How the China export opportunity can lift South Africa’s growth

Standard Bank's Craig Polkinghorne says South Africa is still only scratching the surface when it comes to trade with China.

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In the first eight months of 2019, South Africa’s exports to China totalled R91.2 billion, according to data from the South African Revenue Service. That puts the country on track to more than double the value of goods sold to China since 2010 – when full-year exports to the Asian giant came in at R59.1 billion.

The inflation-beating growth rate is partly thanks to a surge in exports of agricultural products and other goods not directly linked to mining, such as wood pulp and paper, textiles, and vehicles.

While mining products will remain an important component of South Africa’s exports to China going forward, there is a big opportunity to ramp up trade in other goods and services. This could catalyse the growth of South Africa’s agribusiness, manufacturing, tourism, and services sectors.

The opportunity before South Africa, and the rest of the continent, is immense. China’s population of 1.4 billion people is increasingly urbanised – making it more accessible to exporters. At the same time, the shift away from subsistence farming, and general self-reliance, towards consumption is opening doors for exporters.

And amid a worldwide pushback against globalisation and free trade, China appears keen to find alternative suppliers of key goods and services to avoid being over-reliant on single markets.

This all counts in Africa’s favour.

Beyond mineral resources, we see major opportunities for South Africa and its African peers to raise exports of agricultural products and manufactured goods – including vehicles and medical equipment.

As it does this, South Africa should play to its strengths, including its status as a mid-market supplier of goods and
services. In the agribusiness game, for instance, the country has positioned itself as a value-for-money provider of high-quality berries, apples and meat products.

Watch financial journalist Arabile Gumede chatting to Craig Polkinghorne as part of Standard Bank's 54 & One project.

And in manufacturing, it can carve out a niche for itself in short-run manufacturing, or the supply of goods in
relatively small batches.

It often does not make sense to compete with Asian markets when it comes to low-priced goods produced with economies of scale. In such cases, it is better to focus on short-run manufacturing of products that China is less inclined to make itself.

To make the most of the Chinese export opportunity, African governments need to invest in ports and transport infrastructure to facilitate the movement of goods.

Access to trade finance will also be crucial, as will the role of intermediaries such as Standard Bank and its strategic
Chinese partner, The Industrial and Commercial Bank of China (ICBC).

Bilateral trade agreements will be equally as important. Standard Bank is working with the South African government to secure regulatory and veterinary approvals for the export of various agricultural products to China.

As an example, one Standard Bank client has invested heavily in the production of mung beans – a common ingredient in Asia cuisine. By 2020, that client will have 20,000 hectares of mung beans under plantation. If regulators open up the Chinese market to an agribusiness such as this one, the opportunity for South Africa’s farming sector is massive.

Meanwhile, as China develops a greater affinity towards Africa, opportunities in other industries, such as tourism, will come to the fore.

Thanks to phenomenal growth in recent years, China is now the biggest source of outbound tourists in the world. But only about 10% of China’s population have passports – meaning that growth in outbound travel is set to boom. African hotel and resort operators could capitalise on this opportunity by catering more specifically to Chinese travellers.

SA Tourism recently made a strategic announcement of a two-year partnership with China’s Tencent. As Tencent launches digital marketing campaigns on WeChat and its other huge platforms, this could put South Africa on the radar of more Chinese travellers.

While South Africa currently has a sizeable trade deficit with China, the opportunities to boost exports to the East are vast. Tapping into them could fuel the growth of new and existing industries in South Africa, ultimately to the benefit of the broader economy.

Written by Craig Polkinghorne, head of commercial banking at Standard Bank