ANC playing a dangerous game 

The African National Congress (ANC) is playing a dangerous game with the United States, as the party refuses to budge on key demands from Washington. 

This is despite the country’s economy and its politicians coming under increasing pressure from the United States through tariffs on its exports and policy agenda. 

The 30% tariffs imposed on South African exports to the United States are expected to shave off around 0.3 percentage points of GDP. 

While small, this is significant considering expectations for the local economy to grow by around 1% for the year. 

The pressure from tariffs has been coupled with demands from the United States for South Africa to withdraw its legal case against Israel and review some of its local policies, particularly Black Economic Empowerment. 

However, despite the potential implications, the ANC has refused to budge. The Centre for Risk Analysis (CRA) said this is a sign of a party determined not to adapt to changing circumstances at home or abroad. 

This inflexibility risks significant financial and economic consequences for South Africa, which has already been subject to increased tariffs on its exports. 

Should the United States feel that additional measures are necessary, it could prevent American investors from holding South African assets, potentially plunging the country into a financial crisis. 

The CRA expects the United States to maintain its trade and diplomatic pressure on South Africa and the ANC. 

It does not anticipate any easing of the pressure as the South African government appears to have ignored fundamental US concerns and has not taken any meaningful steps to address them. 

The CRA said that instead of engaging with these concerns and official messaging from the United States, American lawmakers have been left frustrated. 

The organisation’s Chris Hattingh attended a series of meetings with the US administration and Congress officials last week, gathering the sense that America’s frustration with South Africa goes beyond Trump. 

Increasingly bipartisan concerns regarding South Africa’s relations with states opposed to America, such as Iran and Russia, are now driving the agenda – not Trump. 

This is a major problem for South Africa as it indicates the pressure on the country is likely to continue post-Trump and may be enacted into law. 

Financial and economic crisis

Despite the issues not being intractable, the ANC has shown little willingness to address US concerns and reduce the risk of further pressure being placed on South Africa. 

The CRA said that, for all the anger from the White House and some elected representatives, there is a desire to make a deal with South Africa. 

However, South Africa has not given its supporters in Washington enough evidence for them to push for improved relations with the country. 

The organisation also said that now is the best time for South Africa to try to improve relations with the United States, before attitudes towards the country become entrenched. 

Another underappreciated part of the problem for South Africa is the country’s already precarious financial and economic position. 

The country’s financial health has deteriorated significantly over the past decade as South Africa’s economy stagnated. 

The first area in which this crisis is manifesting itself is in the government’s fiscal accounts, which show the state is spending over R1 billion a day to service its debt.

Efficient Group chief economist Dawie Roodt has described this as a “slow-motion economic and financial crisis”, which the ANC has shown little urgency to resolve. 

This crisis could be sped up if the United States decides to increase its pressure on South Africa, by implementing additional measures to the tariffs placed on the country’s exports. 

While much of the focus has been on the impact of US tariffs on South African exports and local economic growth, there are increasing concerns of potential bans on American investment in South Africa.

“Whatever the reason, whether it is sanctions, uncertainty, or even fears of sanctions and tariffs, foreigners will begin selling government debt if things deteriorate further,” Roodt told the State of the Nation podcast.

“That means long-term interest rates will go up and the rand will weaken as money flows out of South Africa, potentially spiking inflation.”

While this is a dire situation, Roodt explained that the real trouble will start when local financial institutions have to pick up the slack left by investors selling government debt. 

“Somebody will have to buy that debt, and the most likely buyers will be local pension funds, the local savings industry, and local banks – all of which already hold a lot of government debt.”

“When bond yields go up, the value of those instruments goes down. This will put the balance sheets of local banks under immense pressure and can result in a financial crisis.” 

Roodt was clear in saying this has nothing to do with how South African banks are run, as they are some of the best-capitalised banks in the world and are extremely well managed.