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A scientific solution to optimise trade decision-making

Jun 14 2016 10:00
Lameez Omarjee
Professor Wilma Viviers, director of TRADE at Nort

Professor Wilma Viviers, director of TRADE at North-West University and WTO chair. (Picture supplied)

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Potential exporters can now identify commercial opportunities using a scientific model developed by the Trade and Development (TRADE) research entity at North-West University’s (NWU’s) Potchefstroom campus.

Used by both government and the private sector, the Decision Support Model (DSM) was first developed by Prof. Ludo Cuyvers of the University of Antwerp for Belgium.

Over the past 10 years, the model was adapted for the South African economy, including provinces, sectors and individual exporters, explains Prof. Wilma Viviers, director of TRADE and World Trade Organisation (WTO) chair.

It is a “gold mine” of providing results and insights on issues such as export promotion, development, investment and trade facilitation, Viviers says.

She explains that the model is set up in a way that allows questions to be asked, such as: “Where can I export apricots to? Or bottled mineral water?”

The answers are based on a variety of “key, well-researched pieces of information” that indicate where realistic export potential for certain products exists. The actual outcomes of the model are provided in a very user-friendly software tool.

Research that would take months to complete can now be extracted from the results in a few minutes, she says.

The model aims to link the client base to relevant export opportunities, explains Viviers. For example, if you want to export tyres, you will plug in the product code or description for tyres in the tool. The results will indicate the relevant markets for tyres, as well as other country competitors. “Discovering unusual, or not so obvious, suspects are what make the results interesting,” she adds.

The approach can also indicate why a specific product-market combination is not suitable. This will allow decision-makers to choose alternative, lower risk product-market combinations, says Viviers.

Or if they still want to pursue a particular product-market combination, it informs decision-makers of what challenges to prepare for. Some companies think they should export to certain countries purely given the economic size and growth rate of certain markets. “It’s not only size that counts,” says Viviers.

The DSM approach uses specific criteria to measure the viability of exporting a product into a specified target market from a given “home” country.

Some of the information that the model considers includes population size, GDP growth in the short term and long term, political and commercial risk, logistical costs and trade barriers, among other factors.

It also shows results for products that aren’t necessarily currently produced by a “home” country. “Many approaches or models only look at existing exports,” says Viviers.

Viewing results, policymakers and businesses can see where and what the demand is and diversify their exports accordingly. There are also plans to incorporate internationally traded services, as opposed to only products, as services make up around 70% of SA’s GDP, says Viviers.

“Exports are so crucial for SA’s economy, for its recovery and job creation,” she adds.

How it started

While training exporters as part of the Small Enterprise Development Agency’s (Seda) exporters’ orientation programme in 2007, Viviers realised that South Africa’s national export strategy “expressed a dire need” for a scientific way to identify export opportunities. At the time she met Cuyvers and decided to apply the DSM to South Africa, she tells finweek.

Due to trade restrictions in some target markets limiting market access for some supplying countries, the model is useful in pointing out the “low-hanging fruit” for potential exporters to capitalise on, explains Viviers.

Developing the approach and modelling it to its current state was a lengthy process, taking seven years and producing seven master’s degrees and seven PhDs for the participants. “And it’s still a work in process as new aspects keep coming to the fore,” she adds.

As a result of the demand to apply the model for industry and policymaking, a spin-off company, TRADE Research Advisory, has been established by NWU in collaboration with a private sector partner to assist clients, says Viviers.

These clients include government departments, specifically the department of trade and industry and the department of agriculture, several provinces and exporters’ organisations.  Private sector clients include members of the steel, agriculture and manufacturing industries.

The approach has also been used to identify export opportunities for other countries such as Belgium, Thailand and the Netherlands. Botswana has recently commissioned TRADE to construct a model for the country.

TRADE is looking to apply the approach to more countries in the SADC region, especially with the potential of establishing possible regional value chains to make the Southern African region more competitive, adds Viviers.

This article originally appeared in the 9 June 2016 edition of finweek. Buy and download the magazine here