United States threat to South Africa
Despite some inflation relief and breathing room for interest rates in South Africa, the country is still staring down a disastrous status quo in key industries and its relationship with the United States.
This is according to Aluma Capital Chief Economist Frederick Mitchell, who processed the major data releases last week.
Mitchell noted that the softer inflation print from Stats SA on Wednesday (19 August) of 4.3% y/y for July will give the South African Reserve Bank some breathing room to hold interest rates in the country.
However, this isn’t enough to spare the country’s economy from the brutal beating in mining and manufacturing, he said.
It also isn’t enough to shake off “escalating trade and diplomatic frictions with the United States“, which he said threaten crucial export revenues and jobs.
Mitchell said that South Africa’s “real economy”—factoring in unemployment, critical industries like mining and manufacturing and capital investment—is in distress.
“The unemployment figures for the second quarter of 2026 reaffirmed South Africa’s deep structural crisis, with millions of capable citizens locked out of formal economic activity,” he said.
“Simultaneously, the latest monthly output datasets for June 2026 showed renewed contractions across both the mining and manufacturing sectors—the foundational engines of domestic industrial employment and export earnings.”
At the centre of this crisis is a chronic shortfall in Gross Fixed Capital Formation (GFCF).
South Africa invests far too little in expanding and upgrading its productive asset base, infrastructure, and machinery, the economist noted.
“Without robust fixed investment, the economy simply cannot generate the sustainable growth required to reverse the unemployment crisis,” he said.
This makes South Africa’s icy relations with the United States even more pertinent.
Amid the local production crash, the country faces an external threat from the US through its tariff escalations and geopolitical machinations.
Apropos, Mitchell flagged the severe impact of the compounding effect of US tariffs and market uncertainty driven by the US-Iran War:
“South African exports to the US have plunged by an alarming 56% on an annualised basis,” he said.
“For export-oriented manufacturers and mining operations operating on tight margins, this sudden loss of access and price competitiveness directly translates into reduced output, curtailed shift patterns, and job retrenchments.”
United States and South Africa tensions a threat
Mitchell said the escalation of the tariff barrier and strained trade relations with the United States are intertwined with diplomatic tensions between Pretoria and Washington.
The US administration has outlined four distinct points of contention that South Africa must address to secure unfettered, preferential access to the American market.
These are:
- Rural Safety and Farm Attacks: Demands for decisive, visible law enforcement intervention and actionable strategies to curb farm murders and safeguard rural communities.
- Economic Policy and Broad-Based Empowerment: Criticisms directed at race-based legislative frameworks, specifically calls to reform or phase out Broad-Based Black Economic Empowerment (B-BBEE) policies in favour of non-racial, pro-growth investment guidelines.
- Hate Speech and Political Rhetoric: Expectations that high-ranking political leaders unequivocally condemn polarising chants and incitements to violence, including controversial slogans such as ‘Kill the Boer’.
- Property Rights and Expropriation: Strong opposition to the Expropriation Act, particularly clauses permitting the expropriation of private property without compensation, which investors view as a direct threat to commercial security.
Compounding these four domestic issues is South Africa’s international alignment, Mitchell said.
“Pretoria’s close geopolitical proximity to states viewed as direct adversaries of the US, including Iran, Cuba, Venezuela, Russia, and China, has amplified scrutiny within Washington policy circles,” he said.
The tensions between the US and South Africa are not simply battles of ideology and ideas; they have direct economic consequences for South Africa.
Mitchell said that there is immense value in South Africa’s trade relationship with the United States, which could also carry severe consequences.
For example, while the African Growth and Opportunity Act (AGOA) is set to be extended to December 2028, individual countries’ eligibility remains subject to annual discretionary review by the US government.
Should South Africa’s eligibility be revoked, the economic consequences would be severe.
Mitchell added that the United States is an indispensable net contributor to the South African economy, with American multinational corporations directly and indirectly supporting approximately 400,000 South African livelihoods.
“Furthermore, South Africa maintains a healthy, value-adding trade surplus with the US. This stands in sharp contrast to South Africa’s trade relationships with many BRICS counterparts,” he said.
South Africa runs substantial and widening trade deficits with BRICS nations, primarily exporting raw mineral commodities while importing finished, high-value manufactured goods.
The economist said that South Africa is at a “defining crossroads” that requires the government to steer the economy away from stagnation and navigate tumultuous geopolitics.
He said the country needs to maintain its monetary policy stability, revive its core production capability, and deliver long-promised reforms.
However, he stressed that the government also needs to be more pragmatic with its trade diplomacy and de-escalate tensions with the United States to protect AGOA eligibility and find a path through US tariffs.
“South Africa cannot afford to lose sight of where its structural economic interests lie,” Mitchell said.
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