Nedbank: SA’s potential exclusion from Agoa will devastate agricultural sector

Nedbank has raised concerns regarding the potential exclusion of South Africa from the African Growth and Opportunity Act (AGOA), highlighting the devastating impact it could have on the country's agricultural sector. The duty-free access that South African products currently enjoy into the United States could be at risk following allegations of supplying Russia with weapons amidst the Ukraine War. John Hudson, the Head of Agriculture for Nedbank Commercial Banking, provided insights on how such exclusion could affect key agricultural exports such as citrus and wine. Hudson noted that agricultural exports to the USA make up approximately 6% of the total, with South Africa being the second largest exporter to the U.S. in terms of agricultural products. The potential loss of AGOA status could particularly impact the citrus sector, as the Western Cape region, known for its black spot-free citrus production, heavily relies on the U.S. market. Currently, 9% of South Africa's citrus exports are destined for the USA, and the sector is aiming to expand its market size from 160 million to 260 million cartons. Aside from citrus, products like wine, nuts, wool, pulp, and sugar could also face significant consequences if South Africa loses preferential trade access to the U.S. Hudson emphasized the importance of diversifying markets and improving market access for these products to mitigate the potential fallout from AGOA exclusion. The uncertainty surrounding AGOA's renewal, set for 2025, poses challenges for businesses in preparing for the worst-case scenario. Hudson highlighted the need for engaging with customers to assess market penetration, potential alternative markets, and the implications of losing preferential trade access. The impact of AGOA exclusion could extend beyond increased costs of doing business to potential full-blown sanctions, affecting trade relationships with other key allies of the U.S., such as the UK and EU. The ongoing diplomatic tension has already had ramifications on South Africa's financial markets, with an elevated risk premium affecting the country's cost of borrowings. Hudson underscored the importance of considering the broader implications beyond AGOA's immediate effects on the agricultural sector, emphasizing the need for strategic risk management and resilience building. As the debates over South Africa's hosting of the upcoming AGOA summit continue, Nedbank assesses the potential materiality of the worst-case scenario on its lending book. Hudson highlighted the bank's proactive approach in running various risk scenarios and supporting clients through volatile periods. Despite challenges like load shedding, rising interest rates, and asset-heavy structures in agriculture, Nedbank remains committed to managing risks effectively and facilitating strategic discussions with clients to navigate uncertainties in the sector. In conclusion, the looming threat of AGOA exclusion serves as a stark reminder of the vulnerabilities faced by South Africa's agricultural sector. With Nedbank and other industry stakeholders closely monitoring the situation and implementing risk mitigation strategies, the sector aims to weather the storm and emerge stronger in the face of ongoing geopolitical uncertainties.