The South African government and companies need to formulate an “African strategy” to combat the impact of Chinese competition on the country’s manufacturing and exports, according to a researcher.
China’s direct investment in much of sub-Saharan Africa may be helping to build the continent’s infrastructure and challenging the United States to provide investment of their own, but new research has shown that in South Africa the Chinese effect is being felt in much more negative ways.
Iraj Abedian, MD of Pan African Investment and Research, who conducts research for the Manufacturing Circle, said that South Africa needed to “look the Chinese in the eye and stop them from market manipulation”.
This came after the University of East Anglia in the UK released new research that suggests the South African economy has been hit hard by its trade links with China, with the country’s manufacturing sector shrinking sharply since China became a member of the World Trade Organisation (WTO) in 2001.
The report indicates that trade links China – which is South Africa’s biggest trading partner – has led to the loss of 77,000 factory jobs, mostly affecting unskilled workers, due to the competition provided by the influx of Chinese products over the last decade. It also stated that Africa’s biggest economy had lost about $900 million in trade with the rest of the continent. Though manufacturing remains the country’s second-biggest sector, its share of output has declined over the last decade from 19 per cent to 15 per cent.
“While industrial production in South Africa grew by 14 per cent between 2001 and 2010, this increase would have been around 5 per cent higher in the absence of increased Chinese import penetration,” the report said.
“We found that South Africa is facing increased difficulties in competition with China — both domestically and in international markets,” said Rhys Jenkins, the main author of the report. He said jobs had been lost directly through layoffs and plant closures as well as indirectly as companies responded to Chinese competition by switching to more capital-intensive technologies.
China had obtained a 46 per cent market share in footwear in South Africa, as well as 30 per cent in electronic equipment. Meanwhile, South Africa’s trade deficit with China has ballooned, with South Africa exporting mainly primary and resource-based products to China and importing almost entirely manufactured goods.
China’s exports to sub-Saharan Africa, which increased from $4.1 billion in 2001 to $54.3 billion last year, have also had an effect on South Africa’s exports. The report said that though exports to the country’s ten main trading partners in Africa have risen significantly in recent years, they would have been nearly ten per cent higher over the last decade had China not taken over its market share.
“In contrast, China’s share of exports increased significantly. Whereas there was relatively little competition between Chinese and South African exports in the late 1990s, it increased substantially over the past decade.”