[Standard Bank] Exports – the potential engine of South Africa’s economic recovery

By Justin Milo – Executive Head of Trade & Supply Chain Finance Sales at Standard Bank

Exports could hold the key to South Africa’s economic recovery and growth. South Africa is experiencing a record trade surplus in the wake of the COVID-19 pandemic with our exports far outpacing imports.

Recent data released by the South African Revenue Service showed that South Africa recorded a trade surplus of R51.4 billion (about $3.8 billion) in April 2021, surpassing market expectations of R31 billion (about $2.3 billion). This followed the record high surplus of R52.77 billion (about $3.9 billion) set in March 2021. South Africa’s cumulative trade surplus for the first four months of 2021 now stands at R147.83 billion (about 10.8 billion), compared to a trade deficit of R4.41 billion (about $322 million) over the same period in 2020.

The key driver of this performance is the economic growth being experienced by our trading partners which has increased the demand for South African exports, along with rising global commodity prices. Key commodity and product drivers include agricultural commodities (citrus, maize, apples and grapes), manufactured goods (machinery and equipment, and motor vehicles), and mining outputs (precious metals, iron ore and manganese). These export flows have been channelled to our key trading partners in Asia (China, Japan and India), the USA, Europe (Germany, UK and the Netherlands) and Africa (Namibia, Botswana and Mozambique).

South Africa’s mining production grew by 21.3% year-on-year in March 2021, beating market expectations of a 3.9% rise. It was the first increase in mining activity since February 2020, and the sharpest increase since March 2015.

March 2021 also saw the strongest growth in factory activity since April 2019. South Africa’s manufacturing production rose by 4.6% year-on-year in March, well above market expectations of a 0.45% increase in production. Production was also 3.4% higher than in the previous month.

While exports have grown by 51.6% year-on-year on a year-to-date basis, imports have only increased by 11% over the same period. Lagging imports can be attributed to COVID-19 induced constraints and subdued economic growth, impacting domestic demand in South Africa. The IMF World Economic Outlook suggests that global growth will come in at 6% year on year in 2021. While South Africa’s recovery is expected to be slower, our trading partners’ economies are projected to continue growing in line with the vaccine rollout and the stabilisation and normalisation of global economic activity. South Africa needs to take advantage of the anticipated uptick in global growth to help stimulate local economic activity.

History shows us that economies tend to grow rapidly following wars and global pandemics – referred to by economists as a ‘post pandemic economic boom’. South Africa’s exports are thus expected to grow significantly over the next few years, and this may be a catalyst for economic recovery in South Africa.

On 1 June, it was announced that South Africa’s unemployment rate has hit a new record high of 32.6%. As the demand for South Africa’s exports increase, the local manufacturing, mining and agriculture sectors are expected to raise production and increase expenditure on inputs – this could provide a much-needed boost to employment. In turn, aggregate expenditure in the economy will rise, stimulating South Africa’s economic growth.

Standard Bank stands ready to assist exporters in realising the opportunities created by this export boom. With our deep sectoral knowledge and expertise, we assist clients with mitigating key risks in the export process – most notably payment risk and exchange rate risk, as well as assisting exporters with working capital to meet their liquidity needs spanning the full trade cycle.

With the post pandemic economic boom expected to pick up momentum globally, South African exporters must take advantage of the increased demand for our export commodities. With the support of the financial sector, there can be no doubt that exports have the potential to be the engine of South Africa’s economic recovery.

Standard Bank Group is the largest African bank by assets with a unique footprint across 20 African countries. Headquartered in Johannesburg, South Africa, it is listed on the Johannesburg Stock Exchange, with share code SBK, and the Namibian Stock Exchange, share code SNB.