As the ongoing global trade war escalates, experts are increasingly concerned about its ramifications for cross-border payments, particularly in Africa.
Cornelius Coetzee, Country Manager for Verto South Africa, sheds light on the current economic landscape, revealing that the turbulence is deeply rooted in the United States’ efforts to foster a stronger domestic market under the Trump administration.
While tariffs have been paused for the time being, the implications for the South African economy and its critical relationship with the United States, could be significant.
“The rationale behind the trade war is an attempt to build a self-sustaining U.S. economy, yet statistics indicate that the U.S. remains reliant on global partnerships for two-thirds of its economic output. Trump’s attempts to cut aid and reduce government spending were aimed at domestic recovery, but the retaliatory tariffs from other nations have put everyone on edge,” Coetzee said.
For South Africa, an economically fragile nation with a heavy reliance on trade partnerships, the stakes are high. The current tariff crisis presents a double-edged sword; a pause might offer temporary relief, yet uncertainty about future negotiations leaves the country in a precarious position.
A robust relationship with the US, a nation known for its appetite for foreign products, remains essential for South African growth.
Coetzee added, “If you are developing as a nation, establishing a strong trade relationship with the U.S. is crucial. However, the risk of the rand depreciating significantly, beyond R20 to $1, could lead to a dire economic fallout. The scenarios are forcing South African manufacturers to reconsider their dependence on U.S. ties, especially given the potential for a technical recession.”
Meanwhile, the broader implications for cross-border payments are becoming apparent.
The tariffs, particularly the steep 125% tariff on Chinese imports, will indirectly affect South African companies and their capacity to engage in international trade.
Coetzee said that this creates a reluctance to trade due to potential losses, affecting the wider economic landscape.
As the clock ticks down on the 90-day tariff pause, Coetzee warned that South Africa must ensure its negotiation team comprises diverse business leaders.
These representatives should cover various sectors to secure advantageous outcomes.
“We need our delegation to predominantly reflect our economy’s multifaceted structure, and that’s crucial for minimising exposure to tariffs,” he said.
Cross-border payments
Furthermore, with the South African Reserve Bank (SARB) slated to introduce new regulations to enhance the cross-border payments sector in June, Coetzee said he remains optimistic.
“While regulation can impose additional hurdles for fintech companies, it provides an opportunity to increase the strength of the rand and enhance business confidence. We must leverage these regulations to show global markets that South Africa is stable and ready for business,” he said.
“It’s crucial for South Africa—and Africa as a whole—to look inward and foster stronger trade relationships within the continent. This will not only make cross-border payments more effortless but also reduce reliance on U.S. dollar-denominated transactions,” Coetzee further added.
With initiatives aimed at streamlining cross-border payments through partnerships and regulatory reforms, Coetzee said that Africa has the power to mitigate risks and enhance economic stability.
These strategies hinge on creating an efficient and open trading environment while strictly adhering to compliance and safeguarding measures against illicit activities.
BUSINESS REPORT
