Download Introduction - Canbek Economics

March 24, 2005
McGill University: North America and the Global Economy
Trade report on South Africa
Prepared by: Karim Sarr
Racha El Salah
260157336
110036968
1. Country Profile
Introduction
South Africa finally abolished apartheid in 1994 and ended the world’s economic
embargo against them. The following year they joined the WTO and embraced
global trade. South Africa is blessed with many natural resources, and its
economy is the largest and most well developed of the entire African continent.
The nation’s exports and imports account for over 20% of the entire continents
total exports and imports. Its modern infrastructure is common in nearly all of the
country. The discovery of diamonds in 1867 and gold in 1886 encouraged
economic growth and immigration, but intensified the subjugation of the natives.
History
South Africa is one of the oldest nations in the world. Extensive fossil remains
suggest that ape-men, who were succeeded by various species of Homo,
including Homo-sapiens, existed in South Africa from about 3 million years ago.
The written history began in 1652 when the Dutch East India Company settled at
the Cape of Good Hope and began expanding its Dutch settlement. In 1797,
during the Anglo-Dutch War, Great Britain seized the Cape of Good Hope and
annexed the Cape Colony in 1805. There were continuous struggles, in both the
forms of wars and political discord, between the Dutch Afrikaners and Englishspeaking whites for power. This culminated during World War II when one
political party sought to support the United Kingdom and the National Party
sympathized with Nazi Germany and sought racial segregation known as
apartheid after the war.
South Africa’s National Party began introducing the policy of apartheid, a series
of harsh laws segregating the country along racial lines, after winning the general
election of 1948. However, after international sanctions, divestment abroad, and
a long struggle by the black majority, as well as many white, colored and Indian
South Africans, the National Party, under the leadership of F.W. de Klerk, started
to dismantle the policy in 1990. Nelson Mandela was let out of prison after 27
years, apartheid legislation was gradually removed from the books, and the first
multi-racial elections were held in 1994. The African National Congress won the
elections by an overwhelming majority, and has been in power ever since. The
nation is one of the few in Africa to have never had a coup, and has held regular,
free, and fair elections since 1994, making it among the strongest and most
stable democracies in Africa.
Politics
South Africa became a republic in 1961 following an October 1960 referendum.
The Republic of South Africa is a constitutional democracy with a three-tiered
system of government. The three main branches of the government are the
Executive, which is the President/Head of State and is the leader of the majority
party in the National Assembly, the Legislature, which is a bicameral Parliament
comprising of the National Assembly with 400 members and the National Council
of Provinces with 90 members, and the Judiciary, comprising of the
Constitutional Court, the Supreme Court of Appeal, and the High Court. Unlike
many other Commonwealth nations, South Africa does not have the British
monarch as head of state, which makes the nation a republic rather than a
constitutional monarchy. The government is federalist, meaning that the
national, provincial, and local levels of government all have legislative and
executive authority in their own spheres. The elections for both chambers of the
legislative branch are held every five years. The ANC dominates politics in
South Africa, and received 69.7% of the vote in the 2004 general election. Its
closest challenger was the Democratic Alliance party, which received only 12.4%
of the vote. The National Party now represents only 1.7% of the vote.
The president of South Africa is named Thabo Mbeki and has ruled since Nelson
Mandela stepped down as ANC leader in 1999. His trade and industry minister
is Mandisi Mpahlwa. He has recently spoken out against the effects of
globalization on a category of people, mostly black, which don’t have the mobility
to move between jobs. At a meeting with the South African Clothing and Textile
Workers Union in September of 2004, he explained that globalization seeks to
“[leave] behind those who do not have the skill to participate meaningfully in the
new global environment”. The country’s finance minister, Trevor Manuel, serves
on a lot of major international committees. In 1997 he was named Euro money’s
“African Minister of the Year” and he now serves as a Governor on the Board of
the World Bank Group, the African Development Bank Group and the
Development Bank of Southern Africa. He is also the Chairman of the Southern
African Development Community Finance and Investment Sector.1
South Africa also has ministerial positions that relate to the economy such as:
agriculture and land affairs, environmental affairs and tourism, minerals and
energy, public works, transport, and water affairs and forestry.2 Mbeki is lauded
for having women make up 43% of his cabinet. This percentage is progressive
by any country’s standards, and certainly for one that has a recent history of
oppressing minorities.
Population
The 2001 census determined that there were 44.8 million people in South Africa. 3
The estimated population as of June 30th 2004 was 46,586,000.4 The age
distribution is estimated to be 29.5% for people between 0 and 14 and 65.3% for
1
http://www.finance.gov.za/people.htm
www.southafrica.info/ess_info/sa_glance/government/mbeki-cabinet.htm
3
www.statssa.gov.za/census01/html/Key%20results_files/Key%20results.pdf
4
www.finance.gov.za
2
people between 15 and 64.5 The life expectancy in the country has been steadily
decreasing and is now thought to be 44.2 years old.6 The ethnic composition of
the population is estimated to be 75.2% black, 13.6% white, 8.6% colored, and
2.6% Indian. The republic has 11 official languages, second only to India in
number, and also acknowledges eight non-official languages. South Africa has
the largest population of people from a European descent in Africa, the largest
population of Indians outside of Asia, as well as the largest colored community,
making it one of the most ethnically diverse countries in the continent. The
growth rate in 2004 was estimated to be -.25%, which has a lot to do with the
high rate of HIV. The Nelson Mandela Study of, 2002 estimated that 11.4% of all
South Africans above the age of 2 were infected with the virus.7 The population’s
religious composition consists predominantly of Christians, which make up 68%
of the people. 2% of the population is Muslim, 1.5% is Hindu, and the remaining
people follow a multitude of indigenous beliefs.
