MARTIN CAMERON: Money for jam (and goats): SA must exploit EU export potential

South Africans, battered by load-shedding and service delivery failures that have resulted in a rise in social unrest and a seemingly unremitting diet of bad news, could be forgiven for wondering where to from here for the rainbow nation.

But all is not as gloomy as it appears for SA Inc, with a strong export performance over recent years not only serving to keep the economy rolling through Covid-19 but also leading the country’s overall economic recovery.

So successful have we been at exporting that SA recorded a trade balance surplus of R440.75bn in 2021, with total exports increasing 22.9% year on year, while total imports increased  34.2%.

As an example, SA’s exports to the EU — our largest single co-ordinated trading partner, accounting for 22% of total trade — grew 31.5% in 2021, according to the SA Revenue Service, largely on the back of a strong performance by mining and minerals, machinery and equipment and jewellery.

But an EU-funded study conducted by Trade Research Advisory has found that a good story to tell could be even better if SA took better advantage of the preferential export opportunities available under the Sadc-EU Economic Partnership Agreement (EPA).

SA Inc’s value of exports to the EU is historically highly concentrated. More than 80% is linked to only four of the 27 partners: Germany (41%), Belgium (18%), Netherlands (14%) and Italy (9%).

Our research aimed to identify “not-the-usual-suspects” — combinations of products and EU markets available under the EPA to help diversify and grow SA’s trade with the bloc. Our conclusion is that SA is leaving billions in potential investment and trade on the table.

An example of one “unusual” export opportunity provided by the EPA is “jams, fruit jellies, marmalades, purées and pastes”, for which SA has preferential access for 40 different products to the EU markets but which is underutilised. An “unusual suspect” for these products identified by the study is the Czech Republic, which is estimated to hold R44m of hitherto untapped potential for SA exporters — and small and medium sized companies can play in this space.

Or consider the exporting of goat meat. SA produces a lot of goats domestically, but we don’t capitalise on this resource much for export purposes, therefore also forfeiting the potential associated job creation. But we need to adhere to phytosanitary animal rearing and related food processing measures set down by the EU, which requires the relevant government departments to step up to the plate. If our neighbours, Namibia and Botswana, can export goat meat to the EU, why can’t we? There is literally millions in revenue going begging, for relatively low effort. And that is just the tip of the iceberg.

Our research estimates SA can exploit shorter-term untapped opportunities of about R14bn in 51 relatively mature agriculture export products — that is, products SA is already exporting — to existing and new EU partners. SA exports 19 products in this category to the 27 EU countries, but just by changing product combinations and targeting underserviced EU markets, the country could potentially earn an additional R14bn.

Overall, between R161bn and R840bn in untapped potential exists for SA from shorter (requiring targeted marketing and promotion) through medium term (possibly requiring some development) to longer term (requiring more significant investment and development) opportunities. SA stands to gain between R5bn and R10bn if it broadens exports to countries such as Austria, the Czech Republic, Romania, Hungary and Portugal.

In terms of which sectors SA should focus on, motor vehicle parts and accessories provide the most untapped short-term potential, followed by primary agriculture products, food and basic iron and steel.

When looking at medium-term exports, Germany, France, Italy, the Netherlands, Belgium, Spain and Poland dominate in terms of untapped potential. There is also the potential of R2bn-R10bn in trade with relatively new (from SA’s export perspective), smaller markets such as the Czech Republic, Austria, Sweden, Romania, Ireland, Greece, Hungary, Slovakia, Denmark and Malta. For these markets, food-related products offer the most untapped potential value in the medium term, followed by basic iron and steel, wearing apparel and metal products.

When it comes to longer-term export investment and development, the eight “usual suspects” are the largest target markets in terms of untapped potential. But relatively smaller markets such as Sweden, the Czech Republic, Austria, Hungary, Denmark, Romania, Portugal, Greece, Slovakia and Ireland represent opportunities of R1bn-R7bn. Food-related opportunities offer most potential in both value and number terms when considering longer-term opportunities, followed by motor vehicle parts and accessories.

What our study shows is that while there is a lot of head-scratching and engagement in policy circles over how to achieve faster economic growth, we don’t need to look too far — there are already substantial opportunities to expand trade and investment with our major trading partners by leveraging what we have now.

But that requires the government and business to understand where and what opportunities exist in terms of trade. And to do what it takes to exploit these opportunities. The devil, as they say, is in the detail. And it is clear that information is key to understanding — and exploiting — these opportunities.

Research undertaken by the Organisation for Economic Co-Operation and Development (OECD) and the World Trade Organization (WTO) in 2015 found while transportation systems, network infrastructure and access to trade finance are important barriers to trade, access to information was the biggest non-tariff key barrier to export opportunities, followed by access to information about procedures to be followed and regulations to be met to export or import; tariffs, fees and other charges; costs related to overcome non-tariff measures; and regulatory burdens and border procedures.

Improving awareness

While our study was aimed at improving awareness of these untapped opportunities, other EU-funded projects are engaged in providing access to information about procedures to be followed and regulations to be met for exporting to the EU.

While some of these untapped opportunities can be exploited in the shorter term through more targeted trade promotion efforts, to effectively capitalise on these opportunities, more fundamental actions are required by SA Inc around issues such as resolving the energy crisis, fixing the lack of relevant capacity in government institutions tasked with facilitating trade, and improving the performance of real “hard” trade-enabling infrastructure such as ports and rail systems.

In this regard, the government has an important part to play in ensuring it does what is required to take advantage of these opportunities to benefit all South Africans. The government needs to effectively communicate the available preferences and quotas provided by the EPA, better understand the role of trade facilitation, and improve performance of hard infrastructure and services.

Crucially, a mindset shift is required to grow the economy by working with the private sector and to recognise where the government cannot adequately fulfil an obligation — such as certification and meeting the necessary phytosanitary requirements to export to the EU — to encourage and allow the private sector to provide such functions. Ditto for electricity and other trade facilitation services.

Likewise, the business sector needs to play a more active role in interrogating and pursuing the opportunities that are revealed in the data and potential trade facilitation services provision. In short, there is wide-scale and substantial untapped demand in the EU for SA products, but the country needs to change its approach to trade so it can take better advantage of these opportunities.

While the EU has been a long-standing trading partner for SA, it is apt to consider what the protagonist in Dead Poets Society, John Keating, so poignantly said: “Just when you think you know something, you have to look at it in another way. Even though it may seem silly or wrong, you must try.”

• Cameron is MD at Trade Research Advisory.