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INTERNATIONAL TRADE WITH SOUTH AFRICA

The return of South Africa to the international community after the 1994 elections revolutionised the country’s position in the international trade arena. Less than two decades ago the South African economy was characterised by apartheid legislation and international sanctions. This resulted in a closed economy, marked by high tariffs, subsidies and a generally restrictive trade environment.

Today the country boasts a fast-growing, outwardly-orientated, liberal economy, open for trade with the world’s biggest markets, and attracting increasing amounts of foreign direct investment.

The market liberalisation policies adopted at the time of the country’s transition to democracy and tariff reduction commitments undertaken by South Africa upon joining the World Trade Organisation in 1995, have resulted in remarkable trade growth over the past 14 years.

According to the South African Revenue Service, the value of South Africa’s total exports in 1992 was R68.8 billion. Steady growth has seen this value rise to R494.3 billion in 2007.

The downside

The opening of an economy to world trade automatically puts local manufacturers at risk of steep competition from cheap foreign goods penetrating local markets. China is one such example, with Chinese imports accounting for 10% of South Africa’s total imports. In a bid to address the steep competition this has created, primarily in the clothing and textiles industry, South Africa’s Department of Trade and Industry this past year imposed trade quotas on Chinese clothing and textile imports.

It is hoped that the quotas will limit imports from but not total trade with China.

South American/South African and inter-African trade

Since South Africa’s re-entry into world trade, important relationships have been forged in key markets such as the US and the EU. Recent years, however, have seen an increasing focus on partnerships with fellow emerging market economies.

Mercosur, a regional trade agreement between Brazil, Argentina, Uruguay and Paraguay, is broadening its reach as mutually beneficial connections are established between emerging economies in southern Africa and India. Together with IBSA (India, Brazil, South Africa), these foreign trade agreements could see the development of a large tri-lateral agreement between South America, Africa and the East as the countries involved move to strengthen south to south co-operation.

Among the key objectives set out in the New Partnership for Africa’s Development (NEPAD) is the acceleration of inter-African trade as a means of driving economic growth throughout the continent. Inter-African trade currently accounts for only 10.5% of Africa’s total trade, says Nepad. African countries are therefore increasingly urged to develop regional trade blocks and partnerships.

South Africa’s existing regional agreements include the South African Customs Union (SACU) and the Southern African Development Community (SADC).

SACU, which dates back to 1910 is a preferential trade agreement between Botswana, Lesotho, Namibia and South Africa (BLNS). The agreement establishes grounds for free trade among the BLNS countries.

The Southern African Development Community, established in 1980, consists of 14 Southern African states. The agreement establishes an intra-SADC free trade area by liberalising trade in goods and services on the basis of fair, mutually equitable and beneficial trade arrangements, complemented by protocols in other areas.

Outlook 2008

Being a part of the global trade and economic environment means that South Africa is not excluded from the global economic shock waves that have been felt this year and continue to make the economic world somewhat volatile.

A record increase in oil prices, the US subprime mortgage crisis, a weakening Rand, a slowing national growth rate and the power crisis are among the factors which will continue to influence the National Treasury and the Reserve Bank’s micro and macro economic priorities and decisions throughout the year.

The complex global environment does however present some advantages for the trade industry. A weaker rand means that South African commodities are more attractive. In a survey conducted by the Bureau of Economic Research earlier this year, respondents in the manufacturing sector reported that they could only compete in the export market with the Rand at R7.70 to the US dollar.

The current commodities’ boom, which according to the Financial Mail has attracted US$200 billion in new investments globally, also presents opportunities for increased exports to feed the increased demand for raw materials.

However, the South African trade industry, particularly in mining, cannot take full advantage of these opportunities as we face some seriously export-hindering supply-side problems. High oil prices have increased production costs for many industries. The skills shortage and infrastructure constraints continue to stall growth, while the power crisis adds a new twist to the challenges.

There are no quick-fixes for these problems, but it is hoped that government plans, such as the massive infrastructure expansion programme, the national power plan and the Accelerated and Shared Growth Initiative for South Africa (ASGISA) will have a significant impact on trade growth over the next few years.

Conclusion

Despite the challenges the country faces, particularly in respect of the current global economic situation, South Africa’s future in international trade looks bright thanks to the groundwork done in the first years of our democracy.

“We have done great groundwork for the future of international trade. The existing trade commitments we have are good and will ensure that our economy remains open from a trade policy perspective,” says Phillip Alves economist at the South African Institute for International Affairs.

As we look towards the future, it is the strengthening of South to South co-operation and inter-African trade relations, focused macro-economic policies and a commitment to resolving supply side issues that will ultimately ensure that South Africa remains well poised for continued growth in world trade.

Fact Box

  • South Africa and the European Union signed the Trade Development Cooperation Agreement in 2000. The TDCA allows for duty free imports on the majority of traded goods. EU is SA’s biggest trading partner accounting for 30% of all trade.
  • South Africa and the US signed the African Growth and Opportunities Act in 2000. AGOA grants preferential access into US markets to democratic countries in Sub Saharan Africa. Total trade between the US and SA amounted to US$3.3 billion in 2006
  • South Africa is ranked 39th in the WTO’s list of leading exporters in world merchandise trade for 2006
  • Total trade between Africa and China amounted to US$74 billion in 2007. South African trade accounted for 19% of this.
  • South Africa’s best performing trade year was 2002 when exports, at R312.9 billion, well exceeded imports, giving the country a positive trade balance valued at R39.5 billion.
  • In 2007, South Africa’s trade deficit equalled R69 billion.

Ian Macdonald BBus Sci, is the Online Editor at SA Good News.