South Africa is ignoring a huge opportunity to export more goods to the rest of Africa because of its focus on Bric (Brazil, Russia, India and China) countries and its failure to align its exports with what the continent needs, says Standard Bank.

“South Africa is missing out on the potential to expand its commercial presence in Africa due to a range of structural and logistical shortcomings, geographical bias and limited state and private sector synergy in investing outside SADC,” said Simon Freemantle, senior research analyst at the bank.

He said a focus on South Africa’s inclusion in the Bric grouping and commercial bias on the continent towards Southern African Development Community partners came at the expense of deepening South Africa’s role in Africa.

Although South African trade with the rest of Africa last year reached R220-billion, or 17% of its total trade, there is potential for far more, according to the Standard Bank report.

Of South African exports to the rest of Africa last year, 30% comprised capital goods and 10% semi-durables. Exports to Asia, on the other hand, are largely driven by resources and commodities.

The report said 90% of South Africa’s total exports to Africa were absorbed by SADC partners. South Africa’s corporate footprint mostly echoes this bias and has resulted in a lack of deepening ties with larger, faster-growing economies in West, North and East Africa.

Last year, just 4% of South Africa’s total trade globally was conducted with the 10 largest African economies.

In just more than a decade, China’s trade with Africa has increased more than tenfold compared with the roughly threefold increase of South African trade in Africa.

Chinese exports and state or private sector company investments have been more widespread across Africa, focusing on fast-growing and commodity-rich economies with large future potential.

South Africa runs a trade surplus with Africa, compared with a trade deficit with much of the rest of the world. Whereas South Africa ran an almost R100-billion trade surplus with Africa last year, it had a R68-billion deficit with Asia and a R61-billion deficit with Europe. A surplus facilitated greater reinvestment for the country.

Cumulative new South African investments – ranked by project number rather than value – in Africa have increased at a compound annual growth rate of 65% since 2007, quicker than Africa’s other major trading partners, said the report, quoting recent research by Ernst & Young.

South Africa’s three largest product export categories are all in natural resources, yet demand for these exports is moderate.

Africa does not import South Africa’s top three product categories – all in natural resources – in any significant quantities and it does not produce what the country needs to import, namely manufactured goods.

Among the other constraints to deeper trade are weak transport infrastructure that links African economies, bureaucratic inefficiencies and corruption.

A truck moving from Zimbabwe to South Africa may have to pass through as many as 20 administrative and bureaucratic checks, causing costly delays. The cost of transport in Africa is about 40% higher than the developing-world average.

South Africa continues to export successfully to SADC, but this limits potential with other markets. The only significant African export partners for South Africa outside SADC last year were Nigeria and Kenya.

Below-par domestic growth in South Africa, declining productivity, rising labour costs and policy uncertainty are costing the country. Quoting research from trade union association Uasa, the report said the unit labour cost in the manufacturing sector had increased by 143% since 1995, yet the sector had grown by just more than 2% since 2007.

Freemantle said South Africa had logistical advantages, strong management expertise, sound experience in negotiating in tough conditions and a strong financial industry that were not adequately leveraged as a competitive advantage.

Simon Freemantle, senior research analyst at Standard Bank

Source: http://www.businesslive.co.za