Geography
Above is a map of South Africa (1,219,912 sq. km). It is located at the extreme
southern tip of the continent and its capital, Pretoria, is in the northeastern region
of the country. The country is made up of nine provinces. Cape Town, in the
Southwest, is the legislative headquarter, and Bloemfontein is the judicial center.
Its largest city is Johannesburg with a metropolitan area population of about 8
million. The state borders Namibia (967km), Botswana (1,840km), Zimbabwe
(225km), Mozambique (491km), Swaziland (430), and contains the entire small
nation of Lesotho (909km) within it.8 The land is a vast interior plateau rimmed
by rugged hills and narrow coastal plain that boarder both the Atlantic and Indian
Oceans. It has the third-highest level of biodiversity in the world and is the only
5
www.cia.gov/cia/publications/factbook/geos/sf.html
www.infoplease.com/ipa/A0004393.html
7
www.avert.org/safricastats.htm
8
www.cia.gov/cia/publications/factbook/geos/sf.html
6
country to contain an entire floral kingdom.9 Its seven major terrestrial biomes or
habitat types (broad ecological life zones with distinct environmental conditions
and related sets of plant and animal life) can be seen in appendix D. It has a
Mediterranean climate, with hot, windy summers and cool, moist winters. An
array of agricultural products, from wine, to wheat, to sugarcane is grown on the
land. Arable land is 12.08%, irrigated land is 13,500 sq. km, permanent crops
inhabit less than 1% of the land, and the highest point is Mount Njesuthi (3,408
m). The land is blessed with many different minerals including gold, coal, iron
ore, nickel, phosphates, tin, uranium, diamonds, platinum, copper, salt, and
natural gas. South Africa is the world’s largest producer of platinum, gold,
chromium and ranks among the highest in coal production as well. It is the only
country in the world that manufactures fuel from coal.10 Mining is the primary
sector of the nation’s economy.
Economy
South Africa is an upper middle-income, emerging market with well-developed
financial, legal, communication, energy, and transportation sectors. Its stock
exchange ranks among the 10 largest in the world and its modern infrastructure
supports an efficient distribution of goods. However, economic problems from
the apartheid era still remain and vast disparities of income exist between blacks
and whites. The gap between the rich and the poor widens as disadvantaged
groups continue to lack economic empowerment. Despite ongoing efforts of
black empowerment, signs of social mobility, and an emerging black middle
class, the country’s wealth remains very unequally distributed along racial lines.
Although South Africa’s economy has grown substantially since 1994, growth has
not been large enough to lower South Africa’s high unemployment rate, which is
conservatively estimated at 28% (some sources claim up to 42%) and seems to
actually be increasing.11 High levels of crime and a high HIV/AIDS infection rate
deter investment. More South Africans are infected by HIV than any other
country in the world. It is estimated that if the rate of infection continues, 25% of
the labor force will carry the disease by 2010 and the life expectancy rate could
be lowered to 38!12 This high rate of disease has a lot to do with South Africa’s
ranking of 119th out of 177 countries evaluated for their human development
index, a composite index that factors longevity as one of the three main aspects
of human development.13 Another factor that contributes to the reluctance of
companies to invest in South Africa is its corruption index. According to the 2004
global corruption report, South Africa ranks 48th out of 133 countries.14 A “lack of
adequate legislative instruments to prosecute offenders”15 was cited as a major
9
www.southafrica.info/ess_info/sa_glance/geography/biodiversity.htm
www.state.gov/r/pa/ei/bgn/2898.htm
11
www.southafrica.info/doing_business/economy/econoverview.htm
12
http://dbic.datamonitor.com/countries/country/index.asp?gid=SouthAfr
13
http://hdr.undp.org/reports/global/2004/pdf/hdr04_complete.pdf
14
www.globalcorruptionreport.org/download/gcr2004/11_Country_reports_L_Z.pdf
15
www.globalcorruptionreport.org/download/gcr2004/11_Country_reports_L_Z.pdf
10
hurdle to combating corruption in the state. A 2002 announcement South Africa
was closing its Anti-Corruption Unit, which had been investigating corruption
within the police since 1994, also led to a negative perception of police corruption
in particular. Nevertheless, a lot is being done to assure confidence in the
financial sector. A unified supervisory/regulatory body is being formed, a
comprehensive legal structure is being developed to combat money laundering,
and the nation became a member of the Financial Action Task Force on Money
Laundering (FATF) in June of 2003. A third key indicator that investors consider
is a country’s global competitiveness. South Africa ranked 41st out of 104 in
2004.16 The World Economic Forum also releases an Africa Competitiveness
Report in which south Africa ranked 3rd out of 25 African economies in 2004. This
indicator is a based on a number economic and social statistics in addition to
corruption, the impact of HIV/AIDS on business, access to financing, and the
nation’s infrastructure. Despite having much room for improvement, South Africa
is sticking with its decision to invest in globalization and trade liberalization as a
means of creating job growth and increasing household incomes.
Despite the deprivation of millions of South Africans who continue to live in
poverty, the country was ranked 29th in the world for total GDP in 2003 with a
total of almost 160 billion USD.17 Based on the purchasing power parity, South
Africa’s GDP per capita is $10,700 and is about $3500 in current USD terms.
