South Africa must decarbonise and diversify to save its vital German trade

South Africa is Germany’s largest trading partner in Africa. This reflects decades of industrial integration, deep institutional ties and sustained private-sector investment. It also reflects the fact that Germany continues to bet on South Africa.

But the conditions underpinning that bet are shifting rapidly. If South Africa is to retain its position as Germany’s prmary economic anchor on the continent, it must adapt with strategic and decisive intent.

A new report commissioned by the Friedrich Naumann Foundation examines the South Africa-Germany trading relationship at a moment of significant global trade realignment, assessing its current state and identifying priorities for building a more diversified and future-facing partnership.

Global trade was reshaped in 2025 by renewed protectionism, most notably through the expanded use of the United States’ International Emergency Economic Powers Act. Sweeping tariff measures have followed, with severe knock-on effects for export-dependent economies. For South Africa, the consequences are already visible: automotive exports to the US have halved within a year following the imposition of 30% tariffs, threatening jobs and export revenues.

In this environment, trade diversification is no longer simply a growth strategy; it is economic risk management. Germany, as South Africa’s third-largest trading partner after China and the US, sits at the centre of that calculation.

On paper, the bilateral relationship appears robust. South African exports to Germany have grown substantially over the past decade, and since 2020, South Africa has enjoyed a trade surplus. In 2024 alone, exports to Germany were valued at R153-billion.

Growing vulnerability

Yet beneath these headline figures lies a growing vulnerability. Nearly 60% of South Africa’s exports to Germany are now concentrated in the automotive sector, with a further 30% dominated by minerals, precious metals and catalytic converters. Within the automotive category, exports are largely petrol and diesel passenger vehicles – precisely the segments under the greatest pressure as Germany and Europe accelerate electrification and decarbonisation.

South Africa’s export success has thus become its principal risk.

This vulnerability is being amplified by Europe’s regulatory shift. The EU’s Carbon Border Adjustment Mechanism will impose additional costs on carbon-intensive imports to align them with EU carbon pricing. South Africa’s coal-dominated electricity system leaves its industrial exports particularly exposed. While South Africa’s carbon tax sits at about $10-12 per ton of CO₂, EU carbon prices hover near €100. That differential will increasingly be borne by exporters.

Even before the Carbon Border Adjustment Mechanism potentially extends beyond raw materials into automotive components and finished vehicles later this decade, higher embedded carbon costs in steel, aluminium and intermediate inputs threaten South Africa’s competitiveness within German supply chains.

Production strategies reshaped

At the same time, Germany’s manufacturers are reshaping their production strategies. Large, fixed industrial investments are giving way to flexible, efficient and low-carbon supply networks. Nearshoring trends are drawing German investment toward North Africa, where countries such as Morocco and Egypt offer proximity to Europe, improving renewable-energy access and greater regulatory predictability.

These shifts do not signal German disengagement from South Africa. On the contrary, in October 2025, the EU nearly tripled its Global Gateway investment commitment to South Africa, focusing on renewable energy, green hydrogen, logistics, critical materials and digital connectivity. The signal is clear: Germany and Europe want to reposition the relationship – but on new terms.

German stakeholders continue to describe South Africa as a strategically important partner. At the same time, they are candid about the constraints shaping investment decisions: electricity reliability, logistics performance, skills shortages, visa restrictions, municipal decline and regulatory complexity.

B-BBEE

Broad-Based Black Economic Empowerment is frequently cited not for its objectives, but for implementation that prioritises formal compliance over value creation and job retention. These constraints are already influencing corporate behaviour, with some firms slowing expansion and others redirecting investment elsewhere.

From South Africa’s side, Germany is recognised as a key European gateway. Yet trade diplomacy and economic strategy often lack coordination. Vision exists, but execution remains uneven, with trade promotion, regulatory reform and diplomatic engagement frequently moving in parallel rather than in alignment.

The future of the South Africa-Germany trading relationship will depend on whether South Africa can reposition itself as a reliable, low-carbon and diversified production partner.

The report outlines a focused reform agenda. South Africa must accelerate the decarbonisation of its export-oriented industrial base through renewable power procurement, wheeling arrangements and targeted green-hydrogen pilots. An emissions monitoring, reporting and verification system aligned with Carbon Border Adjustment Mechanism requirements must be established as a matter of urgency.

Trade diplomacy with the EU should prioritise regulatory alignment, simpler rules of origin and recognition of South Africa’s domestic carbon tax. Diversification beyond automotive manufacturing – into green energy, beneficiation, agro-processing, water technologies and digital services – must become a central pillar of trade strategy, supported by targeted domestic reforms and stronger economic diplomacy in Germany.

The South Africa-Germany trading relationship is where it is because of history, scale and institutional depth. Sustaining it will require adaptation.

If both countries get this transition right, the relationship can evolve into a model for future-oriented, equitable trade between Europe and Africa. If not, South Africa risks gradual marginalisation within Germany’s evolving industrial ecosystem. DM

Inge Herbert is Regional Director for sub-Saharan Africa at the Friedrich Naumann Foundation.