South Africa’s Trade Strategy and the BRICS

Dr Brendan VickersHead: Research and Policy

International Trade and Economic Development (ITED)Email: bvickers@thedti.gov.za

Presentation to the dti’s Small Business Summit – Bloemfontein 12 October 2011

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Policy Context• NIPF, TPSF, NGP calls for “developmental” trade

policies

• Trade strategy and international engagements must support industrial upgrading, employment growth and increased value-added exports

• Within the context of profound global power shifts

• Accelerated by the global crisis…

• And reflected in the changed rankings of South Africa’s trading partners

Industrial Policy Action Plan IIKey pillar of the New Growth PathIPAP: value-added sectors with high employment and growth multipliers

Agriculture

Mining

Food Textiles

Wearing apparel

Leather & leather products

Wood & wood products

Motor vehicles, parts & accessories

Other manufacturing

Wholesale & retail trade Transport & storage

Financial services Government services

Paper & paper products Basic chemicals

Basic iron & steel Basic non-ferrous metals

EGW Business services

Excl. medical, dental & vet

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

0 7 14

Employment multipliers

Tota

l Bac

kwar

d lin

kage

s

Low employment multipliers & strong backward linkages

Low employment multipliers & weak backward linkages

High employment multipliers & strong backward linkages

High employment multipliers & weak backward linkages

1. Other chemicals & man-made fibers 2. Furniture3. Plastic products4. TV, radio and comm equip5. Electrical machinery and apparatus6. Paper and paper products7. Rubber products8. Non-metallic minerals9. Beverages10. Glass & glass products11. Professional & scientific equip12. Metal products excl. machinery 13. Machinery & equipment14. Footwear

1

2 34

5

6

7

8 9111

1 13

14

Trade Performance: Exports

4

Source: Quantec

Trade Performance: Exports (2010)

5

R a n k Product Proportion Growth

2010 Name %Total 2009-2010

1 Basic non-ferrous metals 39.40% 43.19%

2 Basic iron & steel 13.02% 23.75%

3 Motor vehicles, parts & accessories 10.27% 9.19%

4 Machinery & equipment 7.03% 9.91%

5 Basic chemicals 5.73% 11.34%

6 Food 3.67% 4.03%

7 Other industries 3.39% -2.13%

8 Coke & refined petroleum products 2.55% -8.67%

9 Paper & paper products 2.24% 8.03%

10 Other chemicals & man-made fibers 1.95% -3.70%

South Africa’s export composition

Source: Quantec, 2011

South Africa’s Trade Balance

Manufacturing: double-whammy of currency overvaluation and crisisManufacturing, Mining and Agriculture Trade Balance Q11990 – Q12011, US$m

