Trade and Industry

Tuesday, 15 June 1999

Competitiveness, International Trade and Finance in a Mineral-Rich Economy: The Case of South Africa

  • Year: 1999
  • Organisation: IDRC
  • Author(s): Trevor Bell; Greg Farrell; Rashad Cassim
  • Countries and Regions: South Africa

The aim of this paper is to consider the relationship between competitiveness, international trade and financial factors in the South African economy.

The term ‘competitiveness’ is used here in two closely related, but distinctly different, senses. One of these refers to a country’s ability ‘to realise central economic policy goals, especially growth in income and employment, without running into balance of payments difficulties’ (Fagerberg, 1988:355). This may be thought of as competitiveness in the macroeconomic sense, or what we shall refer to as macro-competitiveness. Competitiveness, however, may also be defined as the ability of an economy, or sectors of it, to compete in world markets. Conventionally emphasised sources and indicators of competitiveness in this sense are movements in real exchange rates, productivity and unit labour costs, which are reflections of price-competitiveness. As distinct from these, there are various sources of the ability to compete in world markets, such as product differentiation and innovation, and (of particular interest in the context of the present study) access to finance, which may be regarded as aspects of non-price competitiveness.

Section 2 considers the competitiveness of the South African economy in the macroeconomic sense, by examining the historical relationship between GDP growth and the ratio of the current account deficit to GDP. On this basis, it finds that there has apparently been a significant deterioration in the competitiveness of the South African economy.

The rest of the paper is in effect an attempt to shed light on this problem. The rate of growth of exports is clearly one factor pertinent to South Africa’s macro-competitiveness. One concern of the paper, thus, is with explaining trade performance in recent years. However, a long historical view is seen as indispensable for this purpose. The evolution of the growth and sectoral pattern of South Africa’s exports in the period 1911-72 is therefore described briefly in Section 3.

Section 4, the longest in the paper, discusses variations in the growth and sectoral pattern of South Africa’s trade in 1972-97, divided into two sub-periods: 1972-83, which includes the great gold-led, commodity price boom of that decade; and the period of adjustment from the onset of economic crisis in the mid-1980s, through to 1997, which is the main focus of attention. The emphasis is on changes in relative prices, in particular on real exchange rates, as the determinant of variations in the growth rate and composition of South Africa’s exports, though some consideration is also given to productivity and unit labour costs. The problem of sustaining rapid growth of exports, and hence of increasing macro-competitiveness, is seen as lying in the sectoral pattern of South Africa’s exports.

The effect of financial factors based on trade and competitiveness, one of the particular concerns of the studies in this volume, is the subject of Section 5. Matters considered there, in varying degrees of detail and in different sub-sections, are the effects of South Africa’s relatively advanced stage of financial development; the availability of credit and economic instability as factors relevant to the level of investment; differences in the severity of financial constraints between groups of firms categorised according to trade orientation and trade performance, and hence relevant to competitiveness (in both senses stated above); and the question whether the ownership of banks by South Africa’s conglomerates has skewed the allocation of credit in sub-optimal directions. Section 6 consists of concluding remarks.