One South African crisis worse than United States tariffs

While United States tariffs on South African goods will harm the country’s exports, a greater threat to the country’s trade balance is homegrown – the collapse of Transnet.

Investec chief economist Annabel Bishop explained that, so far, with the exception of the automotive industry, the impact of United States tariffs on South Africa’s trade has been relatively moderate.

Bishop’s comments come after United States President Donald Trump officially announced that South African goods will be hit with a 30% reciprocal tariff starting 8 August 2025.

South Africa’s agricultural and automotive industries are expected to take the hardest hit, with the impact of United States tariffs on the automobile industry already felt in 2025.

Earlier this year, the Trump administration implemented 25% tariffs on automobile and parts imports.

This has had a devastating impact on South Africa’s automobile exports to the United States, with Naamsa noting an 82.2% year-on-year drop in the number of units exported to the US in the first half of 2025.

“With automotives (and parts) tariffs raised so early in the year, this is not surprising,” Bishop said.

While the United States’ tariffs on a wider range of South African goods have not yet come into effect, the impact is expected to be significant.

However, so far this year, in rand value terms, exports in South Africa were down only 1% for the first half of 2025 compared to the first half of 2024.

The trade balance for H1 2025 versus H1 2024 is R80.9 billion versus R66.6 billion, respectively, up R21.3 billion.

Bishop explained that while the price of global commodities, the exchange rate and demand and supply all affect the outcomes, overall the United States accounts for just over 7% of South Africa’s total exports.

“The modest component of South African exports that go to the United States, along with the substantial exclusions from tariffs, and the bulk of US tariffs only impacting SA exports in the second half of the year, will see a limited impact on overall export activity,” she said.

“However, from 2026, the full, direct impact from tariffs will become more apparent, given the leads and lags involved.” 

Until then, Bishop said the biggest hindrance to export growth in South Africa remains the insufficient performance from Transnet to meet export freight demand.

Transnet in trouble

Challenges at Transnet have been a significant drag on South Africa’s export capabilities in recent years.

As the operator of South Africa’s ports and rails, Transnet is vital in ensuring that local goods can be transported across the country and exported across the world.

However, failings at the utility have seen this capability diminish over the years, with severe consequences for the country’s exports.

The National Treasury estimated that rail inefficiencies cost the South African economy over R400 billion in 2022.

Meanwhile, the Minerals Council of South Africa reported that mining exports missed their target by R50 billion due to Transnet’s inefficiencies.

Due to Transnet’s challenges, South African companies have begun to reduce their reliance on the utility by transporting their goods via road rather than by rail and using ports outside the country to export their goods.

This means the utility, which is already struggling both operationally and financially, now finds itself in a vicious cycle.

The operator’s financial struggles mean it cannot afford to invest in improving its rail network, which pushes customers away, decreasing Transnet’s revenue, and further worsening its financial position.

Rating agency S&P recently downgraded its long-term issuer credit ratings on Transnet to B+ from BB-. 

This was due to the utility’s slow progress in improving its operational and financial performance, and its reliance on state support to meet liquidity needs.

The firm said Transnet is “burning cash” while its operational performance is not improving fast enough to support this expenditure.

Therefore, as seen in the latest bailouts, the government is forced to step in to avoid a further collapse in the utility’s performance and financial health.

This further pressures the government’s already strained fiscus, threatening the Treasury’s plans to run a primary budget surplus and stabilise its debt.