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Picture: 123RF/MOOVSTOCK
Picture: 123RF/MOOVSTOCK

Long before globalisation became a modern buzzword, more than 200 years ago, British economists Adam Smith and David Ricardo acknowledged the potential of free trade to transform poor countries into wealthy states.

In explaining the benefits of free trade Smith eloquently used the metaphor of “the invisible hand” in his famous book The Wealth of Nations, published in 1776, to describe the ability of markets — when unhindered and unrestricted — to efficiently distribute resources, goods and services in a way that benefited societies.

While many business and economic experts agree that trade generally benefits nations, there are instances where trade produces deficits in some countries and surpluses in others. A country that is running a trade deficit with its trading partners faces the quandary of buying more imports than it sells as exports. If this trade imbalance is left unaddressed, it has the potential in the long run of hurting economic growth and job creation in the deficit-running country.

Trade is beneficial between nations when it is balanced. This is why at the Brics summit taking place in Johannesburg next week, the SA chapter of the Brics Business Council will engage its counterparts to find solutions to the long-standing trade deficit that exists between SA and Bric countries. China’s trade & industry minister and business leaders from China and SA met this month to discuss balancing trade between the two countries.

Since 2010 SA has been a member of Brics, a geoeconomic bloc of influential developing countries that represents about 42% of the world’s population and 32% of global GDP. Trade between SA and its Bric counterparts has expanded exponentially in the period between 2016 and 2022, growing annually by about 7% to reach $50.1bn last year.

In 2022 SA sold exports valued at $17.6bn to Bric markets, and bought imports valued at $32.5bn from Bric countries, generating a trade deficit of $14.9bn. The trade deficit SA recorded last year was more than four times larger than the deficit of $3.7bn recorded in 2010 when it joined Brics. It is also worth noting that raw materials dominate SA’s export basket to Bric markets, while SA mostly buys manufactured imports from Bric countries.

Uneven trade patterns

The SA chapter of the Brics Business Council, working together with the government, has taken a position to engage its Bric counterparts to explore practical and innovative solutions to address the uneven trade patterns that exist among the bloc’s members. The chapter believes trade could be balanced through attracting inbound export-orientated investments from Bric countries to SA and identifying outbound export opportunities for SA products into Bric markets.

At the same time, there is a need for Brics countries to collaborate to remove bottlenecks that stifle the free flow of imports and exports across the bloc. As an investment destination SA is a preferred location for multinationals looking to access markets in Africa. The country is blessed with an abundance of natural resources, ranging from platinum, iron ore, manganese and coal to vanadium, coal, gold, diamonds and other minerals.

SA is also investing heavily to expand, maintain and protect its logistics and transportation infrastructure, to allow exporters to take their goods to markets to any corner of the world. We have a sophisticated financial system that at its centre has the largest stock market in Africa, which enables companies to raise capital to fund expansion of their market footprints.

Leading destination

In addition, SA is a leading destination for digital service providers and call centre operators, thanks to its quality broadband infrastructure and skilled, English-speaking workforce. We also boast a cutting-edge automotive manufacturing industry that produces more than 500,000 vehicles annually, as well as a competitive, fast-growing agricultural sector that produces high-value exports.

The economic strengths highlighted above make SA a strategic location for multinational companies that are looking to take advantage of the African Continental Free Trade Area (AfCFTA), the world’s largest free trade area spanning 47 African countries with a combined 1.3-billion population and GDP totalling $3.4-trillion.

There is an opportunity for our Bric partners to leverage the relationship they have with SA to access this single continental market, which has liberalised trade on 88.3% of 5,000 products that are traded in Africa.

To improve the composition of trade patterns across Bric markets, we are proposing that our Bric partners consider outsourcing or relocating parts of their industrial production to SA to find new export markets facilitated by AfCFTA, particularly agriculture, automotive, pharmaceutical and logistics industries.

The localisation of industrial production in Africa will go a long way towards balancing the uneven trade patterns that currently exist between the continent and our Bric partners. This approach will help SA and other African countries to diversify their economies away from reliance on commodity exports, enabling the production of high-value manufactured goods.

SA is currently implementing economic reforms to attract new investment. These reforms are aimed at improving our country’s competitiveness and reducing the cost of doing business, particularly logistics costs related to energy, water, telecommunications, ports and rail. The SA government is constantly reviewing its regulations and laws to identify areas where it must cut red tape to make it easier to do business across the entire economy.

The imminent Brics summit will provide the bloc’s member states and African countries a platform to unlock trade and investment opportunities to accelerate post-Covid economic recovery, not only across Africa and Brics countries, but also the entire world.

• Mabuza chairs the SA chapter of the Brics Business Council.

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