Export Competitiveness, Regional Trade Integration Could Spur South African Export Growth

PRETORIA, February 4, 2014 -- Boosting competition and promoting deeper regional trade integration are critical for restarting South Africa’s export engine to bolster growth which would help create jobs and reduce poverty, according to a recently released World Bank report.

The Economic Update on South Africa: Focus on Export Competitiveness examines the performance of some 20,000 South African export companies in the non-mineral sector over a 12 year period from 2001 and discusses opportunities to help South Africa improve its export potential.

Asad Alam, World Bank Country Director in South Africa, said this study was especially important, as the government has identified the export sector as a key driver of faster growth. The country’s National Development Plan targets export volume growth of 6% a year, and tackling high unemployment is one of South Africa’s priorities.

The report compares South Africa’s exports to their emerging market peers and shows that South African exports are falling short of their potential. It explores the contributing factors to the sluggish performance. They include a reliance on a few mega-export firms that dominate the sector and who are losing dynamism as well as a focus on capital intensive exports, which contribute less to job creation. 

Since 2005, South Africa’s total exports have grown in real terms by only 0.6% a year at a time when its BRIC counterparts – Brazil, Russia, India and China – were making immense gains into global markets. Growth in South Africa’s exports of non-minerals and services also fell behind BRIC partners, while the volumes of minerals exported remained virtually flat.

The report shows that the bulk of South African exports are concentrated in few mega firms who ship products to countries around the world, with approximately 1000 companies generating 93% of all of the country’s exports. The rest of South Africa’s 20,000 exporting firms export small amounts. In addition, these mega companies are losing momentum as they are creating fewer new products and not expanding into new markets.

South Africa export goods are also mainly highly sophisticated, capital intensive goods that are produced by highly skilled workers. While this offers opportunities for upgrading and moving up the value ladder, trading in these products means that the dominant export companies are underutilizing South Africa’s large pool of low-skilled labor, thus failing to create enough jobs to make the export sector a major contributor to employment growth and poverty reduction.

The report points to the recent emergence of Sub-Saharan Africa as the main destination for South Africa’s non-mineral exports, overtaking Europe as the main trading partner. However, the African market is still too small to drive overall export growth. The European market is still 30 times larger than Africa’s.

The report presents three opportunities to help promote competitiveness and spur export growth. First, it argues that boosting competition would increase efficiency and productivity.

Resolving infrastructure bottlenecks and cutting logistic costs present a second opportunity to support export growth. Cutting the charges exporters incur for the use of ports, rail and telecommunications would promote competitiveness and benefit small and medium-size exporters and nontraditional export sectors.

Thirdly, exports could benefit from deeper regional integration in goods and services within Africa including by creating production and service value chains that cut across national borders, and draw on all the region’s resources and capabilities.

“We see that with stronger trade relationships come the right conditions for the emergence of ‘Factory Southern Africa,’ a regional value chain of production that could feed into global production networks,” said Thomas Farole, World Bank senior economist and co-author of this report. 

Progress on all three fronts would help propel South Africa towards faster growing exports and help the country realize its goal for the higher, more inclusive, job-intensive growth outlined in the National Development Plan.

Previous Updates

Issue 4: Financial Inclusion Critical for South Africa’s Poor
Issue 3: Focus on Inequality of Opportunity
Issue 2: Focus on Green Growth
Issue 1: Focus on Savings, Investment and Inclusive Growth