It is internationally accepted that the agricultural sector plays a strategic role in the economic development of a country in terms of food security, regional trade and international exports, among others.
The sector has already made a significant contribution over the years to the economic prosperity of advanced countries, and its role in the economic development of less developed countries is of vital importance. In a country such as South Africa, it would therefore be rational and appropriate to place greater emphasis on the increased development of the agricultural sector.
Export and import scale
Increased agricultural output and productivity, including the export of agricultural products, can contribute substantially to the country’s overall economic development. Most of the developing countries of the world are exporters of primary products. These products contribute 60 to 70% to their total export earnings.
The capacity to import capital goods and machinery for industrial development thus depends, to a large extent, on the export earnings of the agricultural sector. If exports of agricultural goods fail to increase at a sufficiently high rate, these countries are forced to incur heavy deficits in their balance of payments, exacerbating foreign exchange problems.
In general terms, the structure of a country’s GDP (that is, the relative contribution of different sectors) indicates the level of growth of the economy. In most developed countries, a higher proportion of GDP is accounted for by the services sector than by agriculture, mining or manufacturing, whereas the reverse is usually true of developing countries. The exception might be a developing country with relatively little agricultural or mineral resources, but with a fast-growing tourism sector.
This progression from dependence on primaries (e.g. agriculture and mining), through manufacturing to services is in line with today’s concept of economic development, which measures not only the growth of GDP, but also what benefits growth is bringing to the country’s people.
As primary sectors give way to manufacturing as the chief wealth producer, so wages and living conditions improve. They improve further as services (retail, banking, tourism and the like) take over the GDP lead and provide more opportunities for so-called ‘white-collar’ jobs. This progression is illustrated in Figure 1.
Furthermore, with this progression, the composition of a country’s international trade changes. In highly developed countries, the main foreign exchange earner will usually be the services sector, which provides financial, insurance, shipping, tourism, management and consulting services to other countries. Less developed countries will need to import both manufactured goods and services.
A balanced economy
Figure 2 shows a comparison of the GDP structure of the economies of the United Kingdom (UK) as a developed country, Mauritius as a developing country with a strong tourism sector, and South Africa, China and Malaysia, still developing countries, and illustrates the structural differences. In the UK, the large contribution of the services sector to GDP is evident.
In Mauritius, the services sector contributes a high proportion of national wealth, mainly because of the tourism industry and the free port; the manufacturing sector has grown due to the major export-orientated foreign investment drive Mauritius has made over the past 25 years.
While the UK is one of the fastest growing economies in the G7 (Canada, France, Germany, Italy, Japan, UK, and the US), economists are concerned about the potential negative impact of the UK leaving the EU. The UK has an extensive trade relationship with other EU members through its access to the single market.
Malaysia shows a relatively balanced economy for a developing country, with agriculture and industry still significant, and a fast-growing services sector. The manufacturing sector is strong, reflecting the extent to which Japanese and other multinationals have established production units in the country. China’s GDP structure is similar to Malaysia’s, although the trend from an industrial to a services base is less well developed.
The industry component of South Africa’s GDP is also evident, as is the relatively high services component, reflecting both the South African tourism industry and the strong financial sector.
In South Africa’s case, there is an argument that classic economic theory has failed to benefit most of the population; that the ‘typical progression of economic growth and development’ has not improved living standards. One answer to this is that good policies bring no benefit without good implementation. Another is that within the framework of basic economic principles there is leeway for individual adjustment to achieve desired results, such as increased employment.
Another point is that in today’s inter-connected world, no economy – not even those following more centrally planned ideologies, such as Cuba, Myanmar and even North Korea – exists in isolation from events in other countries and all are vulnerable to a greater or lesser extent to world economic cycles.
Exports, in general
These are crucial to the economic growth of South Africa as they create jobs, generate foreign exchange, draw international investment, encourage the development of new infrastructure and stimulate the development of the SME (small-to-medium enterprise) sector. Ultimately, a vibrant export industry is in fact vital for creating a better life for all South Africans.
The extension of special tariff-preferential treatment to South Africa by several countries has for example widened access to important international markets. This brings the possibility of even greater market access for South African products. There are also positive changes in trade relations within the African continent, with trade figures showing that trade with African countries has grown.
South Africa’s most important bilateral trade agreement is the South Africa/European Union (EU) Free Trade Agreement. It was implemented on 1 January 2000 and has provided for the progressive reduction in duties on manufactured goods and some agricultural produce traded between South Africa and the 28 EU member countries.