The growth rate has averaged about 3% since 1994, which is modest but is twice
the average growth prior to 1994. The real GDP increased from 2.8% to 3.7% in
200418 and although it is projected to grow to slightly above 4% in 2005 (see
appendix E), the government estimates that the growth rate must reach a
minimum of 6% to offset unemployment. What is distressing about the
government’s hypothesis is that the last time that the growth rate was even over
5% it was 1984 and followed two years of negative growth. Another sad issue is
that GDP growth is a macroeconomic indicator and often has no correlation with
household income growth whatsoever. This is especially true in the case of
South Africa where a few large conglomerates dominate almost 80% of the
economy. Nonetheless, positive GDP growth is a primary goal of any nation and
has been positive since South Africa’s trade embargo was lifted and trade
liberalization policies were implemented.
GDP growth was fueled mainly by the value added services sector of the
economy, which represented over half of employment and 65% of the country’s
GDP.19 Main industries made up 31% of GDP and consisted almost solely on
mining and manufacturing production. Manufactured goods mostly include
processed minerals and products such as foodstuffs, machinery, and
automobiles. Platinum, gold, diamonds and chromium make up a large part of
their mining industry. Gold and platinum account for 20% of the country’s total
16
www.weforum.org/pdf/Gcr/Growth_Competitiveness_Index_2003_Comparisons
www.worldbank.org/data/databytopic/GDP.pdf
18
www.statssa.gov.za/keyindicators/gdp.asp
19
http://devdata.worldbank.org/dataonline/
17
exports. Agriculture, which represents 30% of the workforce and consists
primarily of corn, wheat, sugarcane, fruits, vegetables and animal products, only
yielded 4% of total GDP. This is a big reason why South Africa wants the WTO
to enforce a reduction of agricultural subsidies in international trade.
Regionally, the EU is South Africa’s leading trading partner in both imports and
exports and both sides seem to be benefiting from their bilateral free trade
agreement that was signed in 1999. South Africa’s main trading partners can be
seen in appendix F. Total exports of goods and services were valued at 45.3
billion USD and imports were 42.6 billion USD.20 Despite this positive balance on
merchandise and services, the country has a current account balance of negative
1.3 billion USD. FDI flows were barely positive at 99 million USD as compared to
a billion more in 2002.21 External debt situation, however, remains very
comfortable at 27.8 billion USD, which is 17.4% of GDP and down from 23.5% of
GDP in 2002.22 A country’s currency can have a major impact on an external
debt figure. The unpredictability of South Africa’s currency, the rand, has played
a distinct role in destabilizing the economy, which is why the country has focused
its fiscal efforts at curbing inflation. Currently, the rand is valued at 6.07 Rand’s
per US dollar.23 The steady devaluation and subsequent resurgence of the rand
since 2002 can be viewed in appendix G. The currency’s generally strengthened
position over the last year was largely a reflection of increases in commodity
prices. The currency has appreciated by over 50% in real effective terms since
the end of the large currency depreciation in December of 2001. Increasing
international foreign exchange reserves, valued at 8.3 billion USD including gold
reserves in 2004 (see appendix H), also serve to reduce currency volatility and
keep long-term interest rates low. However, it must be noted that, compared with
other emerging-market economies, South Africa’s stock of reserves is relatively
low and the South African Reserve Bank (SARB) should aim to continue
increasing reserves to a level comfortably above the nation’s short-term external
debt obligations. Nevertheless, the purchases of foreign currency by the SARB
allowed the country to close its open position in the forward market in February of
2004. This exposure in the forward market had represented a major source of
external vulnerability and macroeconomic instability.24
Another one of the successes of the ANC government has been to get consumer
inflation, which had been running in double digits for over 20 years, under control
(see appendix I). Low and predictable inflation is necessary for financial stability
and sustained economic growth. Reducing inflation has had a lot to do with the
strength of the rand, the reduction of fiscal debt, and the increase in foreign
exchange reserves. In addition, we found that the careful management of saving
and investment rates had a direct correlation with inflation rates. As one can see
20
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
22
www.worldbank.org/cgi-bin/sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag%2Fzaf_aag.pdf
23
http://www.x-rates.com/d/ZAR/USD/data120.html
24
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
21
from appendix J, the rise and fall of both lending and deposit interest rates
closely followed inflationary and deflationary movements. Currently the lending
rate is 12.5% and the saving rate is less than 8%. Both of these figures are the
lowest interest rates since 1980 so it bodes well for the government’s goal of
drastically curbing inflation. Inflation has been cut by 50% since 2002 and is now
well within the 3 to 6% range that the SARB was targeting. In 2003, Public debt
to GDP improved significantly at well. The public debt was 37% of GDP
compared to 48% of GDP in 1997 USD. Revenues were 24% while Expenses
totaled 26%. The revised budget deficit for 2004 is believed to equal a mere 5.2
billion USD (less than 3% of total GDP).25
Government finances are summarized in the following table:26
Total in Billions of Rand
Total as % of GDP
Government Revenues
299.5
24.5%
Government Expenditures
329.1
26.9%
Public Debt
456.3
37.3%
Budget Deficit
(-) 29.6
(-) 2.4%
Small budget deficits and effective taxation policies have helped South Africa to
manage its external debt prudently. Medium- and long-term external debt
presently stands at less than 10% of GDP. However, South Africa’s ministry of
finance notes that allowing the deficit to rise much above 3% of GDP could place
too much pressure on long-term interest rates and the value of the rand. Three
percent is, therefore, considered the upper limit of what is desirable to maintain
macroeconomic stability and to keep indebtedness under control.27 Overall,
South Africa’s economy is in relatively great shape.
