The United States’ unpredictable trade moves are shaking up South Africa’s export and investment landscape, putting key sectors at risk. As uncertainty grows, South Africa may be forced to pivot quickly toward new trade allies and regional resilience. To discuss the implications of the U.S. volatile trade policies for South Africa, CNBC Africa is joined by Izak Odendaal, Investment Strategist at Old Mutual and Shane Naidoo, Global Treasury and Trade Management Specialist at Nedbank Commercial Banking.
The United States' unpredictable trade moves are shaking up South Africa's export and investment landscape, putting key sectors at risk. As uncertainty grows, South Africa may be forced to pivot quickly toward new trade allies and regional resilience. To discuss the implications of the U.S.'s volatile trade policies for South Africa, I'm joined by Izak Odendaal, Investment Strategist at Old Mutual and Shane Naidoo, Global Treasury and Trade Management Specialist at Nedbank Commercial Banking. Gentlemen, welcome to Power Lunch South Africa and thank you for your time. So I think this is quite a relevant and critical conversation to be having as we await what U.S. President Donald Trump is calling a liberation day tomorrow where he'll be unveiling reciprocal tariffs which will affect basically many, many countries across the world. And since Trump 2.0 has come into place, we have seen growing uncertainty around global trade policies as well as increasing tensions between SA and the U.S. So in this picture, there's obviously winners and losers from a South African context. So my first question, I'd like to start the conversation and I'll direct this first question to you, Izak. What sectors in South Africa are most exposed or potentially positioned to benefit from shifting U.S. trade dynamics? Yeah, it's an interesting question and there isn't a straightforward answer. The reality is our biggest export to the U.S. is precious metals, gold, platinum and so on. And, you know, you have to wonder if there's any wisdom in the U.S. applying tariffs on those items, you know, which, you know, they don't really produce much and therefore you're not really going to be protecting domestic producers of those items. But then if you go down the list, what's most at risk would be sectors like our motor industry is a big exporter to the U.S. I think it's about 30 billion rand a year in vehicles and components, our food industry, fruit and veg. I mean, those are all sectors that are potentially at risk if tariffs are imposed. I think it's important also just to highlight to your viewers that just because a tariff is imposed doesn't mean you stop exporting. It just means that somebody's got to absorb that cost. That somebody could be is typically the importer, right? So it's typically someone in the U.S. who has to pay more to absorb that cost. Question is, can they pass that cost on to their consumer? What would the consumer do if faced with more expensive South African oranges, for instance? Will the consumer buy the South African orange versus an American orange? Obviously, there are seasonal differences. So maybe there aren't American oranges in store. So it's a very complicated issue just to kind of get off the bat. The answers are not straightforward. As much as the answers are straightforward and we can't know anything for sure, I mean, ultimately Trump is trying to sort of do what's best for the U.S. and make sure that Americans are buying American stuff. What probability is there, and I'm staying with you on this one, Isaac, that U.S. vehicle manufacturers in South Africa pack up and leave? Because, I mean, that's ultimately probably what Donald Trump wants. Difficult to say, but there's a risk. Interestingly, the U.S. vehicle manufacturers don't just export to the U.S., they export internationally. But obviously, it does become difficult for them if this hurts their margins. I mean, there are other things in play as well. I mean, obviously, South Africa also supports its domestic vehicle industry. We also impose tariffs on imports, so it's not just the U.S. So there are definitely other factors in play for American businesses. I think the other interesting question is, would American businesses lobby for South Africa to be given reprieve given that they are quite heavy investors in South Africa? So there's that angle as well. Moving across to you, Shane, of course, also at risk is South Africa's AGOA benefits, and there's been much talk around that. In your assessment, what is the likelihood, and here, if you could be as specific as you can, even if you could give us sort of whether you think it's 50 percent or 70 percent, how likely is it that South Africa may lose its AGOA benefits? And if that happens, who gets hurt the most? So it's a very interesting question. I think if I could phrase a question in terms of a lens, who gets hurt the most, just to gravitate back to what my colleagues mentioned, if you look at the platinum, the oil industry, the car industry, which really ranks us as the second biggest exporter to the U.S. market with over 1,800 products, we create around 62,000 jobs in South Africa. And from that perspective, should we not become competitive? Should we find that it is quite challenging to diversify our product spectrum as exporters? You will find that it would actually affect the downstream basically line from jurisdicts being our business exporters to the jobs they create and the impact they have on the economy as well. Not just from an adverse perspective, but we're saying this could