South Africas Export Performance: Determinants of Export supply

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South Africas Export Performance Determinants
of Export supply

• Lawrence Edwards and Bongani Johnny
• Based on Edwards and Alves (2005)
• Plus new research
• School of Economics
• University of Cape Town

2
Structure

• Background
• Trade policy reform
• Export performance
• Export performance and infrastructure
• Firm level analysis
• Export functions
• PSS bounds tests
• Conclusions

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Background Trade reform in 1990s

• South Africas trade policy regime shifted in the
  1990s from one of import substitution towards one
  of export orientation
• Adopted GEAR (1996) transform SA into
  competitive, outward oriented economy
• Significant tariff liberalisation occurred in
  1990s
• Average manufacturing tariffs fell from 23 to
  8.6 between 1993-2004
• Adoption of various export export incentive and
  supply-side export promotion programmes
• Rebates, refunds and drawbacks of import duties
  on goods produced for exports
• Marketing and Investment Assistance Schemes
  (EMIAs), Export Credit and Foreign Investment
  Reinsurance scheme, Export Guarantee scheme,
  Short-Term Export Finance Guarantee Facility,
  Small/Medium Manufacturing Development Programme
• Bilateral trade agreements, most noticeably the
  SADC Free Trade Protocol and SA-EU TDCA

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Background Export performance

• Have seen some diversification away from primary
  products, but export growth is low relative to
  other middle-income and resource based economies

Table Annual average growth rates by broad
technology category, 1988-2002 ()
Source Edwards and Alves (2005)
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Background Export performance

• Infrastructure failed to keep pace with export
  growth

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Sub-conclusion

• Positive manufacturing export growth has not been
  sufficient to generate an export-led boom as in
  East Asia
• One reason is the concentration of exports in
  natural-resource-based products, which
  experienced relative low growth in world markets.
  
• However, South Africas export performance was
  weak even in natural resource-based products.
  Further, export growth and diversification into
  high technology products was poor compared to a
  range of similar resource-based exporters.
• This suggests that there were important domestic
  constraints to export growth during the 1990s
• Shift from mining to manufacturing trade
  suggests that infrastructure constraints will
  differ over time, sector and according to
  infrastructure measure

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SA manufacturing export performance Role of
infrastructure
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Hypotheses

• Infrastructure lowers the transaction costs
  associated with exporting, facilitates
  diversification of export production (Elbadawi,
  1999 Collier, 2002), gives rise to powerful
  forces for agglomeration (Redding and Venables,
  2004) and contributes towards the development of
  international production networks in world trade
  (Mayer, 2003).
• Export growth, during the 1990s, particularly
  manufactures, constrained by declining
  infrastructure capital stock (ports rail)
• Different types of infrastructure have
  non-uniform effects on export growth across
  sectors
• In SA infrastructure largely geared towards
  export of primary products, not manufacturing
  goods
• Infrastructure investment is both a cause and
  effect of export growth

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Empirical Methodology 1

• Use three approaches
• Cross tabulations using Firm Surveys (Edwards
  Alves, 2005)
• National enterprise survey (1998/99) consisting
  of 941 manufacturing firms
• Estimate export functions (Edwards Alves, 2005)
• Panel of data for 28 manufacturing industries
  over 1970-2002. Data Quantech, UNIDO INSTAT,
  SSA, IMF IFS
• Pesaran, Shin and Smith (1996, 2001) Bounds Test
  for evidence of level relationship
• Panel of export data, 1962-2000. Data Feenstra
  Perkins

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Results NES Firm survey (1998/9)

• Figure Percentage firms finding transport
  services an obstacle to their operation

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Results NES Firm survey (1998/9)

• Figure Percentage firms finding
  telecommunications and postal services an
  obstacle to their operation

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Results Export functions 1

• Export demand
• SA exporters of manufactures are price takers in
  international market
• Export volumes are determined by the
  profitability of export supply
• Relative prices and competitiveness of
  manufacturing
• Real effective exchange rate has significant
  impact on average manufacturing exports
• 1 depreciation ? 1.8 to 2.5 increase in long
  run
• Tariffs and export support measures
• Significant negative impact of nominal and
  effective protection on export orientation
  (?tariff -1.55, ?ERP -0.2)
• Rising import penetration raises aggregate
  manufacturing exports by 0.37 to 0.55 in long
  run

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Results Export functions 2

• Infrastructure

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(Provisional) Results PSS bounds tests

• Bounds tests suggest that export volumes are
  forcing variables in most cases

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Conclusion

• South African export growth during the 1990s is
  mediocre compared to middle-income economies and
  other similar natural resource abundant
  economies.
• The constraint to growth lies on the side of
  export supply
• The real depreciation of the Rand and tariff
  liberalisation from the mid-1980s boosted
  exports, particularly manufacturing
• Relatively high proportion of exporters find
  infrastructure a constraint to operations
• Declining infrastructure investment, particularly
  in transport infrastructure (ports, railways and
  roads), has dampened the response of
  manufacturing exports to the more favourable
  trade environment in the 1990s.
• Although, historically, exports are found to
  drive infrastructure investment, rather than
  visa-versa.
• Future research will explore the non-homogeneous
  effect of infrastructure on exports across sectors

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