Muted SA export gains from weak rand
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