OPINIONISTA: Navigating global power shifts – Should SA forge stronger ties in the west, east, north or south?

Globally, geopolitical tensions have heightened since the Russia-Ukraine war began in 2022 and the ongoing escalation of conflicts in the Middle East between Israel and its regional adversaries.

As part of the extended BRICS group, South Africa appears to align with the Global South, exemplified by its abstention from voting on the UN General Assembly resolution condemning Russia’s invasion of Ukraine in 2022.

Additionally, South Africa has been vocal in its criticism of Israel in the ongoing conflict with Hamas, a militant organisation in the Gaza Strip, which is designated as a terrorist group by the US and the EU. The Western bloc of countries (mainly the US and Europe) may not look positively at South Africa’s unofficial siding in the above-mentioned cases, which could affect future international relations.

Many commentators have urged South African politicians to maintain neutrality in international relations. Aligning too closely with the Global South, particularly against major Western powers like the US, could negatively affect international trade and the South African economy.

South Africa has numerous trade agreements, including the well-known Agoa with the US and agreements with the EU under the Trade, Development and Cooperation Agreement and the European Free Trade Agreement, the Preferential Trade Agreement with South American countries, and the African Continental Free Trade Area within Africa.

The government appears concerned about Agoa, which is due for renewal by the end of 2024. A delegation visited the US at the end of July 2024 to discuss this issue. With the possibility of former president Donald Trump returning to office at the end of 2024, this situation becomes even more significant, as his stance on including South Africa in the renewed Agoa might differ.

Additionally, South Africa’s ‘grey-listing’ by the Financial Action Task Force for money laundering, terrorist financing, and the financing of weapons of mass destruction could negatively impact future trade agreements. Recent potential terrorism activities in the country could further complicate this.

This raises the question: which regions and countries are our most beneficial trade partners based on net exports, also known as the trade balance? Trade balance is the difference between a country’s exports and imports of goods and services. A positive trade balance, or surplus, occurs when exports exceed imports. A negative trade balance, or deficit, occurs when imports exceed exports.

International trade data from Quantec Easy Data for 2022 and 2023 were analysed to assess South Africa’s trade performance, as summarised in Table 1.

Overall, imports rose by 8.7%, while exports increased by only 4.8%. As a result, net exports dropped significantly by 58% from 2022 to 2023. The upcoming analyses will delve into the details of these emerging challenges.

In which regions are we experiencing trade success, defined as exporting more than importing? A positive trade balance is essential for economic growth, as exports drive growth while imports can detract from it.

Source: Quantec, 2024

Table 2 shows the percentage contribution, in rand values, of major trade regions and countries to South Africa’s imports and exports over the past two years.

The region from which South Africa imports the most goods and services is Asia, including China and India, accounting for 52.3% of total imports. Europe is the second-largest source of imports, contributing 26.8%, followed by Africa, which accounts for 8.6% of all imports.

Notably, South Africa imports only 0.5% from Russia and 0.2% from Israel.

South Africa’s primary trade partner is Asia, making up 31.5% of total exports, followed by Africa and Europe, contributing 26.9% and 24.2% respectively. Exports to the African continent have seen significant growth since 2022.

Analysing net exports (total exports minus total imports) reveals some interesting findings.

Source: Quantec, 2024

Figure 1 below illustrates the net exports (trade balance) for 2022 and 2023 to selected regions and countries. Positive and growing net exports indicate a favourable trade relationship for South Africa.

The figure clearly shows that Africa is South Africa’s most crucial export market in terms of trade balance, with an increasing net export surplus to the continent. This surplus exceeds South Africa’s total net exports.

Japan is the second most favourable trade partner, followed by the US, although both have seen a decline in their positive trade balances with South Africa. In contrast, South Africa has negative trade balances with Asia, including China and India.

Figure 1: Net exports for 2022 to 2023

 Figure 2 below summarises the trade index from 2022 to 2023 with South Africa’s key trade partners. This index is calculated by dividing total exports by total imports. A value above 1 indicates a positive trade relationship, while a value below 1 suggests a negative one.

For example, an index of 3.0 means exports are three times higher than imports for a particular region or country. The results show a strong trade relationship with Africa, with a trade index of 3.29 in 2023.

Japan and Korea follow in second and third place, with indexes of 2.12 and 2.05, respectively. However, Brazil, Asia, China, India, the UAE, and Russia all have trade indexes below 1.0, indicating a negative trade relationship with South Africa.

