Key Features of the Post-1994 Pattern of Trade of the ...sds.ukzn.ac.za/files/rr57.pdf · Myriam Velia & Imraan Valodia School of Development Studies University of Natal February

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Key Features of the Post-1994 Pattern of Trade of the KwaZulu-Natal Province

with the Rest of the World:

Emerging Trends and Issues

Myriam Velia & Imraan Valodia

School of Development Studies

University of Natal

February 2003

Research Report No 57

ISBN No 1-86840-496-X

Report prepared for the KwaZulu-Natal Department of Economic Development and Tourism.

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CONTENT

Introduction:................................................................................................................................................................. 1 Summary of the Key Findings of this Report: ........................................................................................................ 3 1. How important is KZN to South Africa’s trade performance? - An overview of KZN overall pattern of trade:.......................................................................................................................................................................... 4 2. The structure of KZN trade: shifts in the dominance of few key products ................................................. 8

2.1. The overall composition of KZN exports ................................................................................................. 8 2.2. The overall structure of KZN imports ..................................................................................................... 11 2.3. A changing pattern of trade? ...................................................................................................................... 11 2.3. Summary ........................................................................................................................................................ 13

3. KZN trade: detailed sectoral performances ..................................................................................................... 13 3.1. The dominant key sectors: a small trade platform.................................................................................. 13 3.2. Changes in the trade performance of the small sectors ......................................................................... 15 3.3. A typology of changes in the trade performance .................................................................................... 17

4. The destination of exports and origin of imports ........................................................................................... 18 5. Within KZN - trade at the level of the localities............................................................................................. 19 6. Summary and Conclusion: Contextualising KZN Trade Performances ..................................................... 20 Appendix 1.................................................................................................................................................................. 25 Appendix 2.................................................................................................................................................................. 32 About the data used for this briefing...................................................................................................................... 32 About the localities and the Provinces ................................................................................................................... 33 References ................................................................................................................................................................... 33

LIST OF TABLES

Table 1. Change in Imports and Exports (average % per annum) ..................................................................... 5 Table 2. KZN’s contribution to South Africa’s trade (%) ................................................................................... 6 Table 3. KZN’s contribution to South Africa’s GGVA (%)............................................................................... 7 Table 4. Average annual changes in GGVA (% - 1998 to 2001) ........................................................................ 7 Table 5. Sectoral composition of KZN Manufacturing Value Added (% for 2001) ....................................... 9 Table 6. Structure of trade for core sectors: KZN and South Africa .............................................................. 10 Table 7. KZN Intra-Industry Trade (IIT) Indices .............................................................................................. 12 Table 8. Coefficients of variation of KZN exports and imports ...................................................................... 12 Table 9. Sub-sectoral structure of KZN exports (1997 & 2001) ...................................................................... 14 Table 10. Typology of manufacturing sectors in KZN on the basis of their trade performance................ 17 Table 11. Tariff range for core sectors (output protection)............................................................................... 22 Table 12. Changes in import penetration and export intensity for core sectors ............................................ 23

Appendix Table 1. Typology of manufacturing sub-sectors relative to South Africa trade performance . 25 Appendix Table 2. Export intensity and share of core manufacturing sectors (KZN 1996)....................... 26 Appendix Table 3. Consistent areas for origin of imports and destination of exports (1993-97)............... 26 Appendix Table 4. Distribution of KZN exports by sector across foreign markets (% for 2001) ............. 27 Appendix Table 5. Origin of exports within the KZN Province (% for 1997).............................................. 31 Appendix Table 6. Output share in the localities of key sectors of activities (% for 1996) ......................... 31

LIST OF FIGURES

Figure 1. KZN and South Africa’s trade................................................................................................................. 4 Figure 2. Relative contribution of South Africa’s Provinces to total national exports.................................... 6 Figure 3. Exports from the major sectors (KZN)............................................................................................... 10 Figure 4. Imports from the major sectors (KZN)............................................................................................... 11 Figure 5. Agro-industry trade indices (1994=100) .............................................................................................. 16

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Figure 6. The export performance of “food, beverages and tobacco” (1994=100) ...................................... 16 Figure 7. KZN Trade Partners ............................................................................................................................... 18 Figure 8. Composition of exports of South Africa and selected Provinces: 1998-2001 ............................... 22

Appendix Figure 1. Key changes in KZN imports in some sectors and sub-sectors ................................... 29 Appendix Figure 2. KZN and SA pattern of exports excluding petroleum oil (HS 27)............................... 30

LIST OF ABBREVIATIONS AND ACRONYMS

AGOA African Growth and Opportunity Act EC The Eastern Cape Province EU/EEC European Union (European Community in the WTO terminology) – European

