Coface projections on SA, Africa and the global economy will have to be tested

By Thandisizwe Mgudlwa

Africa is best positioned to provide a thriving business environment, a leading International credit insurer attests.

Coface has projected that by 2016, South African exports into Africa will increase significantly but will be offset by an equivalent drop in trade with Europe.

The group also says that the will also be an increase in trade with Asia but trade with the US will remain at the current levels.

And Garth de Klerk, CEO of Coface South Africa, says: “China will play an important role in SA’s economic future. Currently, 13% of total SA’s exports are to China. They consume 65% of all primary aluminum produced in SA and 70% of all iron ore mined in SA.

Notably, China’s biggest export markets in 2011 was the EU at $356-billion followed by the US at $324,5-billion and Hong Kong at $268-billion. China is therefore reliant on the health of these three economies.

While China’s imports from the EU in 2011 were $211-billion, Japan $194-billion, South Korea $163-billion, Taiwan $125-billion and imports from the US were $122-billion.

Also revealed is that China did not feature in SA’s top ten export destination countries in 2008. SA exported by value to Japan, USA, UK, Germany, Netherlands, Switzerland, Spain, Belgium, Australia and Zimbabwe.

Whereas in 2012 this changed dramatically, SA’s top export destination was China, followed by the US, Japan, Germany, UK, India, Switzerland, Netherlands, Zimbabwe and Mozambique.

However, by 2016, Coface projects that SA’s top ten export destinations will be by value: China, the US, Japan, Germany, Mozambique, India, UK, Angola, Zimbabwe and Zambia.

At least two European countries are expected to exit the list, in the form of Switzerland and Netherlands, which are likely to be replaced by two additional African countries, Angola and Zambia, with Coface projecting that four out of SA’s ten trading partners will be African countries by 2016.

Coface also forecasts that SA’s annual Growth Domestic Product growth from 2012 to 2014 will increase from 2,6% to 3,1%, slowly returning to the 2008 level of 3,6%.

Further, inflation will rise from 6% to 6,4% during the same period, unemployment will remain unchanged at 25%, and public debt will increase to its highest level from 40% as a percentage of GDP in 2012 to 42% in 2014, dramatically up from 27,5% in 2008. The current account deficit as a percentage of GDP will increase from -4,5% in 2012 to -5,5% in 2014, down from -7,2% in 2008.

Coface then adds that one of the biggest threats facing South Africa is the increase in unsecured lending. Bank income from unsecured debt has risen 30% year-on-year from 2010 to 2012. This could be an indication of another credit bubble. But this time it will not be an international housing and derivatives credit bubble, but the inability of poorer people to pay back loans which could have a dramatic effect on South African banks, much worse that the worldwide credit crisis of 2008.

Coface further remarks that rising food prices will almost certainly exacerbate the unsecured lending risk and mass action contagion. This could result in a waning of foreign investor confidence.

Dumping of imports are negatively affecting local manufacturers and Coface sees the local agriculture sector as another risk with this industry continuing to shrink.

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