Chapter 2 South African exports: nurture or nature? U n

Chapter 2 South African exports: nurture or nature? U n
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Chapter 2
South African exports: nurture or nature?
From time immemorial South Africa has been a trading nation. This is
fundamental to our economy and indeed our society. It emanates from the
wealth of our natural resources first mobilised by the trading empire we now
refer to as Mapungubwe. As an economy and as a people we are linked to trade.
For us it is not possible to extricate development and trade from the well being of
our people (Erwin, 2003).
2.1
Introduction
Many factors determine trade patterns. To gain a better understanding of the drivers impinging on
South Africa’s propensity to export, it is necessary to consider relevant international and South
African political, economic and social developments.
Natural features and endowments
contribute to what a country can export. However, both theory and evidence suggest that history
plays a role in shaping the direction of international trade and a country’s economic development
is therefore influenced (or nurtured) by historic events and political decisions (Dunning, 1988).
This chapter traces the history of South Africa’s trade and trade policy, and analyses their
rationale and impact. The background to the current trading environment, the monetary system
and the institutions that play a role, are sketched. The chapter provides an overview of South
African trade and trade policy, dealing briefly with the early colonial era before covering the
period until 1970. It was during this time that import substitution policies were introduced and
developed.
Although South Africa experienced international boycotts from the 1960s1 and
sanctions from the mid-1980s, it also realised the need for export promotion policies. These
events are described sequentially while the events after 1990, are discussed topically according to
the factors that influence trade. After 1990, sanctions were reduced until they were eventually
phased out completely and trade was normalised. This coincided with the formation of the World
Trade Organisation (WTO) and the further liberalisation of South Africa’s trade policy.
Cumulatively, these events have created the environment in which South African businesses make
decisions and hence influence or determine trade. The purpose of this chapter is to do the
following:
1
A variety of consumer, sporting, cultural and other boycotts were organised by the anti-apartheid movement,
activists and other private bodies, while sanctions were instituted by governments and international bodies such as
the UN. It is therefore difficult to pinpoint starting dates.
University of Pretoria etd – Gouws, A R (2005)
14
1. Chronologically describe the development of the South African economy and draw attention
to political and social conditions that have influenced South Africa’s trade;
2. Review pertinent international and South African trade policies; and
3. Induce determinants of South African exports that can be included in an empirical analysis.
Many of the factors that influence South Africa’s current trade can be traced back to the colonial
period. This chapter provides concise insight into current events and is divided into three sections
corresponding to the colonial period (from 1600 to 1960), the period of isolation (until 1990), and
recent events. Each section describes the role of endowments, trade policies and the international
and domestic elements that influenced trade policy.
2.2
The development of the South African economy
Despite a long history of trade and the openness of the South African economy, very little export
promotion policy developed over the years. Interestingly, even though the Dutch East India
Company (one of the first multinational trading companies) was responsible for colonising South
Africa and thus gave it a link to the international economy 150 years prior to countries such as
Australia or New Zealand, the country never developed as a major exporting nation (Houghton,
1973). Although cultural and economic links developed with Europe, South Africa is some
distance from the world’s major markets. Nevertheless, since the discovery of the country’s rich
natural resources and the recognition of its strategic location, South Africa has been the focus of
world powers that have influenced it economically. Over the years South Africa’s trade patterns
have been forged from a mixture of endowments (particularly its natural resources), locational
factors and politics.
The role of the early colonialists
Although not well documented, human societies have traded in South Africa for centuries.
Documented history starts in 1488 when South Africa was “discovered” by Bartolomeu Diaz,
eventually resulting in opening of the Indian trade route. This trade route was monopolised by the
Portuguese until the 1600s, when it was wrested from them by English, Dutch, and French trade
rivals.
European colonialists controlled, exploited and developed the South African economy primarily
for their own benefit. Prior to 1652, when the Dutch East India Company established a halfway
station to replenish its ships, barter with the indigenous people along the coast was the only
recorded trade. The agricultural sector dominated the Cape economy, supplying mainly local
needs and passing ships. Limited agricultural products were exported to the Netherlands, while
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various commodities were obtained from the East and Europe (mainly the Netherlands). Besides
the agricultural endowments, South Africa has abundant mineral resources. Before 1867, these
natural resources were not nurtured and very little mining activity took place, although there was
copper mining in Namaqualand. Manufacturing only provided for the basic needs of the local
inhabitants and was limited to activities such as bakeries, the manufacture of furniture and very
basic agricultural implements. As can be expected, the infrastructure was poor and undeveloped.
“The policy of the Dutch East India Company was typically mercantilist. It aimed at maximum
immediate profit, which it tried to achieve by monopolising every activity of any economic
significance” (Viljoen et al., 1983: 29).
The influence of the global political economy
The colonialists that controlled the South African economy were in turn influenced by other
international events, including the growth in world trade. This growth was shaped by political
thinking which in turn was influenced by philosophical debate. At the beginning of the 19th
century, liberalisation (with intellectual foundations rooted in the writings of the classical
economists) led to the removal of trade barriers, while improved transport facilitated the growth of
trade.
With the dismantling of mercantilism and the availability of worldwide transport, global markets
were created. The integration of world commodity markets that followed can also be attributed to
the advent of steamships, the opening of the Suez Canal, and the building of railroads. Transport
costs dropped rapidly. This integration was not limited to the Atlantic economy, but included the
Black Sea, the Mediterranean and Asia (Lindert & Williamson, 2001). Since 1820, growth of
global trade has exceeded growth in gross domestic product (GDP). This trend even accelerated
in the latter part of the 20th century as demonstrated in Table 1.
Table 1
World merchandise exports as a percentage of world GDP
Year
%
1820
1,00
1870
4,60
1913
7,90
1929
9,00
1950
5,50
1973
10,50
1998
17,20
Sources: Maddison (2001); Venables and Crafts (2001).
Global politics, especially in Europe, have had an impact on South Africa’s economic
development. The 1820s can be considered a watershed in both the evolution of the world
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economy and South African history. After a brief occupation in 1795, the British regained control
of the Cape from the Dutch in 1806 and introduced policies to benefit British exports. They
placed prohibitive restrictions on non-British goods entering the Cape. This aimed to protect the
interests of Britain, rather than to develop Cape industry (Schneider, 2000: 413). Policies were
not beneficial and tended to hamper the development of South African exports.
Free factor movement, including migration and investment, also influenced trade internationally.
However, besides the early Dutch and German settlers who were joined by the Huguenots (mainly
French) and the 1820 British settlers, there was very little European migration to South Africa as
other destinations were far more popular. In these early years, there was very little investment.
The international political economy is an important factor in any nation’s trade pattern. Being a
small country, South Africa has always been subject to these factors.
Although a stable
international environment is a prerequisite for trade, on its own it does not contribute to trade
development. Local policies must be conducive toward this goal.
Early factors determining trade
Even in these early years, exports were an outcome of various factors. Using natural resources,
including weather, the settlers added skills and technology to produce merchandise that could be
traded. However, exports depended not only on supply capacity but also demand conditions and
market access.
This is demonstrated by both the Huguenots who brought viticulture technology to the Cape, and
the 1820 settlers, who had experienced the industrial revolution and brought much needed skills.
The conditions in the Cape are suitable for growing grapes and wine production. Preferential
tariffs on wine from the Cape to Britain initially led to wine contributing substantially to the
colony’s exports. Demand conditions also played a role and exports of wine grew until foreign
market forces reduced and eventually eliminated exports (Viljoen et al., 1983: 29).
Natural resources played a prominent role in the early development of the South African
economy.
In the 1840s, wool became the most important export from the Cape Colony,
contributing more than 75 per cent of total exports by the 1860s. The first structural change to the
economy occurred with the discovery of diamonds in 1868 and gold in 1886. This transformed
the entire social, political and economic landscape and wakened a country that “had slumbered
peacefully for over two centuries” (Botha, 1973: 321-355). From 1868, the mining sector rapidly
developed into a large industry by any standards. As can be seen from Table 2 below, this was the
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cause for the increase in total exports after 1870 and continued to be the major driver of exports
throughout the 20th century.
Table 2
Annual
average
1821-25
South African exports: 1820-1905
Food and drink
(Rm)
Raw materials
(Rm)
Diamonds
(Rm)
Gold
(Rm)
Total
(Rm)
0,3
0,1
-
-
0,4
1831-35
0,3
0,2
-
-
0,5
1841-45
0,2
0,3
-
-
0,6
1851-55
0,2
0,7
-
-
1,4
1861-65
0,2
3,8
-
-
4,2
1871-75
0,2
7,8
2,6
-
11,3
1881-84
0,2
8,2
6,5
-
16,0
1891-95
0,2
7,9
7,9
11,3
28,6
1901-05
0,1
8,7
11,6
24,4
48,3
Source: Houghton (1976: 13).
Mining not only drove exports, but also steered the further development of the South African
economy, particularly the manufacturing and financial sectors. Technologies were developed that
reduced the cost of mining, despite mines being deeper. These advances had spillover effects into
other sectors. As mining developed, the need for strong financial systems and new infrastructure
grew. The conditions necessary for trade to develop were established and acquired a critical mass
because of the needs of the mining sector. The necessary links with foreign markets were
established not only by the producers, but also by the service companies (banks, shipping lines,
freight forwarders etc). The financial system, technological development and manufacturing
capacity that arose to support mining operations continue to play an important role in the
development of South Africa’s international trade.
Early import substitution
It was during the nineteenth century that the seeds were sown for South Africa’s import
substitution policy. Hamilton (1791) and List (1827; 1856) provided the intellectual argument for
protection (see section Error! Reference source not found. below). Initially the resurgence of
protection internationally did not affect South Africa, whose trade policies2 were focused on
revenue rather than protection and other customs issues.
