Service exports an avenue for SA’s longer-term economic growth
South Africa needs a significant shift to turn its economy around and return to a sustainable growth trajectory. A priority focus should be on increasing exports.
South Africa’s product exports in value terms declined in 2022 (-0.1% versus 2021) and in 2023 (-10.6% versus 2022), because of lower demand in 2023 from key export destinations including Germany (3rd largest exporters), Japan (6th), the United Kingdom (7th) and the Netherlands (10th). Lower value demand was also experienced from a key regional market, Botswana (11th), whose value demand declined by 11.1% in 2023 (versus 2022).
In terms of commodities, precious metals (the largest export in value terms, particularly platinum), and mineral fuels (the 4th largest export, with a substantial decline in coal exports) witnessed the largest decline in demand in 2023, affirming that growing the economy beyond resources has become even more important now than it was before.
In terms of where demand has grown, albeit from a comparably lower base, the exported value of other vegetable textile fibres (+205% in 2023 versus 2022), oilseed (+71%), and vegetable plaiting materials (+69%), confirm that investment in agro-processing should be prioritised over the short- and medium-term.
As a result of key contributing commodities export value declining, other avenues of export growth should be explored to offset the growing deficit. An often-overlooked sector is the export of services, particularly to African nations which are considered to be less advanced.
In terms of the top five countries that offer services, the leaders are the United States, the United Kingdom, China, Germany and Ireland. In 2022, the US’s service exports amounted to $928 billion, growing by 16% when compared to 2021. The UK’s service exports grew by 9% in 2022 and amounted to $494 billion. South Africa ranked 55th, exporting $12.6 billion worth of services and growing by 38% when compared to 2021. Other African nations above South Africa included Egypt (ranked 41st with service export value of $31.6 billion, and growing by 44% when compared to 2021), and Morocco (45th, growing by 43% with service exports amounting to $22 billion).
When compared to product exports, South Africa’s service exports accounted for just over 10% of total product export value in 2022. The US’s service exports amount to 45% of total product exports, suggesting that South Africa could be still in its infancy for developing and maturing its service industry for exports.
In terms of services exported by the US, commercial services (business and financial service, intellectual property usage charges, telecommunications, computer and information services and insurance and pension services) ranked first (accounting for 70% of total service value exported in 2022), followed by travel (17.6%), transport services (9.8%), and government and other services (3.1%). Commercial services are, thus, an angle for South Africa to explore in terms of building and progressing the country’s service exports because it earns the most income for the world’s leading exporter.
South Africa’s commercial service exports were the country’s largest but accounted for only 44% of total service value exports (2022), followed by travel (41.5%), transport (12.7%) and government and other services (1.8%). .
At present, South Africa does not export telecommunications, computer and information services, which earned the US $66.3 billion in 2022, an angle the country can explore from a capability and earnings potential standpoint.
Growing service exports could be essential to contributing to SA’s longer-term economic growth. Leveraging the African Free Trade Continental Agreement (AfCFTA) is an avenue the country can explore to increase service exports to the rest of the continent, whose 2022 value of service imports was estimated at $176 billion. Key markets for service imports included Egypt (ranked top, with 2022 service import value of $25.4 billion), followed by Nigeria ($18.8 billion), South Africa ($18.1 billion), Ghana ($11.9 billion) and Angola ($11.3 billion).
While other nations leverage the AfCFTA to increase product trade, South Africa should consider a two-pronged approach to increase its exports of both products and services to strengthen its trade position and expand and diversify its economy.
Policy should also be adjusted to increase intellectual property rights and facilitate commercial innovation growth that earns more for the country in terms of service exports. Other aspects that can be considered are the use of data and technology (particularly artificial intelligence)
Being socially and culturally closer to key target markets on the continent is an aspect that South Africa could prioritise to offer services, the uptake of which will be significant over the next few years.
An example is the development of solutions that improve efficiencies of continental remittance and digital transaction corridors. Such services have potential to create new and commercially viable opportunities for remittance service providers that can transact in real time, including risk management solutions for such services.
An integrated approach to increasing exports, including services is, therefore, an angle worth exploring for South Africa’s longer-term economic growth and diversification.
James Maposa is the managing director of Birguid, which provides strategic research and advisory services.