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the dti TRADE: RSA vs CHINA

the dti TRADE: RSA vs CHINA. Presentation by: Seabelo Molepolle, Deputy Director, Asia Bilateral, ITED Tshiphiri Ramakokovhu, Director, Statistics & Modeling, ERPC. Part 1: Review of Bilateral Relations. Background Structure of Engagement

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the dti TRADE: RSA vs CHINA

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  1. the dti TRADE: RSA vs CHINA Presentation by: Seabelo Molepolle, Deputy Director, Asia Bilateral, ITED Tshiphiri Ramakokovhu, Director, Statistics & Modeling, ERPC

  2. Part 1: Review of Bilateral Relations • Background • Structure of Engagement • Bilateral level (Bi-National Commission and its committees) • Multilateral level (FOCAC, G20, WTO, and G77) 2.1 South-South Relations (BRICS)

  3. Bilateral Trade Relations • Implementation of the trade aspects of the Comprehensive Strategic Partnership Agreement (CSPA) • Concern: Structure of Trade • Measures undertaken to address the structure of trade (Top 10 product list i.e. Agro-processing, chemicals, plastics, steel, aluminium, automotive, capital equipment, manufacturing, electro-chemical, paper and pulp) • List of minerals for beneficiation • The work on the bilateral trade statistical analysis

  4. Bilateral Investment Relations • China’s investment in South Africa is negligible • Measures undertaken to address this concern (Top 10 projects i.e. mining and beneficiation, renewable energy & energy, BRICS Trade & Development Risk Pool, automotive, infrastructure, oil and gas, ICT, Transnet Capital Projects, Transport, and agro-processing) • Chinese investment in SA (mining, machinery, financial, appliances and ICT) • South Africa’s investment in China estimated between US$ 600m and US$800m (Breweries, mining, ICT, energy, financial)

  5. Areas of cooperation • Clothing and Textile (MoU on Promoting Bilateral Trade and Economic Cooperation) • Special Economic Zones (SEZs) / Export Processing Zones (EPZs) • Infrastructure development

  6. Part 2: Introduction • China is South Africa’s largest trading partner, making up over 14% of all merchandise imports and almost 12% of all product exports excluding gold. • Comparative advantages exist between South Africa and China, and thus form the basis of trade between the two countries. • South Africa has a comparative advantage in various primary sector commodities (metal ores, gold and coal for example) whereas China has a comparative advantage in various secondary sector commodities (textiles and certain foodstuffs for example.)

  7. Introduction • Trade between South Africa and China theoretically allows each country to focus on those products and industries where it can optimally combine its factors of production. Such specialisation should result in consumers being able to buy more of a product at a higher quality, increasing prosperity for the average citizen of both countries. • The mechanism through which this happens has been discussed throughout the trade literatures but is usually said to occur through higher economies of scale and through movement along the learning curve.

  8. Introduction • The literature has also identified various costs to trade. • One of those is the adjustment costs of employment from an industry that does not have a comparative advantage with the trading country to an industry that does. • A common example of such an effect can be viewed within the South Africa textiles industry, which suffered severely after trade liberalisation and international exposure. • Adjustments as one of the costs of international trade; wherein labour and capital that were previously employed in protected industries need to be moved to industries where a country has comparative advantages. • This results in temporary decreases in employment as capital equipment is abandoned or recycled (which takes time) and as labour is re-skilled.

  9. Current Trade Situation

  10. Current Trade Situation

  11. Impact of external Trade on South African Economy • Using a Social Accounting Matrix, it is possible to derive potential multipliers, per sector. • Assuming that exports to China are purely external demand – one can see the impact of exports to China on each sector by ‘shocking’ that sector with a R1 million change and considering the output labour and GDP multipliers. • The following table depicts the impact of a R1 million external increase in demand for each of the listed commodities.

  12. Employment and Value Added for a R1 mil increase in Demand:Major Export Commodities to China

  13. Employment and Value Added for a R1 mil increase in Demand:Major Export Commodities to China • We estimate that for each additional R1 million demand for South African coal, an approximate R1.41 million of value is added to the local economy (including the effects of additional induced demand in other sectors.) • This increased demand leads to an approximate 4.97 new jobs created in the economy. • The other values can be read in a similar fashion, with increased demand for gold clearly creating the biggest potential spin off in terms of employment created and value added.

  14. Employment and Value Added for a R1 mil increase in Demand:Major Imports Commodities From China

  15. Employment and Value Added for a R1 mil increase in Demand:Major Import Commodities from China • We estimate that for each additional R1 million demand for South African Agriculture, an approximate R1.34 million of value is added to the local economy (including the effects of additional induced demand in other sectors.) • This increased demand leads to an approximate 9.4 new jobs created in the economy.

  16. Impact of external Trade on South African Economy • Lets make a tenuous assumption that should South Africa stop importing such commodities from China; all excess demand would be automatically met with a stimulus to local production. • Be fully aware that this assumption ignores the important effect of price, and also the effects import substitution from countries other than China.

  17. Impact of external Trade on South African Economy • Using these simple straight line multipliers to analyse the trade relationship between South Africa and China, one might be tempted to conclude that South Africa is losing out a potential 400 000 jobs in the agriculture, textiles and other manufacturing sectors – but is benefitting from an additional 180 000 jobs, mostly in the mining and primary sectors. • Applying similar straight line multipliers to value added, one may be tempted to conclude that South Africa currently gains about R33 billion in Gross Value Added.

  18. E N D THANK YOU

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