South Africa trade and investment relations with the rest of Africa have advanced considerably in the last 10 years, but its commercial prospects on the continent remain largely constrained, according to Standard Bank Group analysts Simon Freemantle and Jeremy Stevens.
Mr Freemantle suggests that South Africa needs to cohesively place the continent at the centre of its foreign and commercial policies if it is to retain its competitive edge over a host of other emerging markets interested in deepening relations with Africa.
His views are contained in Standard Bank Group's latest "EM10 and Africa" report, which analyses developments in the relations between Africa and a group of 10 emerging market economies (EM10) that are becoming the continent's most prominent new commercial partners. Standard Bank Group's EM10 comprises Brazil, China, India, Indonesia, Nigeria, Russia, Saudi Arabia, South Africa, Thailand and Turkey.
He notes that mutually reinforcing trade and investment ties have undoubtedly bound South Africa to the rest of Africa's growth momentum. South African firms in particular, he writes, are increasingly alive to growing opportunities north of the border, especially in light of fairly stolid growth in the domestic economy.
Last year, for example, SA's trade with the rest of Africa exceeded R220-billion (about US$30-billion), 17% of SA's total trade with the world. In 2010, SA was the continent's third-largest EM10 trade partner behind only China and India. Importantly, SA exports to the rest of Africa are predominantly of value-added goods. In 2011, SA ran a R40-billion trade surplus with the rest of Africa, compared to a R68-billion deficit with Asia.
SA's investment stock in Africa has also swelled from R14.7-billion in 2001 to R121-billion in 2010 (21% of its total outward FDI stock).
"Yet, the weight of the opportunity has necessitated introspection on the tone, scale and scope of South Africa's presence on the rest of the continent. What is clear is that South Africa-Rest of Africa trade, while material, has not grown as fast as it should have over the course of the past decade in particular," writes Mr Freemantle.
"Most worrying, commercial engagement remains geographically limited, resting predominantly on SACU (Southern African Customs Union) and select SADC (Southern African Development Community) states at the expense of larger, faster-growing economies in West, North and East Africa. Furthermore, inefficient state-private sector support structures continue to hamper the more fluid expansion of South African investors into markets which offer great allure."
Last year, almost 90% of SA exports to the rest of Africa were absorbed by SADC economies. South Africa remains poorly aligned to most of Africa's largest and fastest-growing markets. In 2011, 0.5% of SA exports to Africa were directed to Egypt, and 4% to Nigeria.
Mr Freemantle notes that South Africa's shortcomings in these critical areas are highlighted by China's relative success. Since 2001, SA???Rest of Africa trade has expanded three-fold, compared to a 16-fold increase in China-Africa trade.
In 2011, 16% of Chinese exports to Africa were directed to Nigeria, and 13% to Egypt. Of the continent's 10 fastest-growing economies, South Africa enjoys strong access in Zambia and Mozambique, but gains are moderate across North, West and much of East Africa.
Mr Freemantle notes that insufficient product complementarity, pervasive logistical hindrances, and South Africa's own dwindling competitiveness mean that trade growth with the continent has lagged.
He suggests a number of approaches through which South Africa's commercial objectives can be aided and honed. Importantly, he says, Africa must be placed at the centre of South Africa's foreign and commercial policies.
"In so doing, alignment between government initiatives (such as state visits) and private sector ambitions must be more coherent. Bridges must be built outside of SADC, incorporating fast-moving economies, such as Ethiopia, which South African firms have not yet been able to meaningfully access.
"Crafting deeper geo-political and commercial relations with Nigeria should also be of principle concern. South Africa's increasingly supported bid to position Home Affairs Minister Nkozasana Dlamini-Zuma to a leading role in the African Union will be a critical opportunity to deepen ties with the rest of Africa," he says.
He also suggests that South Africa must adopt a focused commercial strategy for the continent. While South African firms have carved out important market shares in the region, most of the continent's large and fast-growing economies remain elusive.
"Like China, focusing on these economies and building the necessary platforms to broaden trade and investment will prove to be game-changing. Preferential access through SACU and SADC membership will continue to be important. Meanwhile, greater impetus must be placed behind the creation of the much vaunted tripartite free trade agreement (FTA) incorporating SADC, the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA) to deepen these advantages," he writes.
South Africa must also elevate its manufacturing competitiveness and align to the demand dynamics of the rest of Africa. The future of South Africa's manufacturing industry, Mr Freemantle notes, rests on retaining competitiveness within the rest of Africa.
"Much of South Africa's long-term competitiveness rests on the tone, scale and scope of engagement with the rest of the continent. In essence, Africa must be placed at the centre of South Africa's foreign and commercial policies. Meanwhile, a realistic stance on the country's gateway status should be adopted, manufacturing competitiveness must be elevated, and a wider arc of economies incorporated in South Africa's bid to align more clearly to the nexus of Africa's growth potential."
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