2015 has been a tough year on the economy on a global scale. South Africa has not been shielded from the events that negatively impacted countries around the world. On Wednesday 30 September 2015, the South African Revenue Service (SARS) reported a trade deficit of R9.95 billion. This means that we are importing more goods than we are exporting. As you can imagine, this is not good news for our struggling economy.
According to Fin24, the rand has weakened 16% to the US dollar this year and fell to a new record low this week. The weakening rand should imply that export value will increase since more dollars will be coming into the country. This is one of the benefits of a weakening rand, however, exports have actually declined resulting in the increased deficit.
A few things have led up to this:
The events that occurred in China as well the effect of the US rate hike aided in depreciating the rand. (South Africa repo rate adjustment – (http://www.anconsult.co.za/blog-articles/149-south-africa-repo-rate-adjustment and China unravelled- http://www.anconsult.co.za/blog-articles/147-china-unravelled). Commodity prices have dropped. This means that exporters of commodities like gold, platinum, coal, diamonds and iron ore are forced to export for a lower value than a few months ago.
China has also reduced its imports of iron ore as a result of its stock market crash.
The rising cost of electricity has made it difficult for mines to be profitable.
Does this mean the South African economy is in recession?
In order to answer this, it must be understood what it means for an economy to be in recession. A recession generally occurs when the gross domestic product (GDP) shows negative growth in two successive quarters. GDP is an indicator of economic health as it represents the value of goods and services produced over a specific time period.
During the first quarter of 2015, GDP reflected a 1.3% growth whereas in the second quarter, GDP fell to negative 1.3%. South Africa is therefore not currently in a recession.
“Moody’s said on Wednesday it expects South Africa to avoid sliding into a recession this year, despite signs that the economy is struggling after contracting in the second quarter this year.”- Reuters
The economy may not be in recession, but certain traits of recession must be addressed.
One of the topics you may have been reading about lately is South Africa’s stringent import policies which is driving away investments.
If it is exports that we are trying to improve, why should we care so much that we have strict import regulations?
SA vs USA
Countries will trade where there are favourable circumstances, i.e. if a country can export easily, it will allow imports with its trading partner country.
Fin24 published an article on 1 October 2015 relating to South Africa’s trade restrictions imposed on the importation of American chicken and cattle. Understandably, this is to protect the local market from an influx of cheaper imports.
In June, the US also complained that its products were being shut out of South Africa as a result of the South African-European Union trade, development and cooperation agreement.- Business Day
South Africa is a member of the African Growth and Opportunity Act (AGOA) which allows preferential trade agreements with the US. Under these agreements, ALGOA members are free from import levies on more than 7000 products.
“AGOA has enabled South Africa to more than double its exports to the US since 2000, with vehicles and agriculture products benefiting the most. Shipments under AGOA accounted for more than a fifth of the nation’s exports to the US last year, according to data compiled by the Tralac Trade Law Centre, based in Stellenbosch, near Cape Town.”
If the US succeeds in proving South Africa no longer qualifies for membership, the consequences for South African exports is far reaching. In protecting the poultry industry, many other industries will be adversely affected. South Africa’s part in the AGOA agreement has been a contentious issue for over a year and while we have struggled to remain a member of AGOA, we need to invest in ways that allow better trading conditions.
The unemployment rate is and has been a cause for concern for a while. Unemployment will improve significantly if GDP grows by at least 5% annually.
One of the priority outcomes of the National Development Plan (NDP) is to enhance the quality of basic education. If the standard of education is increased, young adults have a better chance of finding employment. We need to remember that we are moving into the shift age where borders no longer exist in the world of the smartphone/tablet/laptop. In this shift age, we are competing with people in other countries and not just our own.
In order to address this priority, Operation Phakisa was launched today 2 October 2015.
“Operation Phakisa is a results-driven approach, involving setting clear plans and targets, on-going monitoring of progress and making these results public.
The methodology consists of eight sequential steps. It focusses on bringing key stakeholders from the public and private sectors, academia as well as civil society organisations together to collaborate in:
- detailed problem analysis;
- priority setting;
- intervention planning; and
This methodology differs from others in that it requires collaboration from both the public and private sectors. The use of Information, Communication and Technology (ICT) as a teaching aid will be instrumental in its success.
South Africa has many issues to resolve in order to grow its GDP. At the forefront of these are electricity shortages, poverty and labour unrest. Each of these issues are complex and there is no easy solution. Hopefully we are moving in the right direction. We need to constantly ask ourselves, what are we as individuals, small and large business doing to assist in alleviating these problems.
Natasha Bhowani Seeth CA (SA)