SOUTH AFRICA. Trend import and Export -South Africa 1.0 PROFILE

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1 USD SOUTH AFRICA 1.0 PROFILE South Africa, officially the Republic of South Africa (RSA) has 2,798 kilometres (1,739 mi) of coastline and is the 25th-largest country in the world by land area. With close to 53 million people, it is the world's 25th-most populous nation. South Africa is a multi-ethnic society encompassing a wide variety of cultures, languages, and religions. Dutch traders landed at the southern tip of modern day South Africa in 1652 and established a stopover point on the spice route between the Netherlands and the Far East, founding the city of Cape Town. After the British seized the Cape of Good Hope area in 1806, many of the Dutch settlers (the Boers) trekked north to found their own republics. Area 1,219,090 km2 Population 48 Million Capital Language IsiZulu (official) 22.7%, IsiXhosa (official) 16%, Afrikaans (official) 13.5%, English (official) 9.6% GDP GDP growth real bn USD 1.89 % Trend import and Export -South Africa Year Import Export GDP per capita USD GDP - composition, by sector of origin: agriculture: 9% industry: 26 % services: 65% (2013 est.) Income status Upper middle income country (World bank) Ease of doing 37 Business Main Import commodities: machinery and equipment, chemicals, petroleum products, scientific instruments, foodstuffs Main export commodities: gold, diamonds, platinum, other metals and minerals, machinery and equipment 1

2 1.1 Economic Overview South Africa is a middle-income, emerging market with an abundant supply of natural resources; welldeveloped financial, legal, communications, energy, and transport sectors and a stock exchange that is the 16th largest in the world. Even though the country's modern infrastructure supports a relatively efficient distribution of goods to major urban centres throughout the region, unstable electricity supplies tend to retard growth. The South African economy contributes 19% to the total African economy, one-third of sub-saharan Africa s and nearly two-thirds of the Southern African Development Community (SADC) gross domestic product (GDP) Economic Forecast South Africa s growth fell from 2.2 percent in 2013 to 1.5 percent in 2014, on account of mining strikes and electricity supply constraints, according to IMF. This year, the country s growth is expected to rise to 2.0 percent and to 2.1 percent in Import Duty in South Africa under the SADC Regime. The duty structure on goods imported in RSA is summarized below: Product General SADC Yarn and Fabric 0-22 Free Clothing Except free Free Free Footwear 15-30% Free Paper and product 0-20 Free Printing Wooden product 0-30% Free Jewellery and related products 0-20 Free Subject to conditions: restricted to single transformation 1.3 Additional taxes A value-added tax (VAT) of 14% is payable on all imports. VAT is levied on the value for customs duty, which is the fob value plus 10% of the fob value plus any additional duties paid. For goods imported from within the SACU region no customs duties apply and the 10% uplift in value is waived provided that the goods originate from a SACU member country. However, VAT is still payable on the importation of the goods into South Africa at 14% of the value for customs purposes. 2

3 1.4 DISTRIBUTION OF TOTAL AND PERCENTAGE HOUSEHOLD INCOME BY INCOME GROUPS The Black Diamond- Emerging middle class In South Africa, the black diamond, an emerging middle class segment is driving economic growth which has created a fundamental shift in the economy. According to the UCT Unilever Institute of Strategic Marketing, the black middle class recently reached 4 million people and is rising. South Africa s black middle class has now more spending power than the white middle class. From an exceptionally low base, South Africa s black middle class has grown by 250% from 1.7-million in 2004 to an estimated 4.2-million last year. The adult population of the white middle class grew from 2.8-million in 2004 to 3-million last year. The figure below shows the distribution of household income by income group. About 22.4% of total household income accrued to the emerging middle class, namely households with an annual income that ranges from R to R per annum. The affluent group s total household income amounted to just over R200 billion. This represented just 10% of total household income in the country. An analysis of the distribution of the expenditure by income group, shows that households in the poorest income group spend nearly half (47.7%) of their income on food. On the other hand, those in the affluent category spend only 7% of the total income on similar items. 3

4 Value 000 USD 2.0 SOUTH AFRICA - TRADE FIGURES 120,000, ,000,000 Import and Export of South Africa 80,000,000 60,000,000 40,000,000 20,000, Year Import Export 2.1 South Africa imports from the region The RSA imported USD 99.9 Bn worth of goods in the last five years with an average growth of 5%. The ECOWAS recorded the highest growth in the import share of South Africa registering an average growth of 36% over the last five years while imports from SADC and COMESA grew by a mere 4% and 6% respectively. From the chart below, we note that while South Africa's trade with African countries is growing. The trading patterns reveal concentrated trade with a few countries and a few products which are mainly primary in nature. Trade in value added products remains weak, especially in imports from African countries, highlighting their heavy reliance on trade in primary commodities. 4

