Sarb governor Kganyago worries over Trump's protectionism talks

Cape Town - A stronger US economy and dollar will give the US Federal Reserve the opportunity to normalise monetary policy faster that could lead to a reversal in capital flows to emerging markets, said South African Reserve Bank governor Lesetja Kganyago.

He discussed US monetary policy, his outlook for economic growth and the impact of a Trump administration on South Africa during an interview with Francine Lacqua from the World Economic Forum in Davos, Switzerland on the programme, Bloomberg Daybreak: Americas.

Asked by Lacqua about the impact of a Trump presidency on South Africa, Kganyago said it’s difficult to measure the effects, as there are still uncertainties as to the policy direction president-elect Donald Trump will take. 

“We don’t know what the policies will be,” Kganyago said. 

“There’s been talk of a fiscal stimulus and if that is the case you would like to believe the US authorities’ fiscal stimulus will be in the best interest of the economy and if it leads to the US economy growing the market will price it in and it will lead to an appreciation in the dollar.” 

That in turn, will have an impact on emerging market economies, Kganyago said. “The first channel would be through the trade channel to the extent that you have a stronger dollar in relation to emerging market currencies. This could mean emerging market exports will become more competitive, depending of course on whether world demand is there.” 

The second channel, according to Kganyao, is the finance channel to the extent that there are countries that have dollar denominated debt and an appreciation in the dollar will mean rising debt burdens for these economies. 

“But what we should be seeing if the US economy grows, it will give room to normalise monetary policy faster that will lead to a further reversal in capital flow to emerging markets.” 

Asked by Lacqua if Trump’s utterances of protectionism should be a matter of concern, Kganyago said he was particularly worried that protectionism talks could lead to retaliation in other economies. 

Kganyago said he finds it illogical that countries would try to shield its own economy from imports, while at the same time wanting access to global markets. 

He was particularly concerned that a protectionist policy could lead to a repeal of the African Growth and Opportunity Act (AGOA), a trade act that is in tact until 2025 whereby qualifying sub-Saharan countries have better access to the US markets. 

A repeal of Agoa, or a watered down version of the act would cause significant harm to sub-Saharan countries, Kganyago said. 

WATCH: Kganyago’s views on a Trump administration and the economic growth outlook for SA