Economic Community FTA Free Trade Area GATT General Agreement on Tariffs and Trade GEIS General Export Incentive Scheme GGVA Gross Geographic Value Added GSP Generalised System of Preferences HS Harmonised System (a trade nomenclature) ITC International Trade Centre LDCs The Less Developed Countries MS Member States of the European Union (15) n.a. Not available or not applicable Pdt or pdts Product or products Rb Billion of Rand Rm Million of Rand (similarly $m is for Million of US$) RCA Revealed Comparative Advantage SA South Africa SABS The South African Bureau of Standards SACU Southern African Customs Union SADC Southern African Development Community SIC Standard Industrial Classification TDCA Trade and Development Cooperation Agreement (the bilateral free trade area deal

between South Africa and the European Union) TIPS Trade and Industrial Policy Secretariat WC The Western Cape Province WTO World Trade Organisation KZN KwaZulu-Natal Province

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INTRODUCTION:

This report presents some new and salient characteristics of the trade pattern of KwaZulu-Natal (henceforth KZN). As should be clear, the term KZN trade is used here to describe trade with the rest of the world, not trade between KZN and other Provinces of South Africa. Some industrial and trade related developments are examined from the perspective of describing sectoral performances and to establish a typology of manufacturing sectors according to their trade performance and to assess areas in which new trade opportunities are available. The analysis spans two key periods of adjustment with regard to South Africa’s integration in the international economy: 1993-97 and 1998-2001. These adjustments are within the national as well as international spheres. The first period analysis highlights the trade changes which are associated with a phase of deep political and economic transformation. This period captures the general opening of South Africa and the initial dismantling of some support of production and of trade protection measures by the authorities. Following the conclusion of the Uruguay Round, the (then) General Agreement on Tariffs and Trade (GATT) Members put forward notable programs of trade barriers reduction in a series of sectors of relevance to less developed exporting countries.1 In 1994 South Africa joined the Marrakesh discussions to eventually become a World Trade Organisation (WTO) Member. The second period opens up on a difficult international trade context dominated by the East Asian Economic crisis. Within that period, South Africa’s negotiation of a free trade area (FTA) with the European Union was completed and bilateral trade liberalisation was engaged upon from 2000. South Africa was also approved for the Africa Growth Opportunities Act (AGOA) benefits. These new trade deals reflect an evolution of the Generalised System of Preferences (GSP) as well as the fact that preferences are now predominantly driven on a bilateral basis – that is entailing country-to-country trade liberalisation. South Africa continued in the second period to streamline and to rationalise its own barriers to trade. Whilst the changes are those that affect South Africa and trade data analyses are typically conducted at the national level, there are important nuances in endowments and in production structure across South Africa’s Provinces. Our research takes changes and opportunities from the perspective of the manufacturing trade performance of KZN. We therefore take the first step in our project towards identifying the various trade trends of the Province. Basic statistical inferences are used to draw upon these trends. The connection between the various aforementioned trade changes, their potential impact and relevance for the KZN Province forms the second part of this report. The overall focus of this report bears primarily on identifying past trends. Manufacturing opportunities in the Province have already been analysed in a joint research project between the Monitor Group and Durban Unicity with the purpose of identifying a “long term economic strategy for the city”. As emphasised in their Report, the process of setting up an adequate typology of manufacturing sectors is complex. A series of determinants of performance are incorporated in a static exercise that identifies manufacturing sectors according to two dimensions, their relative competitiveness and their relative attractiveness. Whilst the former takes into account relative opportunities for further expansion – productivity, share of world exports and export propensity – the latter, by encompassing qualitative criteria of performance – number of jobs, average wages, growth and size of the sector –, allows for policy priorities to be incorporated in the analysis. Because this report focuses on relative opportunities, it shares some similarities with the aforementioned research. However, emerging trade issues in the Provincial pattern of trade come to the forefront given

1 Some of the most important aspects of the WTO establishment lie with the opening up of new areas for trade liberalisation negotiations. However, we are only concerned in our research with trade in manufacturing sectors.

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that the analysis bears on time series data. Other nuances relate to the complexities within which relative trade opportunities evolve and emerge; they depend on how trade barriers and regimes evolve. They further depend on complementarities, that is whether South Africa produces goods that are similar to those that are exported by alternative suppliers to a given market. The effects of the integration of South Africa and of the Province into the international economy are also shaped by the extent to which specific measures of protection have been applied by the authorities, and the nature and scope of these measures (as well as the initial trade performance of particular sectors). From the perspective of Provincial trade, performances are defined by Province specific endowments as well as by policy developments in other Provinces that would impact on the trade across Provinces . Given the complex theme, this report aims to present information that can be used as a first step to address some of the above questions. Attention in the analysis of the pattern of KZN trade is with drawing specific developments over the period of analysis. Potential explanations of sectoral trade trends are largely set aside given that there are a large number of determinants of trade performance and the difficulty in isolating the impact and relative importance of each of these determinants. Moreover, data constraints are important in this regard; the absence of relevant industry indicators forces the researchers to suggest explanations around some of the forces driving the trends – the data that has been analysed and its severe shortcomings are discussed in the Appendix -. As such, the research is largely exploratory as well as descriptive. This report thereby serves to initiate a first debate around some specific trade issues of relevance to the Province. Having set out a summary of key trends and potential issues which emerge from the trade data analysis, this report is structured as follows:

A first section contains a small overview of KZN trade further setting this trade relative to that of South Africa.

