Issue 9 February - May 2002

Carin Voges

In retrospect, the year 2000 was outstanding for global output and trade growth. The expansion of international trade by 13% (US$ 6.2 trillion) was not only the strongest in more than a decade; it was also an important turning point in world trade performance. Growth of global trade fell to 1% in 2001.

By the last quarter of 2000, it was evident that a marked deceleration in trade growth was likely in 2001; however the outcome was worse than anyone expected. According to predictions made at the beginning of 2001, world merchandise trade was expected to grow at 7%. It grew by only 2%. It is also interesting to note that the value of world merchandise trade in the second quarter of 2001 was below that of the corresponding quarter in 2000, making it the first year-on-year decline in world trade (on a quarterly basis) since 1998, during the Asian financial crisis.

This phenomenon is primarily due to the fact that for the first time since 1974–1975, the world’s major economies are decelerating in tandem. Europe displayed an unexpectedly strong slowdown in demand growth, imports to the US have stagnated since the first half of 2001, and Japan was still in recession.

The terrorist attacks on September 11th restrained trade flows further, exacerbating the already sharp cyclical downturn. Security concerns translated into higher freight rates, and limited air travel hindered the shipment of perishables and high-tech products. Trade in services such as tourism and business travel were also negatively affected by consumer sentiments.

The slowdown in US imports and investment, particularly in areas such as computers, electronics, and telecommunications, had major repercussions on global trade—especially East Asia. Japan and the Asian developing countries, which are major traders, reported double-digit percentage declines in the value of their merchandise trade in the second quarter of 2001. In contrast, in 2000 these countries, together with the countries in transition (Central Eastern Europe), recorded both the highest import and export growth among all regions.

Overall, growth of developing country exports declined from over 19% in 2000 to 2% in 2001. These effects are so pervasive because developing countries are now, more than ever, linked to global trade cycles in manufacturing. Most developing countries have been undergoing structural changes over the past decade, which include diversification of exports from commodities to manufactures.

Some might question the merit of such exposure to fluctuations in demand for manufactures. However, one should not lose sight of the fact that it is indeed their higher share in the exports of manufactures, which will allow these countries to increase their foothold in the global market and benefit from an eventual rebound in global demand. It is estimated that export prices of manufactured goods will increase by 4–4.5% in 2002.

In 2001, countries dependent on commodity exports were severely affected by the 9% decline in commodity prices, which have never really recovered from the East Asian crisis in 1997. Almost no rebound is expected for 2002, and only in 2003 are current losses likely to be made up, since market conditions continue to put downward pressure on commodity prices in local currencies. Substantial increases in the supply of commodities such as coffee, vegetable oils and timber, and currency weakness of major exporters relative to the US Dollar, all contributed to the decline in commodity prices.

Naturally African countries who are less integrated into the world economy will not be seriously affected by the negative shock of declining global demand—rather their obstacle currently is declining commodity prices and increasing costs of imported manufactures (for the future), which will lead to terms-of-trade difficulties.


SA export performance 2000–2001 GRAPH


South Africa, one of the continent’s leading exporters, experienced a 9% decline in exports since the third quarter in 2000 (see graph). Currently, manufactures have, on an aggregate basis, a 70% share in South African exports, whilst commodities (agriculture and mining) constitute the remaining 30%. Thus one can expect the current slack in demand for manufactures to have significant impact on SA’s exports, despite our increased price competitiveness flowing from the major fall of the Rand since the beginning of 2001.

Furthermore, the concentration of SA’s exports in OECD countries have increased its exposure to the adverse conditions in these markets. Currently the US, UK, Germany and Japan together have a 40% share in SA’s total foreign trade. Also trade on a regional basis is dominated by a few countries. For example, SA’s trade with Zimbabwe comprises of 50% of total trade with SADC.

The ‘butterfly strategy’ of the South African government, which aims to encourage trade and investment links with Asia, Latin America and North Africa, will definitely contribute to increase the balance and diversity of SA’s export destinations. Currently talks are being held to establish free trade areas with Mercosur, Nigeria and India.

The bulk of South African exports fall within stagnating world product markets, although we have seen some restructuring towards markets which are expanding internationally. There is therefore a need not only for export diversification in terms of destination, but also in terms of product.

Recent trade talks at Doha showed a remarkable resistance to reverting back to protectionism, unlike so often in the past when global economic conditions are deteriorating. The new round of multilateral negotiations starting in January 2002, is an opportunity to diversify exports of developing countries while simultaneously gaining market access.

All is not doom and gloom; estimates are that the global economy will begin to recover in mid–2002. Factors such as the current slack in monetary policy globally (lower interest rates on durable goods), rapid technological developments, high depreciation rates of investment goods (shortening the investment cycle), and just-in-time production systems (lower inventory ratios have reduced the structural importance of inventory cycles), and rapid inventory liquidation will together make for a relatively rapid rebound after the current downturn. As a result global trade growth is expected to accelerate moderately in 2002 to 4%, and then gain substantial momentum in 2003 to exceed 10%.

In light of the above, it is imperative that Southern African exporters are ready to take advantage of market opportunities when global import demand recovers. This requires increased progress with current export strategy—ie improving technology, better export incentives to SMMEs, building infrastructure, reducing red-tape in custom procedures, and marketing ourselves globally.