South African small and medium enterprises (SMEs) face a growing challenge as the United States confirms a 30% export tariff on goods from South Africa, set to take effect next month. This policy shift is expected to disrupt critical sectors – most notably automotive, agriculture, and textiles – and could undermine thousands of jobs and businesses across the country.
This export tariff poses a serious threat to the entire South African export supply chain. In particular, the automotive industry, a cornerstone of South Africa’s export economy, is poised to take a direct hit. The US is a key market for locally manufactured vehicles and components, and the new 30% tariff could significantly reduce demand.
SMEs that supply parts, logistics, and services to these large manufacturers must brace for reduced orders, intense pressure on pricing and therefore a significant loss of competitiveness against other exporters to the US like Brazil and China, who face only 10% tariffs. The potential net effect for South African SMEs is small profit margins, as they feel the pinch faster than bigger firms, and the risk of layoffs and stalled growth with fewer US sales.
The agricultural and textile sectors, which have relied on the duty-free access provided by the African Growth and Opportunity Act (AGOA), are now exceptionally vulnerable. The tariff effectively neutralises the benefits of AGOA, jeopardising the livelihoods of thousands, particularly in rural communities that depend on exports of citrus, wine, and speciality textiles.
For SMEs in these industries, the focus must immediately shift to reinforcing their unique value proposition whilst urgently exploring new and emerging markets to absorb the capacity previously destined for the US says Thomas McKinnon, chief growth officer at SME services provider Lula.
“If your product offers exceptional quality, niche appeal, or a distinct competitive advantage, demand might persist even with higher tariffs,” says McKinnon.
From a cash flow perspective, every cent counts, he continues. “Now is the time to look for any big or small ways in which you can streamline your operations, reduce waste, and negotiate better terms with suppliers. The tariffs will have a knock-on effect that we will more than likely see across the board and SMEs need to be ready and prepared,” says McKinnon
He adds that consumers are already very cash-strapped in a context where most are paying much more for electricity, after an Eskom tariff hike kicked in this month. Businesses might need to absorb a portion of these tariff costs to remain competitive, making internal cost-cutting essential for maintaining margins.
McKinnon also encourages SMEs to review their financial forecasts and cash flow meticulously.
“Consider short-term funding options to bridge any potential cash flow gaps during this transition period,” advises McKinnon. “Having agile financial solutions in place can provide a crucial buffer as SMEs adapt to the new economic landscape.”
