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South Africa’s ‘other downgrade’

The economic consequences of reducing bilateral relations between Israel and South Africa.
The forthcoming ANC elective conference is certain to be South Africa’s big news item in the weeks until it kicks off on December 16. Against the background of rising sociopolitical stress and a grinding economic malaise – of which the downgrades of the country’s credit worthiness were perhaps the most serious – South Africans of all political stripes will be looking to the conference outcomes for a sense of the country’s future. A small, but important part of this will be its deliberations on foreign affairs, most notably the country’s ties with Israel.
Call it “the other downgrade”. In July, the ANC’s National Policy Conference adopted a resolution to be discussed by the national conference: “The commission called for the downgrading of the SA Embassy in Israel to send a strong message about Israel’s continued illegal occupation of Palestine and the continued human rights abuses against the peoples of Palestine”.
As the wording indicates, this action is proposed to serve an explicitly political goal, to “send a strong message”. Whether an embassy downgrade will do this is unclear. Equally unclear is whether such a move would be free of adverse consequences for South Africa.
For a country with an unemployment rate of nearly 28% and growth creeping along dismally at below 1%, any policy choice needs to be undertaken with full appreciation of its potential economic impact. Ideological satisfaction can turn sour as consequences unfold.
To try to understand what would be at stake if this should become government policy, Tutwa Consulting – a respected, Pretoria-based analytics firm – recently compiled a study of the economic relationships between South Africa and Israel, and the likely impact of the downgrade.
As part of South Africa’s global trade and investment portfolios, Israel’s contribution is modest. In 2016 (UN Comtrade figures), exports to Israel amounted to $327.6 million (roughly R4.6 billion at the average 2016 exchange rate), or 0.4% of South Africa’s total exports. Even at its highest point, in 2002, exports to Israel accounted for only 2.2% of the total. Israeli FDI in South Africa (South African Reserve Bank figures for 2015) was entirely sourced from the private sector and amounted to some R2.93 billion, or 0.15% of all private sector FDI. Israeli tourist numbers, meanwhile, are modest – just under 25 000 visited South Africa in 2016, representing a quarter of a percent of tourist arrivals to the country. 
These numbers might imply that any fallout from a downgrade would be insignificant and easily absorbed.
Not so. South Africa’s current economic circumstances are such that to surrender any benefits is a grave matter. While exports of $327 million are relatively small, they are substantial in absolute terms. Moreover, many of these exports are manufactured goods, such as aircraft engines, chocolate and organic chemicals: precisely the sort of value-added productive activity that government policy is eager to promote. Tutwa’s report argues: “Since South Africa’s industrial strategy is premised on growing domestic value addition, this needs to be taken into account in a proper assessment of the potential economic consequences of downgrading bilateral relations. Furthermore, it is likely that those exports support a considerable number of jobs and livelihoods; a critical consideration in an economy racked by socioeconomic problems.”
On investment and tourism, the numbers conceal some important nuances. Israeli investment in South Africa has grown significantly over the past two decades, in marked contrast to the overall decline in FDI in South Africa. Israeli tourist numbers have also shown strong growth over this period. Israeli tourists tend to be affluent and presumably spend accordingly, probably amounting to an infusion of several hundred million rand annually. Tutwa argues that it is reasonable to conclude that this tourist trade supports, in one way or another, a range of jobs and livelihoods.  
Furthermore, Tutwa’s analysis draws attention to the crucial qualitative nature of the relationship. Israel is recognised, by friends and detractors alike, for its capacity for innovation. It is a world leader in ICT products, water technology and agriculture and agro-processing. Israel has a significant foothold in these fields in South Africa: providing (or having developed the technology) for such ICT products as switches, antennae, billing systems and cyber security; drip irrigation and bio-control systems in farming projects; and providing expertise in detecting water losses in the supply system in Tshwane and having developed technologies for the recently-inaugurated desalination plant in Richards Bay.
