https://www.miningweekly.com

‘Slowbalisation’ to negatively impact on South African exporters

21st February 2020

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

Font size: - +

Multinational advisory firm PwC expects the global economy to expand at a rate of 3.5% this year, and the total value of services exported to increase to R100-trillion.

While all major economies are expected to grow, in part buoyed by accommodative financial conditions, the firm said earlier this month that a shift in global growth, however, was not a direct signal of the fate of South African businesses.

This global economic growth is one of the themes discussed in PwC’s twenty-third yearly ‘Global CEO Survey’, in which PwC presented five themes that it believes will likely prevail in the global economy this year, as well as their implications for South African companies.

The firm noted that the slowdown in growth in key trade and investment partners – such as the US, the UK, the eurozone and China – would adversely impact on individual companies.

According to the PwC’s ‘Global Economic Outlook and Implications for South African Companies in 2020’ report, an estimated 38.9% of South African CEOs surveyed by the company “want to enter a new market” within the next year to drive their companies’ revenue growth.

However, PwC noted that the global volume of merchandise trade declined in 2019, and PwC expected this trend to continue this year, while trade tensions in the global goods market were likely to persist.

Globalisation was likely to give way to “slowbalisation”, PwC said in the report, explaining that this referred to the continued integration of the global economy through trade and financial and other flows, albeit at a significantly slower pace.

“A switch from globalisation to ‘slowbalisation’ is bad news for South African exporters of, for example, wine fruit, platinum [group metals] and vehicles,” PwC said in the report, explaining that “it is an unwelcome development that will require export-orientated South African companies to consider various scenarios for the world economy and global trade patterns in the short to medium term”.

About 69.4% of South African CEOs are somewhat or extremely concerned about trade conflicts, according to the PwC report.

On a positive note, as global trade dynamics withered, the African continent was on the cusp of becoming a more attractive export option, PwC said, adding that the African Continental Free Trade Agreement was expected to come into effect in July this year, with participating States having agreed to a 90% tariff liberalisation from this date.

In terms of world services trade increasing from 2018’s R78-tillion to R100-trillion by 2020, PwC commented that the US and the UK were likely to remain the largest and second-largest exporters of services in the world respectively.

PwC’s calculations show that business services are among the most impactful industries in South Africa based on the growth and jobs that can be created by investment in this sector.

The services sector is already dominant within the South African economy – accounting for 60% of total gross domestic product – through, for example, the country’s modern financial sector and popular tourism industry.

US oil production, meanwhile, was expected to hit record levels and global renewable energy and nuclear consumption were expected to make up more than 20% of global energy consumption this year, which PwC said was the highest it had ever been.

PwC said that oil would continue to be the most preferred source of energy globally this year. As a result, the US might surpass the 13-million-barrels-a-day production threshold in 2020, compared with just 5.5-million barrels a day about ten years ago.

While the US was not among South Africa’s top suppliers of petroleum products, PwC said that it was important to be aware of the impact of US production on oil prices, where the ramp-up in production had cushioned prices in recent years.

“South Africa was a price taker in the oil market, which makes it vulnerable to external factors.”

About 63.9% of South African CEOs surveyed by PwC are somewhat or extremely concerned about volatile energy costs.

In addition, with India rising in global economic rankings and being South Africa’s closest Brics (Brazil, Russia, India, China and South Africa) partner from a geographic perspective, a healthy Indian economy could be good for South Africa from a trade and investment perspective, PwC pointed out.

India is forecast to likely overtake Germany by 2025 and Japan before 2030 to become the world’s largest economy behind China and the US. France and the UK will likely now vie for sixth place in the rankings, with their relative position dependent on the value of the pound against the euro, which may remain volatile this year.

President Cyril Ramaphosa visited India in January 2019 and signed a Three-Year Strategic Programme with Indian Prime Minister Narendra Modi, aimed at deepening bilateral engagement between India and South Africa and ensuring that a results-orientated partnership benefited the people of both countries.

However, only 8.3% of South African CEOs surveyed by PwC consider India to be important for their organisation’s overall growth prospects over the next 12 months.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION