6000 products making it into the eligible goods list. In 2022, total AGOA exports amounted to a value of $30 billion. Presently, the top exporting countries under AGOA are South Africa, Nigeria, Ghana, Cote d’Ivoire, and Angola.

Figure 1: Top AGOA export beneficiaries into the US Market (source AGOA.info)
Figure 1: Top AGOA export beneficiaries into the US Market (source AGOA.info)

South African Trade relations with the U.S

South African has strong trade with the US, owing to its established capabilities to locally manufacture value-added products, when compared with other sub-Saharan countries. Between 2016-2021, South Africa exported R651.3 billion worth of goods and services to the United States, with exports under AGOA (including the General System of Preference or GSP) accounting for nearly 25%.

Figure 2: Breakdown of South African Exports to the US
(Source AGOA.info; COMTRADE data)

A closer look at the statistics however reveals that whilst overall trade between South Africa and the USA increased between 2010 and 2022, exports under AGOA declined slightly between the 2010- 2022 decade with a more noticeable decline under the GSP regime during the same time frame. These decreases, specifically notable between 2020 and 2022 were mainly due to the constraints in trade and manufacturing caused by the COVID-19 pandemic, which had a dire impact on the global supply chain.

Top Products Exported to the USA

The minerals and metals sector is the top exporter by value into the U.S market; however only 7% (mainly jewellery) is exported under AGOA (figure 3). The Automotive, Agricultural and Chemical industries also contribute a significant percentage in terms of total AGOA exports. The strong trade in the precious metals market mainly lies in SA’s endowment in mineral resource.

Figure 3: Breakdown of products exported to USA under AGOA (Source: AGOA.info)

Gauteng’s Trade with the US Market

Specific to Gauteng city region, the province represents approximately 30% of goods and services into the U.S, making it the largest trading province with the US and, South Africa’s largest recipient beneficiary to AGOA. Below is a tabular representation of the overall top products originating from Gauteng for trade to the US:

CountryShare of Gauteng ExportsTop 5 Exported GoodsTop 5 Fastest Growing ExportsCompetitive Exports
USA4.74%- Ores and slag
- Motor Vehicles
- Iron and steel
- Organic Chemicals
- Precious stones and metals
- Capital Equipment
- Cotton,
- Cereals,
- Tin related articles and
- Vegetable preparations.
- 23% Organic chemicals
- 14% Aircraft and spacecraft parts
- 10% Original equipment components
- 9% Motor vehicles
Table 2: Summary of Gauteng’s export trade with the US (GGDA BI)

Unpacking SA’s SEZ policy and potential benefits from AGOA

To respond to the opportunity of enhancing export-led growth, South Africa has enacted the Special Economic Zone Act which simply put, allows for manufacturers within geographically demarcated zones or areas to access special tax incentives as provided by the Act.

The mushrooming of SEZs across South Africa and the rest of the sub-Saharan Africa region provides a platform for eligible countries to maximise the benefits of preferential trade programs such as AGOA: by attracting investment to boast manufacturing activities for export to huge consumer markets.

The above notwithstanding, it should be noted that whilst PTAs such as AGOA allow for developing markets to export to advanced economies such as the US, there is a need to ensure that the incentives offered do not promote trade at the cost of policy autonomy by the offering country or for that matter, an un-even regional heterogeneity outcome that can impact the broader development of the African continent.

The OR Tambo International Airport SEZ Offering

The OR Tambo International Airport SEZ provides a competitive edge in the form of its geographical location, in lieu of its placement at the largest and busiest airport in sub-Saharan Africa. In considering AGOA and the benefits of enhancing products manufactured in South Africa for the US market, this SEZ is well placed to drive exports to the world’s foremost consumer market.

Presently, there are one or two passenger flights flying out of OR Tambo International directly to the US daily. Furthermore, connection flights exist through other destinations such as the UAE or even the EU, further enhancing air freight export from the OR Tambo International airfreight hub and SEZ to the largest economy globally.

A statistical analysis reveals that major products exported to the USA through OR Tambo include Rhodium, Palladium, Platinum and other precious metal ores and concentrates.

With a focus on high value, low mass products that utilise air freight as a mode of transport, OR Tambo SEZ is well positioned to facilitate the production and export of products that form part of the AGOA regime (e.g., jewellery, agriculture products or automotive components).

Specific to jewellery, a bold development already underway at the OR Tambo SEZ is construction of a globally competitive Jewellery Manufacturing Park. This development clusters and plays host to a variety of players in the jewellery and precious metal fabrication industry, with a view of firstly, enhancing the operational competitiveness of investors in the Zone and secondly facilitating their access to key incentives that reduce production costs. These incentives include the standard SEZ incentives such as VAT relief, import duty customs relief and the Employment Tax Incentive.

Through all the above, it is envisioned that products beneficiated at the Zone with an export focus will increase. With the completion of its Phase 1 development, plans are already underway to expand the SEZ with a view of accommodating more investments in the manufacturing of, inter alia, capital equipment, pharmaceuticals, medical devices, and automotive components for the global market.

For more information visit: www.ortambosez.co.za

Email: info@gidz.co.za