Downgrades depress SA exports and trade relations

RECENT credit downgrades by Standard and Poor’s (S&P) and Fitch have put more pressure on South African exports and international trade.

Exporters Club Western Cape chairperson Terry Gale said the downgrades had added to political uncertainty as one of the biggest factors affecting the country’s trade relations with the international community.

Gale cited reports such as the collapse of the Pioneer Foods deal which would have created Africa’s largest consumer goods company against the Huajian Group $1.5 billion (R20bn) investment in a new shoe factory in Nigeria, as an example of how South Africa fared against other countries.

“Why was South Africa not on their radar… this article begs the question, was South Africa among the 27 African countries that were on a recent tour of this company’s headquarters in Dongguan, China? And if not, why no? We are the only Brics country in Africa. China is our friend, we are told. Have they too, lost confidence in South Africa? The strength of the rand through this turmoil is the surprise, but how sustainable is this?”

Gale said that Egypt, despite its international turmoil, was growing at 6% annually, while South Africa would not achieve 0.8% this year.

“We pride ourselves on being the most developed nation, therefore what has happened? Have we crossed the Rubicon?”

Tim Harris, chief executive of Wesgro, Cape Town and the Western Cape tourism trade and investment promotion agency, said the rand’s recent dip had a negative impact on South Africa.

Harris said, however, the Western Cape economy remained resilient, with the agency working hard to promote opportunities amidst the crisis.

He said tourism survived better when the rand was weaker. “A weaker rand also has the potential to produce shortterm benefits for sub-Saharan countries importing substantial volumes from South Africa, giving impetus for export development from the Western Cape.

“As such Wesgro will continue to promote the province’s many tourist attractions, drive local exports and seek Outward Foreign Direct Investment (OFDI) in the continent as a means to offset possible negative effects from a trade perspective.

“The Western Cape and South Africa are inextricably linked to Africa’s economies and we will keep building mutually beneficial trade and investment relationships with the rest of the continent, placing emphasis on trade and OFDI efforts and the development of innovative mechanisms to increase trade and investment.”

Davies said history had shown that without diversification away from simple resource extraction, long-term development prospects of countries such as South Africa would remain bleak.

“The imperative to diversify and industrialise economies is clear, otherwise economies remain dependent on the vagaries of commodity prices in the international market and often on the price of a single resource,” Davies said.

“Governments must realise that they should adopt pro-industry policies and build more efficient infrastructure as foundations for economic and export diversification. It is not about state intervention, but rather state enablement of business that is the ultimate determinant of development.”

EGYPT WAS GROWING AT 6% ANNUALLY, WHILE SOUTH AFRICA WOULD NOT ACHIEVE 0.8% THIS YEAR