A second section turns attention to the composition of the Province’s exports and imports.

A third section turns to a detailed presentation of sectoral performances so as to set sectors relative to each other.

A fourth and fifth sections set out the destination of exports and origin of imports generally before zooming onto trade at the level of the localities.

Section 6 sets a broad discussion of the opportunities by contextualising provincial trade. The discussion returns to some key points and raises some policy issues around these.

An Appendix follows the main text. Besides some background tables, the Appendix further specifies 1) the data used and their shortcomings; 2) how we define the localities referred to here and 3) a small list of bibliographical references.

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SUMMARY OF THE KEY FINDINGS OF THIS REPORT:

KZN provincial trade: emerging key trends

* The KZN Province is an important contributor to South Africa’s manufacturing and trade performance. The KZN Province has integrated rapidly into the international economy. A slowing down of trade occurred from 1998 but a trade surplus and a ‘recovery’ of exports characterises the second period after a dip in between 1997 and 1998. Also in the late 1990s, KZN exporters found new markets for their goods.

The nature of the integration has changed before and after 1998. Positively for the Province, there are signs that KZN export composition is progressively shifted away from more basic commodities into more labour intensive sectors. New opportunities are thereby signalled of a reduced sensitivity to adverse terms of trade potential effects; some new light manufacturing sectors appear to display trade/export potentials.

There are general signs of export specialisation and one particular sector has remained consistently strong, the “paper” sector.

Finally, KZN export composition does not closely overlap with that of other South African Provinces.

* As for KZN trade partners, these are in the East Asia and the Pacific region and the EEC. New

markets have evolved but SADC is only in the fifth position as a market of destination for the exporters.

Several signs however come through from the data analysis which point to some adverse developments. * Tentatively, shifts in the pattern of trade observed for KZN are those associated with areas and

economies that are at low levels of development. An adverse development is taking place insofar as KZN’s contribution to national trade has

declined. It is being progressively displaced by Gauteng and the Eastern Cape. The above matters in light of the fact that, following declines in exports in 1997, KZN export

level did not in 2001 catch up with the 1997 figure. In terms of sectors in which the Province has an apparently strong manufacturing base, the

performance of the agro-industry has been disappointing – although recent improvements are to be noted.

Trade was, in 1997, predominantly with the Durban area (Central to South Durban). This particular feature of the Provincial pattern of trade raises the issue of how to deal with localised gains from trade and trade-related activities and, in turn, with how to support other localities’ engagement with the international economy.

A close examination of whether there was, in 1996/7 a potential overlap between output and exports, suggests that trade is taking place in small production sectors within the localities.

* A separate set of questions is with some of the large manufacturing sectors that have seen changes. Relatively pronounced fluctuations are to be noted with the “chemical and allied” product group. Moreover, the typology of KZN trade performances according to sectors of activities is affected by the disappearance of imports in a particular “mineral” sub-sector.

Finally, in terms of KZN manufacturing base, there is room for an additional export impetus within some of the large sectors. For instance there appear to be specific difficulties with the agro-industry. In spite of a recent and modest take off of exports, little export characterises this sector.

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1. HOW IMPORTANT IS KZN TO SOUTH AFRICA’S TRADE PERFORMANCE? - AN OVERVIEW OF

KZN OVERALL PATTERN OF TRADE:

KZN trade (imports and exports) has expanded between 1993 and 1997 and again between 1999 and 2001. The pattern was atypical in two years, 1993 and 1997 (Figure 1).

A sharp export expansion took place during the first period of the analysis in 1993-94. The export growth demarcates a very fast response to the economy-wide opening by the various economic actors - notably here the exporting firms. It should also be emphasised that KZN displayed a much more pronounced initial response to the integration to the international community than what is observed for South Africa at large. This can be taken as indicating that KZN had a production base that was already (from the start) distinct from that of other Provinces. The export growth resulted in the initial deficit of the Province of 9 billion Rands (henceforth Rb) to be substantially reduced in 1994. The export expansion after 1994 however remained until 1997 below that of imports. KZN trade deficits were observed throughout the first period (reaching 4 Rb in 1997).

