/ 5 January 2024

South Africa’s trade balance is thinning and in need of urgent resolve

Africafreetrade Gettyimages 1266961946
Intra-Africa trade: A container ship in the Suez Canal, Egypt. Photo: Camille Delbos/Getty Images

A review of South Africa’s trade data for the period 2018 to 2022 revealed that South Africa remained a net exporter in value terms, peaking the positive balance during this period to R444.53 billion in 2021 from lows of R15.21 billion in 2018 and R31.80 billion in 2019. In 2022, the positive balance dropped by just over 60% to R192.21 billion. 

Although the country remained a net exporter, the rate of import growth in value terms (2022 versus 2021) increased at a rate (32.6%) close to three times the export rate (10.9%). This wouldn’t warrant the raising of alarm bells because the country stayed a net exporter. What does raise alarm bells is that it would have been expected that value exported in rand terms should have increased based on the local currency’s depreciation when compared to the dollar or the euro. 

Even if the country exported the same volumes, it would have earned more in rand terms and thus the rate of export value growth, in theory, should be much higher if more volumes were exported.

A risk, therefore, arises and suggests that South Africa’s export growth has slowed (relative to imports) due to the shipment of fewer volumes of commodities in 2022 compared to 2021.  Evidence to this claim is augmented by the trade balance shrinking to just over R10.2 billion for the first six months of 2023 (Exports at R1001.6 billion versus Imports at R991.43 billion). 

This differs considerably from the positive balance of R130.36 billion during the first six months of 2022 and the even higher balance of R257.45 billion during the first six months of 2021. The drop to R10.2 billion poses the country for trade results similar to the 2018 and 2019 years where South Africa was a net exporter by a very small margin or regressing to become a net importer. 

The latter could be a possibility as the rate of export value growth declined to 3.2% during the first six months of 2023 (compared to the first six months of 2022), while import value growth increased by 17.9%. Recourse is, thus, required to reinvigorate the country’s output and exports to sustain its status as a net exporter. 

This can only be achieved by overcoming challenges which include reducing load-shedding, improving road and transport infrastructure, upgrading ports and associated trade infrastructure and, lastly, the government extending more support to export-oriented industries. 

Another theory could be that the product mix of exports has changed. Due to external factors such as the Russia-Ukraine war, South African exports now consist of more of the bulkier, lower unit value commodities (2022 versus 2021). 

A review of the country’s top-30 exports revealed that the fastest growing exports in 2022 (when compared to 2021) in value terms included coal (up 921% in 2022 versus 2021), automobiles (218%), precious metal ores and concentrates (199%), bituminous coal (124%) and nickel (116%). 

However, when South Africa’s top-30 exports are compared for 2021 to 2020, similar commodities are again included in the product mix with the fastest growing products consisting of precious metal ores and concentrates (887% growth in value versus 2020), coal (597%), unwrought nickel (201%), unwrought rhodium (180%) and semi-manufactured palladium (167%). 

The major differences to this mix were the unwrought and semi-manufactured precious metal commodities which in principle earn more in value terms than the bulkier, lower value commodities. A case can, therefore, be made that the product mix of exports should consist more of the commodities that were exported in 2021, including supporting these higher value commodity industries to sustain production and output levels, going forward. 

In both value and value growth terms, key export commodities include unwrought rhodium, bituminous coal, unwrought palladium and semi-manufactured platinum. Other key commodities to be prioritised from an export earnings viewpoint include gold, iron ore and concentrates, automobiles, ferro-chromium and manganese ores and concentrates. 

A final angle that the country can explore to remain a net exporter is to localise and produce more of what it is importing. Growth in imports in value terms of 32.6% in 2022 and 17.9% during the first six months of 2023 (versus the first six months of 2022) suggests that depending on viability, a few import substitution initiatives could be rolled out to benefit and maintain the country’s status as a net exporter. 

In 2022, the fastest growing imports into the country included lithium-ion accumulators (315% versus 2021), refined petroleum (148.9%), static converters (106.2%), liquefied natural gas (74.4%), computer processors (71.7%), dumpers for off-highway use (71.5%), vehicles (60.9%), wheat and meslin (52.4%), urea (50.2%) and palm oil (43.6%). 

Entering into technology, expertise and input (raw-material) joint ventures with leading global producers for local production and consumption is an opportunity that can be explored for products such as lithium-ion accumulators and computer processors. Positioning for such a development would be to produce locally for not just South Africa but for the rest of the sub-Saharan African region. 

Such partnerships can also be extended to the vehicle producers, encouraging them to establish assembly plants across the country’s automotive hubs and strategic economic zones to produce for the local and sub-region based on these vehicles being more fuel efficient and comparably affordable to existing automotive producers. 

For other commodities (wheat and meslin, urea and palm oil) localisation is hindered by aspects such as climate (wheat and meslin production) and input access (urea and palm oil) with the initial viable opportunity for the latter being the bulk imports of the raw materials for local refining. 

This could reduce the cost (value of importing) due to value addition now taking place within the country. However, all these ideas can only be fully explored when more permanent and sustainable resolves are found for pressing issues such as energy security and addressing economic infrastructure gaps and deficits.