Traditionally BLSA would not comment on foreign policy issues. But our government’s stance on the Ukraine conflict is now having serious consequences for our economy and our ability to recover from the other crises our country faces.

The US and European markets are particularly important for our manufactured goods, the kind that sees far more value added within our borders. For example, 71% of vehicle exports so far this year have gone to Europe, and 15% to the US. More than a third our exports go to America and Europe and around 37% of our imports from there. US supply chains related to AGOA are deeply embedded in our wider economy beyond simply direct exports, supporting many jobs far beyond the businesses that are directly exporting. A loss of these trade relationships would be devastating for employment, leaving our economy far more reliant on raw materials exports to other developing countries.

We are already seeing major ructions on our financial markets. As of today, the rand has lost about 5% of its value against the US dollar in the last few days, trading at 19.30. South African government bonds have been hit hard, with the benchmark R2035 yield spiking from 11.4% to 12.2% in the last two days. The only time yields have been higher was very briefly at the start of the Covid crisis. These yields will make it substantially more expensive for government to roll over its growing debt obligations, increasing the amount government has to pay to service debt and leaving less available to fund important public services. The prospect of a loss of tariff-free access to US markets under the African Growth and
Opportunity Act is now a very real risk. When our current eligibility is reviewed, we should expect that South Africa could fail the access test of not threatening US national security interests. South Africa currently is the largest single beneficiary country under AGOA, with over $15bn (R290bn) of exports to the US in 2021. Our preferential trade agreement with the European Union, which facilitates even more trade than AGOA, could similarly be at risk as the EU reviews its policy framework on third country support for Russia. Other allies of Ukraine, like the United Kingdom, are also likely to look seriously at trading terms with South Africa.

We are already suffering the effects of greylisting by the Financial Action Task Force which found South Africa falls short in the policing of money laundering and terrorist financing –
issues which the US is also concerned about. Exiting this list depends substantially on technical assistance from western governments to improve the performance of our criminal justice system and our financial crime investigation and prosecution capabilities. Such assistance will not be rendered given current diplomatic relations.

South Africa has for many years punched above its weight in international diplomatic circles. We have been a long-standing member of the G20, despite having the 39th largest economy.
We were invited in the BRICS group of nations because of our strategic value, despite having a far smaller economy than the other members. This has been the legacy of South Africa’s transition, in which global goodwill saw us welcomed into the upper echelons of international diplomacy.

This period is now over. South Africa was disinvited from the G7 meeting in Japan. Our relationships with other global forums can be expected to be at risk too. South Africa has found itself able to take advantage of funding opportunities related to its status – in particular the just energy transition partnership – which can now also be considered at risk. While South Africa has proclaimed itself to be non-aligned, the accusation by the US that the country supplied arms to Russia is not consistent with such a position. Our National Conventional Arms Control Act, which governs the export of weaponry, sets as criteria for approval of any export that we should “avoid transfers of conventional arms that are likely to
contribute to the escalation of regional military conflicts” and “avoid transfers … to governments that systematically violate or suppress human rights and fundamental freedoms”. The ICC’s ruling on war crimes committed in Ukraine bears reference in this regard. Similarly, the hosting of joint naval exercises with China and Russia on the inauspicious date of the anniversary of the start of the war was provocative and not consistent with being non-aligned.

We call upon the government, under the leadership of President Cyril Ramaphosa, to act decisively to manage the economic crisis emerging from this diplomatic crisis. In particular, we urge it to immediately:

• Clarify whether the National Conventional Arms Control Committee issued a permit for the export of arms and ammunition to Russia, and if so, how this was done in
  compliance with the law.
• Clarify whether and under whose authority, with the full chain of command, arms were loaded onto a sanctioned Russian vessel in a South African naval base under
  full government and security services purview as the United States has alleged.
• Publicly make clear South Africa’s stance on Russia and the supply of weapons to that country. China, for example, has publicly stated that its position of neutrality
  means it will not supply arms to either Russia or Ukraine. We must be equally clear.
• Announce a mitigation plan to repair relationships with the United States government and the rest of NATO.

Immediate action is critical. This situation cannot be dealt with over the course of months, as will follow from the inquiry the President has announced. We cannot delay – trade relationships and South Africa’s reputation as a state governed by the rule of law will be irreparably harmed if we do not act decisively.

BLSA and its members are very concerned about the economic fallout of recent events. We are willing to support the government in any way requested to understand the impact on business and all South Africans of the potential loss of key trading and investment relationships, and market access.

ENDS