Despite a marked improvement in South Africa’s terms of trade since 2010, the country’s exports has seen a slow recovery, weighed down by lagging global recovery and widespread stoppages in the mining sector, South African Reserve Bank governor Gill Marcus said on Friday.

She stated that South Africa’s export performance had lagged that of its emerging economy peers, which impacted adversely on the trade account of the balance of payments, particularly at a time when the exchange rate was relatively strong in response to strong capital inflows to emerging market economies.

“But nonmining exports have also underperformed and we need to learn from the experience of countries such as Germany as to how to improve competitiveness under adverse circumstances,” she urged at a Southern African–German Chamber of Commerce and Industry luncheon, in Johannesburg.

She highlighted that the main export sectors of the South African economy, therefore, faced a challenging outlook, with commodity prices, besides the gold price, not having generally recovered to precrisis levels.

Concern was amplified by rising input costs, particularly electricity and wage costs, as well as an increasingly difficult labour relations environment.

“The manufacturing sector remains vulnerable to the continued weak demand from Europe, while its import and export competitiveness was also adversely affected by the appreciation of the currency in 2010/11,” Marcus said.

However, following the recent depreciation of the rand, the outlook for the sector was still fragile, but somewhat more positive.

Further, The Consumer Price Index increased by 5.9% in March this year, the same increase as in February. The year-on-year price increases were mainly driven by the categories of housing and utilities and transport, with the higher petrol prices impacted on by the weaker exchange rate, and the exchange rate remains an upside risk to the inflation outlook.

Marcus stated that these factors were expected to contribute to a temporary breach of the inflation target during this year. “We expect it to reach 6.3% above the target during this year.
It also appears that medium-term inflation expectations remain anchored [with] the inflation target.”

The International Monetary Fund forecasts global growth this year to average 3.3%, compared with 3.2%in 2012; however, this was down from their previous estimates.

“We are, in effect, seeing a continuation of the crisis…we look forward to a revival in world trade to help drive the domestic recovery. The cautious optimism that was evident at the beginning of the year, what some refer to as the ‘new year effect’ has now given way to renewed concerns,” she said.

Meanwhile, fears of a hard landing in China have abated and, although a return to previous elevated growth rates is unlikely, the expected growth rates of around 8% should help underpin the demand for, and the price of, commodities, which is critical for South Africa’s growth outlook.

Germany has long been one of South Africa's traditional trading partners and remained the second largest destination by country for South Africa’s manufactured exports, after the US.

In 2012, the value of these exports, mainly machinery and electrical equipment, amounted to R21.8-billion and accounted for about 60% of South Africa’s total exports to Germany.

“On the trade front, we still run a fairly large deficit with Germany, with total exports of R37.8-billion and imports of R84-billion. Most of these imports are manufactured goods,” Marcus stated, adding that the continued weakness in South Africa’s traditional trading partners in the eurozone and the UK underlined the need to seek new markets for manufactured exports.

In addition, Germany was one of the most important sources of direct foreign direct investment into South Africa, with German firms having invested R33.7-billion in South Africa since 2003.

Marcus indicated that South Africa stood to learn a lot from Germany whose industrial relations were characterised by a high degree of cooperation between employer and employee organisations.

“In South Africa, we need to find models that enable earlier dispute resolution in the workplace before labour disputes affect the broader economy,” she stated.

Marcus further added that, beyond foreign investment, to address South Africa’s high unemployment rate, long-term, mutually beneficial partnerships between South Africa and Germany would be required.

“South Africa has a huge skills mismatch. This mismatch will not be resolved overnight, but firms can take the lessons from Germany and help to build a workforce that is skilled, satisfied and globally competitive,” she said.