Identifying the determinants of South Africa's export survival rates

Abstract

It has long been recognised that exports are a key factor in promoting economic growth in a country. In South Africa, the government’s National Development Plan (NDP) 2030 highlights the pivotal role that exports play in the country’s economy, particularly as a driver of economic growth. Yet South Africa’s export performance has been lacklustre for many years, failing to act as the economic growth stimulant that the country sorely needs. Not only are strong export flows important for a country’s economic growth prospects and general well-being, but they also need to be sustainable. The longevity or duration of South Africa’s export relationships is generally short (often less than five years), which means that exporters do not gain sufficient traction in foreign markets to ensure ongoing orders and a good return on their (often considerable) investment in cross-border expansion. Although South Africa’s poor export survival rate is of great concern to many in the country, the determinants that affect these rates have not been the focus of any academic research. The aim of this study is to understand why South Africa struggles to develop and sustain long-term export relationships. It sets out to do this by examining both the determinants of and the constraints to the country’s export survival, which together could inform new, more effective approaches to export promotion and development. The literature review provides a theoretical and empirical appraisal of studies relating to export survival, focusing specifically on the determinants thereof. Most trade theories assume that export relationships are of an enduring nature. However, various empirical studies have found that this is not the case. Identifying the factors that influence (both positively and negatively) export survival in South Africa could reveal ways to strengthen the country’s export relationships and, in turn, reinvigorate its economic growth prospects. South Africa’s export survival is then empirically investigated using survival analysis techniques to identify the determinants encouraging (or deterring) longstanding export relationships. The two models included are the Cox proportional hazard model and the Probit random-effects model. The main data source is UN Comtrade, the data sources for gravity variables are Centre d’Études Prospectives et d’Informations Internationales (CEPII) and the World Bank’s World Development Indicators. The product type variables

(referenced priced goods, differentiated goods and homogeneous goods) are classified by using Rauch’s classifications on an HS 6-digit level (Rauch, 1999). The competition variable is based on the Herfindahl-Hirschman Index (HHI) and export costs are obtained from the World Bank’s Doing Business report. The country’s export relationships are examined in relation to regional groupings, importing countries’ income levels (from lowto high-income), HS2-digit sectors and export value. Interestingly, it is with Sub-Saharan Africa that South Africa has the most sustainable export relationships, with Mozambique in the lead position. Furthermore, South Africa’s longest export relationships are with lower middle-income and low-income countries. On a sectoral level, hides and skins provide South Africa with the most durable export opportunities. Among the determinants of longer export relationships between South African producers and foreign buyers are: a common border with and close proximity to the import market; a common language and shared colonial history; higher-value export transactions; a relatively weak domestic currency (Rand); a low concentration of competitors in the import market; a multiple-spell (as opposed to a single-spell) approach, which encourages ‘learning-by-exporting’; and a focus on exports of differentiated goods. Contrary to expectations, exporting to countries that are, for example, landlocked and impose high import tariffs are not deterrents to South Africa forming enduring export relationships. Although the findings in this study resonate with those in some of the other studies on export survival, South Africa’s specific circumstances need to be taken into account when formulating policy recommendations and solutions. One of the keys to developing longterm export relationships is selecting the right destination markets. South Africa’s export promotion agencies should therefore make the dissemination of regular and reliable market information a priority so that exporters’ market selection efforts are both focused and cost-effective. In addition, the country’s policymakers need to be made fully aware of the importance of export survival or longevity and that export promotion and assistance do not stop once exporters have successfully accessed their chosen target markets.