South Africa faces a declining trade surplus due to logistical disruptions, infrastructural issues, production constraints, and lower global demand for commodities. Bobby Madhav, FNB head of trade and structured trade and commodity finance, says the solution is investing in resilient supply chains, new industries, and markets.
The declining trade surplus in South Africa, which has decreased from R20 billion to R14 billion in recent years, underscores several systemic challenges that the country faces. These challenges have their roots in a complex mix of logistical, infrastructural, production, and global market issues.
The prolonged aftereffects of the Covid-19 pandemic continue to disrupt logistics, indicating that the pandemic’s impact was more than a temporary hurdle. These disruptions have revealed the fragility of global supply chains and the need for resilience in the face of unexpected global events.
Infrastructure woes, particularly South Africa’s erratic power supply and inefficient port operations, further complicate trade within and with the country. These issues not only slow down production but also increase the cost of doing business, making South African exports less competitive on the global stage.
Production interruptions and capacity constraints are another area of concern. These challenges stem from a protracted lack of investment in manufacturing and beneficiation, which is the process of converting raw materials into finished products. This lack of focus on value addition means that South Africa primarily exports raw materials, only to then have to re-import them as more expensive finished goods.
Impact of global logistical challenges
Shipping bottlenecks are another issue that continues to plague the trade sector, with global logistical challenges impacting the timely and cost-effective transport of goods. While this situation is finally starting to improve, there is still a need for trade participants to diversify shipping partners, seek out viable alternative ports, and increase storage capabilities to mitigate the issues.
Possibly the most significant contributor to the country’s declining trade surplus is a deeper problem over which local industries have little control, namely the lower global demand for commodities, a primary South African export and key contributor to economic stability and growth.
The issue is exacerbated by the aforementioned lack of beneficiation and manufacturing capabilities. To address this, South Africa needs to invest in and promote sectors beyond traditional commodity exports, such as technology, renewable energy, and services, which could offer more stability in the face of fluctuating global commodity prices.
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Strategic steps to improve trade sector
For sector participants looking to navigate and mitigate these issues, and in turn, contribute to building a more resilient trade sector, several strategic steps can be taken:
The first critical strategy to overcome these challenges is to focus intently on building more resilient supply chains. South Africa’s trade stakeholders must consider the increasing number of climate-related disruptions, such as droughts, floods, and severe weather events, all of which have become more frequent due to climate change. There is also a growing emphasis on ESG criteria from global markets. All of this means that exporters need to proactively adapt to these new demands by adopting sustainable practices, improving transparency, and ensuring that their operations meet international standards.
Secondly, the creation of new industries and markets is essential. The national election in South Africa brought this issue to the forefront, as political parties have failed to address this need in their manifestos. It’s a critical oversight, as the promise of employment opportunities cannot be fulfilled without establishing new industries. This is not a task that can be left solely to the government; businesses, especially those involved in trade, must take the initiative to innovate and diversify.
Lastly, the importance of looking north and leveraging the African Continental Free Trade Agreement cannot be overstated. The potential for intra-African trade is immense, yet largely untapped. By establishing new trade partnerships within the continent, South African businesses can access markets that are not subject to the same logistical and regulatory challenges faced when trading with more developed regions. This requires a concerted effort to build connections, understand regional markets, and develop products and services that meet the needs of the broader African market.
The bottom line is that the global trade landscape is evolving, and South Africa’s response needs to be swift and dynamic. Success requires more than merely adapting to change; it is about leading it – by reinventing trade practices, reimagining industrial landscapes, and reaffirming a commitment to sustainable progress. It’s also about the collective resolve of sector participants not to wait for someone else to do what’s needed to fix the country’s trade problems but to take the steps required to rebuild the country’s once resilient and flourishing trade ecosystem.
- Bobby Madhav, is FNB’s head of trade and structured trade and commodity finance. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.
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