2. International Trade
South Africa's exports include machinery, motor vehicles and fertilizers to African
countries, and minerals, mineral and agricultural products to developed markets.
Mining and related activities remain at the core of the South African economy.
The mining and excavation sector accounts for between 8 and 10% of GDP and
for some 40% of earnings from merchandise exports. In consequence,
developments on world mineral markets are critical to South Africa's economic
performance. The manufacturing sector, largely centered on mineral processing,
contributes nearly 25% of GDP. South Africa is usually a net exporter of
agricultural products, agriculture accounts for some 5% of GDP and for 8 to 10%
of goods exports. Services are the largest employer, with over half of total
employment, and account for some 53% of GDP.
25
www.globalinsight.co.za/news.asp?id=279
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
27
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
26
The reintegration of South Africa into the world economy has contributed to an
increase in its foreign trade. Merchandise imports have grown faster than
exports, leading to a contraction of South Africa's traditional trade surpluses and
to external current account deficits since 1994. The rise of merchandise imports
indicates an increase in investment. Capital and intermediate goods, particularly
machinery and mechanical appliances, represent almost 30% of South Africa's
total merchandise imports. South Africa is also a net importer of a broad category
of services.
Direct investment
In relation to Canadian trade with other developing countries, trade with SubSaharan Africa is extremely marginal. It makes up only 3.2% of imports from
developing countries into Canada and 4.1% of exports from Canada to these
countries. Crude petroleum and other mineral oils represented 46% of imports
from Africa in 1999 and used clothing is a top Canadian export to many African
countries.
South Africa offers significant opportunities for Canadian trade and investment,
with outstanding potential in mining, transportation, telecommunications and
infrastructure development. Canadian FDI to South Africa has grown in recent
years, with Placer Dome, McCain, SouthernEra, Hatch and others acquiring large
stakes in the country. Additionally, South Africa generates considerable
investment in Canada, large firms such as Anglo American/De Beers, BHP
Billiton (now London-based), and Harmony, already entrenched in Canada, plan
to increase their investments. South Africa is by far Canada's largest trading
partner in Sub-Saharan Africa and while trade flows have reached a plateau in
the last 18 months, new opportunities are constantly being identified in the areas
of information technology and telecommunications, the health sector and the
environment, as these in particular attend to the social needs of South Africa.
Canada-South Africa trade and investment ties are facilitated by a proactive
bilateral Chamber of Business in Johannesburg. A number of business
delegations visit each other's territories and partner projects such as the
Canadian Alliance for Business in South Africa (CABSA). In addition, Canada
and South Africa concluded a Trade and Investment Cooperation Agreement
(TICA) in September 1998, providing a framework for enhanced dialogue on
bilateral and multilateral trade and investment matters.
In 2001, under a funding agreement with CIDA, Canada has been assisting
South Africa in developing an industrial strategy in the IT sector, with a view to
promoting more private-sector involvement, both local and foreign, in emerging
IT market opportunities. Transport Canada, under a Declaration of Intent on
Technical Cooperation in Transportation signed with the South African
Department of Transport is providing technical assistance to South Africa in a
number of areas related to the transportation sector, opening up business
opportunities for Canadian companies.
South Africa's trade relations
South Africa has negotiated a host of general trade agreements since 1994 as
part of the process of normalizing trade relations with international trading
partners. South Africa participates in a number of preferential trade
relationships, both regional and bilateral. It was a founding member of the
General Agreement on Tariffs and Trade (1947), and is an active member of the
World Trade Organization. It is committed to the principles of these
organizations, and to increasing South Africa's global competitiveness. Tariffs
have been reduced, and non-tariff barriers are being phased out. Previously,
South Africa was a founding member of the GATT and participated in, or
observed, several Tokyo Round Agreements and Arrangements. Under its
Uruguay Round commitments, South Africa bound the 98% of its tariffs
(excluding petroleum products); tariff bindings are at ad valorem rates, with a
simple average of 19.8% but with maximum ceiling rates of almost 400% (on
agricultural products). In addition to petroleum products, unbound tariffs are
mostly on fishing products and preparations thereof, and arms and ammunition.
Subject to limitations on the presence of foreign natural persons, South Africa
bound market access and national treatment under the General Agreement on
Trade in Services (GATS) for several categories of services, including in the
areas of business, communications, distribution, tourism and environment.
The US provides such market access opportunities to a number of African
countries, including South Africa, through the African Growth and Opportunity Act
(AGOA). A number of other countries provide market access through the
generalized system of preferences (GSP) mechanism. The following countries
accord South Africa GSP status: EU Countries, Norway, Switzerland, Hungary,
Japan, Canada, USA, Czech Republic and EUROPE. Europe is South Africa’s
biggest source of investment and accounts for almost half of South Africa’s total
foreign trade. Seven of South Africa’s top ten trading partners are European
countries.
South Africa has placed greater importance on forming strong economic trading
blocs to gain access to key markets. The South African government has actively
pursued negotiations for an agreement on trade. South Africa has also turned its
attention to pursuing agreements for greater South-South co-operation. The
move to establish trade relations with Mercusor via a free trade agreement with
Brazil, and also with India, is top of the government's export-oriented trade
agenda. This will facilitate greater trade with South America and the East.
South Africa's participation in the Southern African Development Community
(SADC), comprising 14 sub-Saharan African countries, allows access to a market
of approximately 140-million, which is expected to grow at an annual rate of
around 3%.
