By Prof. Busisiwe Mavuso
• A clear lesson from the latest US actions is that the more diversified your trading partners are, the more resilient you are to shocks from any one of them.
• Business and the DTIC must work together to practice the art of the possible in finding opportunities within a new geopolitical framework.
• The good news is that we are now making progress on the logistics that enable South African exporters to get their goods out to the rest of the world.
We cannot be naïve about the risks facing our economy. Last week’s consumer confidence data showed a sharp drop in confidence. It was measured in February, when the US government began its trade wars and our cabinet failed to agree on a budget including a two-percentage point VAT hike. A month later and the global trade wars are looking more ominous, and we still have no agreed budget.
The latest blow was last week’s imposition of 25% tariffs on automotive imports by the Trump administration. While America is not the biggest market for cars made here, it is still responsible for about 5% of light vehicle exports, earning about R26bn of revenue for South Africa. Some of those exports will be able to find alternative markets especially as reciprocal tariffs mean US vehicles will be shunned by many other countries including our biggest vehicle market, Europe. But the international consequences are severe, with global supply chains disrupted, driving prices higher and damaging demand.
We are heading for a global rethink on how countries engage in international trade. Many countries will feel they should become less dependent on the US as a market for their goods. A clear lesson from the latest US actions is that the more diversified your trading partners are, the more resilient you are to shocks from any one of them. I hope our vehicle exporters will find ready alternative markets for vehicles that will no longer sell in the US, but the lesson for us as a country is to build our trade relationships more widely.
Doing that requires efforts by both business and government. The Department of Trade, Industry and Competition (DTIC) is responsible for developing trading relationships at a diplomatic level and developing trading agreements with appropriate markets. But businesses also need to develop strategies that give them market access and traction. For all of us, this has become more urgent. The African Continental Free Trade Agreement (AfCFTA)has been steadily evolving and now covers many products and services, but vehicles are not yet on the list.
Other long-running trade negotiations, such as with India, now need a new sense of urgency. Last year DTIC minister Parks Tau committed to bolstering trade with India as well as the rest of the world generally. That is a welcome ambition. Trade has not appeared to be a priority for the last two administrations, but it now needs serious attention from this government of national unity given the world we now find ourselves in.
We must expect that the African Growth and Opportunity Act (Agoa) will come to an end in September when the current programme is set to expire. The end of Agoa was set to damage our auto exports, and it will damage other parts of our trade with the United States, particularly agricultural goods. Overall, Agoa covers a relatively small component of our total export basket to the US, which is dominated by raw materials, but it will be a challenge for certain industries. Last week the DTIC presented at Nedlac regarding the geopolitical challenges we face, including the loss of Agoa and business and the DTIC must work together to practice the art of the possible in finding opportunities within a new geopolitical framework.
We must seek new trading relationships, such as with the Middle East, with which we have limited engagement other than as importers of oil. There are opportunities across these and other markets and we need a programme of engagement. Trade with the rest of Africa is obviously also a huge opportunity and we must work to extend the AfCFTA to cover a wider basket of goods including vehicles.
The good news is that we are now making progress on the logistics that enable South African exporters to get their goods out to the rest of the world. Rail and port performance has been improving, and a more radical step change is on the horizon after transport minister Barbara Creecy issued a formal request for information to the private sector “to develop an enabling environment for private sector participation and enhanced investment in rail and port infrastructure and operations”.
This potentially opens the opportunity for a competitive rail and ports sector, in which the state continues to own the infrastructure, but private sector firms can manage it and compete to offer the best service. Our ports are among the worst-performing in the world but imagine a future in which they are in fierce competition with each other to offer the best service to businesses in South Africa. This is an important part of making our output more competitive.
The world is facing a major shift in the global trading system. Government and business must be on the front foot, engaging widely and building opportunities. Ultimately that will improve the resilience of our economy and enable growth and employment.
