Gloomy outlook for global trade

The outlook for trade both globally and, indeed, within South Africa is gloomy. Under these circumstances, government needs to take action, starting with lowering barriers to trade, says CHRIS HATTINGH.

In a report released in October this year, the World Trade Organization (WTO) indicated it expects trade growth in 2023 to fall to 1%, compared with the previous forecast of 3.4%. Meanwhile, 2021 saw 9.7% growth in global trade.

 The WTO highlighted tightening economic conditions in the US and Europe as potential risks and barriers to growth and trade flows. Higher food, fuel, and fertiliser costs will depress economic activity and contribute significantly to social instability in some regions. Additionally, higher inflation will mean further interest rate hikes from central banks, in turn depressing business’ ability to take on credit and expand.

During an interview with Bloomberg Television, WTO director-general Ngozi Okonjo-Iweala said: “We’re looking at a situation in which a global slowdown is going to squeeze households even more – squeeze businesses – and we may be edging into a recession. It’s looking quite grim… a little more grim than we had thought.”

Okonjo-Iweala also pointed out the risk of countries pursuing more protectionist trade stances and erecting barriers to the movement of goods and services. Governments could pursue such a path for a variety of reasons, chief amongst these being a backlash against globalisation after the COVID-19 pandemic, as well as a desire to protect local industries and businesses. The problem is that such measures would increase costs and fuel inflation.

In South Africa specifically, the government is implementing Localisation Master Plans; in terms of supply-side reforms to help under pressure consumers, the freezing or complete abandoning of such plans would lower the costs of imported goods and help consumers in the long run.

Turning further toward South African trade concerns, the central pressure and risk point that is the state-owned entity of Transnet has once again been exposed as potentially dire for the economy. A strike by union members crippled operations at the country’s ports, impacting most harshly on the mining and agriculture sectors (two of the rare lights in the general gloom of the South African economy).

In their post-strike assessment, the South African Association of Freight Forwarders (SAAFF) revealed that the 11 days of industrial action incurred trade costs of R7 billion, while South Africa lost the opportunity to move R65.3 billion-worth of goods.

SAAFF CEO Dr Juanita Maree summarised the matter very well: “If goods can’t move, the economy stops. And if the economy stops, the impact is hugely negative for anything related to the movement of cargo – including time, cost, and service reliability. With the economy’s circular flow, ordinary South Africans will suffer in the end – the very individuals who went on strike against a wage offer way below the inflation figure.”

South Africa’s blueberry industry supports around 40 000 jobs. Because produce needs to be moved in a timely and effective manner, any delays could mean that said produce is simply dumped. Furthermore, unreliability now means that customers in other regions, especially Europe, may well decide to procure their demands from other countries in the future, such as those in South America. The same goes for other industries: the more foreign businesses and customers experience higher costs and more delays in their deals with South Africa, the higher the chance that they will explore other options. That means less investment and economic activity, and fewer job opportunities for South Africans.

There have been sounds from government that trade infrastructure will be opened up for private sector investment, but as yet this has not taken place. For as long as Transnet remains the sole player in rail and ports, any failures or slowdowns on its part will impact all aspects of the wider South African economy, and in turn hurt lower-to-middle income consumers.

A clear route for South Africa to avoid or lessen some of the pressures being highlighted by the WTO in the coming years is to lower barriers to trade across the board. Streamlining processes at border posts, speeding up the adoption of digital tools, and reducing hoops through which importers and exporters need to jump will increase efficiency and reduce the time spent transporting goods. This will help to lower costs and in turn benefit consumers here as well as in the rest of sub-Saharan Africa.

If the government decides to pursue a more isolationist route, with higher tariffs on imports and subsidies for the politically connected, it will ultimately be consumers and businesses suffering from the higher costs of goods and services.