The export boom could be declared well and truly over in 2005. The export sector has come under renewed pressure from the strong rand and, with the exchange rate of R6 to the dollar expected to persist, there is no respite in sight.
Last week Statistics South Africa released figures showing that manufacturing production grew 5,8% in the year to November, but that it had fallen from October and the previous quarter.
On a quarterly basis, total manufacturing production had fallen by 0,4 %. Industries such as food and beverages; petroleum; chemicals; rubber and plastics as well as electronic goods showed a decline, while furniture; wood; paper publishing and printing; motor vehicle and components, among others, showed increases. Â
The Nedcor economics unit said it expected manufacturing growth to slow down this year, with the domestic sector being a major source of growth. “Exporters are, however, likely to remain under strain,” the unit’s research noted, adding that if the rand remains at current levels, it will undermine the export sector’s ability to take advantage of strong global economic growth and buoyant commodity prices.
Further proof of strain comes from last month’s manufacturing survey by the Bureau for Economic Research (BER) at the University of Stellenbosch.
The survey, conducted among about 1Â 100 manufacturers, showed that over the past two years only 14% of exporters had been able to continue growing export markets, 28% suffered a decline in export volumes and 39% had closed export capacity permanently.
The respondents regard an average R7,70 to the dollar as the ideal exchange rate. More than half believe this year will be “very bad” while only 2% believe it will be “very good”.Â
Dennis Dykes, chief economist at Nedcor, sees the long-suffering exporters as broadly divided into three categories. “There are those that will have to make short-term adaptations and wait for better times,” Dykes said. This includes mining, which has suffered from the strong rand, but benefited from rising commodity prices.
Then there are those that will have to divert to the local market and take advantage of increased consumer spending. This includes furniture manufacture. Altogether 25% of respondents to the BER survey have done precisely that.
The hardest hit exporters are those locked into the global market. Industries such as clothing manufacture are faced with the same competition domestically and abroad, because of the high mobility of goods. They also face a strong currency and falling prices.
Dykes notes that the economy may well adjust to a R6 to the dollar mark and find new niches, as happened in Australia. But he warns of two dangers. “The first is that South African unemployment is already very high,” he said, suggesting that any “adjustments” that require further job losses may be socially unpalatable.
He also notes that rand volatility over the past few decades suggests the currency is unlikely to stay at any given level for too long. Â
The strong rand has also bought into sharp focus the trade deficit, with relatively cheaper imports outstripping uncompetitive exports in growth in the period to November last year, the deficit stood at just less than R15-billion. Dykes said this is not necessarily a bad thing “as long as the imported goods are not all consumer goods, but include capital goods”.
This helps improve export earnings capacity when the rand eventually weakens. “At our stage of development we should be running a deficit,” Dykes said.Â
The export sector is, therefore, not expected to provide much job growth.
Employment growth in the formal, non-agricultural sector is expected to come from sectors such as construction and retail. Economist Mike Schussler recently released a study in conjunction with trade union Solidarity, which said that 60% of job seekers will find employment this year.