R27 billion a year of South African exports are at risk after the European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM).
As reported by City Press, the CBAM is a strategy for reaching the EU’s 2050 carbon emissions goal. It will impact South Africa’s steel, aluminium, iron, cement, fertiliser, electricity and hydrogen exports.
It is a border tax for carbon-intensive products imported into the EU, meaning that South African exporters will have to pay tariffs on carbon prices equivalent to EU manufacturers.
A policy brief by think-tank Trade & Industrial Policy Strategies said that iron and steel exports face significant risk, as about 26% in value of products that are included in the CBAM are exported to the EU.
Iron and steel exports covered the CBAM account for 4% of South Africa’s total exports in 2021.
South Africa will likely face tariffs as its heavy reliance on coal-based power generation makes it one of the largest carbon-intensive exporters to the EU.
This will reduce the value of the nation’s future exports and the country’s competitiveness.
“The CBAM will impose significant compliance costs. Exporting firms will have to account for, report and verify the embedded emissions in their products,” the policy brief said.
Challenging times for South African exports
South Africa’s exports have faced a difficult number of months, with 2023 not starting well.
South Africa imported more than it exported at the start of 2023 and recorded a preliminary trade balance deficit of R23.05 billion in January.
The South African Revenue Service (SARS) said that the deficit was due to exports reaching R139.36 billion and imports totalling R162.41 billion.
This marked a significant year-on-year (YoY) decline from January 2022, when the nation recorded a R4.64 billion trade balance surplus.
The data gets worse when Botswana, Eswatini, Lesotho and Namibia (BELN) are excluded, with a preliminary trade balance deficit reaching R30.26 billion.
Although there is only one month of available data for 2023, the preliminary cumulative trade balance deficit (excluding BELN) of R30.26 billion dwarfs the R2.63 billion trade balance deficit recorded for the whole of 2022.
Looking specifically at the automobile industry, exports of new vehicles declined by a sizeable 11.5%.
The National Association of Automobile Manufacturers of South Africa’s (Naamsa’s) New Vehicle Sales report for February 2023 noted a YoY decrease in the exporting of vehicles and automotive components.
Units decreased to 30,409 units in February 2023 from 34,352 units in February 2022.
Naamsa said that the weak performance of the new vehicle market was expected, as the ongoing cost of living crisis, a depressed economy and ongoing structural problems affected sales.
Although major economic headwinds – including a higher stage of load shedding – face the new vehicle market, Naamsa said that domestic and international sales should see an uptick in 2023.
“While momentum for the new vehicle market has been slow, it is forecasted that both domestic sales will grow by 6.3% and export sales will grow by 8.3% in 2023,” it said.