South Africa awaits its reckoning
Local markets are waiting with bated breath as South Africa’s tariff D-Day approaches, with the rand giving up gains made earlier in the week, and economists warning that GDP growth will take a big hit.
Friday, 1 August, marks the implementation day of a 30% tariff on South African exports to the United States, which has been looming since it was first announced in April.
While the government, including President Cyril Ramaphosa, insist that the country is actively engaging the Trump administration to secure a trade deal before the tariff comes into effect, time is running out.
This has left markets in an uncomfortable limbo, waiting to see what will actually happen.
Reflecting these anxieties, the rand ended the week on the back foot, weakening to around R17.80 to the dollar after recovering to as low as R17.50 earlier in the week.
According to Investec chief economist Annabel Bishop, the rand has been having its ups and downs, but the latest ‘down’ is the market’s position on what will happen if the tariffs follow through.
She noted that the rand has been trading flat to weaker against major currencies, except the dollar, since the start of the year.
The dollar has tanked about 10.5% this year because of the US trade policies and the waves of uncertainty it has caused in global risk markets, inflation, as well as its own interest rate cycle.
While this has put the rand in a stronger position—especially when compared to the R18.32 average seen in 2024—Bishop pointed out that the local unit has only gained 7% against the dollar.
If the rand were to see the full benefit of the US dollar weakness, it would have to trade at around R17.05/$, which is far out of reach.
She said the rand has not been strong this year, driven lower by local instability in the Government of National Unity (GNU) and the widely publicised fallout between the US and South Africa.
While the ructions within the GNU have settled, and the final budget hurdles are now being crossed, political tensions with the United States are still very much present, adding to the country’s risk premium.
From bad to worse
With 1 August next week marking the end of the road for US trade negotiations, markets are hanging on tight to see what comes next.
Bishop said that there could be some extensions to negotiations among the United States’ largest trade partners if a deal has not yet been struck.
However, this would apply to countries like Canada, Mexico, Brazil, India, and the European Union. It is doubtful whether South Africa would be given the same attention.
As is stands, about 8% of South Africa’s total exports head to the US, representing about R157 billion in trade.
The US is South Africa’s second-biggest individual trade partner, but the opposite is far from the case.
Without a deal or an extension, the tariff is coming and will deliver a significant blow to the country, not only to the rand/dollar exchange rate, but the country’s economic growth.
The majority of South Africa’s exports to the US are precious metals (34%), vehicles and aircraft (17.3%, and iron and steel (16.6%).
Agricultural exports to the US are 4.6% of total exports to the US, rising to 7.8% if prepared foodstuffs are included.
While some of our exports will be exempted from the tariff, Bishop said that even with those exemptions, the knock to South Africa’s GDP growth could be a 0.2 percentage point cut.
“A reduction in exports reduces trade revenue inflows into the country and so negatively affects the exchange rate, as fewer US dollars are earned and exchanged into rands,” Bishop said.
South Africa’s GDP growth is already weak, having recorded only 0.5% growth in 2024. Most economists pencil in around 1.0% for 2025, if not weaker.
Depending on the scale of the final tariffs—whether the ‘best case’ of 15%, the likely 30%, or even 40% if a BRICS premium is added—it looks to be another sub-1% GDP growth year for the country.
South Africa is seeking new market opportunities, but this will take time. Business leaders, economists, analysts and advisory groups have all said the US tariff war should be a wake-up call for the country to diversify.
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