find an alternative, basically a solution to the U.S. to actually source vehicles. We are seeing that those tariffs are actually applied to other countries, like recently in the U.K., where it was a flat tariff applied on vehicles. So practically what we are basically alluding towards is how do we move from a macro perspective where it's uncertain to more of a micro perspective for our business exporters? And we've probably learned this out of bricks as far as possible is, one, how do you diversify your country risk? How do we reach basically other markets through digitization, either through investment into that platform? Or two, how do you diversify using the same infrastructure if you're pushing ore, which we're very rich in Africa and we have great banking systems in South Africa? How do we make sure that we diversify from a product perspective, a country perspective, using investments as well to get greater reach into globalization markets? And I would see that as an alternative to ensure that despite the outcome or probability of outcome, whether it will be renewed or not, our exporters are quite ready and diversified in South Africa. So do you see a long-term structural shift in South Africa's trade alignment away from the U.S. to potentially other blocks like bricks then? Same with you, Sheng. So in terms of... Sure, thanks, Tamande. So obviously in terms of an alignment, it is quite challenging to understand where our alignment will be towards. But if you gravitate back once again to traders itself and whether it's aligned to a specific, let's call it basically trade block agreement or factions such as bricks, it will be more relevant to our basically exporters, including importers, not to leave them out of this as well, to ensure that with the product diversification, the country diversification, the commodity diversification actually manages basically the future of them as a trader rather than actually putting a dependency on a specific faction. I would think that would be more practical just to make sure we have readiness in Africa later on, South Africa as well. And I think in terms of basically factions and alignment factions, it's always good to understand what the looming outcomes would be. But to create readiness, I think we just need to be more practical as traders and obviously financial institutions aligned to basically our traders where we could become more aligned partners. So we move from the financial institution to become what we refer to, I refer to as beyond banking advisory services. And this is now expanding to add value to our traders to ensure sustainability and longevity. Isak, anything to add there, your thoughts on the likelihood of South Africa losing its AGOA benefits and what contingencies might be in place in case we do lose those benefits? Realistically speaking, we should be prepared to lose AGOA. I mean, I think the relationship between South Africa and the US has deteriorated quite markedly over the last couple of months, and there doesn't seem to be any channels of communication, at least not visibly at this stage. And I think you should also say that South Africa's participation in AGOA was probably also always a little bit at risk because we are by far the most developed country that participates in AGOA, and AGOA was always meant to help development in Africa. So I think there have always been question marks whether we should be part of AGOA. And then lastly, I think the whole AGOA scheme might also be at risk. I mean, Trump really does not like these multilateral kind of arrangements. He likes one-on-one deals with countries. So the question is, yes, we probably will lose AGOA access. That covers about a third of our exports to the US. Again, a lot of that is precious metals and also the vehicle exports. And again, the question is, then you jump up to the standard US tariff level. Can you remain competitive? As I said, there are many, many moving parts. I think the key thing for South Africa is to try and remain, to try and keep those communication channels open and try and get an agreement with the US as quickly as possible. Because ultimately, I think it's the uncertainty that really, really hurts businesses at this stage. Businesses can adapt. They're very adaptable, but they need to know what they are going to adapt to. Coming back to you, Shane, what in your view would be the most effective response from South African policymakers to shield the economy from US trade shocks? Look, interesting question. I think if you look at South African policymakers, it is something I suppose we could drive in terms of public-private sector partnership to inform, either expanding on things like economic power agreements through bilaterals or revisiting basically trade tariffs, especially with markets like the Asian markets, the European markets as well. However, we could drive basically information in that sector. I think what's critical is to understand, as you said, is cool heaths would prevail. US is the probably second biggest exporting trading partner, which is over 7%. However, if you match up that, which is probably aligned to worldwide exports, which is close on to $154 billion, it would be feasible to ensure we don't burn bridges behind us, but at the same time be realistic. Should it not continue, I think it's important for policymakers to understand how they develop a strategy with the private sector and it's informed by exporters and importers alike to ensure it's very relevant going forth and it makes sure it takes into account what we've