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BusinessDay www.businessday.co.za Thursday 9 November 2023
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IMPORT & EXPORT
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SA businesses count cost of logistics crisis
R13.1bn
was SA’s trade surplus in September, attributable to exports valued at R174.65bn and imports valued at R161.51bn. Exports were 6% lower and imports 2.8% lower in September 2023 compared to September 2022
Inefficiencies at ports and in railway networks cost •importers and exporters millions, writes Lynette Dicey
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struggling economy is having a knockon effect on importers. High inflation and interest rates mean that consumers are under pressure which resulted in a softer first half of the year for retailers. Importers are also having to navigate supply chain disruptions and inefficient local ports, says Dr Greg Cline, head of corporate accounts at Investec for Business. “Some of SA’s ports – Durban in particular – are so inefficient and the delays so long that it takes ships the same amount of time to sail from the Chinese port city of Shekou to Durban as it does to wait to offload their cargo,” says Cline. “Businesses which import stock are therefore having to mitigate these delays which can include re-routing to other ports.”
Greg Cline … mitigate delays. Durban is SA’s busiest port and has been struggling with congestion for years. Its inefficient handling of cargo and long waiting times before vessels can berth comes at a significant cost to both freight companies and businesses. Re-routing involves additional road freight costs for businesses which are then forced to raise their prices to
recoup some of their losses, putting further pressure on already constrained consumers. While rail is a more costeffective means of transporting goods, failures at Transnet mean that SA’s rail network is not operating optimally. Government has recognised that addressing the issues facing Transnet is a priority if it is to end the logistics crisis currently facing the country. A committee advising the president has recommended dismantling Transnet’s monopoly on both rail and ports and getting the private sector involved through leases and concessions. The draft road map is expected to be approved by cabinet this month. Interestingly, a previous attempt by Transnet to attract private sector players to operate trains on Transnet Freight Rail’s network was largely unsuccessful. Stakeholders criticised the proposal given that
/123RF — PHAISARNWONG it required a large investment in equipment designed to last for 30 years for a two-year contract. To get both SA’s ports and railway networks working efficiently requires private sector investment but, as Cline points out, given the headwinds that the state-owned logistics operator is currently facing with a leadership vacuum and high levels of debt, attracting private sector investment will not be an easy task. Futuregrowth Asset Management, one of SA’s largest institutional investors in the bond market, says it’s hard to make a business case for Transnet given its lack of sustainability. In addition to
Trade initiatives put African exports to US in the spotlight SA’s biggest trading partners in 2022, according to the IMF, are the European Union (21.7%), China (9.4%), the US (8.8%) and Japan (6.9%). SA has a number of trade agreements in place with various countries. As one of its largest trading partners, SA considers its trading relationship with the US to be vital. Trade & industry minister Ebrahim Patel noted recently that the US-SA trade relationship was worth $12bn, including the export of numerous raw materials from SA to the US. The African Growth and Opportunity Act (Agoa) is a US trade preference agreement for Africa — including SA — which allows duty and quote-free exports from eligible African countries into the US. Virusha Subban, the partner specialising in customs and trade at Baker McKenzie Johannesburg, reveals that because Agoa is due to expire in 2025 there has been speculation that it might either be replaced by a new agreement or evolve into something different. Either way, it is expected to continue to be used as an effective governance tool by the US to ensure beneficiaries adhere to Agoa eligibility requirements for duty-free trade with the US. “Currently, eligibility is reviewed annually to ensure
Virusha Subban … investment. that countries are making progress in establishing a market-based economy, as well as following the rule of law and implementing economic policies that reduce poverty and combat corruption and bribery,” she explains. “Countries must also protect internationally recognised workers’ rights and not engage in activities that undermine US foreign policy or national security interests. “If countries are not making progress with Agoa eligibility requirements, they may be terminated as beneficiaries of the trade preference scheme. Alternatively, the US administration may withdraw or suspend the duty-free treatment of products in a particular country to facilitate compliance with Agoa.” US President Joe Biden said recently that the Central African Republic, Gabon, Niger and Uganda had failed to comply with Agoa eligibility criteria and would therefore no longer qualify to be part of the Agoa programme. Along with Brazil and the European Union, the US is one of the leading poultry exporters to SA. Despite calls to impose anti-dumping duties on countries that export poultry to SA, the government has to date failed to implement these duties. “A recent decision to increase the quota of frozen chicken that is allowed to be imported into SA from the US was seen by some to be a
compromise made for SA to continue to benefit from the Agoa programme. However, it could also assist in bringing the price of chicken down for poverty-stricken households,” says Subban. “Despite being the main source of protein for lowincome households, the price of chicken has continued to increase in recent years. In December 2022, Bloomberg’s Shisa Nyama Index revealed that 10kg of frozen chicken pieces was the most expensive item on the index. The index uses data from the Pietermaritzburg Economic Justice & Dignity Group and tracks the prices of ingredients
AGOA ELIGIBILITY IS REVIEWED ANNUALLY TO ENSURE THAT COUNTRIES ARE MAKING PROGRESS IN ESTABLISHING A MARKET-BASED ECONOMY used in a traditional South African dish — shisa nyama.” Subban points out that the US and African countries have been developing strong, sustainability-focused trade and investment partnerships for some time, with some countries particularly successful in increasing the volume of
Louis du Plessis … exports growth.