In 1881 President Kruger initiated South Africa’s protectionist policies, arguing that local citizens
generally did not share in the large mine earnings and used monopoly “concessions” and import
2
South Africa was comprised of the Coastal Colonies and Boer Republics and only unified in 1910.
University of Pretoria etd – Gouws, A R (2005)
18
3
tariffs to promote local production. Although these efforts were mildly successful, they increased
production costs as mine owners had to pay more for local goods and services produced under
concessions, especially dynamite and rail transportation. Import substitution gained momentum in
1910 when the Cullinan Commission (Houghton, 1976: 121) recommended that it was “in the best
interest of the country as a whole that adequate protection should be given to agricultural and
industrial undertakings.”
Economic development was influenced by the Anglo-Boer wars.4 However, in 1902, post-war
reconstruction was set in motion with the restarting of mining and the rehabilitation of farms. The
structure of Kruger’s earlier concessions changed to favour mining and the prices of inputs
dropped. Mine owners invested locally, especially in dynamite, chemicals and metalworking and
other mining-related industries. Mining magnates lobbied the state to develop other essential, but
unprofitable sectors, such as railways and electricity.
Infrastructure needed by mines also
provided the platform for industrial exports.
Post unification
In 1910 the Union of South Africa was formed comprising the former Cape and Natal colonies
and the Transvaal and Orange Free State republics. As part of the British Empire, it soon felt the
inevitable impact of world events and by 1914, was again at war, this time on the side of Britian.
This had a positive impact on South Africa’s industrialisation as it stimulated growth of
manufacturing with output doubling between 1915 and 1920. The legacy of the war resulted in
more restrictive policies with many nations introducing restrictive migration and trade policies
(Lindert & Williamson, 2001).
Colonial policies, although primarily designed to serve Britain, nevertheless did have positive
economic spin-offs for colonies, including South Africa. However, preferential duties in favour of
British goods (a 25 per cent ad valorem rebate) were introduced and later extended to the other
British possessions on a reciprocal basis. South African goods enjoyed favourable entry into
Britain and perhaps this marks the first export promotion of South African goods.
All the same, industrial development was hampered by imperial thinking which frowned on
substantial beneficiation (or value-added production) in South Africa.
Raw materials were
exported for further processing in British factories. South Africa’s main exports remained raw
3
4
Concessions included railways, explosives, bricks, cement, tiles, liquor, sugar, leather, paper, gas,
electricity, and water works.
There were in fact two wars between the British and the South African republics in 1880-81 and 18991902.
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19
materials and precious metals. In 1911-1912, minerals comprised 81,8 per cent of South Africa’s
total exports (gold and diamonds alone contributing 63,5 and 15,1 per cent respectively). The
agricultural sector’s 17,6 per cent accounted for most of the remainder (Frankel, 1938: 108, Table
16).
Table 3
Year
1910
South Africa’s principal non-mineral exports: 1910-19335
Wool
(£000)
Hides and
skins
(£000)
Fruit
(£000)
Other food,
beverages
and tobacco
(£000)
Diamonds
(£000)
Metals and
metal
manufacture
(£000)
Gold
exports
(£000)
Total
exports
(£000)
3 831
1 282
35
-
8 479
-
31 791
52 228
1919
17 919
4 972
215
-
11 547
-
47 672
95 804
1927
17 118
3 718
1 102
4 043
12 285
871
29 057
73 612
1933
8 831
1 601
2 446
3 547
2 131
1 001
46 419
68 860
Source: Jones and Muller (1992: 114).
As can be see in Table 3, despite an increase in industrial output, the industrial exports group
remained of minor importance, comprising only 0,7 per cent in 1929. Jones and Muller (1992)
show that manufactured exports were low because of high domestic demand. Firms only exported
when there was surplus capacity in line with Smith’s vent-for-surplus. Plants were designed to
serve the local market and not necessarily the international market.
Although natural resource-based exports dominated, the government continued to influence trade.
In his analysis of South African exports from 1913-1933, Van Biljon (1934: 44) states that
“outstanding accretions to exports occurred in animals, agricultural and pastoral products, and
foodstuffs, tobacco, ales, spirits, wines and beverages”, and ascribes this to “government
assistance granted in devious ways from revenue accruing by virtue of constant activity in the
mining industry”.
Although van Biljon does not elaborate on the “devious ways” he does
highlight the importance of cross-subsidisation.
Developing supply capacity
Supply is an essential determinant of trade. Supply capacity is created through investment. South
Africa increasingly determined its own economic policies and unlike most other well-endowed
African countries, it was able to retain profits generated by mining by encouraging investment and
production for the local market and making it extremely profitable.
Nattrass (1981: 162)
comments that “it was largely due to the determined efforts that were made by successive South
African administrations after 1924 to encourage industrialisation and to develop a class of local
5
The method of compiling statistics changed in 1924.
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20
manufacturing capitalists, that enabled South Africa to escape the ill effects of economic
imperialism that were the concomitant of colonialism in so many instances on the African
continent”. Schneider (2000: 413) adds that the fiscal and trade policies of the time were so
attractive that, in 1917, the Anglo American Corporation was incorporated in South Africa rather
than in the United Kingdom.
Investment is an important determinant of trade and from 1925 there was a “more positive attitude
toward industrial development” (Houghton, 1976: 122) including the reconstitution of the Board
of Trade and Industry. Innes (1984: 131) believes that the Customs Tariff and Excise Duties
Amendment Act, no 36 of 1925, was successful because of a “resurgence of foreign investment in
South Africa and, in particular, a significant rise in the level of both foreign and mining
investment in manufacturing production.
Large overseas concerns increasingly established
factories in South Africa as a means of gaining access to the local market without running up
against the protective tariffs.”
These firms include Babcock and Wilcos, Cadbury, Davy
Ashmore, General Electric, Dorman Long, Dunlop, Firestone, Ford, General Motors, McKinnon
Chain, Nestlé, Siemens, and Stewards and Lloyd.
6
resource-driven .
Most investment was either market- or
Market-driven investments, which primarily exploit the domestic markets,
tended not to contribute to exports, other than to neighbouring countries.
Resource-driven
investments exploit natural resources and usually led to exports of primary products, with not too
much value added. Investment however, did contribute to acquisition of technology and other
spillovers such as management techniques. In later years this contributed to further industrial
development and exports of manufactured products.
The State did not always rely on market forces, nor did its restrict it role to a facilitator, coordinator, or stimulator. When it perceived market forces and policies did not achieve the desired
goals, it played the role of entrepreneur or developer. Despite protection, private investors were
reluctant to make the massive investments necessary for developing a steel industry. The State
responded in 1927 and founded Iscor, a steel manufacturer, “as a state enterprise run on ordinary
business principles” (Norval, 1962: 18).
6
It was believed that South Africa had a potential
UNCTAD (1998: 91) (based on Dunning (1997)) has identified three main classifications of FDI:
Market-seeking FDI - determined by market size and per capita income, market growth, access to
regional and global markets, country-specific consumer preferences, and structure of markets.
Resource or asset-seeking FDI - determined by availability of raw materials, low-cost unskilled labour,
skilled labour, technological, innovatory and other created assets (e.g. brand names) including those
embodied in individuals, firms and clusters, and physical infrastructure (ports, roads, power,
telecommunication).
Efficiency-seeking FDI - determined by cost of resources and assets adjusted for productivity of labour
resources, other input costs, e.g. transport and, communication costs and costs of other intermediate
products, membership of a regional integration agreement conducive to the establishment of regional
corporate networks.
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21
comparative advantage as it had iron ore and cheap power, supplied by Eskom, the state-owned
electricity utility company.
By the 1940s, Iscor steel was competitive with internationally
produced steel, and by the 1960s Iscor’s steel prices were “considerably lower than in the leading
iron and steel producing countries” (Norval, 1962: 18).
Supply capacity was therefore a function of demand from the mines and agriculture, investment of
mining profits, FDI due to growing market size, state investments and encouragement from fiscal
and trade policies.
Demand factors
Wealth or income and other demand conditions too, were important economic determinants of
South Africa’s trade. Although the Great Depression reduced world income and significantly
affected world trade in the early 1930s, the impact was less significant in South Africa because the
exports comprised of gold and other primary products. The global growth rate declined from an
average of almost 40 per cent per decade (1881-1913) to 14 per cent (1913-1937) (Kenwood &
Lougheed, 1992: 174).
South Africa responded to changing demand. As the composition of world trade shifted and the
percentage of manufactured products increased from 37 per cent in 1937 to 55 per cent in 1960
internationally (Kenwood and Lougheed, 1992: 290), the volume of South Africa’s manufactured
exports, particularly metal and metal products, also increased as a proportion of total.
Figure 1 South Africa’s principal exports: 1933-1961
100,0%
Per cent
80,0%
60,0%
40,0%
20,0%
Other
Other
Wool
Wool
Gold
Gold
1933
1938
Other
Wool
Other
Wool
Gold
Gold
1950
1961
0,0%
Gold
Wool
Fruit
Other food
Diamonds
Metals and metal manufactures
Uranium
Other
Source: Union statistics for 50 years, as quoted in Houghton (1973: 240).
