Stuttering Asia holds SA's growth hostage

February 24, 2009 - By Ethel Hazelhurst [Business Report]

South Africa's growth outlook is increasingly dependent on trade with Asia and the failure of that region's emerging economies to decouple from the West is becoming more of a threat than an opportunity to the country.

"This is likely to cost South Africa billions of rands in lost export revenue," said Mike Schussler, an economist at T-Sec. "In dollar terms, exports to Asia fell 10.5 percent year on year in December and are likely to fall further in the year ahead," he predicted.

Nearly 30 percent of South Africa's exports go to Asia, according to Standard Bank's economics division. "The downside risks for South African exporters are becoming increasingly concerning," it said.

South Africa's trade relations with Asia have been rising since the late 1990s, and grew even stronger following China's entry into the World Trade Organisation in 2001. 

Martyn Davies, the chief executive of consultancy Frontier Advisory, said there was a close link between growth in China and in Africa. He noted that China was growing at 6.8 percent a year, compared with 12 percent to 13 percent a few years ago. "We should closely monitor the attempt by the Chinese government to pump prime its economy, which will determine whether there is a pick-up in demand for commodities later in the year." 

Base metals worth R46.4 billion were the biggest export to the region in the first 11 months of last year, according to the latest available SA Revenue Service figures. Total exports to the region were worth R179 billion. 

The next biggest export was mineral products, mostly coal, worth R44.1 billion, followed by R42.4 billion of precious stones and metals.

The fall in Asian demand is due to the region's own export performance, which UK-based think-tank Chatham House said was "jaw droppingly bad". It said last week: "While sizeable losses were expected, falls of 30 percent to 40 percent in exports, as reported by countries such as South Korea, Taiwan and Japan since November, [will lead] to further downgrades in economic forecasts."

Recent data show that many Asian economies are contracting more sharply than those of advanced economies as their own export markets collapse. 

"While emerging Asia is still expected to grow in 2009, a predicted rate of 2 percent to 3 percent is even lower than in 1998," Chatham House said. "This forecast is heavily reliant on relatively robust estimates for China and, to some extent, India - if these fail, Asia's average growth rate may be close to zero. Given the size of Asia and its imports, such a decline would create further negative impacts on the rest of the world, including commodity markets."

Reuters reported yesterday that Thailand's economy shrank 4.3 percent in the fourth quarter of last year, "its biggest contraction in memory after exports collapsed". This follows similar news elsewhere in Asia.

South Korea's gross domestic product fell by an annualised 5.6 percent in the fourth quarter. And the contraction could be continuing, as exports plunged by a record 32.8 percent year on year last month, while imports fell 32.1 percent.

Taiwan's economy contracted 8.36 percent in the fourth quarter. AFP reported: "Taiwanese exports are likely to fall 20.1 percent this year, while imports are likely to slump 26.2 percent." 

Japan's economy shrank an annualised 12.7 percent in the fourth quarter, official data show.