TRALAC - Trade Law Centre

Recovery in SA Car Exports to US Likely to Support Bilateral Trade Growth in 2006

Tuesday, 14 November 2006

Source: Engineering News (South Africa)

Bilateral trade between South Africa and the world's largest economy, the US, would 'comfortably' exceed $10-billion in 2006, newly appointed Minister-Counselor for Commercial Services to South Africa Craig Allen reported.

In the first nine months of the year, bilateral trade had reached $8,8-billion, with exports from South Africa rising 29,68% to $5,6-billion and imports from the US to South Africa increasing 7,68% to $3,2-billion. In 2005, South Africa exported about $6-billion of goods and services to the US and imported some $4-billion.

Allen, a career diplomat who was posted to South Africa in June, having worked previously for 37 years in Asia, most recently as Minister-Counselor in Beijing, China, described the trade relationship as “robust” and suggested that the growth in trade was healthy.

In disaggregating the trade figures, Allen highlighted a material recovery in automotive exports to the US, which rose 105% year-on-year for the nine-month period to $418-million, as compared with $203-million for the same period in 2005.

“That's pretty remarkable, because this is not a commodity that is interest-rate or exchange-rate sensitive, or part of the commodity boom; it's a manufactured export,” Allen noted, adding that he hoped it marked the beginning of a sustainable trend.

However, the recovery in automotive exports to the US was still lower than that achieved in the first nine months of 2004, when South Africa recorded vehicle exports of $432-million to America.

National Association of Automobile Manufacturers of South Africa (Naamsa) director Nico Vermeulen said that the slump in 2005, was due to a phase-out, by BMW, of its previous-generation 3-Series vehicle, while the recovery was due to the introduction of the new model left-hand-drive 3-Series.

Vermeulen believed that, given the framework provided by the Motor Industry Development Programme, as well as the Africa Growth and Opportunity Act (Agoa) - which allows for 97% of all African exports to enter the US duty-free - the opportunity was there to further expand exports into the US.

He pointed out that DaimlerChrysler's new C-Class model, which would begin rolling off the Eastern Cape assembly line as from the second half of 2007, could also well find its way into the US market, which should expand the value of vehicle exports further.

However, non-manufactured products continued to be the mainstay of South Africa exports to the US, with the value of exports of precious stones and metals rising 39,29% to $2,7-billion in the first nine months of the year. This growth was most likely driven by higher prices for diamonds, gold and platinum rather than increased volumes. In addition, the value of South African iron and steel exports to the US rose 29% to $510-million consolidating that sector's position as the second largest category of exports to the giant economy.

By contrast, manufactured exports, excluding motor vehicles, rose only seven per cent period-on-period, which Allen said was a “pity” given that all of those categories of products would have duty-free access to the US.

Pace of US import growth slows

With regard to US imports into the South African economy the growth was far more modest.

In the nine months to September, imports from the US rose 7,68% to $3,2-billion compared with $2,9-billion for the same period in 2005. At that level, South Africa was the 34th biggest importer of US products and services in the world, with Canada, which imported $764-billion from the US in the period, in top spot. South Africa came in one place behind Russia, which imported $3,4-billion in American products and services during the period.

Allen said that the rate of growth in US imports had slowed markedly from the 23% recorded in 2005 and the 20%-plus yearly growth recorded during the five-year prior period.

Again, the automotive sector was a key feature of the slowdown, with vehicle imports from the US falling 25%. Allen was unable to offer any reasons for the fall.

Another notable fall came in the aeroplane and aeroplane parts sector, which fell four per cent. Allen felt this to be a cyclical development, given that none of the South African airlines were in a purchasing mode.

US investment into SA still slow

Allen, who is married to a 'Capetonian', said that there was real potential to grow the trade relationship. “When I look at South Africa, I cannot help but be optimistic. Some $50-billion will be flowing towards infrastructure projects over the next few years and we are focused on that. We have a number of companies interested in the work,” he said, suggesting the slowdown in exports to South Africa was likely to be temporary.

Allen was cautiously optimistic on South Africa being able to attract investment from the US. The US's fixed investment presence was extremely small, at around $3,6-billion, which was paltry when compared to investments by European firms. And, the inward-investment base was not only small, but the trends were also not “that positive”.

Allen suggested a number of reasons for this, including low levels of gross-fixed capital formation over the last decade, which had averaged 15% of GDP and had only recently moved closer to 20%; low savings level; and uncertainty around the rules for black economic empowerment.

Another key factor, in Allen's view, was that the relationship between trade and investment had not been fully exploited.

“Investment follows trade and it is simply a fact that Europe and South Africa have a free-trade agreement, which means that European companies face lower tariffs than American companies face. Therefore, European companies do more trading with South Africa, which leads to an even more robust trade and investment relationship between South Africa and Europe than between South Africa and the US or even Asia,” Allen argued.

He indicated that the US government was keen to pursue a trade-and-investment deal that could unlock the opportunities between the two countries.



“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of South Africa’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.