JAMES MAPOSA: Services sector is an often overlooked source of exports

SA needs a significant shift to turn around its economy and return to a sustainable growth trajectory. A priority focus to grow the economy is to increase export activity.

Unfortunately, SA’s product exports in value terms declined in 2022 (minus 0.1% compared with 2021) and in 2023 (minus 10.6% compared with 2022), due to lower demand in 2023 from key export destinations such as Germany (the third-largest importer of SA products by value), Japan (sixth), the UK (seventh), and the Netherlands (10th).

Lower-value demand was also experienced from a key regional market, Botswana (ranked 11th), whose value demand declined by 11.1% from 2022. In terms of commodities, precious metals (the largest export in value terms, particularly platinum) and mineral fuels (fourth-largest export, with a substantial decline in coal exports) witnessed the largest decline in demand in 2023. This affirmed that growing the economy beyond resources has become more important than ever.

Where demand has grown — albeit from a comparably lower base — the exported value of other vegetable textile fibres (+205% in 2023 compared with 2022), oilseed (+71%) and vegetable plaiting materials (+69%) confirm that investment in agro-processing should be prioritised over the short and medium term.

Due to the drop in key commodities’ export value, other avenues should be explored to offset the growing deficit. An often overlooked sector is the export of services, particularly to African nations that are less able to offer quality and globally competitive services.

The leading nations that offer services are the US, UK, China, Germany and Ireland. In 2022, US service exports amounted to $928bn, growing 16% from 2021. UK service exports grew by about 9% in 2022 and amounted to $494bn. SA ranked 55th, exporting $12.6bn worth of services and growing 38% from the previous year.

Other African nations ranked above SA included Egypt (ranked 41, with a service export value of $31.6bn and growth of 44%) and Morocco (45, growing 43% to $22bn).

When compared with product exports, SA’s service exports accounted for just more than 10% of total product export value in 2022. The US’s service exports, on the other hand, amount to 45% of total product exports, suggesting that SA could still be in its infancy when it comes to developing and maturing its service industry for exports.

In terms of services exported by the US, commercial services (business and financial services, intellectual property usage charges, telecom, computer and information services and insurance and pension services, among others) ranked first, accounting for about 70% of total service value exported in 2022, followed by travel (17.6%), transport (9.8%) and government and other services (3.1%).

Commercial services are thus an angle to explore for SA. Similar to the US, SA’s commercial service exports were the country’s largest but only accounted for 44% of total service value exports (2022), followed by travel (41.5%), transport (12.7%) and government and other services (1.8%).

Lessons can be learnt from the US on how the country can grow its commercial services offering. At present SA does not export telecom, computer and information services, which earned the US $66.3bn in 2022, an angle the country can explore from a capability and earnings potential standpoint.

Growing service exports could be essential to contributing to SA’s longer-term economic growth. Leveraging the African Continental Free Trade Area (AfCFTA) is an avenue SA can explore to increase service exports to the rest of the continent, whose 2022 value of service imports was estimated at $176bn.

Key markets include Egypt (2022 service import value of $25.4bn), followed by Nigeria ($18.8bn), Ghana ($11.9bn) and Angola ($11.3bn). While other nations leverage the AfCFTA to increase product trade, SA should consider a two-pronged approach to increase its exports of both products and services to strengthen its trade position and expand and diversify its economy.

Policy should also be adjusted to increase intellectual property rights and facilitate commercial innovation growth that earns more for the country in terms of service exports. Another aspect that can be considered is the use of data and technology (particularly artificial intelligence) to accelerate and expand SA’s export service offering (in line with contextual market needs and wants).

SA being socially and culturally closer to key African target markets is an aspect the country could prioritise to offer services whose uptake will be significant over the next few years. An example is the development of solutions that improve efficiencies of continental remittance and digital transaction corridors.

Such services have the potential to create new and commercially viable opportunities for remittance service providers that are able to transact in real time, including risk management solutions for such services.

An integrated approach to increasing exports, including services, is therefore an angle worth exploring for SA’s longer-term economic growth and diversification.

• Maposa is MD at strategic research and advisory consultancy Birguid.