/ 17 January 2023

South Africa needs to free up flow of imports and exports to improve trade activity

Border Trader
Tuckshop traders in Meqheleng. (Photo: Thulani Mbele/Sowetan/Gallo images)

South Africa is the second largest economy in sub-Saharan Africa after Nigeria, based on a recorded GDP of $66.0 billion in the third quarter of 2022 compared with the Nigerian GDP of $101.0 billion in the same period. 

The agriculture, transport and manufacturing industries were among the main drivers of growth on the supply side of the economy while the demand side reflected an increase in exports and government consumption. 

As at October 2022, South Africa reported a trade balance of $11.29 billion, a decline of 56% compared with the trade balance in October 2021 of $25.91 billion). 

Trade fluctuations

In October 2022, exports exceeded imports by 12.2%, with exports amounting to $104.05 billion and imports to $92.76 billion. In the same period, exports grew by 0.7% from $103.4 billion while imports grew by 19.74% from $77.5 billion. 

The top export partners were the US (9.7% of total overseas sales), China (7.4%) and Germany (5.8%). 

Imports decreased as a result of reduced acquisitions of chemical products (-10%), plastics and rubber (-18%), textiles (-17%) and vehicles and transport equipment (-8%,), which were partly offset by the increase in mineral products (14%). The main import partners were China (18.5% of total purchases), India (7.9%) and the US (7.2%).

According to the Organisation for Economic Cooperation and Development, the South African economy is expected to contract in 2023, because of strict monetary policy measures meant to curb inflation. Further, the repo rate is anticipated to reach 7.25% by the end of the first quarter of 2023. From a trade standpoint, the rand value of exports is expected to fall, leading to a further decline in the trade balance.

Past and future trade conditions

Oil and petroleum product imports are expected to increase significantly in the short to medium term (2023 to 2025), following the closure of refineries in the country. 

The last operational refinery, Natref, with a 108 000 barrels a day production capacity, shut down operations in July last year, citing delays in the arrival of crude oil shipments as a major contributor. 

The delays were the result of Transnet strikes and fuel price fluctuations during the first half of the year, which adversely affected rail and road freight supply chains. 

In October 2022, the Minerals Council estimated that Transnet’s failures had lost South Africa $3.2 billion in the export of bulk commodities such as coal and iron ore. Furthermore, the price of retail diesel 500 increased from R17.28 in January 2022 to R26.01 in December 2022, resulting from the Russian-Ukraine conflict and weaker dollar-to-rand exchange rate. 

On a positive note, the first week of 2023 saw a R2.70 diesel and R2 petrol price cut as a result of the rand’s improved performance against the US dollar (R16.90 as at 9 January 2023). The decreased fuel prices may result in short-term trade benefits such as improved product speed to market enabling the processing of higher trade volumes. 

Other notable trade sector developments include the contribution of the vehicle industry to exports, which was subdued after the KwaZulu-Natal floods of April last year. 

The ongoing load-shedding by the state power utility, Eskom, is another factor that has had affected production — a direct feeder into the country’s trade activity. 

Policies, treaties and trade area agreements

The African Continental Free Trade Area agreement (AfCFTA) is expected to cushion the fluctuating trade balance. If and when executed effectively, the AfCFTA could result in increased demand for South African products from neighbouring economies in the Southern Africa Development Community and eventually the rest of the continent. For South Africa, this would translate to reduced import and export costs and higher exports by volume and value. 

Other initiatives to boost trade performance in South Africa include the development of special economic zones (SEZs) and industrial development zones (IDZs) in the country. 

Examples include the Atlantis SEZ, which is expected to be a greentech manufacturing hub for solar panels, wind turbines, biofuels, electric vehicles and green building materials, and the Nkomazi SEZ, strategically located to service the Maputo development corridor, with a focus on the logistics, minerals, agro-processing and automotive sectors. 

Key industrial development zones include the Coega and Richards Bay IDZs, which have been earmarked to improve production (energy, vehicles) and trade (through port facilities located near the facilities).  

Resolving regulatory limitations in the flow of goods and services in and out of the country is critical to improving trade activity. In the face of a global recession and domestic energy insecurity, South Africa needs to further focus on increasing the use of existing production capacity and subsidising new and emerging industries such as the electric vehicles segment. 

Other aspects of improving trade outcomes include expanding the labour market’s skill set to support the export of goods and services that require specialised knowledge.

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.