SA must stay awake

Jul 19 2012 07:42
Geoffrey Chapman

AS EUROPEAN economies battle to stay afloat and as their demand for gold‚ coal‚ iron ore and platinum dwindles, South Africa needs to look elsewhere for trading partners where demand is high and growing.

Apart from the obvious Bric (Brazil, Russia, India, China) nations, I believe South Africa must not forget the "little guy".

The country's trade with America has taken a back seat but with the largest gross domestic product (GDP) globally and a population of over 300 million, the US remains an export destination with potential.

Figure 1: Revenue generated by South African exports of all commodities to America

Source: the Department of Trade and Industry and the South African Revenue Service.

Figure 1 shows the 2008 global economic crisis hurt South Africa's exports to America, yet despite this one-year stumbling block our export revenue rose consecutively in 2010 and 2011.

Furthermore, the American economy continues to grow, currently at around 1.9%. This might not sound like a lot but taking into account the fact that the 1.9% growth rate is calculated off such a high base, it is still substantial.

For example, the World Bank indicates that America's GDP was $15 094bn in 2011, compared to South Africa's $408bn. For America, a 1.9% growth rate in GDP equates to an increase of roughly $287bn.

For South Africa to grow by an equivalent $287bn, our GDP growth rate would need to be 70%.

During the first week of July, 31 notifications regarding technical regulations were sent to the World Trade Organisation, 11 of which came from America, concerning chemical substances and electrical appliances, among other things such as tobacco and glazing materials.

South African exports of chemical and electrical products generated just under R8bn in 2011 – certainly an amount not to be scoffed at.

Apart from hampering an R8bn market, what consequences do South African exporters of chemical and electrical products face, should they fail to comply with technical regulations?

Firstly, transport costs for the near-12 500km journey (depending on your port of departure and destination respectively) will double, at least.

Consider a consignment of chemicals bound for New York which, on arrival, is found not to comply with new regulations. Nothing can be done with this other than returning it to South Africa.

Once the chemicals meet requirements, they can be exported again – three trips for the price of one; not quite.

In addition to the transport costs, the South African exporter will have to cover the costs incurred in aligning the chemicals with the necessary requirements. So, the total depends on how easy/cheap it is to do this.

Take for example the simple issue of labelling: if the consignment consists of 50 000 units and it costs 10c to change the label per unit, the price is only R5 000.

If on the other hand, due to whatever reason (production lines that need to be altered or other inputs), it costs R2 to change the label per unit, that escalates to R100 000.

The worst-case scenario is a complete write-off of the consignment should the exporter be unable to align the chemicals with the requirements and the only limiting factor to the extent of the damage would be the size of the consignment.

Staying in business means staying awake; awake to potential opportunities and more often than not, potential threats.

Europe may be in trouble and South Africa may be seen as a "briquette" among the Brics nations but between the opportunities and threats, we have potential.

To fully realise this potential, all we need to do is stay awake.

 - Fin24

* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS.

geoffrey chapman  |  trade  |  sa economy  |  brics  |  gdp



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