JAMES MAPOSA: Increasing regional exports could be an avenue to help SA’s stagnant economy recover
Reversing economic decline requires thinking differently and prioritising alternative options
14 March 2023 - 05:00
byJames Maposa
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The economic decline experienced by Africa’s second-largest and the Southern African Development Community’s (Sadc’s) largest economy during the fourth quarter of 2022 could signal tough times ahead.
It could also mean thinking differently and prioritising alternative options to help the economy recover and progress beyond forecasts of GDP growing at less than 1.5% per year over the next 3-4 years.
The sectors most affected during the fourth quarter were finance, local trade, mining, agriculture, manufacturing and general government services. Across these sectors a big contributor to the fall in output and outcomes was increased load-shedding, which rose from just over 70 days in 2021 to about 280 days in 2022. Investment in electricity generation capacity should be prioritised both at a government and individual enterprise level to support economic recovery.
Government incentives at a residential level are also welcome in that they contribute to reduced pressure on the grid, which can subsequently be channelled towards meeting the requirements of commercial enterprises looking to plug production gaps widened by the raised number of load-shedding days in 2023 and beyond. Energy security thus remains critical to the recovery of SA’s economy over the next few years.
Another compelling idea will be to increase exports to the rest of the region. By taking advantage of the African Continental Free Trade Area (AfCFTA), which came into effect in 2022, SA could prioritise a regional export agenda to boost local economic growth. Execution of this strategy will demand improvements to the country’s trade ports, which in recent years have had a bad press for not being as efficient as they should be for both exporters and importers.
Exporting regionally should also be prioritised in light of developed world net zero agendas, which may reduce the potential to export to these countries between 2030 and 2050. Unless steps are taken by the government from a regulatory environment standpoint, and the country’s large exporters, to reconfigure respective enterprises to align with the changes required for them to be allowed to export their wares to lucrative EU markets. As an example, failure to fast-track the production of electric vehicles by the local automotive sector for export to the EU by 2030 is a factor that could limit SA’s auto export values to this market from 2030 onwards.
Based on the above, growing regional trade could be beneficial to SA’s economy over the next few years, and possibly the long term. As mentioned initially, the approach should be aimed at economic recovery and expansion. To do this a first step will be to identify other sub-Saharan African nations that account for a majority of the subcontinent’s imports. Based on this, nations to target based on import value include Nigeria, Ghana and Kenya (the top three). Trade missions should be championed that are aimed at taking advantage of SA having a more advanced manufacturing and services sector than the other top-10 countries, and becoming a main trade partner for commodities demanded by these countries that they do not produce themselves.
Other advantages that could be leveraged include swifter delivery if compared to ordering products from Asia and North America. For some products, local distributors have mentioned that they need lead times of between 28 and 48 weeks to deliver ordered commodities because of the after effects of the Covid-19 supply chain disruptions (pre-Covid lead times for some of these products stood at 6-14 weeks).
In addition to targeting the larger African import destinations by value, another initiative to prioritise will be the faster growing import destinations. This could contribute to quicker recovery rates as opposed to targeting the larger economies exclusively, but it could come with the added challenge of increased competition, not just from other sub-Saharan African nations but globally. Countries like China and Japan are able to outcompete SA across several commodities on account of economies of scale, more advanced manufacturing sectors and government incentives that promote exports. The latter is another aspect SA needs to consider with regard to contributing to the country’s economic expansion and diversification over the next few years.
Economic recovery through increased exports should also centre on products that are being imported within each of the big importing economies.From a value viewpoint, refined mineral fuels, mechanical equipment, vehicles and electric machinery top the list. For refined mineral fuels SA faces a challenge as it is reducing its refining capacity, with extant refineries either suspending production, being converted to storage facilities or being shut down indefinitely. Yet an opportunity exists to supply such products to main markets and other African nations, whose vehicle fleets are expected to increase over the next few years, driven by a growing middle class motivated to purchase more vehicles based on higher disposable incomes.
Vehicles are another opportunity for SA, but affordability will be a big contributor to regional export success. SA competes with Asian grey vehicle imports, three to four times more affordable than SA-supplied derivatives. A compelling value proposition centred on an enabling ecosystem (sales affordability compared to grey products) and aftersales support, particularly part availability, service plans, insurance, and lucrative trade-in values, could be a solution. SA could be positioned to supply neighbouring Sadc countries, and over time other regions that rely on imports for their automobile requirements.
Lastly, SA’s growing agricultural sector over the past three years should be leveraged to increase export earnings over the next few years. As mentioned earlier, a growing middle class is expected to increase demand for food and beverages across the region over the longer term. Most sub-Saharan African countries have limited agro-processing capacity and rely on imports to meet demand, particularly for secondary and tertiary food and beverage products.
Replacing Russia and Ukraine, which before the war were big exporters of cereals to countries like Nigeria, is an area SA can prioritise and could contribute to economic growth and help the country’s agricultural sector progress over the short and medium term.