5 Import Value (000 USD) 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - South Import from regional and world SADC ECOWAS COMESA Export The main exports products are pearls, precious stones metals, ores, slag and ash, mineral fuels, oils, distillation products, vehicles other than railway, tramway, Iron and steel, Machinery, Edible fruit, electrical and electronic equipment. The main export destinations of South Africa are China 12.7%, United States of America 7.2%, Japan 5.8% and Botswana 4.8%. Import The Main products imported in 2013 are petroleum products, cars, electronic and electrical appliances, medical mixtures. The Main suppliers are China 15.5%, Germany 10.3%,Saudi Arabia 7.8,USA 6.3 %, India 5.2% 5

6 2.2 South Africa SADC Trade South Africa s exports to SADC countries is almost four times higher than its import from SADC countries. In 2014 South Africa imported $ 6.8 billion from SADC registering a growth of 7% over the last 4 years. The main suppliers are Angola 30%, Swaziland 17%, Namibia 15% and Botswana 7%. Mauritius ranks 9 th with an average market share of 0.2% of total South African import growing at the rate of 37% for the last 4 years. 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 South Africa Intra SADC TRADE (000 USD) SA import from SADC SA export to SADC 6

7 Value (000 USD) TRade Balance (000 USD) Export Value 000 OSD 2.3 Bilateral Trade -Mauritius and South Africa With the crisis in Europe during the last few years, South Africa has emerged as an alternative export market for Mauritian exporters. Exports to South Africa reached Rs. 5.1 billion, registering an impressive export growth of 58% in the last five years. Mauritius Exports to South Africa 250, , , ,000 50, Year Source : Trademap Bilateral Trade Between Mauritius and South Africa (000 USD) 400, , , , , , ,000 50, Axis Title Mauritius's imports from South Africa 000 USD Mauritius's exports to South Africa 000 USD Trade Balance 000 USD 0-50, , , , , , ,000 Source Trade map: Bilateral trade between Mauritius and South Africa The trade between Mauritius and South Africa is more favourable to South Africa. However, the percentage trade deficit of Mauritius has decreased considerably over the last 4 years. 7

8 2.4 South Africa exports to Mauritius Top 10 (4 digit HS code) Product Code Product Label Value in 2013, USD thousand South Africa's exports to Mauritius Annual growth in value between , %, p.a. Share in South Africa's exports, % Equivalent ad valorem tariff applied by Mauritius to South Africa TOTAL All products 304, '27 Mineral fuels, oils, distillation products, etc 48, '85 Electrical, electronic equipment 26, '84 Machinery, nuclear reactors, boilers, etc 23, '87 Vehicles other than railway, tramway 19, '39 Plastics and articles thereof 12, '08 Edible fruit, nuts, peel of citrus fruit, melons 11, '30 Pharmaceutical products 11, '20 Vegetable, fruit, nut, etc food preparations 8, '01 Live animals 8, '72 Iron and steel 8, In 2013, South Africa exported $304 million worth of products to Mauritius consisting primarily of Mineral fuels, oils, distillation products, Electrical equipment machinery and vehicles. It is important to note that South African export of electrical and electronic equipment (HS85) and vehicles (HS 87) have recorded a remarkable performance in Mauritius occupying almost 7.6% and 7.3% of share respectively in Mauritius. 8

9 2.5 Selling into the South African Retail Sector/ Distribution channels Food, Beverage and Grocery Items The food retail market is dominated by four operators: Pick n Pay, Shoprite-Checkers, Spar and Woolworths. Supermarkets account for approximately 55% of national food sales in South Africa, but make up only 2% of all food retail outlets. The remaining market share is held by wholesalers, traditional spazas (independent retailers in largely African townships and suburbs), tuck shops, and small independent retailers. The large retailers import both directly and indirectly through local agents and specialist importers and traders. Imports of perishable products such as vegetables, fruit, fish and meat require special treatment in that the maintenance of the cold chain is essential and companies dealing in these products require refrigerated warehouses and transport. Due to the relatively short shelf-life of fresh fruits and vegetables, retailers tend to purchase their requirements directly. Woolworths is particularly active in this area and a trip to a Woolworths store will reveal a range of imported produce including grapes from Spain and Egypt, Asparagus from Peru, Strawberries from Egypt and Sharon Fruit from Israel. Although South Africa is relatively self-sufficient in fruits and vegetables, as the population becomes more sophisticated and global in its buying patterns, retailers such as Woolworths will try to ensure continued supply in South Africa s. Fish and Meat products are generally imported by a handful of specialist importers that have the requisite infrastructure available to deal in these products. These companies will purchase what they can locally and will import the rest of their requirements. These companies then sell to the major fish wholesalers that will in turn supply caterers, small wholesalers, hotels, restaurants and retail outlets. The large retailers such as Woolworths have a direct relationship with the importers who will source their specific requirements internationally. Pick n Pay has also outsourced supply into their fresh fish markets to a specialist wholesale distributor. 9

