Strengthening and diversifying our trade relations with other countries is critical - BLSA

Last week saw South Africa’s Parliament approve a phased increase in VAT, sparking debates about its impact on the economy. Meanwhile, the ongoing trade conflict with the US intensified as President Trump imposed new tariffs, leading to fears of a global economic slowdown.

Trump’s sweeping tariffs have ignited trade wars, causing market turmoil and uncertainty. As Peter Drucker once noted, “The best way to predict the future is to create it,” and South Africa must navigate these turbulent waters with resilience and strategic foresight.

I was encouraged to see a statement by ministers Ronald Lamola and Parks Tau largely agree that the best way forward is to work hard to improve relations with the US but also enhance the focus both on stimulating domestic growth and improving our trade relations within Africa and elsewhere, diversifying our export markets.

Our ministers of international relations and of trade, industry and competition rightly refrained from criticising the US but focused on what we can do to mitigate the impact.

US President Donald Trump has made it clear that he wants concessions from each country to reduce or drop the tariffs. He also emphasised that the tariffs put the US in a position of power in the series of bilateral negotiations that are to come.

Given the transactional nature of US politics, we have to think hard on what is commercially available and viable for all parties. The US has exempted many of our key metal exports, including platinum, gold, manganese, copper, zinc and nickel, because these are considered critical to the US economy.

Minister Tau said at a media briefing that South Africa (SA) was “exchanging notes” with other African trade ministers, particularly on the Agoa trade deal, but also on how to engage with the US. That is commendable – and it is also encouraging that, in referring to the unorthodox formula the White House used to arrive at its tariff level for each country, Tau said African trade ministers would engage on how the US had adopted its trade policies “and we have to adjust our own engagement to acknowledge this”.

The Financial Times reported that it had “cracked the code” on the US tariffs formula – it took the US’s goods trade deficit with each country, divided it by the total amount of goods imported from that country and cut that percentage in half to arrive at “reciprocal”’ tariff rate. As a result, the US put SA’s tariffs on US goods at 62% to hit us with 31% tariffs, effective from April 9, while our average tariff rate is closer to 7.5%.

Emotional reactions are never helpful in negotiation and Business Leadership South Africa (BLSA) agrees with President Cyril Ramaphosa’s example in avoiding inflammatory statements and events. SA is not exactly in the front of the queue of the many other countries that are trying to initiate trade talks with the US.

Given SA’s weak negotiating position on the trade front, it is even more important that we look at what we can influence to improve the country’s economic situation. How do we build a stronger economy from here?

The answer lies in accelerating what we’ve started – the many structural reforms that are in progress. In such troubled times it is sometimes difficult to remember the positives but over the past few years our progress in two of our main problem areas – energy and transport – is hugely significant. Reforms in the water sector are beginning to get going and Operation Vulindlela (OV) is adding municipal reform to its target areas. The success of OV itself, the joint venture between the Presidency and National Treasury to accelerate reforms, is another huge positive for the country. Business remains committed to working with all levels of government to fast-track these imperatives.

Now is the time to intensify efforts, to give more momentum and impetus to the structural reform agenda because, despite the advances in energy and transport, both still have a long way to go before they are operating efficiently and serving as catalysts rather than impediments to growth.

We also have to think of other ways to fortify our economy and here BLSA agrees with ministers Lamola and Tau that strengthening and diversifying our trade relations with other countries is critical – and let’s bear in mind that most countries may now need to reduce their dependence on trading with the US.

Outside of our traditional trading partners, there is huge potential for increasing trade within Africa, which makes up only about 17% of the country’s merchandise trade, according to the Trade Law Centre (Tralac), a South African NGO think tank, and the bulk of that is within the SADC region.

The Africa Free Trade Agreement came into force in 2019 but was effective only from October 2022, with the launch of the AfCFTA Guided Trade Initiative (GTI), a pilot initiative to test the operational, institutional, legal and trade policy environment under the AfCFTA.

The process has been slow but Tralac states that as of August 2024, 48 of the 54 signatories had deposited their instruments of AfCFTA ratification and since February this year, 10 countries are actively trading under the GTI, including South Africa, which began trading on 31 January 2024 with export consignments from Durban to Kenya and Ghana. Many countries are still negotiating tariff concessions and rules of origin.

BLSA believes both business and government should pay renewed attention to the AfCTA. It is hugely ambitious, bringing together so many countries with differing needs and priorities. But the final mechanisms are falling into place and improving trade with other African countries will be mutually beneficial.

Busiswe Mavuso is the CEO of Business Leadership South Africa.

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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