SA’s “shoot me if you can” approach to foreign policy comes while geopolitical conflicts have become linked with trade, making the economic costs of choosing the wrong friends that much dearer.
Since Russia’s invasion of Ukraine more than a year ago SA, by refusing to condemn its actions, has been daring Western countries, particularly the US, to do their damnedest. That is shortsighted — for reasons that are well known.
SA’s economy is, by most measures, at its weakest since 1994. Unemployment is exceptionally high, economic growth has been below population growth for some time, and government debt is the highest in several decades. On top of that, the capacity of the government to spend money effectively has been weakened — the worst position to be in when resources are limited.
In short, SA is at its most vulnerable in decades. It wouldn’t take much for a country such as the US to squeeze it just a bit and send the entire economy into a tailspin. The only thing that might hold the US back is that some within its government may take a view that pushing SA off the cliff would destabilise the entire region, a development that would over time require US intervention in Southern Africa.
But the risks remain. As was pointed out in an article in last week’s Financial Times (FT), the US has been expecting its friends to “take economic hits for geopolitical gains”, something the US is not prepared to do itself. The latest example is South Korea, which is caught between the US and China.
According to the FT article the US has been pushing Korean semiconductor manufacturers not to supply China should the Chinese exclude US company Mixon from the Chinese market for national security reasons. Before South Korea the US forced the Netherlands and Japan to implement tougher export controls over chip exports to China.
SA continuing with the foreign policy course it is now on will ... mean taking a huge economic hit simply for choosing the wrong friends.
“The US can, in theory, use its extraterritorial sanctioning powers moderated by loopholes to fine-tune coercion over not just adversaries but allies,” the article reads. It’s that extraterritorial sanctioning power the US can deploy against SA if the country continues to hitch its future to Russia and its associates. The US can also use its allies to apply economic pressure.
All this would be easy to do because of SA’s historical economic links with Western countries. They remain the major investors in SA — in terms of fixed investments such as factories and financial instruments such as government bonds and equities.
SA’s trade with Brazil, Russia, India and China has increased since SA joined the Brics grouping in 2001. According to the June 2022 Reserve Bank quarterly bulletin, SA’s imports from these countries accounted for 29% of its total imports in 2021 and exports “have levelled off” at about 14% of the total since 2014. SA’s biggest Brics trading partner is China, followed by India and Brazil. Russia accounted for just more than 2% of both exports and imports.
That means in 2021 71% of SA’s imports came from elsewhere in the world, and about 86% of its exports went to non-Brics countries. SA continuing with the foreign policy course it is now on will therefore mean taking a huge economic hit simply for choosing the wrong friends.
President Cyril Ramaphosa and his international relations & co-operation minister, Naledi Pandor, have yet to explain what SA stands to gain economically from hitching its wagon to Russia. Given the economic gamble they are forcing SA to take, they had better be clear about the benefits they expect.
Poorer economy
The stakes are high, as found in the 2022 study by the World Trade Organisation (WTO). It warned that geopolitical conflicts over the last decade had “increasingly been a driver of trade policy”. The study sought to assess the potential effects of global and persistent geopolitical conflicts on trade, technological innovation and economic growth.
The WTO economists warned that were globalisation to ossify into the East (led by China) and West (led by the US) economic power blocks, the world economy would be poorer. In some regions, especially lower-income countries, the losses in economic and social wellbeing could be exceptionally high.
That is why SA’s current gambit needs careful reconsideration. It makes no sense to dare the US and Europe to take their best economic shots at a country that is practically on its knees, whether measured by GDP growth, employment, poverty, government debt or the capacity of the state.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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