• Maposa is MD at strategic research and advisory consultancy Birguid
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
JAMES MAPOSA: Increasing regional exports could be an avenue to help SA’s stagnant economy recover
Reversing economic decline requires thinking differently and prioritising alternative options
The economic decline experienced by Africa’s second-largest and the Southern African Development Community’s (Sadc’s) largest economy during the fourth quarter of 2022 could signal tough times ahead.
It could also mean thinking differently and prioritising alternative options to help the economy recover and progress beyond forecasts of GDP growing at less than 1.5% per year over the next 3-4 years.
The sectors most affected during the fourth quarter were finance, local trade, mining, agriculture, manufacturing and general government services. Across these sectors a big contributor to the fall in output and outcomes was increased load-shedding, which rose from just over 70 days in 2021 to about 280 days in 2022. Investment in electricity generation capacity should be prioritised both at a government and individual enterprise level to support economic recovery.
Government incentives at a residential level are also welcome in that they contribute to reduced pressure on the grid, which can subsequently be channelled towards meeting the requirements of commercial enterprises looking to plug production gaps widened by the raised number of load-shedding days in 2023 and beyond. Energy security thus remains critical to the recovery of SA’s economy over the next few years.
Another compelling idea will be to increase exports to the rest of the region. By taking advantage of the African Continental Free Trade Area (AfCFTA), which came into effect in 2022, SA could prioritise a regional export agenda to boost local economic growth. Execution of this strategy will demand improvements to the country’s trade ports, which in recent years have had a bad press for not being as efficient as they should be for both exporters and importers.
Exporting regionally should also be prioritised in light of developed world net zero agendas, which may reduce the potential to export to these countries between 2030 and 2050. Unless steps are taken by the government from a regulatory environment standpoint, and the country’s large exporters, to reconfigure respective enterprises to align with the changes required for them to be allowed to export their wares to lucrative EU markets. As an example, failure to fast-track the production of electric vehicles by the local automotive sector for export to the EU by 2030 is a factor that could limit SA’s auto export values to this market from 2030 onwards.
Based on the above, growing regional trade could be beneficial to SA’s economy over the next few years, and possibly the long term. As mentioned initially, the approach should be aimed at economic recovery and expansion. To do this a first step will be to identify other sub-Saharan African nations that account for a majority of the subcontinent’s imports. Based on this, nations to target based on import value include Nigeria, Ghana and Kenya (the top three). Trade missions should be championed that are aimed at taking advantage of SA having a more advanced manufacturing and services sector than the other top-10 countries, and becoming a main trade partner for commodities demanded by these countries that they do not produce themselves.
Other advantages that could be leveraged include swifter delivery if compared to ordering products from Asia and North America. For some products, local distributors have mentioned that they need lead times of between 28 and 48 weeks to deliver ordered commodities because of the after effects of the Covid-19 supply chain disruptions (pre-Covid lead times for some of these products stood at 6-14 weeks).
In addition to targeting the larger African import destinations by value, another initiative to prioritise will be the faster growing import destinations. This could contribute to quicker recovery rates as opposed to targeting the larger economies exclusively, but it could come with the added challenge of increased competition, not just from other sub-Saharan African nations but globally. Countries like China and Japan are able to outcompete SA across several commodities on account of economies of scale, more advanced manufacturing sectors and government incentives that promote exports. The latter is another aspect SA needs to consider with regard to contributing to the country’s economic expansion and diversification over the next few years.
Economic recovery through increased exports should also centre on products that are being imported within each of the big importing economies. From a value viewpoint, refined mineral fuels, mechanical equipment, vehicles and electric machinery top the list. For refined mineral fuels SA faces a challenge as it is reducing its refining capacity, with extant refineries either suspending production, being converted to storage facilities or being shut down indefinitely. Yet an opportunity exists to supply such products to main markets and other African nations, whose vehicle fleets are expected to increase over the next few years, driven by a growing middle class motivated to purchase more vehicles based on higher disposable incomes.
Vehicles are another opportunity for SA, but affordability will be a big contributor to regional export success. SA competes with Asian grey vehicle imports, three to four times more affordable than SA-supplied derivatives. A compelling value proposition centred on an enabling ecosystem (sales affordability compared to grey products) and aftersales support, particularly part availability, service plans, insurance, and lucrative trade-in values, could be a solution. SA could be positioned to supply neighbouring Sadc countries, and over time other regions that rely on imports for their automobile requirements.
Lastly, SA’s growing agricultural sector over the past three years should be leveraged to increase export earnings over the next few years. As mentioned earlier, a growing middle class is expected to increase demand for food and beverages across the region over the longer term. Most sub-Saharan African countries have limited agro-processing capacity and rely on imports to meet demand, particularly for secondary and tertiary food and beverage products.
Replacing Russia and Ukraine, which before the war were big exporters of cereals to countries like Nigeria, is an area SA can prioritise and could contribute to economic growth and help the country’s agricultural sector progress over the short and medium term.
• Maposa is MD at strategic research and advisory consultancy Birguid
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