Trump tariffs shake confidence in SA investment landscape

A new 30% tariff on all South African goods entering the US from August 1 is expected to dent investor confidence, particularly in terms of foreign direct investment (FDI) and deal-making, says Andrew Bahlmann, chief executive of Corporate & Advisory at Deal Leaders International.

The tariff, announced in a letter from US President Donald Trump, is aimed at addressing what the US sees as an imbalanced trading relationship. But Bahlmann says the measure could have broader economic consequences, including a slowdown in M&A activity and a redirection of investment away from South Africa.

“Why would a foreign entity establish or expand manufacturing operations in South Africa if a crucial export market like the US is subject to a prohibitive 30% penalty?” Bahlmann says. Trump’s offer that companies could avoid the tariff by manufacturing in the US instead amounts to an incentive to shift investment out of South Africa, Bahlmann adds.

Companies heavily reliant on the US as an export market, such as those in automotive and agriculture, may now see revenue streams come under pressure, making them less attractive acquisition targets, Bahlmann says. “Their valuations will likely decrease,” he says. “Investors will become more cautious, possibly delaying transactions or turning to other markets.”

President Cyril Ramaphosa has challenged the basis for Trump’s decision, saying it stems from “a particular interpretation of the balance of trade” between the two countries.

“This contested interpretation forms part of the issues under consideration by the negotiating teams from South Africa and the United States,” the Presidency said in a statement issued Monday. “South Africa maintains that the 30% reciprocal tariff is not an accurate representation of available trade data.”

According to the South African government, the average tariff on imported goods entering the country is 7.6%, and 77% of US goods enter the local market at 0% duty. “Importantly, 56% of goods enter South Africa at 0% most favoured nation tariff,” Ramaphosa added.

Despite the pressure on exporters and investors, Ramaphosa said negotiations are ongoing and that the US government has indicated the 30% tariff “is subject to modification” depending on the outcome of those talks.

South Africa submitted a “Framework Deal” to US officials on 20 May, aimed at addressing concerns over trade surpluses, unfair practices and market access. Ramaphosa has instructed the negotiating team to urgently re-engage with the US on this basis, particularly in light of a pending trade framework for sub-Saharan Africa, which was mentioned during a meeting at the US-Africa Summit on 23 June in Luanda.

While Bahlmann believes the current climate will lead to more cautious investment behaviour, he says South Africa still holds long-term value for strategic investors. “Despite the pressure, the market still offers value, especially in certain sectors,” he says. Success, however, will depend on selecting resilient assets and having a clear understanding of regulatory and policy risks, Bahlmann adds.

Ramaphosa has also called on companies and trade negotiators to step up efforts to diversify markets. “The President urges government trade negotiation teams and South African companies to accelerate their diversification efforts in order to promote better resilience in both global supply chains and the South African economy,” a statement from the Presidency reads.

While Bahlmann believes the current climate will lead to more cautious investment behaviour, he says South Africa still holds long-term value for strategic investors. “Despite the pressure, the market still offers value, especially in certain sectors,” he says. Success, however, will depend on selecting resilient assets and having a clear understanding of regulatory and policy risks, Bahlmann adds.

Ramaphosa has also called on companies and trade negotiators to step up efforts to diversify markets. “The President urges government trade negotiation teams and South African companies to accelerate their diversification efforts in order to promote better resilience in both global supply chains and the South African economy,” a statement from the Presidency reads.

IOL