Evaluating South Africa's utilisation of sustained export potential in Sub-Saharan Africa

Abstract

Regional trade can be a powerful engine of economic growth and sustainable job creation. Despite the global economic slowdown after the Global Financial Crisis (GFC) of 2008, growth in Sub-Saharan Africa (SSA) remained strong, mainly supported by resilient domestic demand and increased investment flows. Embracing high growth markets with a potential of sustaining import demand is a clear objective of most exporting firms. Thus, given that import demand in South Africa‟s traditional markets has been declining over the years, the need for South African exporting firms to pursue the growing SSA market is further strengthened. The World Bank (WB) published a report in 2014 focusing on South Africa‟s export competitiveness and points out that South Africa‟s exports to SSA have remained smaller and more short-lived than exports to its traditional markets. This is despite SSA increasingly becoming an important export destination for South Africa as well as a regional trade priority for South African policymakers. Therefore, this makes identification of sustained export potential in SSA and evaluation of the country‟s utilisation of this potential important and triggers the main question of this study: is South Africa utilising its sustained export potential in SSA? The overall objective of this study is to evaluate South Africa‟s utilisation of sustained export potential in SSA. The methodology applied to achieve this involved three steps. The first step focused on: the identification of markets with consistently large and/or growing import demand in SSA for all products at HS6-digit level, in step 1.1; and the identification of products which South Africa consistently export competitively (sustainable exports), in step 1.2. This analysis was done over a five-year period from 2010 to 2014. The second step focused on matching SSA markets (product-country combinations) with consistently large and/or growing import demand to South Africa‟s consistently competitive export supply products. These matches are considered product-country combinations with sustained export potential in this study. The third step focused on evaluating South Africa‟s actual exports to these product-country combinations over the same five-year period as an indication of the country‟s utilisation of sustained export potential in SSA. The literature study focused on the discussion of the importance of exporting in an economy, export growth in the intensive and extensive margins of trade, export sustainability, export structure, and non-trade barriers as highlighted in international trade literature. It is acknowledged that international trade has been an important tool for enhancing competitiveness in developing countries. In fact, as a result of increased trade, emerging economies are increasingly moving towards convergence with developed countries evidenced, for instance, by the increase in per capita GDP of G20 developing countries. This study finds that South Africa is utilising 58% of its sustained export potential identified in SSA (growing exports). However, it is underutilising 21% of its sustained export potential identified in SSA (declining exports). In addition, the country is non-utilising 21% of its sustained export potential identified in SSA (no exports). Most of the export potential that South Africa is utilising is in SSA countries in Eastern Africa whereas most of the export potential that South Africa is underutilising as well as non-utilising is in SSA countries in Central and Western Africa. Following the main findings of this study, policymakers, export promotion organisations, and industry associations are recommended to investigate the reasons behind South Africa‟s underutilisation and non-utilisation of sustained export potential identified in SSA. However, focus should not be completely re-directed from sustained export potential that South Africa is already utilising in SSA. Instead, policymakers, export promotion organisations, and industry associations can use the results of this study as a starting point in obtaining information and formulating export promotion strategies for the specific countries and matched product-country combinations identified in SSA