Africa trade shields South Africa from euro slowdown

Trade with Africa should help to cushion SA in the face of a global slowdown, according to figures from the South African Revenue Service (SARS). SA’s growing exports to Africa this year may help the economy to stave off the alarming prospect of a recession in Europe, its main trading partner. Asia’s rapidly expanding economies will still, without doubt, provide the most important source of demand for local exports in the coming years.

"Africa is very important to us," SARS executive Andrew Fischer said. "For the last few years we have consistently posted a trade surplus with the continent. Without this our trade balance would have been much worse."

Figures due today are likely to show that SA’s trade deficit narrowed last month after expanding to a 10-month peak of R9,6bn in October. Exports fell nearly 10%, dominated by a slowdown in the flow of goods to Europe.

However, during the month SA had a trade surplus of R6,13bn with Africa, contrasting with a deficit of R7,6bn with Europe and a shortfall of R13,4bn with Asia.

"Trade with Africa certainly does help shield us from a European recession to some extent," Nedbank economist Dennis Dykes said yesterday.

Exports account for just 19% of SA’s gross domestic product, making the economy heavily reliant on local consumption. Efforts have been mounting to remove the obstacles to trade flows within Africa, which are hampered by poor infrastructure, customs duties and red tape at border crossings. Despite these challenges, SA’s trade surplus with Africa climbed to R49,6bn last year from R43,6bn in 2009.

In the first 10 months of this year, the surplus amounted to R44,6bn compared with a R44bn deficit with Europe and a R62bn shortfall with Asia.

Significantly, data from SARS show that Africa now takes 27% of SA’s manufactured exports, not far behind the 29% of the total absorbed by Europe. Asia is the destination for 22% of locally manufactured goods.

Asia takes 58% of SA’s mining exports, compared with the 29% which go to Europe. Minerals account for about half of SA’s overall exports in value terms. "This could provide a helpful buffer to any protracted slowdown in European demand," Absa Capital said in a recent note.

Trade and industry director-general Lionel October said yesterday that trade in manufactured goods with Africa was growing "and presents a great opportunity for South African companies".

He said the country’s main exports to Africa were processed food products, automotive components, steel and steel products, chemicals, glass and paper, and packaging. About 90% of SA’s exports to the continent are already manufactured goods. That is good news for the economy’s second-biggest sector, which has contracted for two quarters in a row, putting it into a recession.

SA’s main market in Africa remains Zimbabwe, although Kenya and Nigeria are also important because of their size. Despite widespread poverty, consumption in Africa is growing, supported by a growing middle class.

The African Development Bank estimates middle-class Africans now make up about 34% of the continent’s population of about 1-billion. By 2060, the number of middle-class Africans is likely grow to 1,1-billion, or 42% of the population.

Africa’s economic growth rate also presents good prospects for South African exports. The International Monetary Fund expects economic growth in sub-Saharan Africa to quicken to 6% next year from 5% this year — in line with the pace of expansion in other emerging markets.

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