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Gold price surge can’t heat up SA outlook after US cold shoulder

Gold price surge can’t heat up SA outlook after US cold shoulder
Lindsey Schutters
By Lindsey Schutters
2 Apr 2025
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Experts are doing gymnastics to describe South Africa’s economic outlook as mixed, with surging gold prices offering limited support amid turbulent US relations.

As a kid, I never understood why my parents were so obsessed with the gold price. And now, despite record gold prices, it seems that the benefit to South Africa’s economy appears more limited than ever. 

According to recent analysis shared during an Absa economic briefing, while higher gold prices remain positive for the country, their impact is dampened by reduced production volumes.

“Gold is still an important part of our export mix,” said Miyelani Maluleke, economist at Absa corporate and investment banking, in response to Daily Maverick questions about the apparent disconnect. “If you look at how much we’re producing these days, it is obviously a lot lower than what we’ve done in the past.” 

Nevertheless, he maintained that “higher gold prices are good for our terms of trade, certainly good for our export earnings, and at the margin certainly supportive of the currency as well.”

This analysis further suggests that sustained high gold prices could still generate “maybe a little bit more corporate income tax profits for the National Treasury, which they obviously desperately need.”

However, Maluleke’s overall conclusion was measured: “The effect may be not as large as what you’ve seen in the past, but I do think that higher gold prices are certainly still an important positive terms of trade support factor for South Africa in this environment.” 

Agoa renewal prospects ‘not good’ 


While gold prices offer some cushioning – Harmony Gold, SA’s last surviving locally listed miner, is plumbing new depths to expand operations – a far more concerning cloud looms over South Africa’s trade relationship with the United States, particularly regarding the African Growth and Opportunity Act (Agoa). 

Langelihle Malimela, head of country risk for sub-Saharan Africa at S&P Global, offered a harsh assessment of South Africa’s Agoa prospects during his presentation at the Actuarial Society of SA’s recent investment seminar: “The outlook is not good in terms of (Agoa) being renewed for another iteration. Certainly not for South Africa.”

Malimela indicated South Africa’s trade surplus with the United States as a potential target under the new US administration. “South Africa stands out there in terms of the trade surplus with the United States,” he warned. “That’s the kind of thing that the Trump administration perhaps is likely to take note of and try to target from a tariff point of view.”

The automotive sector appears particularly vulnerable. “In South Africa’s case, motor vehicles, motor vehicle parts, tractors, trucks make up an enormous component of that.”

He specifically cautioned that from “an automobile (manufacturer’s) point of view this might have even more significant implications for South Africa, which is very likely to be very much in his (Trump’s) sights.”

Other export sectors potentially at risk include “agricultural products, textiles, leather and apparel”, which “stand out quite prominently” in South Africa’s US-bound exports. 

However, Old Mutual Investment Group’s head of equities research, Meryl Pick, has a somewhat different view.

“While being excluded from the agreement would be bad for sentiment, our research shows that the actual impact on GDP would be quite low, probably less than 0.1% of GDP, with only about 10% of our total exports to the US falling under Agoa provisions,” says Pick.

Pick says the risk of South Africa being excluded from Agoa is not strictly Trump-administration driven.

“I view SA’s possible Agoa exclusion as having been revisited under the Trump administration rather than instigated by it. If you cast your mind back to last year, there have been ongoing discussions, including in the US Senate, about US discomfort with issues such as SA’s ties to Russia, reaching crisis levels with the Lady R diplomatic spat,” she points out.

“We have also seen other fast-growing African countries such as Ethiopia and Uganda excluded from the agreement since its inception. So, this is not only a South African risk.”

Direct and indirect threats


Absa’s assessment, while less alarming than Malimela’s, acknowledges significant sectoral risks. An October 2023 Absa report noted that while the “weighted average tariff on South Africa’s exports to the US as a whole in 2022 was 1.1% under the MFN regime [most favoured nation: a fundamental principle in international trade that ensures equal treatment among trading partners] versus almost zero under Agoa”, certain sectors face more substantial tariff increases. 

For motor vehicles, the difference is more significant at “2.5%,” while several food and beverage categories have “big tariff advantages under Agoa”. 

Perhaps more concerning is Maluleke’s acknowledgment that “expulsion from Agoa could have a bigger indirect impact through the loss of trade facilitation services and adverse impact on investor and business sentiment”.

This lines up with Malimela’s broader concerns about strained US-South Africa relations. 

US switching stance


Malimela characterised the US policy stance as increasingly uncompromising: “They’ve abandoned everything that they were doing the first time around and they are involved in this much more loyalist approach. That’s somewhat ominous from the perspective that (the US) very much care not about how they are perceived and how the rest of the world takes it.”

This assertive US approach comes at a particularly challenging time as South Africa attempts to leverage its G20 presidency to advocate for African development priorities. Malimela suggests South Africa has “almost walked into this buzz saw of US foreign policy towards it that really undermines” these efforts.

Not all indicators are negative. Absa’s Q1 2025 perspectives report highlights several positive domestic developments, including “improvements in electricity and logistics infrastructure” and subdued inflation. It also points to improving household finances and lower interest rates as supportive factors.

However, the report also acknowledges “persistent spending risks including to state-owned companies and municipalities” and notes that “private investment has disappointed” recently.



What this means for you


Gold: Even though gold prices are soaring, South Africa isn’t benefiting as much as it used to because we’re producing less gold. This means you probably won’t see much of an impact on jobs, salaries or government revenue from this sector.
Agoa: If South Africa is removed from Agoa, the cost of exporting to the US will go up, especially for cars, food, and textiles. This could lead to fewer exports, which may hurt jobs in those industries. If you work in manufacturing, agriculture or related sectors, this could put pressure on your job security.
Investor uncertainty: If the US imposes higher tariffs or limits trade, foreign businesses might think twice about investing in South Africa. Less investment means fewer new jobs and slower economic growth.
The good news: Load shedding and transport issues are improving, inflation is under control and interest rates might come down. This means everyday costs could stabilise and borrowing money might become cheaper.


DM

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