In his 2019 state of the nation address, President Cyril Ramaphosa recognised that one of the priorities of his administration would be to “work towards a better Africa and world”.
This broad objective is difficult to measure, but the National Development Plan (NDP) dedicates a full chapter to how SA should position itself in the world: “The main objectives in terms of foreign policy-making should be to expand regional, continental and African trade based on an informed understanding of the geopolitics of Africa; to develop a healthy consultative and practical relationship with SA’s research and corporate institutions to deploy its foreign service more effectively in the pursuit of expanded trade and investment; and to improve the country's leadership role in regional and global affairs.”
As a small, open economy SA’s foreign relations, including its trade agreements, play an important role in how we address our economic, political and social challenges. Trade allows us to expand our market and generate income from beyond our borders, and diplomats and ambassadors can help to facilitate this process. We focus here on broad trends in SA’s trade patterns since the NDP was adopted.
Exports and imports of goods and services as a share of a country’s GDP is often used as a measure of trade openness. While the relationship between trade openness and economic growth has been contested, the trade-led growth hypothesis suggests that — in the long run — trade openness can enhance economic growth by allowing efficient allocation of resources, improving productivity through technology diffusion and knowledge sharing, and providing access to goods and services.
SA’s low GDP per capita means we, more than rich countries, need to draw from the purchasing power that is available elsewhere in the world.
As Gary Fields (2000) eloquently phrased it: “A fundamental truth is sometimes forgotten: if you’re poor, you can’t get rich by selling to yourself.”
Our challenge is to find those industries and markets in which SA producers have a comparative advantage. Agriculture and mining cannot be the only part of this story. We are well placed to grow our tourism sector once the Covid-19 pandemic has passed. The demand for business and financial services, especially from African countries, will probably grow in the coming years. We need to invest in the infrastructure and skills that allow us to optimise these opportunities.
Combined, in nominal terms, SA’s exports and imports as a share of GDP was 61% in 2012, and largely similar at 60% in 2019 — with a global ranking of 129th. We have not strengthened the role that trade plays in our economy since the NDP was published in 2012. Our high unemployment rate means the longer-term advantages of trade, which can be difficult to isolate and quantify, often receive lower priority than the immediate goal of preserving jobs. The slew of applications for increased protection of the poultry industry, for example, is a case in point.
The steel industry is another example where import protection has been used to safeguard a primary domestic industry, with downstream sectors losing out through reduced availability of key inputs. The trade-offs between competitiveness, security of supply and employment are difficult but vital to get right.
Increased protectionism should not lead to inefficiencies and lower export competitiveness of our industries. Lowering SA’s export competitiveness — and hence limiting our market to domestic purchasing power — will result in job losses that protectionist policies tried to avoid in the first place.
Of specific relevance for the objectives of the NDP is SA’s trade with other countries in Sub-Saharan Africa. The graphic shows that though the share of SA’s exports to Sub-Saharan Africa increased between 2001 and 2014, this positive trend has halted.
In 2019, SA’s share of trade with the region was slightly below the 2012 level. Of SA’s total merchandise trade in 2019 25.7% of exports and 10.7% of imports were to and from other countries. The majority of SA’s exports to Sub-Saharan Africa is directed towards our neighbouring countries (Botswana, Lesotho, Namibia and Eswatini), but to meaningfully increase exports to Sub-Saharan Africa we will need to diversify and target countries beyond these limited markets.
The African Continental Free Trade Area (AfCFTA), effective from January 1, is a big step in the right direction of creating a single market for goods and services in Africa. For the AfCFTA to be successful, however, African countries will have to increase their levels of productive capacity so that goods and services are available at internationally competitive prices.
Infrastructure and logistics capacity will also have to improve dramatically to reduce transport costs. Regional integration and industrial policy will need to form part of the same development agenda.
If done right, the AfCFTA might just be the mechanism whereby SA, at last, progresses towards the NDP objective of expanding regional and African trade, and manages to diversify the trade relationship with the rest of the continent beyond our nearest neighbours.
• Fourie is a senior economist at the Bureau for Economic Research at Stellenbosch University. This is the final instalment in a series on SA’s progress towards the 2030 goals of the National Development Plan.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.