Muted SA ex­port gains from weak rand

Lesotho Times - - Business -

JO­HAN­NES­BURG — South Africa’s ex­porters have failed to take full ad­van­tage of the rand cur­rency’s nearly 15 per­cent drop this year, ham­strung by elec­tric­ity con­straints, labour ten­sions and an over-re­liance on com­mod­ity trade with China.

The ex­port sec­tor has emerged as a key driver of growth in Africa’s most ad­vanced econ­omy as do­mes­tic de­mand wanes, with real net ex­ports mak­ing the largest con­tri­bu­tion to GDP in the sec­ond quar­ter at 6.1 per­cent­age points.

Al­though ex­ports per­formed bet­ter in the first half of 2015 com­pared with last year, this was mainly off a low base af­ter pro­longed wage- re­lated stop­pages slashed out­put in the key min­ing and manufacturing sec­tors in 2014.

The mo­men­tum is ex­pected to have stalled in the third quar­ter, with stut­ter­ing growth in China, which ac­counts for 20 per­cent of South Africa’s trade, tak­ing its toll.

By com­par­i­son, just over 30 per­cent of trade is con­ducted with the euro zone, and 15 per­cent with the United States.

“Over­all, we may have ex­pected a stronger re­sponse to the per­sis­tently weaker rand (but) South Africa’s ex­ports are more sen­si­tive to ex­ter­nal de­mand changes than to changes in the real trade-weighted rand,” said HSBC Africa econ­o­mist David Faulkner.

“As such, sub­dued global growth, a slow­ing China and weaker emerg­ing mar­ket growth have fed an un­favourable dy­namic, sup­press­ing ex­ter­nal de­mand and lim­it­ing the pos­si­bil­ity for a stronger ex­port re­sponse.”

The one ex­cep­tion has been has been ve­hi­cle ex­ports, which have soared nearly 34 per­cent so far this year com­pared with the same pe­riod last year, ac­cord­ing to data from the trade depart­ment, against a 4 per­cent drop in lo­cal sales.

But other sec­tors are strug­gling. South African Rev­enue Ser­vice num­bers showed the trade deficit spi­ralled to 9.95 bil­lion rand in Au­gust, the big­gest short­fall since Jan­uary, as ex­ports of min­eral prod­ucts slumped 20 per­cent.

Cu­mu­la­tive ex­ports to China have al­ready de­clined by nearly 4 per­cent so far this year.

“While some of our ex­port des­ti­na­tion mar­kets ap­pear to be re­cov­er­ing, such as the euro zone and US, they re­main small in the con­text of de­vel­op­ments in China,” said Colen Gar­row, an econ­o­mist at Le­fika Se­cu­ri­ties.

Fur­ther­more, South Africa is in dan­ger of los­ing the pref­er­en­tial ac­cess to United States mar­kets it en­joys through the African Growth Op­por­tu­nity Act (AGOA) due to an on­go­ing trade dis­pute, Gar­row noted.

De­spite a boost from a drop in oil prices, ex­porters are strug­gling with ris­ing op­er­at­ing costs, elec­tric­ity short­ages and the threat of stop­pages as work­ers press for higher wages.

Con­fi­dence among South African busi­nesses is at 22-year lows as they fret over be­low-par do­mes­tic and global eco­nomic growth.

Down­siz­ing in the min­ing industry, es­pe­cially in pre­cious met­als, as many pro­duc­ers buckle un­der the pres­sure, poses a big down­side risk to ex­ports, Bar­clays Africa an­a­lyst Pe­ter Wor­thing­ton said.

“For ex­am­ple, at cur­rent prices over half of South Africa’s plat­inum pro­duc­tion is un­prof­itable. This will likely weigh on min­eral ex­ports, erod­ing some of the ben­e­fit from lower oil prices,” said Wor­thing­ton. — Reuters

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