A vociferous critic of apartheid, Canada was strict in its application of sanctions
against South Africa until September 1993, with relations normalizing fully in
1994. President Mandela's visit to Canada in September 1998 brought the two
countries close together. Currently, South Africa is Canada's most important
trading partner in sub-Saharan Africa and provides a gateway for Canadian
companies to other countries in the region. South Africa is also the largest
source of African direct investment in Canada. Furthermore, South Africa was
chosen as the destination for the partnership trade mission because it is the most
advanced and productive economy on the African continent. In addition, South
Africa possesses a sophisticated free market economy with a modern and
expanding infrastructure and communications system.
South Africa is a beneficiary of Canada’s General Preferential Tariff (GTP). The
GTP rates range from duty-free to reductions in the most favored nations rates.
South Africa has a memorandum of understanding with Canada relating to the
export from South Africa of certain textiles and textile products for import into
Canada – granting South Africa quotas for these products.
In September 1998, there was a Ministerial trade and investment mission to
Canada. The mission coincided with the President’s State visit to that country.
During the mission, a Trade and Investment Co-operation Arrangement were
signed.
Export Development Corporation has made financing available through general
purpose lines of credit, and short-term financing is readily available from
Canadian commercial banks. Two-way investment remains modest but newly
released figures indicate that Canadian direct investment in South Africa
increased from $37 million in 1992 to more than $520 million (Jan.-Sept. 1999).
Moreover, investment in Canada by South Africa was negligible in 1998, but
stood at $240 million before the 1999 year's end (Jan.-Sept.1999).
Canadian companies are expanding joint-venture and investment activities and
at present there are some 75 Canadian companies with local participation in
South Africa. Mining and related undertakings continue to be an area of
considerable activity and promise with estimates that roughly half of all new
mining ventures in all of Africa have Canadian participation. Other key sectors of
interest include transportation, telecommunications, information technology, the
knowledge industry, agriculture and agri-food. Canada has a bilateral
development assistance program of up to $62 million over five years. Four
priority areas have been identified for the CIDA bilateral program: 1) restructuring
of South African government institutions; 2) human resource development; 3)
support to civil society; and 4) economic development.
South Africa Economic and Trade Data (2003)
Merchandise exports: C$ 54,221 million
Merchandise imports: C$ 49,036 million
Current-account balance: C$ 9,101 million
Labor force by occupation (1999): Agriculture (30%), Industry (25%), Services
(45%)
GDP:
GDP per capita:
Real GDP growth:
Inflation:
South Africa
C$ 224 billion
C$ 4,837
1.9%
5.9%
Canada
C$ 1,215 billion
C$ 38,459
1.7%
2.7%
Bilateral Trade (2003, C$ million)
Cdn imports fm S. Africa
Iron & steel
Fruits; cocoa
Platinum; prec. stones; ores
Uranium oxide; etc.
Wine; etc.
Machinery
Cdn exports to S. Africa
61.2
116.5
111.1
21.0
25.2
25.6
Machinery
Cereals
Sulfur; etc
Malt
Vehicles
Optical; medical equip.
97.4
14.1
27.0
10.5
17.8
13.1
Vehicles
18.9
Total imports
503.3
Meat
Aircraft
Total exports:
16.0
25.0
316.8
There are numerous Global companies based in South Africa. Acer Africa
acquired ownership of a locally based company they had been working with to
distribute peripherals and printers since 1980. Agrid South Africa, an offspring of
Agrid International, was formed in July 1999; they are the manufacturers of
diesel/petrol engines and agricultural implements for small farmers, a sizeable
change from their history of manufacturing for massive farming. Britannia biscuits
decided that in order to access the local and Southern African market, South
Africa seemed an outstanding option as an investment destination. Cisco
Systems established business in South Africa in 1989 and became the exclusive
partner to Dimension Data. EDS South Africa was formed through the merger of
three local IT companies in 1995 and by September 1999 was a wholly owned
subsidiary of EDS Corp. The British-based EMS chose South Africa as a site
because of its close proximity to Europe, similar banking, accounting and legal
systems to the United Kingdom. The fact that there are no real time zone
differences or language barriers between South Africa and the United Kingdom
were also contributory factors. Dorbel, a locally based company invited Johnson
Controls into South Africa to produce seats for Volkswagen worldwide. The
company produces cockpit seat liners, headliners and central steering columns,
but they have been exporting leather and front ends for Volkswagen since 1995.
Senior Flexonics, a manufacturer of automotive components, set up operation in
1997 as part of the company's drive to become the lowest cost producer and
highest volume source for flexible connectors in the world.
Johannesburg stock exchange-south Africa
In 2002, The South African government will allow local private companies to
invest even more in other African countries. This move is in line with the New
Partnership for Africa's Development (Nepad) plan to boost investment and
economic growth in Africa. South Africa’s Reserve Bank announced that
exchange controls had been relaxed. South African companies are now allowed
to invest up to R2 billion in Africa, up from R750 million. "As part of South Africa's
commitment to Nepad, government is particularly supportive of investment in
Africa, South Africa's Finance Minister said about the issue. Following this
announcement the National Treasury Director-General said there were likely to
be further liberalization in next year's national budget, to be released in February.
Up to now South Africa has seen a gradual approach to relaxing exchange
controls. 28
28
http://www.tralac.org/scripts/content.php?id=877
Over the past couple of years, SA has benefited from a "sweet spot" which has
two components: low global interest rates and high demand for commodities.
South Africa has been a beneficiary of the slowdown in the US in the past few
years. Low interest rates in the US and developing economies have come about
with a decrease in global structural inflation.