Non-economic factors
The importance of colonial ties and cultural linkages with Europe cannot be underestimated. This
resulted in Eurocentric trade and “the significance of English and European markets for all
branches of South African industries” (Van Biljon, 1934: 43). Besides the cultural links, the
direction of trade was driven by the fact that Europe was a large and wealthy market. Expansion
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22
of trade with France and Italy strengthened the European ties, while “close family contacts further
reinforced the importance of the British market” (Jones & Muller, 1992: 116), thus underlining the
economic importance of the British Empire to South Africa. Political ties also played a role, and
although trade with the United Kingdom declined after World War I, it regained its importance as
a trading partner by the end of the Great Depression. Trade with Southern Rhodesia was small but
important – given the size of the market.
Table 4
South Africa’s principal export markets: 1910, 1920 and 1933
Country
1910
£000
UK
1920
%
£000
1933
%
£000
%
49 819
91,0
59 458
65,2
55 042
78,4
Germany
1 814
3,3
515
0,6
1 942
2,8
Belgium
668
0,2
1 778
2,1
2 308
3,3
USA
402
0,7
3 917
4,7
-
-
Japan
-
-
5 982
7,2
-
-
Southern Rhodesia
-
-
1 212
1,5
-
-
France
-
-
-
-
2 805
4,0
Italy
-
-
-
-
1 129
1,6
Source: Customs and Excise annual reports as quoted in Jones and Muller (1992: 117).
During South Africa’s early development, the most important factors driving the direction of trade
were the cultural and political factors. Nevertheless, geography was a factor. The direction of
trade was influenced by various non-economic as well as economic factors. Trade is a function of
distance. Despite decreasing costs of transport, it is expected that the closer countries are to one
another, the more likely they are to trade. This concept has been extended to include other factors
such as language and a common legal system.
Trade policy and tariffs
From the time of union, both domestic and international trade policies were important
determinants of South Africa’s trade volumes. After the Great Depression, with declining trade,
political pressure across the world mounted for increased tariffs to protect domestic industries and
global protectionism increased. This prevented South Africa from shifting to an active export
promotion policy. South Africa’s policy of protection insulated the country against the full impact
of the Great Depression and it diversified and became more self-sufficient.
The role of trade policy cannot be underestimated in determining export composition. On the one
hand, South Africa ignored its comparative advantage in resources and tried to diversify. On the
other hand, the global conditions that led to this diversification also limited the exploitation and
export of products from these diversified industrial sectors.
The pattern for subsequent
University of Pretoria etd – Gouws, A R (2005)
23
development of the South African economy was laid.
Because import substitution policies
contributed to industrialisation, the importance of manufactured products in the South African
export basket increased. On the other hand, protective barriers and the increasing anti-export bias7
hampered the development of manufactured exports.
The policies necessary to create local industries, such as Iscor, and to ensure their sustainability
and profitability, also contributed to slower development in other sectors, particularly those that
rely on inputs they provide and other “crowding-out” effects. These protected firms rely on
import parity pricing where domestic prices are kept just below world prices plus duties and
transport costs. This has contributed to an anti-export bias, particularly in the manufacturing
sector.
Therefore the creation of domestic industries through protection has hampered the
development of downstream manufacturing and manufactured exports.
Dutch disease8
Despite the important role trade policy played in shifting South Africa toward manufacturing and
increased industrial exports, for the first half of the twentieth century, gold and other resourcebased sectors remained prominent. This again emphasised the importance of endowments and
particularly natural resources. Export revenues were generated from only three commodities
(gold, diamonds and wool). This crowded out the development of other industries and South
Africa tended to suffer from Dutch disease. This provided a further disincentive to pursuing
manufactured export aggressively.
7
8
Protection, depending on how the tariffs are structured, introduces an anti-export bias on two counts.
Firstly, tariffs make domestic sales more lucrative than export sales; and secondly exporters face higher
inputs prices.
Monopolies have the power to set prices to maximise their profits. In a small geographically isolated
country such as South Africa, inputs are generally expensive because they are sold to the manufacturing
industry at import parity prices. This arises from the fact that there is generally only one supplier of any
input, or in cases where there is more than one, there is often collusion. The main price raising
components are transport costs from the foreign supplier and tariff duties. Although the 470.03 and 521
provisions in the Customs and Excise Act redress some of these cost-raising effects on feedstocks and
intermediate inputs, the overpricing of inputs is a major reason for the lack of competitiveness of the
South African manufacturing sector.
An anti-export bias (AEB) generally refers to the disincentives to export caused by trade and tax
regimes. The AEB measures the extent to which trade policies increase value added when a firm sells
good on the domestic market compared to export markets. With neutral trade policies the AEB equals
one. If they raise value-added in the domestic market more compared to the export market the AEB
exceeds one. (The calculation of the AEB is presented in Appendix 3).
Dutch disease is a syndrome where country relies on one or two commodities, usually natural resources.
It dominance makes other sectors uncompetitive through crowding out effects and can condemn the
country to specialising in this single commodity that usually is a low-growth primary export.
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24
Roots of apartheid
Black enterprise has a long history of exclusion and black businesses were a “product of historic
circumstance” (Riley, 1993: 5). The legal roots of this exclusionary policy can be traced back to
the Land Act of 1913 that denied black entrepreneurs from owning land and hence doing business
in urban areas.
The only formal black business that was permitted under the Native (Urban
Areas) Act number 21 of 1923 and later Natives Consolidation Act number 25 of 1945 was trade
in milk, bread, and vegetables.
The effect was to deny a black entrepreneurial class from
developing and becoming exporters.
Conclusion
From the end of the Great Depression (1933) until the outbreak of World War II, agriculture and
mining continued to be the most important export sectors. Natural resources drove exports despite
real growth rates averaging 4,5 per cent in the 1930s and 1940s, 5 per cent in the 1950s and
reaching almost 6 per cent in the 1960s (Houghton, 1973: 240).
As with World War I,
manufacturing was given a boost by World War II and the economy diversified further.
Nevertheless exports still mainly consisted of gold, wool, diamonds and certain agrarian exports
to the United Kingdom.
Exports during this period therefore were driven mainly by supply factors and the abundance of
raw materials.
However, demand factors played a smaller role with colonial links being
particularly relevant. Nevertheless, policy also had a contributory role, although it was not always
positive.
2.3
The post-World War II period
The post-World War II period with its rapid real growth was dominated by the USA.9 The 1950s
were characterised by a renewed interest in international trade on the part of the main industrial
countries. The General Agreement on Tariffs and Trade (GATT) was formed in 1947, with South
Africa as one of the founder members. GATT contributed significantly to liberalisation and
particularly to the reduction in tariff barriers, thereby facilitating and stimulating global trade.
The multi-lateral rules-based system, besides reducing protection, also contributed to a more
stable environment under which trade thrived. The growth of merchandise trade continues to
exceed output growth. From 1950 to 1994, output increased five-fold while, in real terms, world
9
As with the pax Roma that contributed to the development of trade in ancient times, the pax Americana,
despite the cold war, created conditions under which trade could thrive.
University of Pretoria etd – Gouws, A R (2005)
25
trade has increased 14 times (WTO, 1996). Using South African Reserve Bank data, Figure 2
shows periods of high export growth relative to GDP growth.
Figure 2 Growth rate of South Africa’s GDP and volume of merchandise exports, 1950-2003
40%
30%
20%
10%
0%
-10%
1950 1955 1960
1965 1970 1975
GDP
1980 1985 1990
1995 2000 2003
Exports
Source: Own calculations using South African Reserve Bank (2004) data.
The impact of gold cannot be underestimated. Rapid increases in exports coincide with high
international demand (and high prices) for gold. The impact of sanctions is also observable,
particularly from the mid-1980s.
Changing patterns of demand
The economic growth of industrialised countries during the 1950s and 1960s is attributed to the
expansion of basic industries.
Comparative advantages were gradually acquired in mass-
consumed standardised products through the slow accumulation of capital. Japan emerged as a
major industrial power by upgrading its labour force and moving progressively towards highly
skilled, labour-intensive production, as part of its industrial policy (McMillan, 1985: 89). Newly
industrialised countries (NICs) successfully imitated Japan. Brazil, Hong Kong, Korea, Spain and
Taiwan started to specialise in comparatively basic products, whose production utilised large
numbers of unskilled labour and small capital investments. Japan, however, developed more
capital-intensive, technologically advanced industries.
As these Asian countries exported to the rest of the world, they needed raw material to feed their
growth.
As they developed and industrialised, they became richer and demand increased.
Consequently South African trade with Asian countries increased from R17m in 1955 to R118m
University of Pretoria etd – Gouws, A R (2005)
26
in 1964 and to R219m in 1970. The products exported included pig-iron, steel, sugar and maize
(Houghton, 1976: 177-189).
Apartheid institutionalised
After the National Party won the 1948 elections and introduced and institutionalised various
policies commonly referred to as apartheid10, demands were made for punitive measures including
political and economic sanctions against South Africa. This limited foreign demand for South
African goods. It also hampered the development from the supply-side since “apartheid
systematically and purposefully restricted the majority of South African from meaningful
participation in the economy. The assets of millions of people were directly and indirectly
destroyed and access to skills and to self-employment was racially restricted” (DTI, 2004: 4).
Apartheid therefore created a complex set of restrictions that limited the existence of black
businesses and severely curtailed their ability to acquire capital and grow. Blacks were denied
access to education and training, skills, access to finance and access to markets. Unsurprisingly
there were few black exporters in 1994.
Apartheid also contributed to lower productivity. Fallon and Da Silva (1993: 14) identify two
reasons: First, the environment in which many blacks live has become less attractive. They argue
that this may reduce their effectiveness in the work place and would lower productivity. Second,
there has been a dramatic increase in workdays lost through strikes and other types of industrial
action.
