The announcement by President Donald Trump of a 30% import tariff against South Africa is undoubtedly a big blow, particularly to the automotive and agricultural sectors, and nullifies the duty-free benefits under the African Growth and Opportunity Act (Agoa).
The loss of duty-free access will reduce South African exporters’ price competitiveness, create ripple effects across supply chains and weaken the country’s balance of payments, indirectly impacting the rand rate against the dollar for exporters and importers alike.
A weak currency could bring with it higher inflation and prompt the central bank to tighten monetary policy. This will reverse the benefits of recent interest rate cuts on an already struggling economy, whose growth has been stymied by low exports and domestic demand, as well as energy and logistics constraints.
To mitigate these risks, South Africa must look beyond Agoa and embrace bilateral and multilateral trade diversification. The UK’s experience post-Brexit highlights the perils of relying on a single market and the importance of contingency planning. Diversifying export markets through regional opportunities like the African Continental Free Trade Area (AfCFTA) and partnerships with the EU is critical.
Agreements such as the EU-South Africa Trade, Development and Co-operation Agreement can help maintain export momentum while reducing over-reliance on US markets. Additionally, bilateral trade agreements with emerging economies such as Brazil, India and China (under the Brics framework) offer further opportunities to expand South Africa’s global reach and enhance trade growth.
South Africa's highest trading in respect of exports amounts to $20.6bn (R394.04bn) into Asia — 32% — while imports from Asia amount to $22.4bn (R428.48bn) — 49%. Alternative trade agreements could help address key challenges for the agricultural sector by improving sanitary and phytosanitary (SPS) measures.
These measures enable African exports to meet international standards more easily, increasing export volumes and access to global markets. In the automotive sector, such agreements could attract global investment and technology transfer, enabling modernisation of production capabilities and enhancing market access and/or foreign investments.
Additionally, these agreements could provide an opportunity to revisit customs duties to ensure that South African manufacturers remain globally competitive. For the textile industry, revisiting rules of origin and including favourable duties and tariffs in new agreements could create greater demand and improve access to key markets such as the EU, China, and India.
There is a need to continue to ensure regional trade integration and market diversification under the framework of AfCFTA. This trade agreement could play a major role in Agoa’s path forward as it will enhance regional trade by forming a single market and create millions of jobs across the continent. The successful implementation of AfCFTA is likely to contribute to the successful implementation of an extended Agoa.
South Africa's export sectors are at a critical juncture, not just to weather this storm but to position themselves for sustainable growth
AfCFTA, Agoa and industrialisation go hand in hand, but the challenge is finding the right configuration to make them mutually beneficial. In this context, continued access to the US market under Agoa is more important than ever and would also create increased imports from the US, hence building a major economic partnership between the US and sub-Saharan Africa.
The benefits stemming from Agoa for South Africa are much broader than the mere duty and quota-free access into the US. It also stimulates opportunities for a chain of collaborative arrangements with manufacturing companies from sub-Saharan African countries to access the US duty free.
To take one example: the South African automotive sector sources components from our neighbours and exports the finished product to global markets, including to the US through Agoa. It procures leather car seats from Lesotho, wiring harnesses from Botswana, copper wire from Zambia and rubber from Malawi and Cameroon. These inputs from other African countries alone account for more than $200m (R3.83bn) worth of products in the automotive value chain. Therefore, the repercussions of losing Agoa would not only be felt in South Africa, but would negatively impact SADC as a whole.
The focus of South African and regional governments must be to shift from reacting to a single policy framework/charter to building a trade ecosystem that thrives amid uncertainty. In this context, South Africa's export sectors are at a critical juncture, not just to weather this storm but to position themselves for sustainable growth in an interconnected, competitive global economy.
• Naidoo is Treasury & Trade Solutions Specialist: Mid Corporate at Nedbank Commercial Banking
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.