US revoking of trade benefits will hurt SA
Manufacturing sector will lose billions
SOUTH Africa’s export industry is set to take strain from the US’s decision to revoke trade benefits under the World Trade Organisation (WTO) general system of preferences for developing nations as it hits on a long-standing bilateral export market.
US President Donald Trump on Monday narrowed that nation’s internal list of developing and least developed countries to reduce the threshold on whether the imports harmed US industries with unfairly subsidised exports.
The US is South Africa’s third-largest trading partner.
The revoking of the trade benefits could see the manufacturing sector losing billions of rands in revenue.
It will make it easier to penalise a number of developing countries, such as China, India and South Africa, which the US views as not befitting the “developing nations” status.
It would also attract higher import duties and levies to the US market.
The National Association of Automobile Manufacturers of South Africa (Naamsa) said the move was a tragedy for the industry and economy as all preferential treatment was crucial.
“The US has been one of South Africa’s top export destinations and trading partners for the past three decades. In 2019, a total of 12 437 vehicles were exported to the US along with automotive components to the value of R4.8 billion,” said executive manager Norman Lamprecht.
The General System of Preference (GSP) allows for the bulk of local automotive components to enter the US duty-free, while the African Growth and Opportunity Act (Agoa), an extension of the GSP bestowed towards 39 African countries, including South Africa, allowed for duty-free access of manufactured vehicles exports.
The revoking of the GSP treatment was especially poignant for South Africa, because there are strong indications that its extended programme (Agoa) would likely not be renewed in 2025.
“If we lose preferential treatment, we lose an important export market,” Lamprecht said.
The two countries do brisk trade in machinery, healthcare, minerals and metals, electronic products, footwear, energy related products, agricultural industry implements and produce as well as textiles and apparel amongst others.
Steel and Engineering Industries Federation of Southern Africa economist Michael Ade said the revoking of special preferences would make it difficult for South Africa to implement countervailing duties.
Ade said the WTO rules required governments to terminate their countervailing duty investigations if the amount of foreign subsidy was de minimis, which is normally defined as less than 1 percent ad valorem.
He said a different standard for so-called developing nations that requires investigators to terminate duty investigation if the amount of subsidy is less than 2 percent ad valorem applies.
“This is a travesty from our perspective,” Ade said. “The challenges of high inequality, high unemployment, low growth and others mean that South Africa has every right to be declared a developing nation. Maybe China and India can live with that status, but here we have a Gini coefficient of 6.3 percent, which is very high.”
DINEO FAKU
HARMONY Gold said yesterday it aimed to address its R4.2 billion debt burden in the next two years after it swung to a R1.3bn net profit in the six months to the end of December last year, on the rally of the gold price, compared with the R19 million loss a year earlier.
The group said it was riding the wave of the strong bullion price, which rose 19 percent on average to R683 158 a kilogram in December last year from R572 898 a kilogram in December 2018.
It said the resurgent bullion price resulted in a 12 percent surge in revenue to R1.7bn during the period.
The US-China trade war has seen investors dumping risky assets for safe havens, including gold, which has resulted in a spike in prices.
Harmony Gold’s chief financial officer, Frank Abbott, said debt reduction would be prioritised.
“The first thing is to deleverage the balance sheet. Then, of course, if there are growth opportunities, we will consider that, and lastly we will consider declaring dividends,” Abbott said.
Harmony’s debt follows the acquisition of AngloGold Ashanti’s Moab
Khotsong mine and recapitalising the Hidden Valley in Papua New Guinea in 2017.
Asked whether Harmony had been picked to acquire AngloGold Ashanti’s Mponeng mine, Harmony chief executive Peter Steenkamp said the group was continuously on the look out for any growth opportunities in South Africa and the rest of Africa.
“If it makes sense for us to invest, we will invest. We do not want to mention any specific opportunity until we get to the point where we have certainty. I will stop there,” Steenkamp said.
Production, however, was disappointing, with the group announcing an 8 percent decline in lower grades at the Kusasalethu mine.
It said the production guidance for 2020 had been revised downwards to 1.4 million ounces as a result.
Steenkamp said the group was recovering the cost of the impact of Eskom’s stage 6 load shedding.
“Stage 6 load shedding did not help us at all,” Steenkamp said, adding that the impact had been the loss of a full shift and a night shift.
“We lost between 80 kilograms and 90 kilograms of gold at the time,” he said, adding that the lost production could not be recouped.
“Going forward, what worries us is that we have continuous stage 1 load or 2 load shedding. That means we have to cut 10 percent of power. That is not a good outcome for us as the mining industry,” he said, adding that the company was in talks with Eskom to find a solution.
Steenkamp said that if load shedding continued, the company would have to cut back on production at its high-cost operations, including the Masimong mine.
Steenkamp said it also had the option of cutting down its waste retreatment in a bid to cushion the blow of load shedding.
He said Harmony planned to build a solar plant in the Free State that would generate 30MW of power, and another 40MW power project was on the table in the long term.
“We are very thankful for the minister giving us the go-ahead to continue. We believe all the regulatory hurdles will probably be overcome in a month or two from now. We already went out on provisional tenders to build. What we are looking for is someone who can build the project on a to take or pay basis,” said Steenkamp.
Harmony shares closed 7.67 percent lower at R41.80 on the JSE yesterday.