Marc Lubner, chairman of the SA-Israel Chamber of Commerce, concurs: “In a way, South Africa can’t really get away from Israeli products and know-how. Israeli innovations in ICT, agriculture and especially water technology are among the best in the world. Even countries that are deeply hostile to Israel end up using them. So, in producing desalination plants in partnership with Iran, for example, Israeli technology is almost certainly going to be used. It’s just that we’ll end up paying far more for it than we would need to, if we interacted directly with the Israelis.”
Lubner adds that in his experience, many Israeli businesspeople travel to South Africa to seek out opportunities for themselves and in partnership with South African counterparts. The value-add to the South African economy of this sort of individual-to-individual deal-making hasn’t been properly mapped out, and the contribution probably exceeds what the official data suggests.
So, there are possible consequences. How would a downgrade play out in practice?
Tutwa managing director Peter Draper points out that the research exercise was complicated by a lack of clarity as to what precisely “downgrade” means. Western Cape ANC provincial secretary, Faiez Jacobs, has suggested that South Africa would retain a diplomatic presence, a “liaison office”, rather than severing ties, although it is unclear whether this approach has any broader endorsement. And the vociferousness of many of Israel’s detractors suggests that diplomatic action will merely be the first step, followed by demands for more comprehensive measures, possibly extending to a full embargo of all diplomatic or commercial contact with Israel.
Depending on the action taken, different sets of impacts would apply. An embassy downgrade would first and foremost be a diplomatic attack. Economic relationships do not necessarily depend on cordial government-to-government links, especially where economic ties are maintained by the private sector.
But a downgraded presence would imply less official support for such relationships. It would mean less ability to lobby Israeli businesses to expand their footprints in South Africa (a part of the strategic plan of the Department of International Relations and Cooperation). Should the endorsement or cooperation of the Israeli government be required for any project, it is unlikely to be forthcoming.
Beyond this, the prospect of reintroducing visa requirements (whether by South Africa on Israeli citizens as part of the downgrade, or by Israel on South African citizens in retaliation) would place a major barrier to contact between the business communities – a significant hindrance to economic ties. The impact on tourism from Israel would be even greater.
Diplomatic actions can indeed send strong messages – and not always the ones they are intended to. Lubner put this well: “In the end, it doesn’t matter what form this downgrade takes – the statement would be that we are not open for Israeli business.” This is likely to be reflected in less interest by Israeli business people in exploring South African opportunities. The sense that South Africa no longer wants the Israeli connection could prompt them to look elsewhere. And where South Africa might once have been seen as a gateway to the larger African economy, any number of other countries on the continent now serve that purpose – and actively court Israeli business, development support and expertise.
The upshot is that South Africa is likely to pay a price for any such action. Ironically, it is unlikely to make much impression on Israel. Israel might bristle at the diplomatic snub, but its exports and expertise are in great demand worldwide. Any impact would be transitory, any message muted and discordant.
Indeed, such a move would put South Africa at odds not only with trends throughout a good part of Africa, but also with its Brics partners. Many African countries, as well as Brazil, Russia, India and China (as well as others from Latin America, to central Asia, to the Pacific) have been expanding their economic links with Israel. This is despite some deep disagreements over Israeli policy. China, for example, might vote against Israel at the United Nations on such issues as the recognition of Palestine or the legality of settlements in the West Bank, but it carries on a burgeoning multi-billion dollar trade relationship. For better or worse, Israel is arguably less isolated than ever before.
South Africa has enough to lose to demand serious caution in proceeding with this course of action. The consequences for ordinary South Africans would be such that real-world downgrade would be to their livelihoods…  
Terence Corrigan is an independent governance consultant.
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I’ve thought long & hard about this post. I have a large number of sa Jewish expat clients in Aus. I also know that the sa Jewish community generally have their roots in Lithuania & first arrived in sa when diamonds were discovered. At one time they owned 90% of all companies listed on JSE (if u include the Oppenheimers). So? I am also aware that Israel assisted the apartheid govt to update their Centurion tanks & helped with the nuclear bomb in Sth Atlantic. It seems to me that like all white settlers the Jewish community left in sa should take a very low profile- like low! On BBC TV tonite excellent program on what happened to the once thriving Jewish community in Iraq(most were air lifted to Israel in ‘60’s).

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