Johannesburg - The value of trade between South Africa and China has increased 40 times since they established diplomatic relations 15 years ago. They are members of the most influential emerging market trade bloc, Brics (Brazil, Russia, India, China and South Africa) and their collaboration in industrialising their own economies has been notable.
The two countries might not be in the same league when it comes to the important economic indicators such as market size, gross domestic product, economic growth or the level at which they participate in global value chains.
But during the China International Fair for Investment and Trade (CIFIT) and during the South African business expos that took place in different cities in China this week, it became clear that South Africa was no longer going to settle for just anything China offered, it wanted more.
The Minister of Trade and Industry, Rob Davies, went into the CIFIT with one vision and his message was clear: “South Africa and Africa need to move up the global value chain.”
As much as his delegation of 63 businesses went to China to look for investors, they were also there to find a market for their value-added products – 22 of them were there to exhibit a range of products from wines and rooibos tea to mining safety equipment and chemicals, among others.
China has been South Africa’s largest trading partner since 2008 but the ties between the two countries have been unbalanced as China mainly imports raw materials and minerals while South Africa imports China’s finished goods.
When President Jacob Zuma participated in the fifth Forum on China-Africa Co-operation in July last year, he pointed out that this relationship was unsustainable in the long term and the countries agreed to increase the export of value-added products from South Africa to China.
The figures unveiled in China last week showed progress. For example, compression-ignition engine exports to China jumped to R482m last year from R27.1m the previous year.
The deputy director of export promotions at the Department of Trade and Industry (dti), Sharika Motan, said since that agreement some of the good stories that had resulted include South Africa becoming one of China’s top 20 fresh produce sources. China’s wine imports from South Africa have grown faster than the country’s overall wine imports.
Davies said as discussions around global value chains were gaining momentum, South Africa and Africa as a whole needed to stand their ground, especially since past economic relations with Europe dictated that the continent become cautious when entering into partnerships with other economies.
“The new discussion has been that allowing the import of intermediate goods is the automatic recipe to move up the global value chain because that is what characterises much of international trade now. But we’ve been saying that if we are located where we are, we will be introducing finished goods, not importing intermediate goods,” Davies said.
He said the fact that African countries were inserted in global value chains mainly as producers and exporters of primary products while being importers of finished goods meant that they were not really involved in growing trade of intermediate products.
As the concept of global value chains is being reshaped, producers are increasingly sourcing inputs from more than one country and trade involves intermediate goods rather than final goods. It is estimated that more than 60 percent of total goods traded are intermediate goods.
This has been the reason for the recent renewed interest in global value chains.
But Davies said it was time for developing countries to have a much more serious discussion with the developed economies on how this would affect them and the global value chains’ relevance to industrialisation.
“The World Investment Report 2013 says global value chains can be an important vehicle for developing countries to build productive capacity if local sales can capture a significant share of the value-added trade. It essentially says that if developing countries are to benefit from insertion in global value chains, there is a need for them to be co-ordinated in industrial, investment and trade policies,” he said.
Davies told delegates from the other regions that it was not just the recent drop in the prices of mining commodities that made Africa realise that it needed to add value to its primary resources and raw materials. “Even before that, we were saying that the next decade of African growth will require the continent to industrialise. We’ve said that we will have to add value to our mineral wealth and to the agricultural products we produce.”
Figures presented during the CIFIT by Rintaro Tamaki, the deputy secretary-general of the Organisation for Economic Co-operation and Development, showed that China’s income from total flows in the global value chains had increased sixfold between 1995 and 2009. Jobs associated with global value chains had increased from 89 million to 146 million between 1995 and 2008.
China’s trade surplus with the US has shrunk by one third because of the country’s participation in the upper global value chains.
But the question remained that if China was also making its way up the global value chain, and had established itself as a manufacturing hub, how willing it would be to help South Africa industrialise, especially because it was benefiting from the export of goods to South Africa.
“We are not really competing because what we manufacture and what we are asking for their co-operation on is hi-tech, things that they are already importing,” Motan said.
She said, for instance, the dti had observed much growth in the export of capital equipment, light passenger vehicles and automotive components. - Business Report