Continued import substitution
South Africa’s post-war industrial development followed a typical pattern – implementation of
import replacement of light consumer goods while gradually moving towards production of
intermediate capital goods. Although this provided considerable stimulus for industrial growth,
by the early 1960s, import replacement as a growth factor had lost most of its impetus because the
remaining opportunities required large markets and economies of scale to be effective. There was
a lack of willingness to invest in these industries. The South African (or even the southern
African market) was not large enough. It was easier to import the variety of products demanded
despite increasing duties. Fallon and Da Silva (1994: 77) shows that from 1983 to 1990, import
substitution policies had a negative impact on South African growth and many of its sectors, while
export expansion was having a greater effect (see Table 5).
University of Pretoria etd – Gouws, A R (2005)
27
Table 5
Sources of South Africa’s industrial growth, 1972-1990
Sector
Output expansion %
Export expansion %
Import substitution %
Domestic demand %
1972-83
1983-90
1972-83
1983-90
1972-83
1983-90
1972-83
1983-90
Food, beverages and tobacco
56,3
16,4
3,1
2,9
0,4
-0,8
54,6
14,4
Textiles, clothing and footwear
44,8
-8,8
5,2
-8,4
3,2
4,5
36,5
-5,0
Wood and wood products
49,3
-10,8
4,5
-5,8
6,7
1,7
38,1
-6,6
Paper and paper products
32,5
19,8
1,9
4,0
-1,7
-0,2
32,3
16,0
Chemicals
67,9
11,2
2,6
3,7
3,2
-8,7
62,2
16,3
Non-metallic minerals
23,8
-0,8
-0,7
-5,8
0,5
1,7
24,0
3,3
Basic metals
70,9
20,6
15,5
19,4
21,7
-1,3
33,7
2,5
Metal products and equipment
40,2
-15,7
-0,2
-2,4
-0,5
6,1
40,8
-19,4
Other manufacturing
19,1
83,4
-2,0
30,7
-22,0
2,9
43,1
49,9
Total manufacturing
50,1
3,5
2,5
5,3
3,0
-3,3
44,6
1,6
Source: Belli (1993), as presented in Fallon and Da Silva (1994: 77).
2.3.1 Attempt toward trade promotion
In the 1960s it became clear to policy-makers that the import replacement strategy had run its
course and that its contribution to economic growth and industrial development was diminishing.
New sources of growth had to be pursued. The Reynders Commission (Republic of South Africa,
1972) and the Van Huyssteen Committee (Republic of South Africa, 1977) recommended that
greater emphasis be placed on export development as the driving force behind industrial
development, although tariff protection and import replacement remained important elements of
South African trade and industrial policy.
Until 1980, export development consisted mainly of trade facilitation activities such as the
introduction of quality standards and the promotion of better shipping. In 1957, the Export
Reinsurance Scheme was introduced, followed in 1962 by tax concessions on certain market
development expenditure. Following the Reynders Commission in 1972 and the Van Huysteen
Study Group in 1977, the Category A (input compensation) and Category B (value-added
compensation) schemes were introduced in 1980 to promote manufactured exports form South
Africa. (Appendix 1 has more details of these and other schemes to promote South Africa
exports.)
Most of these policies attempted to create the necessary conditions required by international
buyers. The infrastructure that was created and the services introduced to serve the mineral and
agricultural exporters, were also available to manufacturers.
10
However, the Category A and
These include the Prohibition of Mixed Marriages Act (1949); Group Areas Act (1950) and the
Population Registration Act (1950). This legislation, and other policies, is collectively referred to as
apartheid.
University of Pretoria etd – Gouws, A R (2005)
28
Category B schemes were introduced to eliminate the negative impact created by import
substitution policies on manufactured exports. The net impact of these policies was therefore
intended to be neutral.
2.3.2 Other post-World War II factors influencing South African exports
Besides the factors described above there are a number of other factors that have influenced South
African exports.
Oil price shocks
Input costs certainly affect the volume and direction of trade. Besides the cost-raising impact of
South Africa’s protectionist policies there were other exogenous factors. In 1973, a chain of
events revolutionised the global oil economy and eventually led to the oil crisis of the mid-1970s
and the early 1980s. The increase in the price of crude oil from $2,59 to $11,65 (Kindleberger &
Lindert, 1978: 5) had a major impact on all nations, especially countries such as Japan that relied
heavily on oil imports. The full impact of these events on the South African economy was
cushioned by gold exports and abundant coal supplies. Coal was used as an alternative source of
power and led to the development of oil from coal technology, which in turn played a part in the
development of the chemical industry.
The oil price increases and instability caused the demand for gold to increase internationally and
the role of gold was again emphasised. However the boom it created was not beneficial to all
sectors of the economy. This syndrome commonly referred to as Dutch disease has “some
adversely affected sectors and some relative price changes which accompany the boom” (Corden,
1975: 324) and influenced South Africa’s trade pattern. The natural resource boom of 1972-1981
produced a massive foreign exchange and fiscal windfall and high levels of investment. A
reduction in the growth rate of non-mining GDP can be expected as a result of a temporary natural
resource boom, especially in the case of a minerals-rich economy like that of South Africa. Gold
and the high price of gold explained the export-led growth of 1973-1979, which ended in 1980.
The following decade, South African external trade reverted to the pattern of the 1960s and early
1970s, when the growth of trade was slower than the growth of GDP (Jones and Muller, 1992:
116). Input costs, and particularly transport costs, influenced the volume of trade.
Foreign demand
For the Organisation for Economic Cooperation and Development (OECD) countries, the growth
rate for the period 1974-1980 was 2,8 per cent compared with approximately 5 per cent during
1950-1973. The world economy was faced with inflation and lower productivity (Kenwood &
University of Pretoria etd – Gouws, A R (2005)
29
Lougheed, 1992). Although high gold prices led to far higher growth rates in South Africa, the
government responded with restrictive economic policies.
Trade and economic integration
Following World War II, economic integration increased with the formation of numerous trading
blocs. These trade policies not only had an impact on imports, and particularly South African
exports, but also influenced their direction. The economic and political re-alignments diverted
trade and created new trade patterns (Matthews, 1987). As can be seen in Table 6, as colonial ties
with South Africa were reduced and eventually ended in 1961, the importance of the British
market decreased. After Britain joined the European Economic Community (EEC), trade again
declined, yet remained substantial. Trade with Europe increased, as did trade with Southern
Rhodesia (Zimbabwe).
In southern Africa, the Southern African Customs Union (SACU),
although considerably older than the EEC or its successor the European Union (EU) has not
developed nor integrated to the same extent. Holden (1996: 35) found no evidence that the
various regional groupings influenced South Africa’s direction of trade in the early 1990s. The
importance of neighbouring countries, particularly Rhodesia (Zimbabwe) is highlighted as the
gravity model11 indeed predicts. Since becoming a Republic, South Africa’s trade patterns have
swung increasingly to Asia and America.
However, with increasing integration and the
strengthening of the European Common Market (particularly once Britain joined), Europe
imported a smaller share of South African exports. Despite this South Africa’s nominal exports
were higher. Europe was still South Africa’s most important trading partner.
Table 6
South Africa’s principal export markets: 1938 and 196112
Country
1938
£000
UK
1961
*
%
£000
%
58 791
74,40
111 854
26,20
Germany
4 992
6,30
20 578
4,80
France
2 129
2,70
17 013
4,00
Belgium
1 566
2,00
16 741
3,90
Southern Rhodesia
1 352
1,70
-
-
Italy
1 021
1,30
-
-
Rhodesia and Nyasaland
-
-
48 481
11,40
USA
-
-
34 347
8,10
Japan
-
-
25 628
6,00
Sources: Customs and Excise annual statements of trade and shipping for 1938, 1947 and 1955;
and Foreign trade statistics for 1961, as given in Houghton (1976: 135).
11
12
The gravity model is discussed in Chapter 6.
South Africa changed from the pound to the rand in 1961, but for the sake of comparison the 1961
figures are in pounds.
University of Pretoria etd – Gouws, A R (2005)
30
Sanctions
With the establishment of apartheid, the anti-apartheid campaign was established and later
intensified. The measures recommended and introduced were initially symbolic but later were
more punative. These sanctions ranged from voluntary boycott actions organised by activists to
official restrictions on the importation of South African goods. At the end of July 1985, the
sanctions campaign gained impetus through Chase Manhattan Bank’s decision not to rollover
South Africa’s loans. This resulted in the reintroduction of the Financial Rand13 and a debt
moratorium.
With the introduction of financial sanctions in 1985, the Rand depreciated substantially. Although
this stimulated industrial development, it also fuelled inflation. Inflation was aggravated by the
import surcharges which were introduced to protect the balance of payments. This acceleration in
inflation was not countered by means of a reduction in protection and import parity prices. A
policy of high real interest rates was also introduced again to protect the balance of payments
constraints and also to restrain inflation.
The sanctions and debt crises led to a decline in investment and a need to accelerate export
growth. To compensate for the decline of gold demand and production, manufactured exports had
to contribute to most of this growth. Bell, Farrell and Cassim (1999: 16) describe the effect of
these events as “an abrupt, involuntary shift to export-oriented industrialisation.” Prior to the debt
crisis (1983-1985), there was a deliberate, voluntary liberalisation involving a substantial
reduction in quantitative restrictions. Driven by the concern for self-sufficiency, largely for
political and strategic reasons, this policy was reversed.
Although it is difficult to quantify the impact that sanctions have had on the South African
economy, they certainly did influence the direction, volume and price of South African trade.
