South Africa's total merchandise trade grew at a nominal average yearly rate of 22% between 2003 and 2008, while the value of the country's merchandise exports more than doubled over the period to reach $74-billion by 2008, the World Trade Organisation (WTO) said in its latest trade policy review (TPR) of the country.

The report noted, though, that the economy's robust expansion was mirrored by a substantial deterioration in the trade balance, as the growth of imports of both goods and services continued to outpace export growth.

The South African review, which was published on Wednesday, was part of a broader TPR for the Southern African Customs Union (Sacu), comprising Botswana, Lesotho, Namibia, South Africa and Swaziland, and was the first since the 2003 review.

The report showed that Sacu members had collectively expanded at an average annual rate of about 4% in real terms, but that only the South African economy was relatively diversified, with diamonds and other minerals still dominating trade in Botswana and Namibia, while textiles and sugar dominated the trading landscapes of Lesotho and Swaziland respectively.

However, even in South Africa, the trade performance had been buoyed materially by rising commodity prices, which reach record levels last year before tumbling as the financial crisis morphed into an economic recession.

The report calculated that merchandise exports more than doubled between 2002 and 2008, to reach some $74 billion, with the export of primary products reaching $35,6-billion in 2008 - an increase of about 166% from the 2002 level.

"While agricultural exports grew by about 66% over the period, exports of mining products more than tripled, to reach $28,6-billion in 2008, reflecting strong global demand," the study stated.

FALLING SHARE OF MANUFACTURED EXPORTS

Exports of manufactured goods rose to $38-billion, a 111% increase over 2002. But the share of manufactured products as a proportion of total exports decreased from 61,7% in 2002 to 51,5% in 2008.

Machinery and transport equipment were the main exports among manufactured goods, followed by iron and steel, while primary products accounted for 48,2% of total exports in 2008, up from 38,2% in 2002.

The report said that the increase was mainly owing to the strong export performance of the mining sector, while agricultural exports recorded a gradual decline from 19,5% to 9,5% of total exports.

Meanwhile, the value of merchandise imports reached $87,6-billion in 2008, more than three-times larger than levels recorded in 2002, with manufactured goods remaining the largest import sector, accounting for 61,5% of total imports in 2008, as compared with 69,5% in 2003.

The share of primary products increased by 10,3 percentage points over the period, to 31,8%, with fuels consolidating its position as the second largest import category, with 22,3% of total imports in 2008.

SERVICES IN DEFICIT

The report also showed a marked change in the fortunes of South Africa's services trade, which moved from a surplus of $253-million in 2003 to a material deficit in 2008.

In fact, the export of services totalled $12,5-billion, while services imports totalled US$16,8-billion during the year.

The negative balance was primarily attributable to transportation, business travel, royalties and licence fees, and other business services.

The deficit in transportation widened significantly, as payments for freight shipments more than doubled between 2003 and 2008, but South Africa did register a modest, but rapidly increasing, surplus in financial and computer services.

During the TPR period, from 2003 to 2008, South Africa posted a deficit in the current account of the balance of payments throughout, a marked departure from the surpluses recorded in 2001 and 2002.

The report noted that the "steadily widening gap" reached 7,41% of gross domestic product (GDP) in 2008, a level not seen since the early 1980s.

South Africa's Finance Minister Pravin Gordhan reported in late October that the deficit should fall to 4,9% in 2009, owing, in large part, to the country's first recession since 1992, but that it was likely to move back to 6,9% by 2013.

The TRP noted that the current account deficit was the major source of vulnerability, since it exposed South Africa to the risk of a financial crisis owing to the sudden halt of capital inflows.

TRADING NATIONS

The TPR also highlighted the fact that bilateral trade flows between South Africa and most of its major trading partners increased substantially in nominal terms from 2002 to 2008.

"At nine times the 2002 level, the value of exports to China showed the largest expansion, followed by an eightfold increase in exports to the Commonwealth of Independent States," the report showed, while noting that exports to the rest of Africa also grew steadily.

"There was also a surge in the value of imports between 2002 and 2008 from the rest of Africa, India, and China, while the value of imports from the US and the European Community (EC) also rose.

The EC remained South Africa's leading destination and a supplier of merchandise throughout the period, maintaining a fairly stable share of total exports originating from South Africa at around 35%. However, the EC's relative weight in aggregate South African imports decreased from 42,4% to 31,1%.

The US's share of exports remained stable while imports declined, but shipments to China accounted for a growing share of South Africa's total exports, rising from 2% to 5,8% between 2003 and 2008.
"The same trend was observed in the opposite direction, with the Chinese share of total imports to South Africa increasing. Imports from the rest of Africa to South Africa also increased, whereas South Africa's exports to the continent remained relatively stable at about 15%," the study indicated.

From 2003 to 2007, annual inflows of foreign direct investment (FDI) into South Africa increased sevenfold, and year-on-year growth was 85% in 2008. Overall, FDI increased from $1,4-billion in 2002 to $9-billion in 2008.

But the report also warned that the current global economic context looked less favourable for South Africa and the economy's resilience might be tested, especially if the current account deficit continued to widen, progressively eroding foreign investors' confidence in South Africa's steady macroeconomic performance.

In addition, sticky inflation and no indication of a policy response to deal with currency volatility, could affect growth, as risk averse firms become less willing to invest.