Low interest rates result in low nominal yields, risk contraction, credit and
currency premiums. Global long-bond yields in particular have been exceptionally
low. This reduced risk premium globally has been extremely beneficial for the risk
premium of emerging markets permitting these markets to do extremely well. As
a result, South Africa has benefited from this combination of low rates, leading to
a lowering of global risk premiums and a compression of yields.
At the same time, South Africa's markets have benefited from the increase in
demand for commodities in developing countries, in particular China and India.
With gross domestic product growth of more than 9% a year, the demand from
China has been extremely beneficial to the domestic market - resulting in an
increase in the price of commodities at a time of rand strength.
SA's stock market stumbled slightly last April when Chinese authorities tried to
slow the growth in China and when interest rates in the US started to increase on
the back of more positive data. Neither of these factors was permanent and the
JSE Securities Exchange SA recovered to post great returns for last year.
Upcoming Events
- Nelson Mandela Bay Trade and Investment Conference 2005: The Nelson
Mandela Metropolitan Municipality in South Africa constitutes the towns of Port
Elizabeth, Uitenhage and Despatch. The Metro will be holding a Trade and
Investment Conference on 1 and 2 June 2005 for both local and international
buyers and investors. Their objective is to ensure that the Conference is attended
by quality companies who are seriously interested in growing their business links
with the Nelson Mandela Bay area. Companies will include potential investors
and/or companies interested in buying products from South Africa. The Metro is
aiming to focus on the following sectors: Automotive component manufacturing,
Packaging and recycling, General manufacturing: Food and beverage
processing, textiles, and pharmaceuticals and Tourism infrastructure: projects
include a Convention Centre and a theme park.
- Trade dynamics, September 2005. The Trade Dynamics course is intended to
provide a background to the way trade works, especially in the agricultural
sector. An understanding of INCO terms, arbitration and foreign currency
management is also provided by leaders in their fields.
- Fundamentals of Futures, June 2005. An in-depth understanding of the
competitive and volatile agricultural commodities market. How to control and
minimize risk is an essential part of trading. It is critical to understand the
Futures market and the effect it has on price setting.
3. Trade Policies
Trade Policy:
SA’s foreign trade has historically been characterized by inward-looking and
protective policies. Since the lifting of UN sanctions in 1993 and the stabilization
of political conditions, there has been a marked increase in overall trade. The
nation is rapidly re-integrating its economy into the multilateral trading system.
Economically, the government’s main objective is to reduce unemployment by
enhancing the value of labor-intensive products. The government’s main goal in
terms of trade is to promote exports. Tariffs and “supply-side measures” are
South Africa’s main trade policy instruments.29 By means of a wide variety of
incentives, such as tariff concessions and credit facilities, the country aims to
continually improve its trade balance. Mining, the backbone of the economy
receives the largest share of government assistance.
Enunciated Goals and Objectives:
In South Africa’s Yearbook, which was published in 2004 to coincide with the
state’s 10 years of democracy, the Department of Trade and Industry
enumerated their key objectives in the Yearbook’s chapter on the economy.30
Their goals are to:
1.
2.
3.
4.
5.
Grow investments and exports
Grow markets for South African products abroad
Grow small, micro and medium enterprises
Grow women-owned enterprises
Redress inequities in the economy by bringing the previously
disadvantaged into the mainstream
6. Grow Southern African Development Community (SADC) region and
assist with the New Partnership for Africa’s Development (NEPAD)
7. Reduce geographic/spatial development inequalities by spreading
investment over the provinces
8. Create a fair and efficient marketplace for business and consumers alike
To help the economy continue to grow, South Africa is pushing forward with tariff
reform on a unilateral basis.
29
30
www.wto.org/english/tratop_e/tpr_e/tp72_e.htm
www.gcis.gov.za/docs/publications/yearbook/7economy.pdf
Trade Policy Actions:
As a founding member of the General Agreement on Tariffs and Trade in 1947,
and an active member of the World Trade Organization, South Africa is
committed to the principles of these organizations and to increasing its global
competitiveness. Tariffs have been reduced, and non-tariff barriers are being
phased out. The average outweighed tariff has been reduced from 22% to an
estimated 11% in 2003.31 The tariff structure, however, is highly complex and
remains highly protected in a number of sectors, such as textiles and footwear.
The Department of Trade and Industry is proposing further simplification of tariffs
and the application of ad valorem rates for most items.
To make itself more attractive to foreign direct investment, South Africa has
formed a number of economic trading blocs to gain access to key markets.
Within Africa, the country has made a commitment to large capital projects in the
fields of infrastructure and logistics, energy and information communications
technology, water and waste management, transport, construction, oil and gas
infrastructure, agribusiness, mining and human resource development.
One of South Africa’s most effective trade policies has been its Motor Industry
Development Program (MIDP), which was initiated in 1995. This program has
led to gains in employment and a significant increase in automobile exports.
Authorities suggest that the success of the program also provided a catalyst for
new investment more generally in South Africa. The program, which has been
extended to 2012 involves a combination of export subsidies and heightened
protection for domestic production. When exporting finished motor vehicles or
components, the program allows domestic producers of motor vehicles to gain
import duty credits in proportion to the local content of vehicles and parts. Import
credits can also obtain import duty credits by investing in productive assets for
export production. From 1995 to 2003, the number of vehicles exported grew
more than tenfold as a result of this program. To protect this industry from
European manufacturers, South Africa has ensured that tariffs still remain on
imported automobiles and parts.
