Mark Rose, Nedbank Business Banking Executive Head: Strategy and New Business Development.
When the first reports of Covid-19 surfaced in China, initial concern from businesses in South Africa was muted.
With only previous epidemics to go on and no indication that this would be any worse than those in recent history, initial reports suggested that it may pass without massive global fallout.
A report by Strategy released in February 2020, suggested that the economic impact of Covid-19 will be significant, but short-lived. At the time, a ‘significant’ impact was thought to be around a 1% growth cut in the Chinese economy. The International Monetary Fund suggested this could impact on South African growth by 0,2 percentage points – with the trade disruption cutting South Africa’s gross domestic product (GDP) growth by 1%.
Some saw the localised epidemic as a lesson on over-dependence on China. The slowdown of manufacturing and exports from China, and the complexity of global supply chains, led some local businesses to realise that they were too reliant on the Chinese.
However, what many did not consider at the time was that this virus would rapidly reach pandemic proportions – and essentially shut down the movement of goods around the world.
World trade will fall by up to 32%
It is now clear that the impact of Covid-19 on global trade is significant.
The World Trade Organisation projected it will fall by between 13% and 32% in 2020 – the steepest drop in at least 60 years. Nearly all countries around the world will suffer double-digit declines in trade volumes.
South Africa’s export market was already struggling before Covid-19, and the global slowdown on the movement of goods was just another speed bump in the road for this sector.
It is not all bad news
Even if Covid-19 had not impacted the country’s import and export markets like it has, we wouldn’t have had a great trade story to tell. Yet, despite this, it may still have positive consequences for those who are able to take advantage of the circumstances.
In the immediate aftermath of international supply chain and import channel delays, some companies reported surprisingly positive news.
Johannesburg-based tool manufacturer Lasher said the company had previously lost orders to China, but as a direct result of slowing global trade and temporary factory closures there, they secured new orders from a local retailer.
Also, the Agribusiness Confidence Index, which measures the volume of exports, shows a marked improvement in the agriculture sector as exports continue to soar due to the international demand for large supplies.
South Africa as a springboard to the continent
Covid-19 has also presented an opportunity for businesses to refocus on localisation, rather than globalisation. Although the immediate focus on the local production front is on critical personal protective equipment, local manufacturing opportunities extend beyond this, and now might be the best time to exploit this both as a recovery and future growth focus.
South Africa is still ideally placed as a soft landing and springboard to the rest of Africa in this regard, and although this is not a new notion, economists believe strengthening our local bases for exports to the rest of the continent would be a wise move – especially in the wake of Covid-19.
Local companies are also looking for new opportunities to grow their global footprint, and although it is still complex, this approach comes with several new advantages as global economies retract.
New export opportunities
There are indeed opportunities on the rest of the continent right now, but the decision to set up business elsewhere must be a carefully considered one.
It is often difficult to do business in the rest of Africa. And you must be 100% sure that what you are selling is really needed. With the right product, the right market, the right partner and adequate support structures, it is worth pursuing.
To take advantage of these opportunities amid the current challenges, Nedbank Business Banking has had the opportunity to work with clients who are focusing on export markets. In the medium to long term, our expertise and comprehensive suite of business banking and continent-specific solutions can help businesses expand into the rest of Africa.
Although doing business in the rest of Africa is not without complexities, we have partnerships with local partners, such as Ecobank, who are available in-country to bypass some of those challenges.
Global trade and local economies may take years to recover fully, but there is an opportunity for businesses to capitalise on. Despite the short-term issues we must not lose sight of the medium- to long-term opportunities.