Table 7 shows how South Africa’s trade moved away from Europe and Africa from 1960 to 1985,
although sanctions cannot account for the entire shift. The increased trade with Asia was as a
result of that regions growth.14
13
14
Financial rand, reintroduced during liquidity crisis in August-September 1985, traded at discount
relative to commercial rand, had to be used for investments in South Africa by non-residents; capital
imported by immigrants; proceeds from sale of South African securities, other equities if repatriated
abroad; investments abroad by South African residents; and capital exports by emigrants. These
transactions however, first had to be approved by authorities. Other transactions, goods trade, payments
of investment income, royalties, used the commercial rand. In period 1985-88, financial rand traded at
an average discount of 40 per cent to commercial rand (Ovenden and Cole, 1989: 113).
From 1985 to 1990 trade data is unreliable particularly in terms of country of origin and destination,
although certain products, because of their strategic nature were simply listed as uncategorised.
University of Pretoria etd – Gouws, A R (2005)
Table 7
31
15
Direction of South Africa’s trade: 1961, 1970, 1976, 1985
1961
Rm
Europe
706
1970
1976
1985
%
Rm
%
Rm
%
Rm
%
53,2
1 235
51,5
3 218
53,2
9 293
44,6
Americas
80
9,5
176
11,5
650
15,5
3 477
16,7
Asia
86
10,2
220
14,4
780
18,6
5246
25,2
Oceania
14
1,7
15
1
47
1,1
277
1,3
128
15,1
263
17,2
453
10,8
1 577
7,6
Africa
Source: South African Statistics and South African yearbooks.
Sanctions were often used as an excuse to introduce non-tariff measures. Lipton (1988: 52)
reports that:
Protectionist lobbies within the USA – coal, textiles and agriculture … were
active in shaping the items selected for the 1986 CAA Act. Clearly, the selection
of items worldwide reflects these interests and pressures and not simply their
possible effectiveness in inflicting costs on the South African government, while
avoiding costs which hit the victims of apartheid. Coal, iron and steel, sugar,
wine and fruit are labour intensive industries, heavily geared to export
production.
The main products affected by sanctions were iron and steel, uranium, coal, fruit and textiles.
According to the Financial Times (1992: 7) most of these products “found alternative markets,
affecting prices, not volumes. About 65 per cent of South African exports are precious and
strategic metals – gold, diamonds, platinum, chrome and vanadium – which were virtually
sanctions proof. Gold exports in 1991 were R19.7 billion, or 26 per cent of the total.”
Coal was an important export commodity to be targeted for sanctions. To maintain exports, South
Africa has also had to sell its coal at 10 per cent discount below world price (Washington Post,
1986). However South African coal exports continued to grow during the late 1980s and became
the most important export after gold despite unfavourable conditions for producers and new
competitors continuously entering the market (ILO 1992: 1-12).
Agricultural and manufactured exports underwent a structural change in 1985, with the growth
rate increasing rather than suffering due to sanctions. The anecdotal evidence however, seems to
suggest that, although export volumes may have been impacted, South African exporters were
forced to sell at a discount, and that prices were therefore more seriously affected.
15
The percentage figures are computed from total merchandise and do not correspond to the sum of the
five continents.
University of Pretoria etd – Gouws, A R (2005)
32
Technology
Although, during this period, South Africa did invest in research and development (R&D), it was
“strategic.” The purpose was to reduce vulnerability to sanctions and other external pressures.
The research expenditures were in the armaments and energy industries and unconnected to the
rest of the manufacturing sector. The environment was not conducive for sustained innovation
and new initiatives in technology. These observations are supported by the fact that the number of
patents of South African origin issued by America fell steadily (Tsikata, 1999).
Kaplan (1991) attributes these deficiencies to the following:
•
Shortage of skills;
•
The historical inwardness of the economy reduced opportunities for learning by exporting;
•
Commercial application was sharply reduced since research was concentrated in the
universities with very few links to the business sector; and
•
Large firms conducted the bulk of research within the private sector.
•
Limited research and development undertaken locally due to the dominance of foreign
subsidiaries and licensing agreements (almost all technology is generated abroad);
•
The limited size of the domestic market;
•
A lack of protection for capital goods;
•
Foreign competition;
•
The high cost of locally produced inputs; and
•
The high price and limited availability of skilled labour.
Because of the inability to develop technological autonomy, South Africa continued importing
capital goods.
Apartheid, export culture and entrepreneurial skills
Collectively the various apartheid laws damaged entrepreneurial spirit in South Africa. Black
entrepreneurs were denied ownership of land and limited opportunities of doing business in urban
areas.
The effect was to deny a black entrepreneurial class from developing and becoming
exporters. According the Global Entrepreneurship Monitor (2003) South Africa has among the
world’s lowest entrepreneurial activity rates.
Besides the impact apartheid had on entrepreneurial development, sanctions and the threat of
sanctions increased the risk and lowered profits of doing business globally. This together with the
University of Pretoria etd – Gouws, A R (2005)
33
prevailing import substitution policies (strengthened by the need for self-sufficiency) made the
domestic more profitable and destroyed the embryonic export culture.
Summary of the historic impact on exports
By the mid-1980s, trade had grown both in variety and in geographical range despite political and
currency instability as well as a global economic recession. From the mid-1980s, export growth
was moderately high, coinciding with the real depreciation of the South African rand, as well as
increasing sanctions.
Despite official sanctions being introduced during the mid-1980s,
manufacturing exports increased in almost all sectors.
Agricultural exports grew gradually while
the exports of mining equipment grew more rapidly. South Africa exported mainly to the EU,
USA and Japan. Appendix 2 shows the direction of South African exports.
Nature and nurture both contributed to the development of South African pre-1990 trade and
economic history. The two most striking features are the rich mineral endowments (nature) and
political turmoil (nurture). However, as can be seen from the discussion above, there were many
other factors. The influx of immigrants contributed to the pool of skilled and semi-skilled labour.
Capital inflows were required to exploit the mineral wealth. Infrastructure, to serve the mining
complex, also benefited other sectors and exports. Although initially the economy profited from
import substitution, it did hamper the competitiveness of manufactured products and exports.
Despite the negative legacy of the past, certain foundations provided a basis for the positive
developments that took place in the 1990s.
2.4
The period since 1990
After the fall of the Berlin Wall ended the Cold War, trade was influenced again by political and
economic changes both in South Africa and internationally. South Africa became democratic and
sanctions were lifted. The conclusion of the Uruguay Round heralded further liberalisation, which
South Africa too embraced.16 The pattern of trade continued to change, involving proportionately
fewer primary products and more beneficiated products.
16
Liberalisation deepened in 1993 through a series of deliberations on the potential direction of trade
policy between the government, key African National Congress (ANC) policy-makers, trade unionists
and the business community through the National Economic Forum (NEF) and later the National
Economic Development and Labour Council (NEDLAC).
University of Pretoria etd – Gouws, A R (2005)
34
Figure 3 World merchandise trade by major product group: 1989-2002
200
180
160
140
120
100
19
94
19
93
19
92
19
91
19
90
19
89
Agricultural products
19
95
19
96
19
97
19
98
19
99
20
00
20
01
80
Mining products
Manufactures
Source: Own calculations based on WTO (2003).
In 1990, South Africa introduced policies to change its historic reliance on trade in primary
products, especially through the continuation of various demand-side export subsidies, notably the
General Export Incentive Scheme (GEIS). There was a shift in the direction of trade policy, from
inward-looking import-substituting industrialisation to a more outward-oriented focus, with
special emphasis on the promotion of competitiveness. Liberalising the external trade regime has
been one of the central and more visible elements of South Africa’s drive to achieve accelerated
economic growth. Considerable progress was made in rationalising the very complex tariff
regime by lowering the overall level of nominal and effective protection (see Appendix 3). This is
seen from the following improvements that occurred in South African tariffs from 1990 to 1996:
•
The average economy-wide tariff fell from 28 to 10 per cent;
•
The average manufacturing tariff was reduced from 30 to 16 per cent;
•
The maximum tariff rate was cut to 61 per cent (40 per cent if “sensitive” industries are
excluded);
•
The number of tariff lines was cut by a third; and
•
The number of separate tariff “bands” or rates was cut from 200 to 49.
University of Pretoria etd – Gouws, A R (2005)
35
Figure 4 Growth in world merchandise trade and GDP: 1950-2002
10
9
8
7
6
5
4
3
2
1
0
1950-63
1963-73
Trade
1973-90
1990-02
Production
Source: WTO (2003).
Since approximately 1985, South African exports of manufactures have risen, both nominally and
as a share of gross output. Tsikata (1999) calculates that between 1990 and 1994, manufactured
exports grew by an average annual nominal rate of 10,8 per cent (4,4 per cent in dollar terms),
while this rate doubled between 1994 and 1996 (9,6 per cent in dollar terms). Growth occurred
across most sectors, with the main exceptions being the food, textiles, clothing and footwear
sectors, which all experienced absolute declines in exports.
The South African economy adapted to globalisation in general and the opening of new markets
specifically. As the economy opened, the proportion of exports to total output grew as Figure 5
shows.
University of Pretoria etd – Gouws, A R (2005)
36
Figure 5 South African exports as a proportion of total output: 1970-2003
18,0%
17,0%
16,0%
15,0%
14,0%
13,0%
12,0%
11,0%
10,0%
1970
1975
1980
1985
1990
1995
2000
2003
Exports as a proportion of total output
Source: Own calculations based on Quantec (2004).
At current prices, recent growth of exports has been impressive. In real terms however, besides
the 1995 to 1997 period and 2000, export growth has been dismal. The 1998 to 1999 slowdown
was largely due to the crisis in East Asia and other emerging markets, which lowered import and
agricultural demand.
