The European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM) is set to have a significant impact on South Africa’s exports, with industries such as steel, aluminium, iron, cement, fertiliser, electricity, and hydrogen being particularly vulnerable. The CBAM is a border tax on carbon-intensive products imported into the EU, which means that South African exporters will have to pay tariffs on carbon prices equivalent to EU manufacturers. The policy document issued by research group Trade & Industrial Policy Strategies has reported that iron and steel exports face the most significant risk, as they account for about 26% of the value of products included in the CBAM and made up 4% of South Africa’s total exports in 2021.

One of the main reasons why South Africa’s exports are at risk is its heavy reliance on coal-based power generation, which makes it one of the largest carbon-intensive exporters to the EU. The CBAM tariffs will be detrimental to the country’s future exports and competitiveness. The compliance costs associated with the CBAM will be significant as exporting firms will have to account for, report, and verify the embedded emissions in their products.

South Africa’s exports have already faced challenges in recent months, with the value of imported goods exceeding the value of exported goods at the start of 2023, recording a preliminary trade balance deficit of R23.05 billion in January. According to the South African Revenue Service, the deficit was due to exports reaching R139.36 billion and imports totalling R162.41 billion, marking a year-on-year decline from January 2022 when the country recorded a R4.64 billion trade balance surplus. When Botswana, Eswatini, Lesotho, and Namibia are excluded, the preliminary trade balance deficit balloons to R30.26 billion, which is way above the R2.63 billion trade balance deficit recorded for the whole of 2022.

The National Association of Automobile Manufacturers of South Africa (Naamsa) has reported a YoY decrease in the exporting of vehicles and automotive components, with units decreasing to 30 409 units in February 2023 from 34 352 units in February 2022. Naamsa attributed the poor performance of the new vehicle market to the cost-of-living crisis, a depressed economy, and ongoing structural problems affecting sales.

Despite these challenges, Naamsa has forecasted that domestic and international sales should rise in 2023, with domestic sales expected to grow by 6.3%, and export sales expected to grow by 8.3%.

In conclusion, the EU’s CBAM will have a significant impact on South Africa’s exports, with the steel and iron industries being particularly vulnerable. South Africa’s heavy reliance on coal-based power generation makes it one of the largest carbon-intensive exporters to the EU that will likely be slapped with the new tariffs, diminishing the value of the country’s future exports and its competitiveness. South Africa’s exports have already faced challenges in recent months, with the value of imported goods exceeding the value of exported goods, recording a preliminary trade balance deficit of R23.05 billion in January. Despite these challenges, Naamsa has forecasted that domestic and international sales should rise in 2023.

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