South Africa looks closer to home in the face of European turmoil

- Finance - Jun 26, 2012

Priding itself as a first world country in a third world continent, South Africa has mostly traded with overseas markets, in particular the now-floundering Europe. With no end in sight for the euro zone crisis, the European Union and wider continent as a whole is an increasingly unattractive trade prospect.

The instability faced overseas has led South Africa to look inwards, to its poor but fast-growing African cousins. Most notable are the increased crude imports from Nigeria, rising nearly five-fold in the last year due to the increasing pressure from the west to reduce trade with nuclear Iran, formerly the countries biggest supplier, and yet another drawback to their allegiance with the west. 

Trade within Africa has increased gradually over the last decade; however the close affiliation with Europe, perhaps a legacy of apartheid, has left South Africa standing in the 21st Century ‘scramble for Africa’ that is dominated by the tiger economies of China and India.


The euro effect manifests itself most prominently in the South African financial markets. The Rand has been one of the most volatile of the emerging markets, hitting a three year low earlier this month of R8.71 to the dollar.

Exports to European markets account for a significant proportion of South African trade; however this fell from 28 percent of their total last year to 23 percent this year. With Europe on the way down, regional exports are an obvious candidate to plug the gap, rising 2 percent last year to 17 percent of the total. 

Lionel October, director-general of the Trade and Industry Ministry, told a business forum this month, “we need to be prepared if there is either a serious downturn or stagnation”.

South Africa's trade with the continent has seen a three-fold increase since 2001. In that same period China’s trade with Africa grew 16-fold over the same period.

Standard Bank analyst Simon Freemantle can see the disparity; “We are very competitive within our southern Africa neighbourhood but to an extent we are missing out on the large and fast-growing economies elsewhere”…“These are economies that we really could and should be doing more trade with and we haven't prioritised them.” 

Some local firms have beaten a path into frontier Africa, but politicians have been slow to follow. For example, since his election in 2009, Zuma has yet to make an official visit to Nigeria and Ethiopia - Africa's two most populous nations - but has been to Britain and other Western countries as well as south and Central America.

Nigeria, Africa's second largest economy, is an important potential market with a population of 150 million people. With official GDP due to jump 40 percent under an imminent rebasing, it will also come close to South Africa in size.

Relations between the two countries remain prickly, often over matters as trivial as "District 9", a 2009 South African science fiction movie that portrayed Nigerians as cannibals, or South African immigration officials deporting 125 Nigerians accused of carrying fake vaccination papers.

"There is a perception that South Africa tilts her nose up at its neighbours and that could be costing it dearly against countries like China in terms of trade and investment," said one southern African diplomat who declined to be named.

However, there are signs of relations being put on a more serious footing. This year, South Africa publicly backed Nigerian Finance Minister Ngozi Okonjo-Iweala for World Bank president - a diplomatic olive branch that was not diminished by her ultimately missing out on the position.

South Africa's geographical proximity and advanced banking system also mean it is still well-positioned to catch up with Asian rivals in the 21st century 'Scramble for Africa'. 

Source: Reuters 

Like what you see! Signup for our weekly newsletter