A new United Nations Conference on Trade and Development (Unctad) study argues that, five years since the onset of the financial crisis, the global economy remains in a structural crisis and it is, therefore, not possible for countries to pursue pre-crisis growth strategies, including export-led development policies.

In fact the Trade and Development Report 2013 argues that export-led strategies – mainstay policies for countries such as China, South Korea and, to a lesser extent, South Africa – are no longer viable. Instead, more balanced strategies, geared towards generating a greater role for domestic and regional demand, should be pursued.

Unctad estimates that world output growth – which slowed from 4.1% in 2010 to 2.8% in 2011 and then to 2.2% in 2012 – will not recover in 2013, when it is likely to decelerate further to 2.1%. It also notes that global trade expansion has “virtually ground to a halt”, with volumes increasing by less than 2% in 2012.

Continued sluggish growth in developed-economy imports is also forecast, leading Unctad to propose that developing economies reconsider development strategies that are overly dependent on exports.

However speaking at the release of the report in Johannesburg, coauthor Diana Barrowclough also acknowledged that South Africa’s domestic market lacked scale and that regional cooperation and coordination would, therefore, also be required to meet its development objectives.

Trade and Industry Minister Dr Rob Davies concurred, noting that, unlike its counterparts in the Brics bloc of Brazil, Russia, India and China, South Africa, with only 51-million people, would need to have a stronger focus on regional integration.

He stresses, though, that such integration should be “developmental” in character and should emphasise not only market access and liberalisation, but also physical infrastructure linkages and an integration of industrial supply chains.

Therefore, while accepting the Unctad analysis regarding constraints to export-led growth, Davies also drew on the same organisation’s Economic Development in Africa Report 2013, published in July, to emphasise the regional-integration dimension.

South Africa should also seek to target opportunities available as a result of global value-chains, which the World Trade Organisation described as the dominant feature of world trade and investment in a publication released in early September.

“Most international trade is taking place in intermediary goods,” Davies outlined in a video address during the Unctad launch, stressing that the challenge is for South Africa and Africa is to move up the value-chain hierarchy through value-addition, industrialisation and diversification.

Unctad indicates that any strategy giving a greater role to domestic demand will also need to emphasise the income aspect of wages, owing to the fact that household spending is the largest component of domestic demand – in South Africa household consumption expenditure is around 60% of gross domestic product.

“Employment creation combined with productivity-oriented wage growth should create sufficient domestic demand to fully take advantage of growing productive capacities, without having to rely on continued export growth.”

This, however, will require a marked departure from the prevailing declining trend of labour income in world gross output. The study shows that, over the past three decades, the share of labour income in the world economy has fallen from over 60% to around 55%.

“To realise growth potential of domestic markets, domestic purchasing power must be created, not through increased household debt, but through wage growth and policies that favour the domestic middle class,” Barrowclough avers.

There should be a shift in perceptions, she adds, away from viewing labour as a cost centre to being key consumers and market drivers.