R94bn bilateral agreements crown state visit
had brought the industry to its knees.
However, it must be said that affordable Chinese products, ranging from clothing to electronic goods, have been a relief for millions of South Africans living in poverty.
This week, there was little expectation that President Xi Jinping’s visit would signal a turn in the country’s economic fortunes. Abdul Davids, Kagiso Asset Management’s head of research, noted that the visit came as the Chinese economy was transitioning from an infrastructure-led, heavy commodity-intensive economy to a more consumer and services orientated economy. The transition was not expected to be smooth, and would be quite disruptive to the global economy, especially with regard to resources. expected to grow at 7 percent this year – which was below expectations – the impact on commodity producers, like South Africa, was bad news. Martyn Davies, the managing director of emerging markets and Africa at Deloitte Frontier Advisory, said this week that China-South Africa trade had dropped off significantly over the past year, due to both reduced commodity prices, as well as a depreciated rand that served to make Chinese imports more expensive.
“South Africa’s commodity exports to China have reduced significantly in recent times,” Davies said. “But there are great opportunities to increase exports to China from our strong automotive sector and agribusiness sectors, to name just two.”
He expected a moderate recovery in resource demand in the medium term, citing that there was a cyclical and structural challenge in the domestic economy.
“The China-driven super cycle, which peaked in late-2012, has tapered off dramatically. At the time it masked our structural flaws. Now we have to contend with both structural and cyclical challenges.
“The problems in the resources have been exacerbated by other challenges. For example, why is South Africa not growing as an economy? We are a diversified economy, but our economy has flatlined. To grow we need agile reform through pragmatic policy and the implementation thereof. Economically enabling infrastructure spend would be ideal right now,” Davies added.
Annabel Bishop, an economist at Investec, said there were indications that commodity prices could bottom next year, but they were not expected to rise substantially, with only a mild ascent during 2017 to levels not substantially higher than current levels. The commodity price super cycle is over.
“The platinum price decline this year has, along with the decline in prices of coal and iron ore, provided producers in South Africa (with) reasons for mine rationalisation and job cuts. Platinum prices have slumped 50 percent since setting a record high in 2011,” Bishop said. “A further dip in prices before then is possible, early in the new year. Indeed the new normal will likely be commodity prices at these lower levels, as China has moved away from a focus on heavy industrial processing and manufacturing to services.”
The sectoral rebalancing in China is expected to persist until at least 2025 and yield ultimately more economic stability for the world’s current second-largest economy. “For South Africa’s resource sector this is just one more headwind, as the industry is battling higher costs, policy uncertainty, labour rigidities, slack demand and some over investment. Chinese businesses were investing in South African mining business, however, two deals have collapsed, following regulatory delays,” Bishop said.