August 24, 2018 / 5:36 PM / 10 months ago

Breakingviews - South Africa has thin defense against Trump thump

A 'No entry sign' is seen at an entrance of a farm outside Witbank, Mpumalanga province, South Africa July 13, 2018. REUTERS/Siphiwe Sibeko

NEW YORK (Reuters Breakingviews) - South Africa can’t afford to have an enemy in the White House. The U.S. president’s tweet on Wednesday criticizing the country for the killing of white farmers may come to nothing, but if things escalate, South Africa has only a thin line of financial and economic defense.

Markets stirred but were not much shaken after Donald Trump said he had asked Secretary of State Mike Pompeo to investigate violence against white landowners. The rand fell 1.6 percent against the dollar, and then recovered some ground. That was much less than the fall in South Africa’s currency when Trump targeted Turkey – something that in theory didn’t touch on Pretoria at all.

There are three ways that Trump’s ire could be troublesome for recently-instated President Cyril Ramaphosa, though. One is trade. The United States is a big export market for South Africa. It took $2.9 billion of goods in 2017, mainly vehicles, parts, iron and steel, according to the Office of the U.S. Trade Representative. Tariffs, which are Trump’s weapon of choice so far, would hit hard. That was already causing anxiety: Minister of Trade and Industry Rob Davies traveled to Washington in July to discuss the conditions of trade.

Then there’s investor sentiment. South Africa is highly vulnerable to market jitters. Its current account deficit narrowed to 2.5 percent of GDP in 2017, but is largely financed by fickle short-term investment flows, the International Monetary Fund warned last month.

Less worrying but more likely is the lost opportunity for closer ties. Trump has still not appointed an ambassador to South Africa. U.S. Trade Representative Robert Lighthizer suggested in January that there was scope for a bilateral free trade deal with a “properly selected” African country. It’s unlikely to be South Africa, but any attempt by the United States to pick favorites could undermine the whole African trading bloc.

There’s some comfort in Ramaphosa himself. When elected in February this year, the business-friendly former trade unionist turned billionaire seemed a better alternative to Jacob Zuma, whose turbulent decade in office ended with corruption charges. Already trying to balance populism with an inflated public spending bill, this presents him with a new challenge. Ramaphosa may not be able to calm a U.S. president on the warpath, but he has a better chance than his predecessor of calming markets.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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