Finance

Mutual Trade Between South Africa and the US – What do You Need to Know?

The US is one of the largest and most economically evolved regions in the world, and one that currently trades with nations and regions across the globe. This number includes South Africa, which enjoys a highly lucrative relationship with the US and its various businesses.

Interestingly, it’s South Africa that’s currently the largest US trade partner on this particular continent, with a total two-way goods trade of $14 billion reported in 2018. What’s more, an estimated 600 US businesses operate in South Africa, many of which base their headquarters in the region.

But why is South Africa such an important market for the US, and what geopolitical factors impact on the relationship between the two regions? Let’s find out!

SA and the US – The Geopolitical Implications

The geopolitical relationship between the US and South Africa has grown from strength to strength since 1994, when the latter underwent a significant democratic transition and the apartheid era drew to a close.

In 1995, the US-South African Binational Commission was launched to support economic reform and a significant rebuild of infrastructure in the region.

This also precipitated considerable investment into South Africa from the US, which has helped to create and support long-term ties from the perspective of education, common development objectives and wider geopolitical interests.

Given the continually positive diplomatic relations that exist between the two regions, it should come as no surprise that trade volumes have increased markedly since their humble beginnings back in 1995.

We touched earlier on how two-way trade volumes reached 14 billion in 2018, but this had grown to $17.8 billion just 12 months later. This broke down into $9.8 billion-worth of imports into South Africa from the US, and $8 billion in goods heading in the opposite direction.

This contributed to a US goods and services trade deficit with South Africa of $1. 8 billion in 2019, while the latter’s GDP increased by 0.2% in real terms to $358.8 billion during the same period.

Why is South Africa Such an Important Market for the US?

The relationship between the US and SA can often be measured by reviewing the USD/ZAR currency pairing, through licensed forex brokers or apps such as MetaTrader 4.

Investors will have recently seen the Rand shelve most of its February gains against the greenback, for example, as US yields surged and concerns about the wider economic performance in South Africa continued to rage.

Of course, other emerging currencies tumbled against the USD too, but the ZAR seems particularly afflicted by a number of negative factors.

With this in mind, the US remains a key strategic trade partner for South Africa, particularly from an agricultural perspective. Remember, agriculture is central to South Africa’s GDP growth, so the ability of farmers to sell into competitive and diverse international markets is imperative.

Even the fact that the US accounts for a smaller share of total South African imports and exports than it did previously isn’t particularly telling, as this just reflects how the region has evolved to increase trade with emerging economies like China.

Ultimately, the US is still one of South Africa’s top five trade partners, while it remains the leading market in sub-Saharan Africa.

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