How badly will US sanctions hurt South Africa?

South Africans awoke on Saturday, 8 February to the news that US President Donald Trump had signed an executive order to cut funding to South Africa in response to the Expropriation Act and South Africa’s International Criminal Court case against Israel for its conduct in Gaza.

The executive order has a raft of potential impacts, not least of which is the strongly implied loss of the African Growth and Opportunities Act (Agoa), up for renewal later this year. Also at risk are US business and economic development loans and other credit facilities for businesses, and SA’s dealings with the World Bank and International Monetary Fund, with which the US wields considerable influence.

The immediate loss of $440-million in annual US foreign aid is among the most tangible impacts. The money was channelled through Pepfar, the US government’s flagship HIV/AIDS relief programme, which has played a crucial role in South Africa’s public health system.

Read more: Too little, too late — what a Pepfar waiver can’t do

Read more: US funding freeze jeopardises 15 000 jobs and key healthcare programmes in SA, Parliament hears

The cuts also extend to US-funded educational, business and governance programmes, including the Young African Leaders Initiative (Yali) and USAid-backed SME funding programmes, which have been instrumental in entrepreneurial development, leadership training and economic upliftment.

Looming largest, however, is the implied threat to Agoa. While not explicitly revoked in the executive order, Agoa’s future has been cast into serious doubt, with $4-billion in preferential exports and a total of $20-billion at risk should South Africa be removed from the programme.

Read more: Agoa in peril — a litmus test for SA’s ability to adapt to a shifting world order

Agriculture and the automotive and manufacturing industries, which have benefited from Agoa’s tariff-free access to US markets, stand on the precipice of major losses.

Bond markets 

South Africa’s financial markets reacted swiftly to Trump’s executive order. By the close of trading on 8 February, the rand had dropped by 0.9% against the US dollar, while the cost of insuring South African debt soared to its highest level in nearly a year.

The South African 10-year government bond yield spiked by 35 basis points, reflecting growing investor unease. The reason? South Africa’s bond market is heavily dependent on foreign capital, with 30% of all government bonds held by international investors, including US-based asset managers. A sustained sell-off would place upward pressure on yields, raising the cost of borrowing for both the state and the private sector.

Should this continue to escalate, particularly if European investors follow suit, the effects could be truly disastrous, economist Dawie Roodt told Daily Maverick.

“If US and European investors start selling South African bonds, yields will skyrocket, the rand will plummet and inflation will spiral. That’s a far bigger risk than trade restrictions.”

Beyond Agoa and broader trade concerns, the most immediate financial consequence is the freeze on US-backed credit guarantees and development financing. South Africa has historically relied on the World Bank and IMF to secure credit guarantees, funding packages and investment programmes. As of 2023, the country had received nearly $2-billion in World Bank-backed development loans, largely focused on energy infrastructure and economic development projects. The immediate suspension of new credit guarantees means South Africa will now face higher borrowing costs, with lenders pricing in additional risk.

If credit rating agencies like Moody’s, S&P and Fitch downgrade South Africa’s debt outlook, borrowing costs could spiral further, making it even more expensive for the government to raise capital. However, none has done so yet.

Citrus industry — poisoning the tree

The agricultural sector appears to be holding its breath; AgriSA on Friday denounced claims of land grabs, with CEO Johann Kotzé making it clear that the organisation sees no credible link between farm murders and the signing of the Expropriation Act.

Johan van der Waals, the managing director of Terra Soil Science, who works with many farmers to increase productivity and reduce the use of harmful chemicals, said: “At this stage, I think everyone is waiting with bated breath, trying to figure out what is going to go on, what’s going to happen. Trump’s way of doing things is so weird and so different from what a lot of these guys thought might happen or are used to.”

The citrus industry is among the most vulnerable sectors under threat. South Africa exports approximately 110,415 tonnes of citrus fruit to the US annually, benefiting significantly from Agoa’s tariff-free access. Should South Africa lose Agoa status, US buyers are likely to pivot to competing suppliers in Peru, Mexico or Chile.

The industry supports 140,000 agricultural jobs, many in rural communities that have few alternative employment opportunities. Agoa’s removal could devastate these jobs and send ripple effects through the entire agricultural supply chain.

Automotive industry — where will the road lead? 

The South African automotive industry is one of the key sectors that could face a major downturn should Agoa benefits be revoked. The sector employs approximately 112,000 people directly and a further 350,000 indirectly, making it a vital contributor to the economy.

With the US serving as a major market for vehicles produced in South Africa, particularly BMWs and Mercedes Benz', Agoa’s expiration would impose tariffs of up to 25%, effectively pricing these exports out of competitiveness. In addition, the loss of preferential trade terms would force SA manufacturers to either absorb the increased costs or pass them on to consumers, leading to decreased production, layoffs and a reduction in foreign investment.

The automotive industry also has deep links to other sectors, including steel, logistics and advanced manufacturing, all of which would suffer cascading effects from a slowdown in vehicle exports.

As South Africa scrambles to secure alternative markets, potential partners such as China or the EU may not be able to absorb the volume of displaced automotive exports in the short term, leaving the industry highly vulnerable to an economic contraction.

Damage control 

President Cyril Ramaphosa has dispatched envoys to Washington in an attempt to negotiate a reversal of the executive order. Business leaders and DA officials have also entered the fray, engaging with key US stakeholders, including Elon Musk.

Roodt says the only successful option would be some kind of concession to Washington.

“If Trump escalates this beyond Agoa — if he pushes sanctions to the financial system level — South Africa could be in serious trouble. The Reserve Bank is strong, but the knock-on effects could be severe” said Roodt.

With the African Continental Free Trade Area slowly gaining operational traction, South Africa may look towards regional trade integration to soften the economic blow. However, intra-African trade remains underdeveloped, with infrastructure and policy hurdles limiting its immediate feasibility as a solution.

While BRICS partnerships offer potential alternatives, they may not be able to fully replace the scale of US trade and investment in the short term. The reliance on China, in particular, comes with its own set of challenges, including concerns over debt diplomacy and economic over-dependence.

South Africa is at a crossroads. The fallout from US sanctions could either force a realignment of South Africa’s economic strategy towards self-reliance and alternative alliances, or it could push the government into making difficult concessions to Washington.

Whether diplomatic efforts succeed or not, the impact on industries such as automotive manufacturing, agriculture, and financial markets will be immediate and profound. How the government navigates this crisis in the coming months will determine whether the sanction is a short-term disruption or a long-term economic shift. DM