7

-4,000,000,000

-3,000,000,000

-2,000,000,000

-1,000,000,000

0

1,000,000,000

2,000,000,0001Q

1990

2Q19

903Q

1990

4Q19

901Q

1991

2Q19

913Q

1991

4Q19

911Q

1992

2Q19

923Q

1992

4Q19

921Q

1993

2Q19

933Q

1993

4Q19

931Q

1994

2Q19

943Q

1994

4Q19

941Q

1995

2Q19

953Q

1995

4Q19

951Q

1996

2Q19

963Q

1996

4Q19

961Q

1997

2Q19

973Q

1997

4Q19

971Q

1998

2Q19

983Q

1998

4Q19

981Q

1999

2Q19

993Q

1999

4Q19

991Q

2000

2Q20

003Q

2000

4Q20

001Q

2001

2Q20

013Q

2001

4Q20

011Q

2002

2Q20

023Q

2002

4Q20

021Q

2003

2Q20

033Q

2003

4Q20

031Q

2004

2Q20

043Q

2004

4Q20

041Q

2005

2Q20

053Q

2005

4Q20

051Q

2006

2Q20

063Q

2006

4Q20

061Q

2007

2Q20

073Q

2007

4Q20

071Q

2008

2Q20

083Q

2008

4Q20

081Q

2009

2Q20

093Q

2009

4Q20

091Q

2010

2Q20

10

Agriculture, forestry & fishing Manufacturing Mining

Source: Quantec

South African Exports 2010 – top 10

R a n k2010

CountryName

Proportion% Total

Growth2009 - 2010

1 China 11.48% 20.28%

2 United States 10.08% 25.26%

3 Japan 9.08% 36.42%

4 Germany 8.34% 31.49%

5 United Kingdom 5.13% 4.20%

6 India 4.36% 24.23%

7 Netherlands 3.35% -7.15%

8 Switzerland 3.28% -21.29%

9 Zimbabwe 2.93% 12.53%

10 Mozambique 2.68% 5.53%

South African Imports 2010 – top 10

R a n k2010

CountryName

Proportion% Total

Growth2009 - 2010

1 China 16.89% 14.22%

2 Germany 5.45% 11.35%

3 United States 0.93% 7.14%

4 Japan 17.01% 5.34%

5 Saudi Arabia -11.01% 4.12%

6 Iran 4.04% 4.00%

7 United Kingdom 2.30% 3.81%

8 India 33.92% 3.58%

9 France 1.58% 2.93%

10 Nigeria 3.10% 2.80%

South Africa’s leading trade partners

Source: Quantec, 2011

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SA’s Current Global Trade Footprint

•9

•27%

Sustain and Maintain

•38%

Growth

•17%

•4%•11%

Sustain and Maintain

•2% •1%

Sustain and Maintain

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BRICS in Perspective• BRICS are among the fastest growing, largest

emerging economies and at the forefront of reshaping the global economy

• BRIC will account for 61% of global growth by 2014• Developing countries’ share of world trade will double

over the next 40 years• BRICS aim to strengthen coordination for reform of

multilateral fora and build stronger economic links amongst each other

• Joining BRICS at this early stage will help us shape the priorities, strategy and work programme

SA-BRICS Trade• Growing share of BRICS in SA total trade: 10% (2005)

to 17.4% (2010)• Led by China and India, Brazil and Russia follow• Relative decline of EU: 36% (2005) to 28% (2010)

• China:– R40.2 billion (2005) to R142.6 billion (2010)

• India:– R12.8 billion (2005) to R42.9 billion (2010)

• Brazil:– R10.3 billion (2005) to R15.2 billion (2010)

• Russia:– R1.1 billion (2005) to R2.9 billion (2010)

12

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

SA-BRIC Trade by Product: SA Imports from BRIC 2010(US$ Thousand)

13

0

1000000

2000000

3000000

4000000

5000000

6000000

SA-BRIC Trade by Product: SA Exports to BRIC 2010(US$ Thousand)

BRICS Tariff Profiles

• South – South Trade• Important to the BRICS countries • Vulnerability of the Suez Canal

• Political instability• Somali pirates

Strategic Location on BRICS Routes

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Strengthening SA-BRICS Trade• Still “foreign” markets for SMEs• But emerging opportunities from growing demand,

including middle class consumption• Focus on improving quality and standards!• Role for the dti to support SME exporters?

– Understanding the market (e.g. EMIA)– Market access (e.g. PTAs)– Reducing NTBs– Active export promotion activities, especially

exhibitions showcasing high-value products– Encouraging cooperation on SMEs

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• BUT SA also has trade deficit with each of the BRICS, although declining…

• AND import competition impacting on local SMEs?

• Current pattern of trade and investment between SA and China is unsustainable: commodities for high manufactures

• SA is identifying ten value-added products for export to China as well as key beneficiation projects for inward investment from China

Examples of possible products to China…

• Agro-processing– Wines – Cereals– Fruit (Oranges, Grapes, Apples and Pears)– Canned fruit– Fish– Bovine meat

• Chemicals– Butanol

• Plastics– Polypropylene

• Steel– Stainless steel

• Aluminium– Alloys and Coils

• Automotive– Tooling products– Shock Absorbers– Filters

• Capital Equipment– Mining Safety Equipment

• Manufactured (Chapter 84)– Industrial Pumps (mining, agricultural as well as fuel

pipelines, manufacturing process

• Electro-technical– Power transmission related products.

• Paper and Pulp– Wood pulp and Paper board

Way Forward• Opportunity to build a new approach to relations

based on mutual benefit and economic developmental principles

• Build complementarities to avoid competition• Posited possibility of payments settled in national

currencies• China signalled new import/consumption policy • We need to position ourselves through exhibitions

promoting high-value products• No “easy” wins for SMEs, but worth sustained

engagement supported by our BRIC Partners

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Thank you