In the agricultural sector, the government is promoting the deregulation of the
marketing system. The country is a member of the Cairns Group, an association
of countries exporting agricultural products with the objective of free and fair
trade in the global agricultural market. The group, which participates as a
cohesive unit in WTO agricultural negotiations, consists of Australia, Bolivia,
Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New
Zealand, Philippines, Thailand and MERCOSUR.
31
www.imf.org/external/pubs/ft/scr/2004/cr04378.pdf
Trade Agreements:
The ITED, South Africa’s International Trade and Economic Development
Division of the country’s Department of Trade and Industry is responsible for
negotiating international trade agreements and ensuring that the country’s
commitments are honored in the multilateral rules-based trading system
underpinned by the WTO. 32 South Africa believes that its integration with the
rest of the continent and Africa’s active participation in the WTO will be a key
success factor for the future.
Africa forms the focus of South Africa’s global economic strategy. Partnerships
with countries on the continent are therefore considered vital. The Department of
Industry and Trade has established trade and investment promotion offices
throughout the continent for the purpose of facilitating trade and investment
flows. The Department seeks to restructure regional arrangement promoting
industrialization.
Most recently, the leaders of Algeria, Egypt, Nigeria, Senegal and South Africa
convened in Abuja in 2001 to launch the New Partnership for Africa’s
Development (NEPAD). NEPAD asserts that while globalization has increased
the cost of Africa’s ability to compete, the advantages of an effectively managed
integration present the best prospects for future economic prosperity and poverty
reduction. President Mbeki played a major role in forming this regional initiative.
The main goals of NEPAD are to investment development and good governance.
Other regional initiatives in Africa include the SADC and SACU.
The Southern African Development Community (SADC) is a free trade
agreement that includes Angola, Botswana, the Democratic Republic of the
Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, the Seychelles,
Swaziland, Tanzania, Zambia, and Zimbabwe. The first implementation phase of
the agreement began in September of 2000 and was destined to establish a Free
Trade Area by 2008. Two-way trade between South Africa and the SADC
member states is currently lopsided because South Africa exports 4 times as
much they import from these countries. Mozambique absorbs most of the
continents exports from South Africa and accounts for 18% compared with
Zimbabwe’s 16%. These two countries also make up the largest proportion of
imports that South Africa receives from the continent.
Within the SADC is a smaller group of countries that form the Southern African
Customs Union (SACU). These countries, which include South Africa,
Botswana, Lesotho, Namibia and Swaziland, share a common tariff regime
without any internal barriers. SACU is the oldest customs union in the world.
According to the WTO, the SACU agreement is the principal treaty governing the
common trade policy of SACU member countries. All tariff and non-tariff related
laws are set by South Africa and applied by all members. The agreement
32
www.gcis.gov.za/docs/publications/yearbook/7economy.pdf
provides for duty-free circulation of goods within the countries and grants transit
rights to people across the territory. Duties collected by SACU members are
pooled in a common fund and subsequently distributed according to an agreed
upon formula. Trade agreements between South Africa and other countries or
regions pose a number of challenges to policy makers in the region.
In January of 2000, a trade agreement between South Africa and Europe, called
the SA-EU Trade Development and Cooperation Agreement (TDCA), was
implemented after four years of negotiations. The deal certifies that the EU will
liberalize 95% of imports from South Africa at the end of a 10-year transitional
period and that South Africa will liberalize 86% of imports from the EU at the end
of a 12-year transitional period. While South Africa secured a high degree of
access to the EU market for its industrial goods, it has offered a higher level of
access to the EU in agricultural products than it was able to secure for South
Africa’s agricultural exports. South Africa offered an elimination of tariffs on 81%
of EU agricultural exports to South Africa, while the EU offered an elimination of
only 62% of tariffs on agricultural imports from South Africa.33 Although South
Africa did not succeed in eliminating EU export subsidies, the TDCA is a key
component of South Africa’s trade policy since the EU accounts for about 40% of
the nation’s total world trade and Europe accounts for almost half of the state’s
foreign trade. Seven of South Africa’s top ten trading partners are European
countries and fortunately the trade balance is in favor of South Africa’s exports to
the region. The EU released a statement in May of 2002 stating that South
Africa had overtaken Algeria, Saudi Arabia, Malaysia and Singapore in overall
trade with the EU. Since the signing of TDCA in 2000, exports to the EU have
increased by 50% and FDI from the EU alone equals 70% of total FDI.
In terms of North America, South Africa is still negotiating a trade agreement with
the United States. The trade and industry department director told the South
African Press Association that the two sides remained far apart after six
negotiations.34 However, South Africa is a beneficiary of the USA’s Generalized
System of Preferences (GSP), which grants duty-free access for more than 4,650
products. The EU, Norway, Switzerland, Hungary, Japan, Czech Republic and
Canada also accord South Africa this GSP status. In addition, South Africa is
one of the 38 countries in Africa to qualify for the Africa Growth and Opportunity
Act of 2000 (AGOA), which granted duty-free access to another 1,800 products
not covered under the GSP access until 2008. The AGOA Acceleration Act,
signed by George W. Bush in July of 2004, extended the benefits to 2015.
Exports falling under AGOA alone amounted to $1.3 billion in 2002 and have
been steadily increasing. The US is South Africa’s biggest trading partner and
exports continue to exceed imports.
