As the BRICS alliance gears up for expansion and potentially includes more countries in its upcoming leaders’ summit in South Africa, a crucial aspect may have been overlooked: the potential impact of geopolitics on global commerce and economic relations, particularly involving BRICS nations. The BRICS framework may face new pressures as businesses find themselves compelled to take sides in the escalating rivalry between China and the United States. These global tensions are already unfolding in critical sectors such as food and technology.
The Implications of Sanctions and South Africa’s Potential Expulsion from AGOA
While traditionally the BRICS nations have strived to maintain neutrality, the intensifying competition between major powers may push businesses from these countries and beyond to align themselves with one side or the other.
Presently, Russia faces severe economic sanctions that have significantly impacted the operations of its businesses. The sanctions imposed by Western countries envisioned placing severe constraints on Russia’s international trade, access to global financial markets, and the establishment of partnerships with foreign bodies. The impact of these sanctions, however, has not been as significant as initially anticipated. The European Central Bank recently revealed that, according to its calculations, the trade volume between the EU area and Russia since February 2022 has halved.
Despite the limitations it continues to face, Russia has managed to mitigate the effects of sanctions by diversifying its trade partners and fortifying economic ties with non-Western nations, thereby reducing its dependence on Western markets. The country has leveraged its energy sector to sustain a particular level of economic steadiness and resistance. Notably, India, China, Turkey, and Bulgaria have become major buyers of Russian crude oil, significantly increasing their purchase volume compared to before Russia’s involvement in Ukraine.
All the while, South Africa is facing mounting pressure from the United States. In February 2023, a resolution in the US Congress called for the Biden administration to affect a comprehensive review of the US-South Africa relationship in light of South Africa’s armed forces drills together with Russia and China.
Due to the escalating tensions, South Africa’s participation in the African Growth and Opportunity Act (AGOA) and the US-South Africa Trade and Investment Framework is now at stake. Importantly, on 9 June 2023, a group of Democratic and Republican US lawmakers requested that the location of the upcoming AGOA summit be changed, in anticipation of South Africa’s potential removal from AGOA. The request to move the summit away from South Africa is premised on the statutory requirement that AGOA beneficiary countries refrain from engaging in activities that undermine US national security or foreign policy interests. If this development were to materialise, it would have major implications on South Africa’s trade, as AGOA enables South Africa to export 25% of its products to the US, which is South Africa’s second largest single nation trading partner, on a duty-free access basis.
Additionally, as both a signatory of the Rome Statute and the current chair of BRICS, South Africa is expected to take action to apprehend Russian President Putin following an arrest warrant issued against him by International Criminal Court in March 2023. In this regard, Western countries have placed substantial pressure on South Africa as they anticipate Putin being arrested on African soil. These political developments, coupled with allegations of weapons sales to Russia, could have severe ramifications for South Africa’s trade relationship with the US and further significant implications for its economic ties to the US market.
If South Africa were to be expelled from the AGOA scheme, either immediately or in 2025 when the current AGOA window expires, it would result in substantial losses for South African companies. The loss of South Africa’s AGOA status would likely have the most severe impact on South Africa’s vehicle exports sector.
Manipulating Food Security for Political Ends
In recent years, China has actively pursued robust partnerships with various countries, aiming to exert its influence on the global stage and advance its strategic objectives in an evolving geopolitical landscape. In April 2021 Chinese President Xi Jinping underscored the importance of food security as a fundamental element of national security, particularly in the face of a growing global food crisis. As a major consumer of key crops such as corn, wheat, rice, and soybeans, China has been seeking alternative sources to reduce its dependence on the United States and Ukraine.
Over several years, negotiations within the World Trade Organization (WTO) regarding agricultural subsidies have shifted dramatically from a North-South dynamic to a conflict primarily premised on the US and China. The US, being the world’s largest agricultural exporter, aims to curb China’s subsidies and insists that it will only agree to stricter regulations on its own subsidies if similar rules are applied to China. Beijing’s firm stance in seeking exemption from new subsidy restrictions as a developing nation has resulted in a deadlock in negotiations. The trade tensions unfolding in the WTO, coupled with strained relations with the West, has prompted Beijing to actively diversify its sources of wheat imports.
Furthermore, in addressing food security challenges posed by factors such as adverse climate conditions, the Covid-19 pandemic, and the conflict in Ukraine, China has traditionally relied on external sources for its agricultural supplies, particularly the US, Ukraine, and Brazil. In April, China made a significant move by cancelling substantial corn orders from the US and opting to import from countries like South Africa and Brazil.
In light of the above developments, diversifying trade partners, bolstering regional economic integration, and promoting intra-BRICS cooperation can assist to mitigate risks and enhance resilience against external pressures.