products they export to the US via Agoa. In 2021, the Biden Administration announced that it would renew the US Prosper Africa initiative with a focus on improving trade and investment in sectors such as infrastructure, energy and climate solutions, health care and technology. In 2022 it was announced that, through the Prosper Africa initiative, plans were being made to boost African exports to the US by $1bn through investments and partnerships and to mobilise an additional $1bn in US investment in Africa. “With continued investment in infrastructure and programmes that boost sustainable trade and empower African businesses, this relationship could rapidly grow among existing beneficiaries and expand into countries with smaller economies. US businesses would also be able to leverage Africa’s new free trade zone, helping to create an increasingly beneficial relationship between the two regions that could eventually mature into a wholly reciprocal trade arrangement.” Since exiting the EU, the UK has been signing up economic participation agreements with various African countries. The total value of South African exports to the UK in 2022 was R102bn. The UK is the fifth largest recipient of South African exports. Louis du Plessis, head of Trade Finance at RMB, says there has been significant growth in exports to the UK in the past decade. In 2010, SA exported R22bn worth of exports, compared to R102bn in 2022. Its imports from the UK, however, have stayed relatively constant at about R27bn per annum. “From an export perspective, what is interesting is that about 50% of the total exports to the UK are made up by precious metals. Vehicle exports, however, have grown five times while vegetable exports have grown three times.”
R130bn worth of debt, it had R7bn in long-term bonds maturing on November 7. On a more positive note, Cline says he is encouraged that load-shedding has been occurring at lower levels in recent weeks, adding that the country needs to get loadshedding under control before it can stimulate much needed economic growth. In addition to local challenges, importers are also facing the economic tailwinds of global events including conflict in the Middle East which could potentially impact fuel prices in the months ahead, points out Cline. Exports are facing similar
logistics challenges to importers. The mining industry’s issues with the railway network, for example, have been well documented. Coal and iron ore miners have been particularly hard hit. Iron ore miner Kumba reports that Transnet rail disruptions on the line connecting its Northern Cape operations at Sishen and Kolomela mines with the port of Saldana Bay have cost the company R6bn in sales. Contract research consultancy GAIN Group estimates that Transnet’s inability to rail sufficient volumes of commodities to South African ports will cost the local economy about R353bn in
2023, primarily as a result of lost sales of coal and iron ore. This is over and above the R411bn lost in 2022. The GAIN Group’s research reveals that rail inefficiencies cost R88bn in direct lost forex receipts from coal alone in 2022 while reduced iron ore export sales resulted in direct forex loss of R18bn. Cline believes that stabilising commodity prices bodes well for additional export volumes. The challenge for commodity producers, however, is that they are vulnerable to economic slowdowns, particularly in China which accounts for more than half of global iron ore production as well as a
significant proportion of copper, nickel and zinc. SA posted a higher-thanexpected trade surplus of R13.1bn in September, attributable to exports valued at R174.65bn and imports valued at R161.51bn. Exports were 6% lower and imports 2.8% lower in September 2023 compared to September 2022. According to the SA Revenue Service, reduced export flows were driven by iron ore, diamonds, passenger vehicles and citrus fruit. The year-to-date preliminary trade balance surplus of R43bn is down from the R179.9bn recorded for the same period in 2022.