Rand’s drop fails to boost exporters
LOCAL exporters have failed to take full advantage of the rand’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 gross domestic product in the second quarter at 6.1 percentage points.
Although exports performed better in the first half 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 last year.
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 US.
“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 tradeweighted 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.”
Other sectors hit
The one exception 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 and Industry Department, against a 4 percent drop in local sales.
But other sectors are struggling. The SA Revenue Service numbers showed the trade deficit spiralled to R9.95 billion in August, the biggest shortfall since January, as exports of mineral products slumped by 20 percent. Cumulative exports to China have already fallen by nearly 4 percent so far in 2015.
“While some of our exportdestination 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 was in danger of losing the preferential access to US markets it enjoyed through the African Growth Opportunity Act 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 businesses is at 22-year lows as they fret over below-par domestic and global economic growth.
Downsizing in the mining industry posed a big downside risk to exports, Barclays Africa analyst Peter Worthington said. – Reuters