FNB CEO warns of potential for increased trade restrictions with US

FNB CEO Jacques Celliers has warned that deteriorating relations with the United States could affect South Africa’s access to trading partners and foreign investment. 

Celliers issued this warning in an interview with Business Times, where he said that despite the financial sector’s resilience, it could not afford additional friction with major trading partners. 

“We can ill afford a journey that ventures into tighter restrictions, possibly ending up in sanctions or not having access to the world’s best practice.”

The sector should be protected as it can facilitate payments and foreign investment into South Africa, Celliers said. 

“We are not saying there are sanctions on the cards, but we are warning that if these things are left unchecked, then we could end up with more friction and restrictions.”

He was clear that this does not mean the country should not look for opportunities elsewhere,  “but, at the moment, we have hit an unnecessary stumbling block while our economy is challenged”. 

Earlier this month, four congressmen wrote to US Secretary of State Antony Blinken and Trade Representative Katherine Tai asking for the upcoming Africa Growth Opportunity Act (AGOA) summit to be moved out of South Africa. 

They said this is because of the country’s close ties to Russia and South Africa’s alleged arming of the Russian military. 

More than AGOA is at risk, with trading ties to the European Union on a knife edge as well. 

“We hope the warnings are taken to heart, and we can align our economic interests to help our economy instead of stifling it,” Cilliers said.

Market anticipating sanctions

Lesetja Kganyago, the governor of the South African Reserve Bank (SARB), previously said the market is already behaving as if sanctions will be imposed on South Africa.

The governor said investors and lenders negatively view South Africa’s non-aligned stance on the Russia-Ukraine war.

“In our interactions with investors, South Africa’s neutrality is misunderstood and increasingly questioned,” Kganyago said.

President Cyril Ramaphosa has sent an envoy of four ministers to meet with the G7 to explain South Africa’s stance on the conflict.

The questioning and lack of understanding of South Africa’s stance have led foreign investors to sell off South African bonds and shares.

This causes bond prices to fall and bond yields to rise, increasing the government’s debt-servicing costs in the future.

Kganyago also noted that investor appetite for South African government bonds had decreased recently. 

The Reserve Bank has not included sanctions in its projections and baseline assumptions as it still views sanctions as highly unlikely.

However, it is concerned about the behaviour of the market, which seems to be anticipating that sanctions will be imposed on South Africa.

Secondary sanctions could be imposed on South Africa due to its transactions with Russia which has had primary sanctions imposed on it.

These sanctions would restrict the country’s ability to make payments in US Dollars, significantly impacting imports and exports while trade would plummet and capital flows would effectively halt. 

However, Kganyago also said that other factors are playing a role in creating negative sentiment around South African assets. 

These other factors include load-shedding, deteriorating public services, and poor tax collection in April.