Figure 2: Trade Index Comparisons 2022 to 2023

Next, trade growth rates per region and country from 2022 to 2023 were determined and analysed (see Table 3 below). While SA’s growth in net exports dropped by 58.1% from 2022 to 2023, the net exports to the African continent increased by 11.8%, followed by India’s 19%. Very alarmingly, the US net exports dropped by 76.4%, and the Euro region’s net exports fell by 129%.

The three main trade sectors – agriculture, mining, and manufacturing – were also analysed, as they form the economic base of the economy. These sectors are crucial for generating revenue through exports, fostering economic growth, and creating employment opportunities.

Figure 3 below provides a summary of the agriculture sector. In 2023, the sector had a trade balance of R103.1-billion. All major regions and countries showed a positive net export balance for agriculture in both 2022 and 2023, except for Brazil, where South Africa imported more than it exported.

Asia was South Africa’s top export market, with a 14.1% year-on-year growth and a market share of 37.6%, followed by Europe, which had a slightly declining market but maintained a strong share of 27.8%.

With a rapidly growing market of 46.7% per year, Africa held a 10.4% share.

Trade with India remains relatively small, but countries like China, Korea, and the UAE are showing an increase in trade balance, which is a positive sign for the sector. In 2023, Asia accounted for 39.4% of total exports in the agriculture sector, while Europe contributed 35.5%, and Africa represented 17.4% of exports in this sector.

Figure 3: Agriculture net exports 2022 to 2023

Regarding the mining sector (see Figure 4 below), all major trade partners had a positive trade balance with South Africa except for Russia and Africa.

In 2023, the mining sector had a positive trade balance of R663.4-billion. Asia is South Africa’s largest trade partner, although it experienced a 5.3% decline in net exports from 2022 to 2023, maintaining a share of 41.5%.

On the other hand, Europe saw a significant decrease in net exports of 35.1% year on year, with a reduced share of 15.5%.

All countries and regions, except China, showed a decreasing positive net trade balance, with China experiencing a 19.9% increase.

In 2023, Asia accounted for 50.1% of total exports in the mining sector, while Europe contributed 18.2%. China and India represented 19.5% and 8.6% of total exports, respectively, while Africa accounted for 8.3% of exports in the sector.

Figure 4: Mining net exports 2022 to 2023

Finally, the manufacturing sector (see Figure 5 below) faces significant challenges with declining exports. In 2023, the sector had a negative trade balance of R676.9-billion.

Except for Africa, all major regions and countries had negative trade balances with South Africa in the manufacturing sector during 2022 and 2023. South Africa’s net exports to Africa totalled R367.6-billion, reflecting a 15.2% year-on-year increase.

Africa accounted for 40.3% of all exports in this sector, followed by Europe with 27.3%, Asia with 17.8%, and the US with 8.6%.     

Figure 5: Manufacturing net exports 2022 to 2023

The following policy recommendations are suggested to ensure sustainable international trade:

• South Africa should uphold positive geopolitical and trade relationships with both the West and Global South by remaining neutral in regional conflicts;
• Although South Africa enjoys a positive trade balance, the surplus from exports has been declining yearly. To address this, there should be an increased focus on export promotion, economic and sectoral diversification, value addition, and import substitution as part of a comprehensive economic development strategy;
• The analysis highlights the growth potential within Africa. South Africa should prioritise strengthening trade relations with the continent due to its rapidly growing trade surplus and overall growth, in contrast to declining net exports to other global trade partners. The African export potential is significant, but trade barriers need to be addressed;
• The agriculture sector is experiencing a growing positive trade balance with significant export potential in regions such as Africa, Asia (particularly China and India), and the UAE;
• While the mining sector shows a positive trade balance, exports to major trade partners have declined annually. The net export value of mining is still six times greater than agriculture’s. The sector remains a key exporter and source of foreign revenue and should be supported with clear policy guidance, such as the finalisation of the Mining Charter. The drive towards value-added processes from raw mining products should be high on the developmental agenda;
• The manufacturing sector continues to rapidly decline, with an increasing negative trade balance exceeding R670-billion. Africa is the only region with export growth and a positive trade balance;
• Urgent improvements are needed in infrastructure, including logistics and supply chain components such as ports, roads, and railways, to enable smoother and more cost-effective transportation;
• The government should create a more supportive environment for businesses of all sizes to thrive; and
• Maintaining a stable political environment and good governance with clear policy direction is essential to attract foreign investment.

In an upcoming follow-up piece, the South Africa versus Africa trade relations and successes and barriers will be discussed in detail. DM