A bilateral trade agreement does not exist between South Africa and Canada
either, however, a Trade and Investment Co-operation Arrangement was signed
33
34
www.igd.org.za/pub/g-dialogue/Special_feature/trade.html
www.southafrica.info/doing_business/sa_trade/agreements/trade_northamerica.htm
in 1998 with the aim of enhancing bilateral trade and investment. South Africa is
also a beneficiary of Canada’s General Preferential Tariff (GPT) which allows
duty-free or reduced rates for a number of exports to Canada including clothing
and textiles. South Africa also has a Memorandum of Understanding with
Canada relating to the export of clothing and textile products
Although trade with Latin America is only about 2% of South Africa’s total trade,
South Africa and Mercosur signed a framework agreement for the creation of a
free trade agreement. In Asia, many co-operation agreements involving
technology transfer, investments and overseas development assistance exist
such as the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC)
whose member countries account for about 7% of world trade. The closest thing
to a trade agreement in these two continents is the recently adopted “New Delhi
Agenda for Cooperation” agreement with India and Brazil. The aim of this
collaboration is to increase trade flows between the three countries from $4.6
billion to $10 billion by 2007. A Trilateral Business Council has been established
as the framework for businesses from the three countries to work together and
evolve into and inter-continental free trade area. Trade with the Middle East has
increased significantly as well. Israel is one of the major destinations of South
African exports, but South Africa has a major trading deficit in the region due to a
significant percentage of its oil being purchased from Saudi Arabia.
Overall, it is clear that South Africa has signed and benefited from a lot of trade
agreements. It continues to form regional, multilateral, and bilateral trade
agreements, and continues to have a positive trade balance as a result of its
endeavors.
Position for Doha Round:
South Africa is moving ahead with trade liberalization and has been a vocal and
effective participant in the Doha round of the World Trade Organization. The
nation truly believes that its exposure to competition through trade liberalization
and deregulation is what has helped its economy double to 3% since ’94. It is a
strong advocate of removing agricultural subsidies in industrial countries. As
mentioned before, the country has joined the Cairns group to lobby for the
removal of these subsidies. They are also highly involved in anti-dumping
legislation. Between 1995 and 1999, South Africa filed more anti-dumping
complaints to the WTO per USD of imports.35
Outlook for expansion
The high sophistication of SA’s financial sector and institutions is critical to the
growth of South Africa’s economy because banks and financial institutions have
35
econ.worldbank.org/files/15652_wps2851.pdf
the ability to handle sophisticated international financial transactions. An IMF
audit suggests that, despite being in the 64th percentile in terms of the global
corruption index, the banking and corporate sectors in South Africa are generally
sound. The rand has been accepted as a clearing currency by the Continuous
Link Settlement Bank in London since November 2003, providing for a mitigation
of time-zone settlement risk and increased confidence in the banking system. In
addition South Africa’s export base is diversifying rapidly with success having
been achieved most notably in industrial machinery, processed agricultural
goods, and automobiles. All of their success has been achieved despite an
astronomical unemployment rate. This is still a tremendous resource that must
be tapped into. The government must fund initiatives to improve the skills of the
unemployed. Trade should continue to increase as the world discovers the high
quality and price competitiveness of many SA goods.
Assessment of Canada’s potential for further trade and investment w/SA:
In support of NEPAD, Canada scrapped tariffs for LDC’s and created a C$500
million Fund for Africa that is well into its implementation phase. The fund is set
up to respond to the need for more investment to spur economic growth, reduce
poverty and support social programs throughout the continent. Working closely
with African institutions, governments, community organizations and private
sector groups, and reflecting the "African priorities in agriculture, water and
environmental management", the fund supports initiatives that deal with some of
the most developmental critical issues: HIV/AIDS, peace and security, good
governance and poverty. These goodwill measures will certainly improve the
relations between these two countries.
Mining is the key to the economic relationship, with trade in raw materials, mining
equipment, technology and services predominating. New growth is being seen in
the fields of agro processing and Information Communication Technologies
(ICTs). It is clear that both sides will have a lot to gain in this bilateral
relationship.
Appendix A
South Africa's Age Distribution
64+ yrs
5.2%
15-64 yrs
65.3%
0-14
yrs
15-64 yrs
0-14 yrs
29.5%
64+ yrs
Appendix B
South Africa's Ethnic Composition
White
13.6%
Colored
8.6%
Indian
2.6%
Black
75.2%
Black
Colored
White
Indian
Appendix C
South
Africa's Religious Composition
Indigenous
29%
Hindu
2%
Christian
67%
Muslim
2%
Christian
Muslim
Hindu
Appendix D
Appendix E
Indigenous
South Africa's GDP Growth
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Real GDP Growth (%)
5.0%
-2.0%
-3.0%
Appendix F
South Africa's Top 5 Trading Partners
17.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Exports
C
hi
na
y
G
er
m
an
pa
n
Ja
U
S
U
K
Imports
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Value (Billions of US$)
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Rand per US$
(annual average)
Appendix G
South Africa's Rand
12
11
10
9
8
7
6
5
4
3
2
1
0
Appendix H
South Africa's FOREX Reserves
9
8
7
6
5
4
3
2
1
0
Appendix I
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
1991
Inflation (consumer prices
annual %)
South Africa's Inflation
Year
APPEDIX J
Inflation VS. Saving & Investment Interest
Rates
25%
20%
15%
10%
5%
0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
%
< Investment
< Savings
<Inflation
Inflation
Year
Inflation
Savings
Investment
South African share in world trade
South African share in world trade
1948 1950 1960 1970 1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003
Exports
Imports
2 1.85 1.52 1.06 1.25 0.68 0.54 0.54 0.56 0.48 0.47 0.47 0.47 0.46 0.49
2.49 1.44 1.19 1.17 0.94 0.52 0.58 0.55 0.58 0.52 0.45 0.44 0.44 0.44 0.49