Good news from China recently could turn around South Africa’s export fortunes.
Demand for South African commodities from the world’s second-largest economy kept the country’s trade buoyant in recent years, despite the poor performance in its traditional markets. But China’s growth has also started to slow: to about 7.5 percent from double digit levels in earlier years, reducing its appetite for goods from other countries.
Data in the medium-term budget policy statement last week showed just how badly South Africa’s exporters have fared this year.
Export volumes contracted at an annual rate of 6.3 percent in the second quarter, after falling 1.5 percent in the first, according to the statement.
While the value of exports to China is still on the rise, the rate of growth slowed to 9.2 percent in the first eight months of the year, compared with the same period last year. This is way below the 45.7 percent increase in the first eight months of last year compared with the same period in 2010.
However, the pattern may improve next year.
Citi researchers last week noted signs of stabilisation in the Chinese economy, including a positive outcome from a survey of purchasing managers, indications of a pick up in the property sector and a revival in import growth last month.
This is welcome news because exports to South Africa’s traditional partners are not doing well. To the EU, the country’s biggest market, exports fell 4 percent in the first eight months, with exports to Germany falling nearly 14 percent.
Exports to Japan, another of the South Africa’s biggest customers, fell nearly 21 percent, and to the US they were virtually flat.
This trend has been partially countered by a rise of nearly 19 percent in goods sold to India, and a 26.2 percent lift to the Southern African Development Community (SADC).
The stronger flow to neighbouring countries has boosted the SADC’s share of South Africa’s export markets from 2 percent in 2000 to 12.2 percent now, making it South Africa’s second-largest export market, just ahead of China, which buys 12 percent of the total.
Particularly encouraging, the SADC buys 22 percent of local manufactured goods, supporting a sector that has disappointed in recent years.
The policy statement noted that the 10 percent depreciation in the rand this year, on a trade weighted basis, had done little to support manufactured exports. In contrast, between 2000 and this year, the share of the EU has fallen from 31.2 percent to 21 percent; of the US from 12 percent to 8.1 percent and Japan from 8 percent to 6 percent.
South Africa’s lacklustre export performance is also due to supply disruptions, particularly in the strike-plagued mining sector. The platinum sector, at the heart of the violent industrial unrest, has seen the value of its exports fall by 22 percent this year, according to the statement.
This all adds up to falling tax revenues and a widening current account deficit: the gap between income from exports of goods and services and the cost of imports.
The statement put the deficit at 5.7 percent of gross domestic product this year, from 3.3 percent last year. A deficit higher than 3 percent threatens rand stability, creating the potential for higher inflation and eventually higher interest rates.