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Bobby Madhav | In a challenging trade environment, proactivity and innovation are essential

Bobby Madhav | In a challenging trade environment, proactivity and innovation are essential
10-11-22 / Bobby Madhav

Bobby Madhav | In a challenging trade environment, proactivity and innovation are essential

As was the case with most countries, South Africa’s trade took a relatively significant knock during the height of the Covid-19 pandemic and the consequent lockdown responses by government. Initially, imports bore much of the brunt of the lockdowns and border closures, but exports soon followed suit.

While border controls and trade restrictions gradually eased during the course of 2021, it was hoped that the imports and exports would quickly recover from the muted activity that characterised most of 2020. Unfortunately, this wasn’t to be the case, due for the most part to the massive logistics bottlenecks that were created by the pandemic restrictions, many of which have still not been entirely cleared.

Fortunately, these challenges were offset to a certain degree in 2021 by the strong commodities showing in South Africa, with many agri products achieving healthy surpluses and global demand for other South Africa’s commodities keeping prices largely elevated.

In many ways, this global demand and resulting strong pricing was instrumental in buffering the South African economy against the full impact of the pandemic. And it meant that the anticipated recovery was able to start gaining momentum fairly rapidly as Covid-19 fears dissipated early in 2022. As a result, by the middle of this year, we saw exports worth over R100 billion flowing from the country.

It's likely, however, that this figure would have been even higher were it not for geopolitical tensions simmering over with the advent of the Russia-Ukraine conflict. While neither country is a very significant trade partner to South Africa, the effects of the global downturn in trade of all commodities as a result of the war has undoubtedly filtered through to this country.

In addition, the conflict created a net shortage of goods that were previously exported to, and imported from, Russia. Historically, the biggest volumes of imports from the Russian Federation have been copper, fertilizer, minerals and oils and to a lesser extent, cereals.

Export volumes to Russia have long been led by citrus and other fruits and vegetables, manganese and ore, as well as machinery. While these import and export volumes have never been at levels that mean these commodities are now at significant long-term trade risk, they are significant enough to require the country to find new markets in order to pick up the slack.

This is always a challenging scenario for traders. For one, establishing new international markets is never an easy undertaking, and it can involve lengthy marketing and negotiation processes. Then, there is the risk of losing any pricing advantage that was previously enjoyed with trade partners in the countries that are no longer available. This is particularly true of the current scenario where there is likely to be a lot of competition from importers and exporters in other countries that are faced with the same need to access new markets.

From a Ukraine perspective, while trade volumes are even smaller than South Africa previously enjoyed with Russia, the potential for Ukraine to become a much more significant trade partner with our country, once the conflict has been resolved, is immense. Ukraine’s wheat production will undoubtedly return to the very significant levels it was previously at, in order to help stimulate the country’s post-war economic recovery.

Add to that the obvious determination of the Ukrainian people to establish their country as a meaningful participant in the global economy, and it’s likely that, barring a worst-case outcome of the war, Ukraine will be actively looking for global trade partners in the future. And that will create an environment that is conducive to shared economic benefit for all parties involved in such trade partnerships.

Of course, there is no benefit to South Africa’s trade sector of waiting in the wings for the Russia-Ukraine conflict to end in order to capitalise on any opportunities that will arise when that happens. It is imperative that we actively seek out new markets now, not only to address the loss, or decline, of trade activity due to the war and the global trade repercussions it has created, but also to mitigate the stellar increases in the costs of transport and logistics, which cannot simply be passed on to consumers indefinitely.

The good news is that these new opportunities are increasingly opening up to trade participants in South Africa. For one, the challenges facing trade in most countries mean that there is the potential to enter into partnerships with overseas countries and regions that have not historically been significant trade partners with South Africa. Then, the current global challenges are also a massive incentive for South Africa to start capitalizing more on the many trade opportunities right here on the African continent. This has been made a far easier and more compelling proposition thanks to the African Continental Free Trade Area (AfTCA) agreement that has removed many of the barriers that have historically discouraged South Africa’s trade parties from actively exploring trade opportunities with their African neighbours.

Ultimately, while it’s likely that the challenges facing both importers and exporters in South Africa appear will continue, and possible even increase, in the coming months and years, there are also many new opportunities to be had. But taking advantage of them demands a proactive mindset and the willingness, and ability, to think outside the box.

*Bobby Madhav is FNB Head of Trade & Structured Trade and Commodity Finance.

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