Imposition of tarrifs by the US: A wake-up call to accelerate reforms for growth in South Africa

Bonga Mokoena, CEO, BDO South Africa and Deputy Chairman, Business Leadership South Africa (BLSA)

There is no doubt that SA is entering a period of economic uncertainty brought about the global trade headwinds resulting from the decision by the US government to impose reciprocal tariffs on many countries trading with the US.  This comes at a time when there are domestic macro-economic challenges that SA has been facing over the past few years.

The changing global geo-political environment has brought with it not only uncertainty about the future of global trade and relations, but also whether counter protectionist measures by targeted countries will benefit the world economy. Predictions of a possible recession in the US are unsettling as this would inevitably filter to weaker and growing economies.

For SA, these developments need a sober, pragmatic response by key stakeholders, among them the government and business. The economy is currently buffeted by fiscal challenges even though the central bank has so far managed to control inflation through a prudent monetary policy. The overall current environment is not conducive for growth. As a result, investors have been adopting a wait-and-see attitude while others may have decided to invest elsewhere.

It is against this background that the impact of US tariff could potentially have severe ramifications for SA. Importantly, the tariffs are a wake-up call for SA to accelerate economic and fiscal reforms to achieve sustainable growth, and intensify export market diversification. 

SA will have to navigate carefully particularly now that the future of the African Growth and Opportunity Act (AGOA) trade pact is uncertain. AGOA has hugely benefited SA’s automotive, mining and quarrying industry and agricultural exporters.

Uncertainty about the future of SA’s trade relations with the US and the potential loss of AGOA should not paralyse us into inaction. SA must look to embrace bilateral and multilateral trade diversification. Strengthening existing bilateral trade agreements with the EU for example, should be part of SA’s response, so should be intensified efforts to expand into and open new markets through the African Continental Free Trade Area (AfCFTA). The Asian market is equally important for SA exporters.

Granted, SA cannot completely ignore the US market. Therefore, its response to the imposition of tariffs should not only be measured, but must consider the importance of the US as one of the largest investors in SA and also one of the largest export markets for local products. Therefore, we need sober bilateral engagements between the US and SA which are critical to find a middle ground that is mutually beneficial.

Domestically, it is encouraging that among other policy responses to the tariffs, there are reported plans to consider offering additional incentives to the automotive sector to cushion the impact of tariffs. Beyond these responses, however, we need to push harder to improve the competitiveness of the economy, leveraging on interventions such as the second phase of Operation Vulindlela, which has the full backing of the business sector. 

The first phase of Operation Vulindlela showed how a collaborative approach between government and business can address structural challenges facing the economy. The second phase aims to build on this success, and will ensure that we further achieve policy and regulatory alignment and coherence, which is key to attracting both domestic and foreign investment.

Progress made to address energy security, port and logistics and reduce red tape in government is commendable. There is also renewed urgency to address the water issue facing many metros. These are the low hanging fruits we need to focus on, while also addressing other broader issues impeding growth. In this regard, the continued stability across the board of government, business and the economy is important, because they are critical building blocks in ensuring the country moves in the right direction.

Anchor sectors such as manufacturing and energy need more appropriate fiscal incentives to enhance their competitiveness, and to invest in new technology and innovations. Localisation is key but also requires a supporting policy framework backed by an efficient and cost-effective energy system, and reductions in import duties to allow local companies to retool and invest in efficient technology.

Furthermore, improving SA’s investment climate means addressing governance and regulatory issues that affect SA’s risk profile.  In this regard, it is encouraging to note the significant progress that has been achieved by a multi-stakeholder approach since SA was added to the Financial Action Task Force (FATF) "grey list" in February 2023 due to weaknesses in its ability to combat money laundering and terrorist financing and is working to address the identified deficiencies. In a recent media statement by National Treasury, SA has addressed or largely addressed 20 of the 22 action items in its Action Plan, leaving two items to be addressed in the next reporting period that runs from March 2025 to June 2025. (Source: National Treasury media statement 21 February 2025). There are high hopes that we will exit from the “grey list” by October 2025.

This development will be country positive, and will greatly boost confidence and demonstrate the robustness of our checks and balances, and strength and responsiveness of our regulatory environment. I am therefore convinced that we should continue to be confident about the future of SA. We need to move with speed to address/improve constraints to SA’s economic growth and competitiveness.