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South Africa wakes up to Africa's potential

26 June 2012, 12:04

 Johannesburg - South Africa prides itself as a first world country in a third world continent, trading mostly overseas, but is starting to train its sights on its poor but fast-growing African cousins as turmoil in Europe slashes exports to its traditional markets.

President Jacob Zuma's government said this month it was looking to African oil producers such as Nigeria after bowing to Western pressure to cut imports from Iran - historically its biggest supplier - in compliance with sanctions over Tehran's nuclear programme.

South Africa's crude imports from Iran fell 43% to 286 072 tonnes in April from the previous month, while imports from Nigeria rose nearly fivefold to 615 834 tonnes in March against 127 376 tonnes in the same month last year.

While trade with the rest of the continent has increased gradually in the past decade, Africa's economic powerhouse still lags Asian giants China and India which have established firm footings in mining, construction and clothing.

One reason is the legacy of apartheid, an era when when South Africa's white-minority government eschewed trade ties with Africa in favour of Europe.

"We missed an opportunity to our own detriment," said Dawie Roodt, chief economist at research house Efficient Group.

"Only recently has business in South Africa become part of Africa."

European alternative

Besides Iran, the turmoil in Europe, South Africa's biggest trading partner, is providing another lesson on the need to shift focus to more dynamic growth spots from the debt-ridden region where a 2008/09 slowdown triggered the first recession in South Africa in 18 years.

This year, the impact of the euro crisis has manifested itself mostly in local financial markets, where the rand has been among the most volatile of emerging market currencies, hitting a three-year low of R8.71/dollar earlier this month.

But the damage is also filtering into the real economy.

Sales to Europe - while still accounting for the bulk of exports - fell to 23% of total exports in April from nearly 28% a year ago, according to customs data.

"We need to be prepared if there is either a serious downturn or stagnation," trade and industry director general Lionel October told a business forum this month.

"We must have a coherent response this time so we don't suffer a knock as we did in the last round."

With its economies growing at 5% or more, Africa is the obvious candidate to plug the gap - and regional exports are showing gradual signs of growth, from just 15% of total sales in April last year to 17% in April 2012.

However, South Africa's trade with the continent - a threefold increase since 2001 - has severely lagged that of China whose trade with Africa grew sixreenfold over the same period. Exports to key economies such as Nigeria and Egypt are well below potential, said Standard Bank analyst Simon Freemantle.

In 2011, just 0.5% of South Africa's total exports to Africa were to Egypt, and 4% to Nigeria. By contrast, 16% of China's African exports were to Nigeria and 13% to Egypt.

"We are very competitive within our southern Africa neighbourhood but to an extent we are missing out on the large and fast-growing economies elsewhere," Freemantle said.

"These are economies that we really could and should be doing more trade with and we haven't prioritised them."

Diplomacy follows, slowly

While some local firms have beaten a path into frontier Africa, including retailer Shoprite Holdings [JSE:SHP], Standard Bank Group [JSE:SBK] and mobile phone operators MTN Group [JSE:MTN] and Vodacom Group [JSE:VOD], politicians have been slow to follow.

For example, since his election in 2009, Zuma has yet to make an official visit to Nigeria and Ethiopia - Africa's two most populous nations - but has been to Britain and other Western countries as well as south and central America.

Nigeria, Africa's second-largest economy, is an important potential market with a population of 150 million people. With official gross domestic product due to jump 40% under an imminent rebasing, it will also come close to South Africa in size.

Relations between the two countries remain prickly, often over matters as trivial as District 9, a 2009 science fiction movie that portrayed Nigerians as cannibals, or South African immigration officials deporting 125 Nigerians accused of carrying fake vaccination papers.

"There is a perception that South Africa tilts her nose up at its neighbours and that could be costing it dearly against countries like China in terms of trade and investment," said one southern African diplomat who declined to be named.

However, there are signs of relations being put on a more serious footing.

This year, South Africa publicly backed Nigerian Finance Minister Ngozi Okonjo-Iweala for World Bank president - a diplomatic olive branch that was not diminished by her ultimately missing out on the position.

South Africa's geographical proxmity and advanced banking system also mean it is still well-positioned to catch up with Asian rivals in the 21st century "Scramble for Africa".

"We have the advantage above India and China in that our financial systems are so sophisticated that nobody can really compete with us," Efficient Group's Roodt said.

"The guys that can compete with us are the Europeans or the Americans and they are far away and don't really understand Africa as we do." 

- Reuters

Tags economy

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