Pro-business budget vital to offset 'double trouble' of US tariffs and EU carbon tax

A proposed carbon tax on South African imports into the European Union could spell double trouble for local exporters already threatened with US tariffs. 

The EU's Carbon Border Adjustment Mechanism is due to take effect within the next few years. It amounts to a sliding scale of import taxes on products with a carbon footprint related to emissions released in their production. Although negotiations are underway to stagger CBAM implementation to allow developing countries to prepare, South Africa is particularly vulnerable to carbon taxes due to continued heavy reliance on coal-fired power stations. 

The Cape Chamber believes the CBAM in its current form will unfairly prejudice developing economies such as ours that require international support, not punitive taxes, to accelerate the transition away from reliance on fossil fuels. We are urging our business partners to unite in a call for a more measured approach to CBAM that is sensitive to the needs of developing economies. 

Alternatives to a one-size-fits-all carbon tax for imports into the EU include the following: 

• a slower implementation of CBAM for economies like SA, giving SA time to enhance the sustainability of its economy 
• allocation of CBAM funds back into SA’s economy, aimed at improving sustainability 
• deeper partnerships and trade relations between SA and EU, compensating for potential losses in GDP as a consequence of CBAM 
• (significant) increase in technical support from EU to SA, raising capabilities to speed up the drive towards sustainability 

Unfortunately, South Africa's major exports fall squarely into the category targeted upfront by CBAM, products such as steel, aluminium and cement. These industries are actively working towards reducing their emissions, as is national government. But the shift away from fossil fuels towards a significantly diversified energy mix will take time. 

CBAM adds to concerns about South Africa's balance of trade in light of President Trump's utterances around tariffs. It seems increasingly likely South Africa will lose duty free access to the US market for many products currently covered by the Africa Growth and Opportunity Act (AGOA) which is up for renewal in September. 

The unpredictable trade landscape highlights the need for a budget that prioritises efforts to grow a sustainable and resilient economy. The only sure way of increasing the amount of revenue available to meet the country's socio-economic needs is to create jobs via an enabling business environment. 

As we await Minister Enoch Godongwana latest budget outline, the Cape Chamber reiterates its call for economic reforms and much-needed support for small business development. We need a resilient growth economy to help us withstand the future shocks of an increasingly unpredictable world. 

Jacques Moolman
President of the Cape Chamber of Commerce and Industry