Bilateral ties with Israel benefit SA more than mere numbers suggest

ANC would be wise to mull over deeper implications of downgrading relationship with Middle Eastern country, writes Peter Draper



At its fifth national policy conference on July 4 2017, the ANC considered a proposal by its Western Cape region to either sever ties with Israel or downgrade the South African embassy in Tel Aviv. A recommendation was made that the party take a final decision on the matter at December’s elective conference.

Consequently, SA’s bilateral relations with Israel may be about to enter uncharted territory, with the looming possibility of a serious rupture in trade and investment. Against this backdrop, we were commissioned to consider the potential contours of such a rupture.

We considered four key impact channels that are likely to have first-round and second-round economic effects: trade, investment, technology and tourism. We viewed these channels through relative and absolute lenses.

Relative to their total trade, trade between the two countries is small. In SA’s case, the highest level since 2000 was 2.21%, recorded in 2002. The same is true of two-way investment flows, with Israel’s investment stock in SA amounting to 0.15% of all foreign direct investment (FDI) stock in 2015, according to Reserve Bank data.

Not surprisingly, bilateral tourism flows are also not substantial, with Israeli tourists accounting for only 0.25% of total tourist arrivals in 2016, although it was the largest Middle Eastern source country.

So if we were only to focus on the relative numbers, then a rupture would not cause major damage to the South African economy. However, that would be misleading. The absolute numbers involved are meaningful, and there are qualitative dimensions to consider. Therefore, careful reflection needs to be given to the potentially thousands of people that could be affected in a worst-case downgrade scenario, leading to a complete rupture of bilateral relations.

In this light, South African exports to Israel of certain value-added products comprised more than a quarter of total exports in 27 product lines over the past three years for which data are available. These include aircraft engines, chocolate and other food preparations containing cocoa, and organic chemicals. That is congruent with SA’s industrial strategy thrust towards promoting greater domestic value-addition and exports of those products.

Furthermore, it is likely that those exports support a considerable number of jobs and livelihoods, a critical consideration in an economy wracked by socioeconomic problems. Similarly, coming in at $300m in 2016, South African exports to Israel provide much-needed foreign currency.

These absolute numbers do matter in an economy beset with ratings agency downgrades linked partially to balance of payments difficulties.

Similarly, while Israel’s share of SA’s FDI stock is minor, the fact that it is increasing amid a generalised decline should not be dismissed. Furthermore, in absolute terms, Israeli FDI stock in SA, valued at R2.93bn in 2015, is substantial, implying that numerous jobs could be at stake, potentially in the thousands, in the event of a complete rupture of bilateral relations.

Regarding the technology channel, there is an important underlying qualitative dimension to the bilateral economic relationship. Israeli technology is renowned worldwide and is a critical enabler in various fields, including in SA. This is particularly apparent in the information, communications and technology sector, where Israeli hardware and software play an important role.

It is also true in the agro-processing and water management spheres, where Israeli companies are world leaders. This does not mean such technology could not be replaced if a rupture in political relations precipitated Israeli disengagement, but it does raise the question whether this is necessary.

Similarly, the people side of the equation is important. While tourism numbers between the countries are small relative to total tourism flows, in absolute terms, they are substantial, with an average of 25,000 people travelling each way per year. With people flows go knowledge flows, leading to trade and investment linkages.

Tourists also spend substantial sums in their destination countries, supporting jobs and livelihoods. So a rupture in bilateral relations could place many a livelihood linked to the tourism industry in jeopardy.

Another consideration is that the Jewish, Christian Zionist and Bahá’í communities in SA have a psychological connection to Israel that is perhaps unique. Should Israel retaliate by downgrading its embassy in SA, that would cause substantial inconvenience in the visa issuance process, among others.

A rupture in relations would therefore reverberate in the aforementioned domestic religious communities, and because of the prominence of some key people stemming from these communities in South African business circles, it may negatively affect domestic investment decisions at a time that the South African government desperately needs to build domestic investor confidence.

Finally, while a downgrade — particularly in a more benign form (such as the SA-Taiwan relationship) — would not necessarily result in major economic disruption, there are geopolitical dimensions to this scenario that deserve much closer attention.

SA’s Eurasian Brics partners — Russia, India and China — maintain close strategic co-operation with Israel. Many European states, including four of the Group of Seven, do the same. In all cases, access to advanced Israeli technological capabilities is a key ingredient.

In addition, should SA downgrade its embassy, the international signal this would send is bound to be noticed in Washington, which is in the process of recalibrating its own trade and investment relations with Africa including SA. While the US is unlikely to seek to "punish" SA, such as revoking access to the African Growth and Opportunity Act in full or in part, such a move cannot be completely discounted either.

Overall, there is more at stake than a review of "the numbers" suggests. This merits a cautious approach on the ANC’s part.

Finally, if the basis of the decision is to be a moral argument, in other words solidarity with the Palestinian cause, then such moral rectitude ought surely to be applied to other key bilateral relations such as Sudan and Myanmar, where in the past, the South African government is seen to have supported genocidal regimes.

In this light, and given the potential economic benefits of closer relations with Israel, it is our considered opinion that a downgrade would not serve SA’s national interests.

• Draper is MD of Tutwa Consulting Group.

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