Table 8
South African exports: 1990-2001
Exports of goods (fob)17
Rm (current prices)
Average annual
percentage change
Average annual
percentage change
1990
62 917
..
89 024
2,73
1991
65 734
4,48
89 612
0,66
1992
69 837
6,24
92 209
2,82
1993
80 877
15,81
96 679
4,62
1994
93 536
15,65
99 577
2,91
1995
109 118
16,66
109 118
8,74
1996
130 206
19,33
117 161
6,86
1997
143 830
10,46
123 624
5,23
1998
161 121
12,02
125 007
1,11
1999
174 897
8,55
126 978
1,55
2000
220 051
25,82
138 771
8,50
2001
261 863
19,00
139 930
0,83
Source: SARB Quarterly Bulletin (various issues).
17
Exports of goods (fob)
Rm (1995 prices)
fob = free on board.
University of Pretoria etd – Gouws, A R (2005)
37
With barriers to trade lifted, trade in South Africa returned to normal patterns. Even in the 1980s,
South Africa exported to Europe, with a small portion of exports going to North America and
Asia. During the 1990s, trade with natural trading partners in Africa resumed. Although the
gravity model18 predicts that countries should trade proportionately more with neighbours, South
Africa only began to trade normally with other African countries from 1990. However, even by
2000, South African exports to Africa were less than 20 per cent of its total exports (World Trade
Analyser, 2003).
Figure 6 South Africa’s regional exports, 1980-2000
20
18
16
14
$b
12
10
8
6
4
2
0
1980
Africa
1985
Asia
1990
Continent NES
1995
Europe
2000
North America
Source: Own calculations using the World Trade Analyser (2003).
When grouping trading partners according to income levels, trade appears to be even more
concentrated. Almost 80 per cent of South Africa’s trade is conducted with high-income countries
(Alleyne & Subrmanian, 2000).
Trade composition and intensity
Since 1970 the composition of South African trade has changed considerably with gold and other
primary products making a smaller contribution. Despite volatile prices since the early 1970s,
gold has played a critical role in the development of the South African economy.
18
The gravity model is explains bilateral trade as a function of distance and size of the economies and is
discussed in Chapter 6.
University of Pretoria etd – Gouws, A R (2005)
38
In 1970 primary products contributed to almost 70 per cent of South African exports, while less
than 15 per cent came from manufactured products. Even by 1990, primary products had a 55 per
cent share, with manufacturing only contributing 30 per cent. The latter figure had risen to almost
60 per cent in 2000.
Table 9
Average annual growth rates of South African exports and imports: 1950-199819
Merchandise
exports
%
Net gold exports
%
Merchandise
imports
%
Total exports
%
1950-55
9,4
2,9
6,9
8,1
1955-60
2,9
6,2
4,0
1,5
1960-65
2,8
7,5
4,6
9,5
1965-70
3,8
-1,1
1,8
4,7
1970-75
9,6
13,1
11,0
9,6
1975-80
9,9
19,8
14,3
5,4
1980-85
-8,9
-14,2
-11,5
-13,1
1985-90
10,6
-2,1
5,7
7,4
1990-95
5,0
-3,8
2,7
8,6
1950-70
4,7
3,8
4,3
5,9
1970-98
4,5
0,6
3,5
2,8
1985-98
6,2
-4,4
3,0
6,0
1990-98
3,5
-5,7
1,3
5,2
Source: SARB Quarterly Bulletin (various issues).
Appendix 4 gives a more disaggregated picture of South African exports since 1970. Even within
the export basket of manufactured products, change has been significant. South Africa has adapted
to international trends by supplying final products rather than intermediary inputs.
This is
reflected in the contribution of the food sector dropping from over 20 per cent in 1970 to 5 per
cent in 2000, while the share of basic iron and steel of manufactured exports shrunk 30 per cent in
1995 to 10 per cent in 2001.
Table 10 Sectoral contribution to South African exports: 1970-2001
Primary [1-2]
Agriculture, forestry and fishing [1]
Mining and quarrying [2]
Manufacturing [3]
1970
%
1975
%
1980
%
1985
%
1990
%
1995
%
2000
%
2001
%
66,8
62,6
66,1
62,1
55,0
41,1
28,7
27,7
2,0
3,2
2,3
1,6
3,3
3,7
4,1
4,5
64,8
59,3
63,9
60,6
51,7
37,3
24,6
23,2
14,9
16,7
16,8
21,5
29,7
45,7
56,3
56,1
Source: Own calculations based on Quantec (2004).
19
Excluding non-factor services
University of Pretoria etd – Gouws, A R (2005)
39
Concentration of products
There are differing views on how the level of concentration affects economic development and
exports. South Africa has long been dependent on primary commodities, particularly gold, and in
common with many developing countries primary products were a major contributor to economic
development, but also responsible for earnings fluctuations.
Figure 7 South Africa’s diversified export base
0,060
0,058
0,056
0,054
0,052
0,050
0,048
0,046
0,044
1985
1990
1995
2000
Herfindahl index for South African exports
Source: Own calculations using StatCan (2002).
On the other hand, high levels of industry concentration may be necessary for enhanced trade
performance.
Production concentrated in one location (particularly with a large domestic
demand) is able to realise economies of scale and minimise transport costs. Therefore with
increased trade, a concentration of increasing-returns industries will result.
The Herfindahl Index20 confirms the increased diversification of both South Africa’s total trade
and manufactured products. It shows a fall in export (product) concentration continuing since
1991, although there was a slight increase in 1999 and 2000.
Market share
South Africa’s traditional exports, such as gold, coal, fresh fruit and other primary products, have
not grown as fast as the international market for manufactured goods. South Africa’s share of
global merchandise markets dropped from 2 per cent in 1948 to 1,7 per cent in 1953, and to 1,5
20
The Herfindahl Index is calculated as the sum of squared shares of four-digit standard industrial
classification (SIC) exports to total exports. The index varies between 0 and 1. The smaller the index,
the more diversified exports are.
University of Pretoria etd – Gouws, A R (2005)
40
per cent in 1963, and eventually to 1 per cent of global trade in 1973 to 0,54 per cent in 2000 (own
calculations using StatCan, 2002). This shrinking share of trade mirrors Africa’s drop from 7,3
per cent in 1948 to 2,5 per cent by 1990 (WTO, 2003: 34). Even though South African export
volume has grown, since the 1950s, global trade has grown faster and the country’s share of trade
has declined steadily as its competitive position deteriorated.
Nevertheless, market share analysis (Mij/Mi)21 can be used to identify sectors or products that have
been performing better. Using TradeCan (2002) data, product groups with a sizable share of the
world market were found to be ores and concentrates of uranium and thorium, natural abrasives,
not elsewhere specified (n.e.s.) (including industrial diamonds), silver, platinum and other metals
of platinum group, pig iron, spiegeleisen, sponge iron, ferro-alloys and non-monetary gold. Other
sectors with a notable market share of the world market are pulpwood (including chips and wood
waste), coal, lignite and peat, fertilisers, and iron ore and concentrates. Since 1985 number of
sectors have made significant inroads into global markets:
•
Ships and boats (including hovercraft) and floating structures (from 0,04 per cent of the
world market in 1985 to 1,36 per cent in 2000);
•
Armoured fighting vehicles, war arms and ammunition (0,02 in 198 to 0,79 per cent in
2000);
•
Pumps (excluding pumps for liquids) (0,05 in 1985 to 0,77 per cent in 2000);
•
Compressors and fans (0,05 in 1985 to 1,37 per cent in 2000);
•
Alcoholic beverages (0,09 in 1985 to 0,57 per cent in 2000);
•
Tea and matt (0,67 in 1985 to 4,02 per cent in 2000);
•
Hydrocarbons, n.e.s. and their derivatives (0,09 in 1985 to 0,48 per cent in 2000);
•
Furniture and parts thereof (0,14 in 1985 to 0,64 per cent in 2000);
•
Cinematograph film, exposed and developed (0,16 in 1985 to 0,72 per cent in 2000);
•
Cotton (0,18 to 0,75 per cent in 2000);
•
Waste and scrap metal of iron or steel (0,33 in 1985 to 1,02 per cent in 2000); and
•
Pulpwood (including chips and wood waste) (2,7 in 1985 to 7,9 per cent in 2000).
21
The market share represents the value of exports of commodity i from South Africa to the world import
market as a percentage of total value of imports of commodity i on import market where Mi is the value
of imports of commodity i and Mij is the value of imports of commodity i originated in South Africa
(Exporter Country j).
University of Pretoria etd – Gouws, A R (2005)
41
Sectors that have gained market share would seem to indicate that South Africa has acquired a
comparative advantage in the export of that product, although from the data presented above it is
not apparent what the source of the comparative advantage would be.
Revealed comparative advantage
The revealed comparative advantage (RCA) index pioneered by Balassa (1965, 1979, 1986),
assumed that the pattern of comparative advantage could be observed from post-trade data.
Although the RCA faces various theoretical limitations, its calculation is based on an economy’s
actual export performance and has been used to consider the intrinsic comparative advantage of a
particular export commodity. In general, a change in the RCA is consistent with changes in
countries’ relative factor endowment and productivity (Marchese & Simone 1989). Thus, a higher
RCA indicates a larger comparative advantage in exports. Table 11 below give the RCA for all
commodities based on the standard international trade classification (SITC) classification.
Non metallic mineral manufactures, n.e.s.
Coal, coke and briquettes
Live animals, zoo animals, dogs, cats etc.
Metalliferous ores and metal scrap
Sugar, sugar preparations and honey
Crude fertilisers and crude materials (excl. coal)
Pulp and waste paper
Special transactions & commodities, not classified
Inorganic chemicals
Iron and steel
Commodities and transactions not elsewhere classified.