It has recently been extended to include more agricultural produce through the Economic Partnership Agreement (EPA) between the EU and six members of the SADC, namely South Africa, Botswana, Namibia, Swaziland, Lesotho and Mozambique.
The EU is currently the most significant trading bloc in Europe – and probably in the world. It now incorporates 28 countries in west and central Europe, with several more having applied to join. In addition, the EU has or is negotiating trade agreements with most other major trading blocs.
The EU has a trade agreement with South Africa; this has been widened to include certain agricultural produce through the EPA entered between the EU and the Southern African countries mentioned earlier. Even with the UK in the process of exiting the EU, for now they are still a member and as such common external trade policy applies to all member states, including the UK.
The European Free Trade Association (EFTA) incorporates four countries that are not members of the EU. EFTA has a wide network of free trade agreements with some 26 countries/trading blocs, including SACU and the EU.
International trade pattern
The pattern of South Africa’s international trade development during the 19th and early 20th centuries was similar to that of most developing countries in the southern hemisphere, with raw materials in the form of minerals, metals and agricultural products exported to the colonial power and manufactured goods imported. World War II disrupted civilian shipping routes globally and encouraged developing countries, including South Africa, to establish manufacturing industries.
With regard to present trends in international trade, perhaps the most significant change in international trading patterns in the last ten to 15 years has been the emergence of China as a major trading country, and the increased importance of India (ranked ninth as an importer and 19th as an exporter) and Brazil (ranked 23rd as an importer and 24th as an exporter).
Again, we can take South Africa as an example of the impact on international trade patterns of China’s economic and industrial expansion. In 1992, China hardly registered on South Africa’s list of trading partners – South Africa’s exports to China were less than 1% of all exports and imports were slightly more than 1% of all imports.
By 2010, China had become South Africa’s main individual trading partner. In 2014, China was still in this top position, with exports to China accounting for 9,5% of all South African exports and imports from China accounting for 15,5% of all imports.
China is not the first Asian country to become one of South Africa’s major trading partners. In the 1970s, as South Africa’s mining industry diversified and industrial minerals and metals such as coal, iron ore, ferro-alloys, manganese and copper were extracted and processed, Japan was already one of the country’s top four trading partners.
What has been remarkable, though, both for South Africa and the rest of the world, is the speed and extent by which China has become a leading trading nation. In many respects China is repeating the pattern of the old colonial powers – the country imports mainly raw materials and semi-processed industrial inputs and exports manufactured goods of all types.
Effects of the global recession
Over the past two or three years, the emergence of China, India and Brazil as leading global traders was reinforced by the global financial and economic recession of 2008. As lines of credit and trade finance became restricted, countries, companies and consumers were forced to cut back on their spending. Demand for goods fell in especially the developed nations and global trade dropped in both volume and value. This trend, however, moderated from 2011 to 2014 and global trade has expanded somewhat.
In the general global depression, some industrialising countries were less badly affected. China is the outstanding example. With so large a population (more than one-third of the world’s people are Chinese) and fast-expanding industry and infrastructure, the demand for industrial and construction inputs has continued to grow, although at a slower rate than previously.
To an extent, the same has happened in India. The continuing demand for metals and minerals by these countries has benefited supplier countries such as South Africa (and Brazil), which have been cushioned a little from the full effects of the recession. Yet this cushioning was reduced during late 2012 and into subsequent years as the economic growth of China and India slowed further.
An increase in SS trade
Another trend that has emerged, and again one that is reinforced by the severity of the recession in the developed countries of Europe and the US, is an increase in what is called south-south (SS) trade. In this context the south refers to all countries/regions, excluding the US and Mexico, Europe and Russia, and Japan, Australia and New Zealand. It includes the countries of South and Central America, Asia and Africa – in other words, most of the world’s developing or newly industrialising countries.
A recent report by the United Nations Conference on Trade and Development (UNCTAD) points out that growth in SS trade since the late 1980s has been faster than the growth in world trade overall, and now accounts for nearly 45% of all trade. Moreover, the old pattern of colonial trade (between colonies and their western European colonisers) has broken down and about half of the exports of south countries are to other countries of the south.
The report also reveals that much of this growth in SS trade has been intra-regional, that is, countries in South America are trading increasingly with their neighbours. In Asia, 90% of the exports of SS countries is to other Asian countries. In Africa, though, intra-regional trade has declined.
