Matthew Stern and Yash Ramkolowan
It has become accepted wisdom and the mantra of politicians and economists alike that South Africa exports truck-loads of manufactured goods to the rest of the continent. From Government Ministers (including those responsible for trade), the National Planning Commission as well as the research units of South Africa’s leading Banks, we learn that Africa accounts for a large and rapidly rising chunk of our value-added exports. But has anyone actually done the maths?
According to trade data published by the South African Revenue Services, these claims seem true. South Africa’s exports to the continent (beyond SACU) have increased quickly to more than R108 billion in 2011. A disproportionate share of these exports (in excess of 65% in 2011) is accounted for by secondary and manufactured goods. So, at a superficial level, the numbers seem to hold up. It is however always dangerous to take trade data at face value and greater introspection might be required before making broad policy pronouncements.
South Africa undoubtedly does send massive amount of manufactured goods across its borders. But the true origin of a high percentage of these goods is actually unknown. Once imports are cleared and warehoused in South Africa, it is impossible for SARS to know where these good actually come from (and to verify and record this for each product), and it is certainly not in the interests of South African traders to declare such goods as foreign if and when they are re-exported into Africa. If they did so, higher customs duties may be payable.
Given the scale and activity of South African retailers across Africa, an increasing proportion of this trade takes place within these companies. Moreover, many smaller retailers, based elsewhere in Africa, purchase their supplies from South African wholesalers. Effectively, South Africa has become the logistics hub for the region, and most manufactured goods destined for the sub-continent are distributed from here. They are not made here!
Consider just one example – microwave ovens. According to official trade statistics, South Africa exported R23 million worth of microwave ovens to the rest of Africa in 2011. This accounted for 99.7% of our total exports of microwave ovens. At the same time, South Africa imported over R420 million worth of microwave ovens from China. In reality, South Africa does not manufacture microwave ovens. Rather, South African traders and distributors import these goods from China, store them in South Africa until they are needed elsewhere, and then re-export them (as South African goods) at a later stage.
Why does this matter?
Firstly, because the data provides an incorrect perception of South Africa’s manufacturing competitiveness. We might trade in microwave ovens, but it is a big leap in judgement to then suggest we make them.
Secondly, these perceptions feed into our strategic approach to the continent, and more specifically, influence trade negotiations throughout the region. It would make no sense for South Africa for fight for lower tariffs on South African-made microwave ovens, and conversely, it would make no sense for South Africa’s trading partners to seek tariff protection on these products.
Finally, South Africa continues to underplay the importance of its services sector as a major source of employment and export revenue. What this data reveals is that South African traders, retailers and brand-management companies are making massive in-roads (and profits) across the continent. Rather than focusing exclusively on manufacturing, policy-makers might want to consider how they can help to support and grow the presence of South African service providers in other African countries. It is therefore disappointing that South Africa continues to be a reluctant participant in regional and global negotiations on trade in services.