Hides, skins and fur skins, raw
Fish, crustaceans, molluscs, preparations thereof
Beverages
Miscellaneous. edible products and preparations
Vegetables and fruit
Non ferrous metals
Fertilisers, manufactured
Cork and wood
Live animals chiefly for food
3,28
4,22
1,04
3,48
2,79
4,04
1,85
29,18
1,58
1,80
17,26
2,45
0,76
0,20
0,25
2,31
2,18
0,45
0,25
0,10
7
4
16
6
8
5
13
1
15
14
2
9
17
36
33
10
11
24
31
49
1,59
9,29
0,69
4,74
3,25
4,53
1,87
0,47
2,19
1,85
12,38
1,65
0,68
0,11
0,10
2,31
4,71
0,22
0,35
0,02
15
4
17
5
8
7
11
23
10
12
3
13
18
40
42
9
6
35
24
64
2,38
14,48
2,23
5,90
2,32
10,95
3,91
10,07
3,67
2,82
9,01
2,54
0,93
0,78
0,45
2,72
2,94
1,11
0,52
0,06
13
2
15
6
14
3
7
4
8
10
5
12
19
22
33
11
9
17
29
64
5,00
17,03
3,73
7,39
5,01
3,62
5,26
3,66
5,21
3,21
2,83
3,10
1,41
2,08
0,89
3,15
2,76
2,30
1,22
0,22
6
1
7
2
5
9
3
8
4
10
13
12
20
16
30
11
14
15
22
58
2001
Rank
1996-00
Rank
1991-95
Rank
1986-90
Rank
SITC
1980-85
Rank
Table 11 South Africa’s revealed comparative advantage
14,05
10,59
6,72
6,24
5,06
3,69
3,47
3,35
3,25
2,81
2,43
2,36
2,04
1,99
1,93
1,93
1,74
1,47
1,22
1,20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Source: Own calculations based on the Balassa method using World Trade Analyser (2004).
South Africa’s comparative advantage has shifted toward manufactured products, but there are
still many primary commodities that feature strongly. It is interesting to note that when these
calculation are done according to the SIC classification, beverages, leather, furniture, paper,
products of petroleum, basic iron and steel, and non-ferrous metals in South Africa, are sectors
University of Pretoria etd – Gouws, A R (2005)
42
that have a revealed comparative advantage. Appendix 5 gives a full synopsis of South Africa’s
RCA using the Balassa calculations. 22
Constant market share analysis
Using the constant market share (CMS) model, Kellman, Roxo and Shachmurove (2002) explain
changes in South Africa’s share of trade in world markets. Differences in growth are attributed to
four principal components (Pick & Vollrath, 1994: 563):
•
World trade;
•
Commodity composition;
•
Market distribution; and
•
A general competitiveness given by the residual (Tiwari, 1983: 70).
Kellman et al., (2002) found that from 1992-1999 South Africa gained overall market shares in
the OECD for the manufactured goods market, even though the commodity composition and
market effects were in fact negative. This is attributable to the competitiveness effect. However,
these authors also point out that the CMS model cannot spell out which policies cause which
effect.
They list labour unions making wage demands, the over- or undervaluation of the
exchange rate, and inability to adapt to world demand.
Origin of South African exports
Geographically, South Africa is a large country with varying conditions and factor endowments.
The patterns of trade could therefore be different.23 Gauteng, the industrial hub of Africa, is the
main contributor to national exports, followed by KwaZulu-Natal and the Western Cape.
Gauteng, which is some distance from the coastal ports, has an internal port at City Deep.
Johannesburg International Airport is important, especially when it comes to high-value, low-
22
23
Again problems can be seen with South African trade data, especially data during the sanctions period.
Unclassified products had the highest average RCA during the 1986-1990 period.
South African Customs Union international import and export statistics are collected by the South
African Revenue Services (SARS), and the Department of Customs and Excise. The postal code of the
registered post office or street address of the South African importer or exporter is captured as part of
the documentation of a particular transaction. Global Insight, an international firm providing economic
data, compiled a geo-coding for each postal code reflecting the physical coordinates where the postal
boxes are located. Using a “geographical smoothing” technique they obtained a mapping between postal
codes and magisterial districts and provinces, and applied this mapping to calculate imports and exports
by magisterial district. These magisterial allocations were then benchmarked and adjusted back to
figures in the South African Reserve Bank (SARB) Quarterly Bulletins and the sectoral breakdown as
published in the preliminary trade statistics from SARS.
University of Pretoria etd – Gouws, A R (2005)
43
weight products and perishables. Export values per province and export values per province per
industrial sector are given in Appendix 6.
Calculating exports as a percentage of gross value added reflects the importance of exporting to
each province. With the exception of the Limpopo province, exports of the provinces made a
bigger contribution to the gross geographic product (GGP) in 2002 than in 1996. Exporting is
relatively more important in provinces that have a larger industrial base.
Value-adding
manufacturing products, rather than agricultural or mining products, are growing across South
Africa and this is shown in Appendix 6.
The map in Figure 9 shows South African exports according to region. Gauteng, the province
exporting the most, is also responsible for the highest proportion of exports to Africa. Locational
factors in this case are therefore important, and could be a determinant of trade to Africa, possibly
because investment decisions tend to be driven by market and resource factors. Gauteng is also
the largest South African market and has attracted the most investment.
Figure 8 Export markets per province
Source: Own calculations based on Customs and Excise data supplied by Global Insight (2004).
Trade policies and export incentives
That there has been a switch in orientation of trade policy from inward to outward orientation has
been evidenced by both the tariffication of non-tariff barriers and the phased reduction in import
tariffs. As gold’s share of South African exports has declined over the 1990s, so has the share of
manufactured products increased. As indicated in Table 12, in 1990 manufactured products
University of Pretoria etd – Gouws, A R (2005)
44
contributed less than 10 per cent of the export basket. This proportion steadily increased and by
the end of the decade represented almost a quarter of exports.
Table 12 Exports by stage of manufacturing
Category
1990
%
1993
%
1996
%
1999
%
Gold
33,7
31,2
23,5
16,3
Primary products24
24,5
25,4
21,5
20,4
Material intensive products
6,1
5,7
7,1
7,9
Manufactured products
9,2
14,4
19,9
23,6
Source: IDC (2000).
On the face of it, export incentives, particularly GEIS, contribute to this. However, even though
GEIS ended in March 1997, the proportion of manufactured products continued to increase. (The
impact of these incentives will be evaluated econometrically in Chapter 5).
Appendix 4 lists exports per sector since 1970. A leading gainer, the automotive sector, can
ascribe its success ostensibly to incentive programmes25 although, Cassim, Onyango and van
Seventer (2002: 103) cite increased connectivity to global networks as the reason. Multinational
corporations, which control almost all production of motor vehicles and a large part of
components, have made investments in South Africa despite the small local market and other
economic and political problems. This has contributed to increased exports – the share of motor
vehicles, parts and accessories has increased from approximately 4 per cent in 1970-90 to 12 per
cent in 2001. Discussions26 with industry executives indicate that incentives, although important,
do not in fact drive investment decisions.
Trade policies and preferential market access
Before 1990, inward-looking policies and sanctions influenced South Africa’s trade. Since 1990,
and particularly since democracy, South Africa has negotiated or unilaterally been granted
privileged market access by many of the country’s major trading partners. The General System of
Preferences (GSP) and AGOA were unilaterally granted by developed countries (Appendix 7),
while free trade agreements were negotiated with the European Union (EU) and the Southern
24
25
The stages of manufacturing refers to the value chain and broadly can be interpreted as primary products
= raw materials, material intensive products = semi-manufactured, and manufactured products = finished
products.
Phase VI of the automotive local content programme and the Motor Industry Development Programme
(MIDP).
University of Pretoria etd – Gouws, A R (2005)
45
African Development Community (SADC). These agreements are asymmetrical in terms of the
extent and timing.
The African Growth and Opportunity Act (AGOA), contained in the U.S. Trade and Development
Act of 2000, offers free access to some manufacturing products originating in sub-Saharan
African countries. In addition, Southern Africa Customs Union (SACU) members are signatories
to the Cotonou Agreement (successor to the Lomé Convention), between the EU and 77 countries
in Africa, the Caribbean, and the Pacific (ACP). South Africa, however, is excluded from most of
the trade provisions of the Cotonou Agreement. The EU is an important market for SACU’s main
exports of sugar, meat, and meat products, which enter the EU at zero tariffs. According to
Botswana, Lesotho, Namibia and Swaziland (BLNS) authorities, complex procedures, including
rules of origin, undermine the preferences.
Exchange rates
Since South Africans exporters generally tend to invoice in foreign currencies, exchange rates
changes affect their receipts directly, and can have an impact on their profit. Prior to the 1970s,
the South African currency was pegged. However, since then the country’s exchange rate has
been sensitive to political and economic events, and even different perceptions.
5
Floods, Wall Street
Zimbabwe
Financial Rand abolished
Rumours of
Mandela'
s health
10
Soweto
riots
-20
1970
Financial rand
reintroduced
1975
1980
1985
1990
1995
911
Argentinian crisis
-15
Asian crisis
Capital outflows
due to sanctions
and disinvestment
-10
Elections
-5
Drought
0
Debt
standstill
Percentage change
15
Oil price hike
20
Mandela freed
25
Exchange controls over
non-residents abolished
Gold price $ 675
30
Rubicon speech
Severe drought
Figure 9 Real effective exchange rate
2000
Source: SARB Quarterly Bulletin (various issues, S-147).
