Domestic policy shift needed to redress trade imbalance

The only solution to redressing South Africa's trade imbalance is to implement domestic policy shifts geared towards increasing our manufacturing and export competitiveness. However, the bulk of government policy over the past 24 months seems almost calculated to reduce South Africa’s competitiveness. These were the hard-hitting words from Frans Cronje, CEO of the Institute of Race Relations (IRR), in reaction to the November 2014 Fast Facts report highlighting South Africa’s global import and export growth. With South Africa’s biggest trade partners – China and the European Union (EU) – showing signs of an economic slowdown, and with further rand weakness on the horizon, the country is unlikely to turn its trade deficits into trade surpluses any time soon,” said Cronje. He noted that the IRR’s trade data showed no evidence that the rand weakness had helped reduce trading imbalances. “In fact, quite the opposite is true, for sharp declines in the real effective exchange rate have been mirrored by sharp increases in the current account deficit. This should finally put to bed any argument that currency weakness benefits the South African economy. On the contrary, currency weakness drives up the price of imports, adds to production costs, and drives down our export competitiveness,” Cronje said. Among individual countries, China is South Africa’s biggest trading partner, with imports and exports between the two nations totalling R263.9bn in 2013. Trade with the European Union (EU) region is valued considerably higher, at R449.9 billion. Both relationships are heavily skewed, South Africa having a trade deficit of R45.2bn with China and one of R119bn with the EU. INSERT & CAPTION The country is unlikely to turn its trade deficits into trade surpluses any time soon. – Frans Cronje