Exports could hold the key to South Africa’s economic recovery and growth, with the country experiencing a record trade surplus in the wake of the Covid-19 pandemic with exports far outpacing imports, notes financial services provider Standard Bank.

Recent data released by the South African Revenue Service showed that the country recorded a trade surplus of R51.4-billion in April 2021, surpassing market expectations of R31-billion. This followed the record high surplus of R52.77-billion set in March 2021.

The cumulative trade surplus for the first four months of 2021 now stands at about R147-billion, compared to a trade deficit of R4-billion over the same period in 2020, explains Standard Bank executive trade and supply chain finance sales head Justin Milo.

The key driver of this performance is the economic growth being experienced by South Africa’s trading partners, which has increased the demand for South African exports, along with rising global commodity prices, he comments.

“Key commodity and product drivers include agricultural commodities such as citrus, maize, apples and grapes, manufactured goods such as machinery and equipment, and motor vehicles, and mining outputs such as precious metals, iron-ore and manganese.

“These export flows have been channelled to our key trading partners in Asia – China, Japan and India; the US; Europe – Germany, the UK and the Netherlands; and Africa – Namibia, Botswana and Mozambique,” he says.

Milo highlights that mining production grew by 21.3% year-on-year in March 2021, beating market expectations of a 3.9% rise. It was the first increase in mining activity since February 2020, and the sharpest increase since March 2015.

While exports have grown by 51.6% year-on-year on a year-to-date basis, imports have only increased by 11% over the same period.

Lagging imports can be attributed to Covid-19-induced constraints and subdued economic growth, impacting on domestic demand in South Africa.

He points out that the International Monetary Fund World Economic Outlook expects that global growth will reach 6% year-on-year in 2021. While South Africa’s recovery is expected to be slower, its trading partners’ economies are projected to continue growing in line with the vaccine roll-out and the stabilisation and normalisation of global economic activity.

The country needs to take advantage of the anticipated uptick in global growth to help stimulate local economic activity.

Further, history shows that economies tend to grow rapidly following wars and global pandemics – referred to by economists as a ‘post pandemic economic boom’. As such, exports are expected to grow significantly over the next few years, and this may be a catalyst for economic recovery.

It was announced on June 1 that South Africa’s unemployment rate had hit a new record high of 32.6%. As the demand for South Africa’s exports increase, the local manufacturing, mining and agriculture sectors are expected to raise production and increase expenditure on inputs, which could provide a much-needed boost to employment.

In turn, aggregate expenditure in the economy will rise, stimulating economic growth, he notes.

Milo states that Standard Bank “stands ready” to assist exporters in realising the opportunities created by this export boom. Owing to its deep sectoral knowledge and expertise, it assists clients with mitigating key risks in the export process – most notably payment and exchange rate risk, as well as assisting exporters with working capital to meet their liquidity needs across the full trade cycle.

“Standard Bank has been at the forefront of assisting our clients with payment risk mitigation instruments such as letters of credit (LC). An LC is an undertaking issued by a bank on behalf of the importer, whereby the issuing bank irrevocably undertakes to make payment to the exporter, provided that the exporter complies with the terms and conditions of the LC. Therefore, if the exporter performs in line with the terms and conditions of the LC, they are provided with payment certainty.”

It also offers LC confirmations to mitigate the bank and country risk associated with the issuing bank of the LC. In the case of a confirmed LC, exporters are provided with payment certainty following a compliant presentation of documentation under the LC, even if the issuing bank defaults, he says.

Further, exporters often require working capital to fulfil their export performance obligations. Standard Bank adopts a holistic approach whereby it understands its client’s supply chains and looks for the most optimal points to inject liquidity and support their cash flows.

Owing to the expectation that globally momentum around a post-pandemic economic boom is expected to pick up, South African exporters must take advantage of the increased demand for export commodities, Milo concludes.