26
These occurred over a period from 1990 to 2004. Executives do not want to be quoted since this may
jeopardise future incentive packages. It is therefore unclear whether efficiency-seeking investment,
incentives or the linkages to global networks drive trade in this sector.
University of Pretoria etd – Gouws, A R (2005)
46
The exchange rate is subject to monetary policy. Generally, the two main objectives of monetary
policy are to reduce the rate at which domestic prices increase (inflation), and to maintain a stable
exchange rate27. The South African exchange rate has been influenced by an inflation rate
exceeding that of its trading partners, although this alone is not enough to explain the decline.
In recent years, monetary policy has been disciplined and prudent, with real positive interest rates.
Exchange control in various forms was introduced, relaxed and changed until February 1983,
when exchange control over non-residents was abolished and it was hoped that it would be
relaxed for residents as well. This hope was short-lived, as in 1985 President Botha’s “Rubicon
speech” had a catalytic effect on both local political developments and international perceptions.
This eventually led to the debt standstill, the reintroduction of the financial rand, and pressure to
strengthen trade sanctions.
Exporters have responded accordingly, assuming that the South
African currency would continue to lose value against its major trading partners. Various studies
have been conducted on the relationship between the real exchange rate and South African exports
from the 1970s until recently (Bell et al., 1999; Holden, 1985; Holden & Gouws, 1997; IDC,
1997; Tsikata, 1999; World Bank, 1994). Kellman et al., (2002) also found that South African
export volume destined to the USA and the EU increased in response to a depreciating rand.
It is important, however, to consider the types of goods being exported. For instance, in a study of
sub-Saharan countries, Ghei and Pritchett (1999) observe that devaluing the real exchange rate on
agricultural commodities may increase the price received by exporters. Nevertheless, due to a
combination of low price elasticities in world markets and the fact that the benefits are not passed
on to the ultimate producers, export responses are muted. Using quarterly export data for 19881995, Holden and Gouws (1997) found that not all manufacturing exports were influenced by the
exchange rate. Some industrial sectors enjoyed greater productivity as the proportion of output
exported grew. Tsikata (1999), using 1970-1996 data, estimated that manufacturing exports are
sensitive to the real exchange rate.
Kellman et al., (2002) found that exporters generally did not switch from one market to another
(e.g. Japan, the EU and the USA) when exchange rate differentials between these markets
changed. The only exceptions were for science-based products (between Europe and the USA)
and scale-intensive products (between the USA and Japan). This seems to support the hypothesis
that once exporters have sunk costs in setting up a foreign marketing and distribution network,
they are reluctant to switch to other markets in the short term.
27
The South African Reserve Bank has set inflation targets and therefore does not necessarily strive
maintain a stable exchange rate.
University of Pretoria etd – Gouws, A R (2005)
47
There is considerable debate about whether the rand is over- or undervalued. Some argue that the
currency is overvalued given the cost structures of the South African economy, while others
believe that the rand is undervalued based on purchasing power calculations. The South African
rand lost more than 30 per cent of its value against the major currencies of the world towards the
end of 2001 but from around October 2002, the rand strengthened reversing past trends. Marsberg
(2004) shows that the currency’s appreciation was underpinned by:
•
General dollar weakness;
•
An improvement in global commodity prices, particularly gold and platinum;
•
Favourable real interest rate differentials;
•
Improved investor sentiment toward emerging markets; and
•
The elimination of South Africa’s net open forward currency position.
From a macro policy perspective, attention needs to be given to the cost structures of the South
African economy. This will help mitigate the negative effect of a strong currency.
Capacity and vent-for-surplus
From a supply-side point of view, exporters need to have product available to export. Depending
on whether the firm in question has excess capacity or faces capacity constraints, growth in
exports may or may not be realised. Firms with exporting experience and which have excess
capacity may ramp up their exports if, say, the rand was devalued. This was probably the case in
2000 for firms in the steel industry, owing to the weakness of the rand for the greater part of the
year, and because exports are dollar denominated. On the other hand, for incumbent exporters
who are operating at near capacity levels, export response will be muted unless there is increased
capital investment.
Infrastructure
Infrastructure is one of the “necessary but not sufficient conditions” under which exports can take
place. The Central Intelligence Agency (CIA) (2004) states that South Africa has a “welldeveloped financial, legal, communications, energy, and transport sectors; a stock exchange that
ranks among the 10 largest in the world; and a modern infrastructure supporting an efficient
distribution of goods to major urban centers throughout the region.”
Despite the sound
infrastructure, it is inadequate with congestion at South Africa’s major ports. Vermeulen (1999:
32) reported that “the congestion has forced ships to divert to other harbours, and freight agents,
importers and exporters are being burdened with the costs of delayed payment on delivery, rerouting and amendments to documentation.”
University of Pretoria etd – Gouws, A R (2005)
48
Perhaps a matter of concern for the future is the rising relative cost of communication, particularly
on the Internet. Hanley (2004: 1) “believes that the high costs of calls is inhibiting business
development and the growth of the internet in this country. South Africa has consistently slipped
in the rankings of the most connected countries in the world, from being in the top 20 to slipping
to 34th position by January 2003.” He complains that South Africa’s call and internet charges are
out of line with global trends and continues that “South Africans are forced to pay around 13
times as much for a service of inferior quality to the one available in the UK. Such prohibitive
cost structures affect all companies that rely on the internet for business transactions. These
include (but are not limited to) banking, retail, eBusiness, tourism, the travel industry and
auctions.”
Although the infrastructure created by government contributed to export development, the relative
cost of using these facilities in recent years has contributed to increased export prices and
uncompetitive exports.
Freight rates
Geographically, South Africa is far from its major trading partners and increases the transaction
costs which are further aggravated by internal transport costs, since much of South Africa’s output
is produced inland. Nevertheless, South Africa is a major sea trading nation accounting for
approximately 6 per cent of real world sea trade. This places it within the top 12 international
maritime trading nations.
Since 1988, South African exporters have continued to gain better market access. On account of
the formation of the WTO, South Africa’s tariffs have declined. In turn, this reduction in artificial
trade barriers has implied that transport costs have become an increasingly important determinant
of trade. Naude (1999) found international transport costs (shipping costs), as proxied by the
import cost, insurance and freight (CIF) and the free on board (FOB) band, is significantly higher
in South Africa’s case than the world average.
Conference lines are associations of ship owning lines that operate on a given sea route with a
standard tariff rates. Although initially guaranteeing service to exporters, they are often accused
of price collusion and operating cartels. Freight rates have not been static, and have actually
decreased since 1990 as can be seen below.
University of Pretoria etd – Gouws, A R (2005)
49
Figure 10 South Africa–Europe freight rates
Source: Chasomeris, (2003).
The impact of these will be tested in both the gravity and trade equation models (using the error
correction techniques).
2.5
Factors determining South African exports
Many factors have influenced South African exports. The following characterised South African
exports prior to 1990:
•
Volatile commodity markets;
•
Domestic and international trade policy;
•
Exchange rate management and volatile exchange rates;
•
Domestic and foreign demand;
•
Political factors including sanctions (1985–1990);
•
The international debt problem; and
•
Capital shortages.
While agriculture and mining continue to contribute to the country’s exports, the growth in
exports from the primary sector (including mining) no longer acts as the main determinant of
economic activity.
The following factors influenced the direction and composition of South African trade after 1990:
•
Preferential market access (as apposed to sanctions);
•
Subsidies, including GEIS;
•
Endowments;
•
Role of education;
University of Pretoria etd – Gouws, A R (2005)
50
•
Tax;
•
Exchange rate and monetary policy; and
•
Trade policy (especially the effective rate of protection and market access).
From this descriptive analysis, it appears that South Africa’s vast natural endowments, especially
gold, initially drove the country’s trade. The high prices of these commodities caused Dutch
disease, crowding out and the limiting of industrialisation.
Import substitution, although it
initially contributed to industrialisation, led to high rates of protection that resulted in an antiexport bias. Various measures, such as GEIS, used to counteract this situation were largely
unsuccessful.
The years of sanctions did not help matters either.
Political problems also
influenced the direction of trade. Trade with Africa never developed as it should have, allowing
other countries to capture these markets.
Despite these drawbacks, manufacturing exports did grow, but not commensurate with the rate of
international growth. South African exporters became less competitive in a growing market.
Foreign demand is clearly a driver of South African trade. Government has highlighted what no
longer drives South African trade:
The old modes of competitiveness are less and less useful in this environment.
The cost of the raw materials, access to cheap labour, control over proprietary
technologies, and privileged access to markets – these advantages are less and
less valuable. This does not mean that our strengths in manufacturing based on
energy and raw materials are not receiving attention but rather that we seek to
further enhance these basic competitive advantages by integrating knowledge
intensive processes into these sectors (Erwin, 2001).
2.6
Conclusion
Although South African economic history could be traced back much further, its modern
economic foundation was laid by colonialists. Both endowments (nature) and political events
(nurture) played a role in South Africa’s development.
From the 1900s, South African
development started with the replacement of light consumer goods and gradually moved towards
certain intermediate capital goods. More recently, various domestic and international political and
economic events have influenced South Africa’s trade, balance of payments, economic activity
and policy. In summary, it appears as though South Africa’s trade is primarily determined by
prices, foreign demand, trade policy and sanctions, and capacity and capacity utilisation. These
factors will be discussed in detail in Chapter 5. This chapter has given a descriptive outline of the
development of South Africa’s exports and has inductively identified South Africa’s determinants
of exports. The next Chapter will look at trade theory and deduce causes of South Africa’s trade.
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