Compiled by Eamonn Ryan from the presentation transcript
At the 2024 GCCA Africa Cold Chain Conference held on August 23 in Cape Town, Donald MacKay, CEO of XA Global Trade Advisors, delivered a presentation on market expansion and trading opportunities facilitated by the African Free Trade Agreement (AfCFTA). This is Part 2 of a five-part article.
MacKay painted a picture of the current landscape, outlining both challenges and opportunities for businesses looking to expand their reach. He began by highlighting South Africa’s reliance on the export of unprocessed minerals, a trend he described as “rocks on ships”. This export pattern, which has persisted over the years, sees South Africa shipping raw materials primarily to developed nations and countries like China for processing. The stagnation in this model poses significant challenges for economic growth. “We hover between 45% and 55% of mineral exports, depending on price fluctuations,” he noted, indicating that this lack of diversification is a pressing concern.
The situation in other African nations, particularly those with minimal manufacturing capabilities such as the Democratic Republic of the Congo (DRC), is even more precarious. Many countries rely heavily on a narrow range of basic exports, limiting their economic potential.
Key trading partners
When examining trade partners, MacKay pointed out that the European Union (EU), along with the UK, remains South Africa’s largest trading partner, followed closely by China and the US. However, the composition of these exports varies significantly. While about half of South Africa’s exports to the US are basic commodities, the US market also absorbs a larger share of manufactured goods compared to China, where exports are predominantly raw materials.
MacKay introduced an interesting concept about global trade, emphasising that it is largely demand-driven. “If there’s a lot of products that people want, prices will rise, creating incentives for production,” he explained. Drawing on a McKinsey study, he illustrated how countries with consistent economic growth tend to have rising import demands. In contrast, slower-growing economies, such as South Africa, struggle to achieve sustained growth, making it challenging for businesses to thrive.
MacKay outlined a strategy for South African businesses looking to expand into untapped markets. He identified several countries, including Mozambique and various Southern African Customs Union (SACU) states, as having potential for growth. However, he cautioned that many of these opportunities are obscured by logistical challenges, such as South Africa’s port inefficiencies, which lead to misrepresented export figures.
For instance, while Mozambique appears to be a growing market, much of its trade data reflects South Africa’s rerouted exports due to the underperformance of local ports. “They don’t have smelters producing ferrochrome or stainless steel; it’s merely our products passing through,” he clarified.