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Johannesburg - Container movements into and out of South Africa declined in the third quarter as economic growth slowed to under 1%, says shipping group Maersk Line South Africa in its third quarter trade report.
South Africa needs to increase winning investments from international businesses, which put value adding infrastructure on the ground. An economic growth strategy that depends largely on recovery in the world’s more developed markets and commodity cycles is cause for concern, according to Maersk Line country managing director Jonathan Horn.
"Successes in the auto industry over the years prove the effectiveness of this strategy, but the country needs to move beyond its dependence on commodity cycles and needs to start adding greater value through a dedicated effort to revive the export manufacturing sector in particular."
Horn, nevertheless, cites South Africa’s investment in port infrastructure as a key advantage to the country and the sub-Saharan region as a whole. This will offer a competitive advantage once these investments are operational, combined with an increase in productivity.
However, as other countries are also developing their port facilities, it is an advantage that will not necessarily be permanent. If South Africa intends to stay competitive, greater economic diversity is non-negotiable, he said.
A significant factor counting against SA, according to Horn, is the slowdown in its biggest trading partner, China, which has been experiencing slower economic growth for the past three years as well as a sluggish economic recovery being experienced in Europe and the US. Approximately 40% of SA’s exports are destined for China and that’s weighed significantly in favour of raw minerals, metals and wood products.
Maersk Line’s strategy to improve efficiencies and reduce costs is, however, delivering results, and is proving to be invaluable in terms of managing operations within the context of current socio-economic and political circumstances.
Horn said the company’s volume performance in Southern Africa for 2014 is expected to be in line with the market which, as at the end of the third quarter, is a decline of around 3%. This is likely to improve marginally in the fourth quarter as a slight improvement in import volume before the festive season is being experienced by the industry.
Maersk Line also expects demand in South Africa to be fairly flat in the first half of 2015, increasing moderately in the second half of 2015 and beyond. The company will continue to benefit from the operational efficiencies put in place throughout the global network in recent years.
In the short term, the export market in South Africa, which has a large commodity base, is being affected as much as the import market, despite expectations that the rand’s weakness would boost export demand.
Overall container imports in Africa grew by some 3% year-on-year in the second quarter, but imports into South Africa declined. However, the third quarter is seeing import market growth and trending in a positive direction.
According to Statistics SA, the country’s gross domestic product (GDP) grew by 0.6% in the second quarter of 2014, after contracting by a similar percentage in the second quarter.
Economic growth in the first two quarters of the year was significantly impacted by the five-month-long strike in the platinum sector, and the country is still experiencing the after-effects of this.
The marginal growth in the second quarter nevertheless satisfied market expectations that South Africa, would not be affected by a technical recession. It is, however, important to note that, while growth was experienced in the agriculture and construction sectors, the same was not true in the mining and manufacturing sectors, which have both contracted.
Rest of Africa
The rest of Africa, meanwhile, experienced growing container movements in the period. Imports into the continent rose around 3%.
Moving into the last quarter of 2014 and the first quarter of 2015, further increase in exports is expected from Africa as a consequence of positive drag from more developed markets.
While there is a moderate recovery in commodity demand from China, which is good news, the South African commodity export market remains vulnerable across a number of important areas.
According to Matthew Conroy, trade executive at Maersk Line the longer-term deals made with labour in the sector hint at a greater level of stability in the future. He believes that, from a Maersk Line perspective, the rest of the year will see a steady uptick in exports in the 2% to 4% range owing to international demand and stabilised supply.
The company estimates that mineral commodities will make up about 35% -40% of the total South African exports in 2014.
Increasing regional trade
Horn sees trade out of Southern Africa picking up. While there are immediate socio-economic and political challenges, Africa is a big continent that presents many opportunities.
He highlights economic growth throughout southern and eastern Africa, particularly in Mozambique and Zambia.
He, therefore, sees trade relations between South Africa and the rest of Africa developing significantly in the next five years, driven mainly by increased consumption on the back of a growing middle class in many African countries.
Given the inherent challenges which still affect road and rail transportation throughout the continent, he believes Maersk Line is well placed to benefit from the projected growth in inter-regional trade in Africa.