10 2.5.2 Clothing, Footwear, Housewares As outlined earlier, a characteristic of the South African retail sector is that a handful of retail groups operate a large number of brand formats. A trip to a South African shopping mall will reveal a relatively large number of retail brands. However, on closer inspection these retail brands belong to a handful of operators. Given the decline in local production of footwear and clothing coupled with South African consumer demand for a wide range of styles and colours, the large retail groups import a great deal of their requirements. Whilst China dominates this market segment, there is a market for high-quality, well-designed product from markets such as Italy. The large retailers will often prefer to deal directly with suppliers especially on large volume items where they like to be in control of production and delivery cycles. It is also important for retailers to understand the quality and employment standards of their suppliers and a face-to-face relationship allows this understanding. On smaller and more niche items or on big brand items such as Nike or The Gap, the retailers are happy to deal with a local agent. THE SOUTH AFRICAN MARKET 2.6 Clothing imports of South Africa from SADC countries Import of South Africa from SADC countries 000 USD Exporters World 1,520,177 1,787,509 1,665,168 1,761,792 1,725,308 Rank SADC 233, , , , ,640 1 Swaziland 57,074 78, , , ,259 10

11 2 Mauritius 69, , , , ,317 3 Lesotho 44,383 59,983 63,283 73,368 93,450 4 Madagascar 18,205 40,203 62,152 84,065 84,891 Others 44,638 28,057 20,754 22,788 18,723 Growth 17.6% -6.8% 5.8% -2.1% South Africa imports $1.7bn of clothing products from the world $ 460.6mn of clothing originates from SADC out which $130.3 mn comes from Mauritius South African market for Textile and clothing Textile and Clothing Market in South Africa 2,011 2,012 2,013 2,014 Clothing 1,787,509 1,665,168 1,761,792 1,725,308 Fibre and yarn 961, , , ,070 Knitted or crocheted fabric 117, , , ,373 Other fabric 280, , , ,794 Total 3,146,723 2,932,820 3,018,628 2,974,545 Growth -6.80% 2.93% -1.46% South Africa is the biggest importer of textile and clothing material in the African region with imports of $ 2.97bn in

12 13% growth in import of knitted fabric South Africa has registered a decline in growth for HS 61 and HS 62 recording a -1% and 3% which are the star products of Mauritius Top 4 clothing products in South Africa Value 000 HS Description USD '6203 Men's suits, jackets, trousers etc. & shorts 282,613 '6204 Women's suits, jackets, dresses skirts etc. & shorts 237,956 '6109 T-shirts and other vests, knitted or crocheted 241,445 '6110 Jerseys, pullovers, cardigans, knitted or crocheted 127,412 An assessment of the composition of imports in 2013 (table 3.2) reveals that four product categories account for over 50% of total clothing imports in South Africa. These are women s jackets, dresses, skirts, trousers, shorts (HS 6204); men's and boys' jackets, trousers, shorts (HS 6203); T-shirts (HS 6109); knitted jerseys and cardigans (HS 6110). The highest ranking imports consist of Men's suits, jackets, trousers etc & shorts, which accounted for 16% of clothing imports in The next most important items are knitted shirts which accounted for a further 13.7%, closely followed by Women's suits, jackets, dresses skirts & shorts (13.5%) and knitted jerseys and cardigans (7.3%). 2.7 Using the services of Agents and Distributors 12

13 The use of agents to promote and represent non-perishable grocery items, footwear, clothing and other consumer goods is quite common in the South African retail sector and in some cases retailers prefer to deal with local companies that are familiar with their processes. Most often, goods represented by agents have brand value either internationally or at least in the country of origin. Agents generally take on the task of not only negotiating an order with a major retailer, but they would also take care of other tasks related to getting the product on the shelf. This would include taking care of customs clearance, port and rail charges, and documentation, warehousing, and financing arrangements. They would also be responsible for adhering to regulations and control imposed on imported products. With some of the retail groups this role will include getting the products delivered to the particular store, and merchandising in-store. 2.8 The Retail industry in South Africa Six major retail groups dominate the clothing sector: Edcon, Foschini, Truworths, Pepkor, Woolworths and Mr Price. The Group are as follows: Retail Group Number of stores Target Segment of the market Edcon (clothing, footwear & 1228 Mid segment textiles group present in South Africa, Botswana, Lesotho, Namibia & Swaziland) Woolworths (present in Medium countries) Truworths 523 Medium The Foschini Group 1539 High-end Pepkor & Ackermans 1394 Low to medium segment Edgars Stores 157 Medium to upper segment Jet & Jet mart 422 Mass market Legit 153 Low end segment 13

14 Outside the market served by the major groups, there is a smaller, higher-end market for speciality stores. These stores either form part of a group or are independently owned and managed like the Platinum Group which has 57 stores and Queenspark group operates about 40 stores in the country catering for the needs of the older, more fashionable woman. 14