The “shock and awe” imposition by US President Donald Trump of high tariffs on a wide range of countries was bad news for the world trading system and for Africa and South Africa in particular.
International financial markets have taken a huge knock in the wake of the news and economic growth forecasts are being slashed everywhere. The fate of many exporters and the sustainability of their export markets hang in the balance as collateral economic damage from the escalating tariff wars threatens the global economy.
Local producers that rely on imported components are equally vulnerable. Tariff uncertainty is as economically damaging as tariffs themselves.
Both developed and developing countries are rapidly assessing the implications of the US’s actions so that they can decide on an appropriate response whether conciliatory or retaliatory. Either approach could degenerate into “beggar-my-neighbour” policies, which, whenever they have been applied, have been hugely counterproductive.
Caught in a tense political situation, South Africa has adopted a careful and pragmatic approach in a bid to safeguard the country’s economic relations with the US. South Africa is not like the biblical David who, armed with a slingshot and stone, was able to fell the mighty Goliath. Economic diplomacy is needed to “de-risk” its relationship with the US, but it needs to examine all its options.
An obvious and important strategy is to diversify its exports. But this is not simply a matter of switching current exports overnight to another market track. It requires serious research, a different mindset and a fresh strategic thrust: how can South Africa's national interests best be served in a world where collaboration and competition are often two sides of the same coin?
To this end, South Africa needs to leverage new and existing alliances, both on the continent and further afield. In the African context, the African Continental Free Trade Area (AfCFTA) has the potential to provide the country and other participants with the diversification and growth-enhancing opportunities that they need.
The AfCFTA is the largest free trade area in the world in terms of participating countries. But intra-regional trade is only about 15% of Africa’s total trade, compared with 55% in Asia, 49% in North America and 63% in the EU. Up until now, the AfCFTA negotiations have been difficult and protracted, with disappointing results — especially around tariff issues — and slow progress on the implementation front.
Fast-changing global circumstances, though, require a more robust commitment to African economic integration. The AfCFTA has become highly pertinent in the wake of the Trump tariff announcements — not only because about 30 African countries doing business with the US are on the higher tariff list, but also because the African Growth and Opportunity Act (Agoa) seems unlikely to be renewed by the US Congress later this year.
African countries can also no longer depend on the level of foreign aid and concessionary loans they previously enjoyed, and now need to build a more self-sufficient continent
African countries can also no longer depend on the level of foreign aid and concessionary loans they previously enjoyed, and now need to build a more self-sufficient continent. How African countries now position themselves geo-economically and whether they can speak with a more unified voice will be the keys to preserving their long-term interests and credibility in the eyes of the world.
The strong presence of African countries at the G20 summit being hosted by South Africa this year provides Africa with an opportunity to strengthen its collective voice, identify new strategic partners on the continent and sow the seeds of stronger economic relations.
In this process, African countries must also be seen to be demonstrably tackling the economic and political challenges of turning the AfCFTA’s ambitious long-term goals into reality.
How can South Africa benefit? A joint 2023 World Economic Forum — AfCFTA study revealed that South Africa's agro-processing, tourism, automotive, pharmaceutical, transport and logistics sectors have the greatest potential for growth and expansion into Africa. Several of these sectors are now under serious threat from higher US tariffs and need to find alternative export markets, either in Africa or elsewhere. It is therefore in South Africa's interests to inject more urgency into expediting the next phase of the AfCFTA implementation process.
And while it is politicians and bureaucrats who conduct the overall AfCFTA negotiations, economic diplomacy also requires close co-operation with the private sector, both in South Africa and through structures like the African Business Council. After all, the “animal spirits” of business are needed to identify and exploit the trade and investment opportunities created by the AfCFTA.
If the AfCFTA is to become a game-changer on the continent, South Africa needs to throw its weight behind reducing the obstacles that still stand in the way of faster African economic integration. For example, further steps must be taken to harmonise domestic trade policies and strategies with those of the AfCFTA. It is difficult for businesses to operate in multiple jurisdictions with different policies and standards.
“Smart tape” must replace red tape, as the latter simply adds to the cost of doing business in Africa and deters investment. Above all, Africa needs to overhaul and expand its infrastructure.
This is not new advice. Africa’s intra-regional trade has long been a casualty of costly transport corridors and poor infrastructure. A contributing factor is the large infrastructure financing gap, estimated at between $130bn (R2.82-trillion) and $170bn (R3.69-trillion). This highlights the critical importance of creating a favourable environment for mobilising effective public–private sector partnerships to access more investment and expertise — upon which the success of the AfCFTA ultimately depends.
Given its current global and domestic economic challenges, what is still available in South Africa's policy toolbox? Its policy choices should emphasise urgently accelerating implementation of its promised structural reforms, casting its net wide to reach new export outlets, ensuring its global competitiveness and maintaining political stability.
South Africa will inevitably have to explore alternative markets in Asia, the Middle East, South America and Brics. But the opportunity to re-energise the AfCFTA in the face of punitive US tariffs and to strengthen South Africa's economic stake in the rest of Africa, should not be overlooked.
• Parsons is a professor at the North-West University Business School
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