Is Trump trouble for South African debt?

Is Trump trouble for South African debt?

Just when we thought 2016 couldn’t get more interesting, Donald Trump gets elected as president of the United States. After months of tireless campaigning across the US, Americans took to the ballot boxes and decided: Hillary, you’re fired!

But jaws aren’t the only things to hit rock bottom when the announcement was made on the morning of 9 November. Emerging market currencies, including the South African Rand took a beating. The Mexican Peso slumped by 9.3% – its weakest level in eight years. The Turkish Lira sank to an all-time low. And the Rand weakened by 2.3%, starting at R13.18 against the Dollar, then reaching a high of R13.80 and then rebounding to R13.55. We know what you’re thinking: isn’t a lower Rand/Doller exchange rate what we’re looking for? The problem lies in the uncertainty in the stock market. Mr Trump is the only American president in history who hasn’t governed anything before taking a seat at the helm of the world’s biggest superpower. Usually, one cold look at a candidate’s political history and get a clear idea of where they stand on policies, etc. But with Mr Trump, because there’s no such history, it’s hard to tell what stance he will take. This uncertainty puts up red flags for investors, and South Africa definitely needs more of those.

One thing that Mr Trump did make clear during his campaign and victory speech is that he will prioritise America. American jobs, for American people. This puts a huge question mark on the import tariff agreement between the US and South Africa. For 100 years, South Africa has enjoyed the benefit of lowered import tariffs with the US. In a nutshell: when American companies import goods and services from South Africa, they pay a lowered import tariff of 20%. (Goods imported from some first-world countries get a 35% import tariff slapped on.)

Here are a few American import facts to put it all in perspective:

– South Africa was the United States’ 36th largest supplier of goods imports in 2015.

– US goods imported from South Africa totalled $7.3 billion in 2015.

– The top import categories were: precious metal and stone (platinum, diamonds – $2.4 billion), vehicles ($1.5 billion), iron and steel ($615 million) and machinery ($538 million).

– Agricultural goods imported from South Africa totalled $281 million in 2015.

–  The top agricultural import categories were: tree nuts ($65 million), fresh fruit ($63 million), wine and beer ($52 million), processed fruit and vegetables ($27 million) and planting seeds ($11 million).

– US imports of services from South Africa were an estimated $1.7 billion in 2015.

If you consider the above numbers, it’s easy to see how an import tariff increase of 15% could hurt South Africa debt. If Mr Trump wants to prioritise America and provide American jobs for Americans, he will favour American industry and relook foreign policies such as ours.  After all, no smart importer is going to pay more for foreign goods if he can produce it for much cheaper in his own back yard and supply jobs for his/her countrymen.

This, unfortunately, creates a domino effect. Fewer exports mean we need a smaller workforce producing goods, so unemployment will no doubt rise. If unemployment rises, so does consumer debt, and with it, the chance of becoming over-indebted.

So once again we have to encourage South African consumers to tighten their belts. We’re in for a bumpy, and very uncertain ride… again. And if that belt can’t be tightened any more, you know who to call.


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