A further feature of SS trade is that some degree of regional speciality is becoming evident – the countries of South America show strength in agricultural products, whereas the strength of Asian SS countries lies in manufacturing. With Africa, natural resource-based commodities are dominant, which would account for the relative lack of intra-regional trade since few African countries have industries that demand such inputs.
Processes of exports
The South African government is committed to facilitate the processes of exports, which is essential if the country is to become more competitive internationally. The South African Reserve Bank Act, 1989 (Act 90 of 1989) granted management powers of the bank to the board of directors.
The Act provides for a board consisting of 15 directors. Among them are the governor and three deputy governors, who are appointed by the president of the Republic of South Africa, after consultation with the minister of finance and the board, for five-year terms. Four other directors are appointed by the president, after consultation with the minister, for three-year terms.
The remaining seven directors, of whom one needs to have knowledge and skills in the field of agriculture, one in the field of labour, one in the field of mining, two in the field of industry and two in the field of commerce or finance, are elected by shareholders6.
The Department of Trade and Industry (DTI) has identified the lack of well-trained export managers, specifically skilled in marketing, as a limiting factor in making South Africa more competitive.
The informed opinion from the industry is that managers in the field should have wide-based knowledge of the world of business and be able to think across different disciplines, as export companies are nowadays confronted with a continuous process of developing and maintaining a feasible fit between the organisations’ objectives, skills and resources and their changing global marketing opportunities.
Several export service organisations offer specialised assistance to exporters. For example, freight forwarders are specialists in transporting cargo across international boundaries and are often very experienced in ancillary areas such as documentation, customs clearance, packing and marine insurance.
Agents are employed by shipping lines to look after the latter’s interests in a particular country/region, and they play both operational and marketing roles. The main function of a shipbroker is the securing of ships for shippers to charter, while that of a stevedoring company is the handling of cargo between the quayside and the ship’s hold.
Transport carriers are responsible for the movement of cargoes internationally – by sea, air, rail or road – and financial institutions (such as banks, the IDC, confirming houses and factors) play a key role in the funding and/or settlement of international transactions. Other specific organisations also play an important role.
The Perishable Products Export Control Board (PPECB), the headquarters of which are situated in Cape Town, supervises the shipping of all perishable products from South Africa, such as meat, poultry, fish, fresh fruit, and fresh and frozen vegetables. The control of the quality of the various perishable products exported from South Africa is vested in the Department of Agriculture and the South African Bureau of Standards.
The PPECB determines the appropriate carriage temperature for each perishable product and has the authority to reject consignments if the required temperature levels have not been maintained, or if packing does not meet the required standards.
Exporters of perishable products are free to have a contract for carriage with any shipping line. The PPECB, however, arranges the physical inspection of the holds and refrigeration equipment of all vessels conveying perishable products before approving the use of these vessels for this purpose.
The overall function of the PPECB is therefore to supervise the shipment of all perishable products from South Africa, including the pre-cooling of perishable cargo, as well as the inspection of the holds and refrigeration facilities of vessels used to convey such cargo7.
Export permit requirements
Application forms for export permits, when completed, must be submitted to the appropriate controlling authority, or to the director: Import and Export Control of the Department of Trade and Industry, who will then forward the application to the appropriate controlling authority. These controlling authorities include those listed in Figure 3.
Export permits are not transferable and the goods to which they apply may be exported only by the person or company named as the consignor to the person or company named as the consignee in the permit. If the consignee is not known at the time of application for a permit, the relevant controlling authority may nevertheless authorise the issue of a permit. The permit may prescribe the quantity or value of the goods, the port of departure, and the manner and the period within which the goods may be exported.
Export permits are usually valid for a maximum of 180 days (unless a shorter validity period is stipulated in the permit). The validity may be extended upon written application to the controlling authority, provided the application for an extension is made before the permit expires. If the permit has already expired, a fresh application for a new permit will be required. Applications for an extended permit must be accompanied by the relevant permit.
Management in exports defined
As many South African agricultural value chains or supply chains involve a major international component, many supply chain managers would benefit from additional skills in international trade and logistics related to export management.
To understand the role of supply chain management and logistics management in exports, it is worth a short reference to the definitions thereof by the Council of Supply Chain Management Professionals (2012):
- Logistics management is that part of supply chain management that plans, implements, and controls the efficient and effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption to meet the customers’ requirements.
- Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.
Any aspect of agricultural export management thus encompasses in some way the components of supply chain and logistics management and requires the appropriate skills. –Dr Beverley Waugh, IMM Graduate School (Supply Chain Management Programmes faculty head)