The government’s stance on the Russia-Ukraine conflict could cripple the local economy, with over 15% of GDP at risk of potential direct or indirect sanctions.
Businesses and political experts have issued numerous warnings, and institutions like the South African Reserve Bank have joined the chorus.
FirstRand CEO Alan Pullinger said South Africa’s support for Russia could have “extremely negative consequences” for the country in March.
Pullinger highlighted that South Africa benefits far more from its trade and economic partnerships with the United States, the UK, and Europe than from Russia.
The Reserve Bank warned of potential direct or indirect sanctions from the United States in its Financial Stability Review on 29 May.
However, despite acknowledging the risk of punishment against South Africa for its “non-aligned foreign policy stance”, President Cyril Ramaphosa said the government remains committed to its decision.
Ramaphosa also called on other African countries to avoid picking sides and being dragged into international conflicts.
The government’s stance has resulted in a reputational mess and financial havoc for South Africa, with the rand weakening to record lows versus the dollar in May.
This issue has “no end in sight”, according to a managing director at Intellidex, Peter Attard Montalto.
Recent threats of sanctions and a public diplomatic spat are merely symptoms of a longer-term deterioration in South African relations with the West.
Putin’s visit to South Africa for the BRICS summit in August “could be something of a tipping point” for the South African economy and the rand, Montalto said.
However, the Reserve Bank, according to Montalto, is “making a very dramatic statement” and should not enter foreign policy debates.
The likelihood of sanctions is very low. What is more likely and damaging is the erosion of economic and diplomatic relations with the West.
This will further weaken the rand and deteriorate South Africa’s economic performance.
Donald Mackay, a director at XA International Trade Advisors, outlined the form that sanctions could take with potentially catastrophic effects on South Africa.
Mackay said there is a good chance that the United States will exclude South Africa from the African Growth and Opportunity Act (AGOA).
Currently, R60 billion of trade is conducted through AGOA between the US and South Africa. Trade between the two nations totalled R400 billion last year, making up over 9% of South Africa’s GDP.
South Africa’s exclusion will not affect the United States, with the trade between the countries making up less than 0.5% of its GDP.
The sectors hardest hit by South Africa’s exclusion from AGOA will be the automotive industry and agriculture. The exclusion will result in huge job losses, Mackay said.
South Africa could also be placed into an out-of-cycle review by the US, allowing it to selectively suspend imports from South Africa.
This is the most likely and responsible outcome, according to Mackay.
The European Union (EU) will follow the US if it imposes sanctions on South Africa, with its sanctions having a greater impact on South Africa.
Trade between the EU and South Africa totalled over R800 billion last year, making it worth 12.6% of South Africa’s GDP.