mentioned earlier in terms of de-risking yourself from a product perspective, or country perspective, ensuring basically that you are basically reaching the world and you don't have risk to a specific or dependency to a specific country like Algoa. With the products we mentioned, it is something that should it not continue, we need to find alternative how to close that gap and we need to find that probably quicker than later. We are almost out of time, but I just want to look at one other key point that you've raised, which is the one other key issue before I let you go. Isaka, this question is for you. Have you seen any shifts in capital flows into South African equities and bonds? And I guess on the opposite end, have you seen any shifts in how investors are investing into the US in the current context? Let's start with the US. I think there's been quite a big outflow in the first quarter of this year. And I think the reality is that investors internationally were overexposed to the US because it was the best performing equity market over the last decade. So everybody has massive exposure to the US and so there is a lot of money that can leave. But yeah, so far you've seen you've seen outflows, equity outflows from the US. You've also seen equity outflows from South Africa. And that's kind of despite the fact that the all share index is up for the first quarter. So those things aren't always correlated. I think often the flows are a bit of a lagging indicator, not a leading indicator. But yeah, South Africa is not yet attracting kind of big money flows in the wake of the GNU and the greater optimism around the economy. I think we need more sustained, better economic performance and then we'll start seeing the inflows into our equity market. On the bond market, we have seen better inflows over the last couple of months. Gentlemen, that's all we have time for. Thank you for your insights and thank you for your time. That was Isaac Odendal, Investment Strategist at Old Mutual and Shane Naidoo, Global Treasury and Trade Management Services Specialist at NetBank Commercial Banking.
Theme: Uncertainty in South Africa's trade future due to U.S. trade dynamics and potential loss of AGOA benefits
The United States' unpredictable trade moves are causing ripples in South Africa's export and investment sectors, leading to increased uncertainty and potential shifts in trade alignment. With U.S. President Donald Trump set to unveil reciprocal tariffs affecting numerous countries, including South Africa, the trade landscape is facing significant changes. Izak Odendaal, Investment Strategist at Old Mutual, and Shane Naidoo, Global Treasury and Trade Management Specialist at Nedbank Commercial Banking, joined CNBC Africa to discuss the implications of the volatile U.S. trade policies on South Africa. Amidst this uncertainty, South Africa must navigate potential risks and opportunities in various sectors. Key sectors that are most exposed or stand to benefit from shifting U.S. trade dynamics include the precious metals industry, particularly gold and platinum exports, as well as the motor industry and the food industry, including fruit and vegetable exports. These sectors could face risks if tariffs are imposed, potentially impacting exports to the U.S. While there is no clear answer to the potential outcomes, the uncertainty surrounding trade policies creates challenges for businesses as they attempt to adapt to new conditions. The looming threat of South Africa losing its African Growth and Opportunity Act (AGOA) benefits adds another layer of complexity to the situation. With over 1,800 products exported to the U.S. market, South Africa could face significant job losses and economic impacts if AGOA benefits are revoked. While the likelihood of South Africa losing AGOA benefits remains uncertain, it is essential for policymakers and businesses to prepare for various scenarios, including diversifying trade relationships and products to mitigate potential shocks. The conversation further delved into the possibility of a structural shift in South Africa's trade alignment away from the U.S. towards other trading blocs like BRICS. By exploring alternative markets and trade agreements, South Africa can enhance its resilience and reduce dependency on a single trading partner. Additionally, the discussion highlighted the importance of public-private sector partnerships and informed policymaking to shield the economy from U.S. trade shocks. Emphasizing the need for readiness and strategic planning, Shane Naidoo underscored the significance of de-risking from product and country perspectives to ensure sustainability in the face of changing trade dynamics. As capital flows into South African equities and bonds undergo fluctuations, investors are closely monitoring developments in the market. While South Africa has seen increased inflows in the bond market, attracting larger capital flows will require sustained economic performance and greater confidence in the economy. Overall, South Africa's trade future remains uncertain, requiring proactive measures and strategic responses to navigate the evolving global trade landscape.
"Ultimately, I think it's the uncertainty that really, really hurts businesses at this stage. Businesses can adapt. They're very adaptable, but they need to know what they are going to adapt to."
['South Africa', 'trade dynamics', 'US trade policies', 'AGOA benefits', 'investment sectors', 'tariffs', 'exports', 'global trade', 'economic impacts', 'BRICS', 'public-private partnerships', 'capital flows']