Trumponomics: SA needs R&D focus to retain investor confidence

US consul general in South Africa, Teddy Taylor recently advised that there is no reason to expect any changes in the US’ relationship with Southern Africa. “People change, but our institutions remain the same. Our institutions will survive the results of the elections,” explains Taylor. He says foreign policy is (currently) geared to strengthen governance and institutions of governance to enhance trade and create jobs.

On the topic of South Africa, Trump stated during his campaign: “South Africa is a total and very dangerous mess. He was also less engaged on international trade, foreign aid and providing multilateral solutions to international problems such as climate change. It is therefore likely that Trump will be loathe to engage with South Africa during his tenure as president.

Trade relations

What would this mean for South Africa? The African Growth and Opportunity Act (AGOA) is a United States trade agreement, enacted on 18 May 2000. It seeks to provide assistance to African economies and to facilitate bilateral trade between Africa and the US through the provision of, for example, tax free exports from African countries to the US.

As one of South Africa’s largest trading partners, trade with the US amounted to $12,7bn in income for South Africa in 2015. South African exports to the US were valued at $896m for the year to date, in June 2016. The AGOA has also since its inception created 60,000 jobs for South Africans in the labour-intensive agriculture and automotive industries. The agreement was recently extended till 2025. However, negotiations to renew the Act are set to take place during Trump’s presidency. In view of the above, it is at this stage uncertain which position he will take.

In addition, in terms of the role of US banks in project and trade finance, short-term financing and the like, South Africa has the largest exposure of any country within the Eastern Europe, Middle East and Africa (EEMEA) region at 43% of our growth domestic product (GDP). Uncertainty regarding the stance that Trump will take in relation to the emerging economies such as South Africa is likely to mean that foreign investment will move to safe-haven markets or markets with minimal (or beneficial) exposure to the USA such as Russia and Hungary. This may therefore result in a direct decline in foreign investment into South Africa.

Staying globally relevant

Historically, during a period of economic uncertainty and periods where business opportunities are less certain, companies reduce their investments which are longer term and where returns are uncertain such as investments in innovation. Some smaller enterprises and new entrants to a market may actively increase their innovation expenditure during such a period in an attempt to “swim against the current” and capitalise on the stance taken by their more conservative competitors.

In an emerging economy such as South Africa we need to remain focused on ensuring our companies and our country remains globally relevant during an economic downturn. The only way in which we can do so is to continue to actively invest in the development of new technology and ideas, especially where the potential market spans beyond the borders of South Africa. This can only be done by maintaining investment in the R&D and innovation processes during tough economic times.

Globally, we are moving towards a “knowledge-based economy” and South Africa cannot afford to fall behind in this regard. The short-term impact of Trump’s term in office may hold less than ideal consequences for the fledgling South African economy. However, it is up to South African businesses to ensure that we remain ahead of the game and remain competitive internationally in the longer term.