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Will my export effort make a difference?

Sep 07 2012 13:11

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A Fin24 user writes:
I am a regular visitor to your website. I run my own business and want to start exporting and help my country’s economy to grow.

But I just want to know how important are exports to South Africa’s economy and growth prospects?

Heather Robertson, a consultant at Blink Consulting, responds:

Exports make a significant contribution to South Africa’s gross domestic product (GDP) and economic growth prospects.

It is therefore critical to understand the role that exports play in our economy, and anticipate how the slowdown in growth in developed countries may impact South Africa into the future.

Firstly, we need to understand what South Africa exports. 

Interestingly, the composition of South Africa’s exports to the European Union (historically our biggest client) is quite broad-based and includes agricultural products (fruit and vegetables), wine and beverages, motor vehicles, precious metals and stones, as well as various types of machinery and electrical equipment.

Eighty percent of our European exports go to Germany, the UK, Netherlands, Italy, and Belgium.

But the destination of South Africa’s exports has changed dramatically since the global economic recession. South Africa’s exports to the EU have fallen from 35% of total exports in 2007 to under 25% in 2011.

In contrast our exports to emerging Asia, which includes China, India, Taiwan and Indonesia, have risen from a mere 7% in 2005 to 28% in 2011. Asia is now South Africa’s most important export destination.

But the question is what is Asia buying from us?

According to trade data from the South African Revenue Service, while there is a growing demand for agricultural products like maize and citrus, South Africa’s top exports are still our mineral resources: gold, iron ore, coal, platinum, and ferro-chromium.

Vehicles and car parts also make up a sizeable chunk of exports (although we still import more cars and parts than we export).

Of concern to me is the fact iron, coal, and platinum are sold as “natural resources”. 

There is still significant value that can be added to South Africa’s exports if we could improve our manufacturing industry.

Imagine the opportunities if we were able to convert our raw materials into more finished goods, which could be sold at higher profit margins.

Not only would this assist in slowing down the depletion of our natural resources (which are limited and will eventually run out), but it would also reduce our reliance on imports and create enormous employment opportunities.

Some economists believe that due to the global slowdown of so many economies, South Africa is going to struggle to maintain export performance despite the somewhat weaker rand and the shift in exports to emerging markets. 

As a result South Africa’s trade balance is likely to record a more persistent deficit, dampening South Africa’s GDP growth performance.

It is therefore more critical than ever before for South Africa to stimulate domestic economic activity, and infrastructural development could well be the key that unlocks our economic potential.

 - Fin24

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