A sharp reversal occurred in 1998 when trade temporarily slowed down: exports and imports declined. The rate of import decline was however such that KZN then shifted to a trade surplus. Between 1998 and 2001, the provincial trade surplus grew, fuelled by almost continuous declines in imports. The surplus stabilised at about 10 Rb in 2000/01. In contrast to KZN, South Africa had an initial trade surplus in 1993 of 34 Rb. The surplus disappeared rapidly and an increasing deficit emerged between 1995 and 1998. During the second period, trade deficits disappeared in South Africa but in 2001 only, which is much later than for KZN. The overall presentation of how the pattern of trade of KZN has evolved relative to that for South Africa points to aspects of production and of trade that are unique to the Province. We return to this subsequently.

Figure 1. KZN and South Africa’s trade

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Focusing on a comparison of trade changes between KZN and South Africa, several trends emerge.

Except for 1993, the trade expansion path of the Province was first relatively similar to that

of the country. Between 1994 and 1997, South Africa’s trade witnessed an import growth in excess of that of exports (Table 1, part 1). This trend is loosely similar to that displayed by KZN. Within that period, a difference emerges at the beginning of the period under study when a sharp rise in KZN exports coincides with a small decline in exports for South Africa at large. The 1998-specific export decline is common to South Africa and KZN (Table 1, part 2).

Trade performances during the second period are shaped by differences in imports trends.

In the first period, KZN imports generally followed the trend displayed by South Africa (except in 1995-96 when KZN imports dropped a little). From 1997 in fact, KZN imports declined in a pattern atypical to that of South Africa at large. A temporary decline in SA imports occurred in 1999 suggesting a potential lag in import responses. The differences are captured in terms of annual changes (Table 1, part 2).

Table 1. Change in Imports and Exports (average % per annum)

Part 1: Overall trends 1993-97 1994-97 1998-01 1994-01 SA KZN SA KZN SA KZN SA KZN Imports 9.8 12.7 11.9 14.6 0.6 -7.3 4.8 -3.8 Exports 5.1 10.4 3.6 29.0 13.4 5.9 3.6 3.7

Part 2: Year to year changes

1993-94 1994-95 1995-96 1996-97

SA KZN SA KZN SA KZN SA KZN Imports 18.6 20.4 18.6 26.5 5.5 -1.3 5.8 14.7 Exports -0.5 105.9 5.4 14.1 4.1 11.1 5.7 6.4

1997-98 1998-99 1999-00 2000-01 SA KZN SA KZN SA KZN SA KZN Imports 3.1 -33.1 -7.3 -16.7 9.4 -6.3 0.4 2.1 Exports -11.3 -19.5 12.3 14 12.6 1.0 15.2 3.0

Notes: Based on data at 2000 constant prices. 1993/4 to 2001 data for South Africa are from TIPS. Sources: original trade data from TIPS and Customs and Excise of South Africa.

KZN’s contribution to South Africa’s trade, relatively stable between 1994 and 1998 evolved subsequently (Table 2). Again, the fact that 1993-94 KZN trade changes were atypical can be noted through the contribution of the Province to economy-wide exports. The 1993-94 provincial export expansion was driven by the large “paper” and “chemical and allied” sectors although the combined share of “vegetables” and “food, tobacco and beverages”, whilst small, increased sharply (from 2% to 6.5%). KZN’s contribution stabilised until 1997 and averaged 16.6% of South Africa’s exports and to 18% of the Nation’s imports between 1994 and 1997.

From 1998, KZN import contribution declined. Whereas the change in its share of imports coincides with the atypical decline in imports, the drop in KZN’s share in the Nation’s exports from 1999 is caused by a greater expansion of trade from other Provinces. This expansion continued after 1999.

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Table 2. KZN’s contribution to South Africa’s trade (%) 1993 1994 1995 1996 1997 1998 1999 2000 2001 Import 17.3 17.5 18.7 17.5 19.0 12.1 10.8 9.3 9.4 Export 7.3 15.1 16.3 17.4 17.5 17.9 18.2 16.3 14.6

Note: South Africa’s data are from Customs and Excise and from TIPS (the average of the data) for 1998-01. Sources: Ibid.

Displacement is from two Provinces, Gauteng and the Eastern Cape (EC) (Figure 2). In terms of the national distribution of imports - not reported here - the shift has been in favour of Gauteng as well as of KZN. Their share of imports in total imports has declined, absorbed relatively by expansions from the Western Cape (WC) and the EC Provinces. The combination of these trends and the fact that the EC export expansion is linked to imports (of components for the automotive industry) probes the issue of the qualitative nature of the KZN import decline. KZN’s sharp trade deficit reductions since 1998 can be considered abrupt on two accounts: 1) it is the second largest trading Province after Gauteng - in spite of changes, KZN still accounts for about 15% of South Africa’s exports; 2) KZN’s level of development is not evidently in excess to that of South Africa.2 A process potentially adverse to KZN development might be taking place here, namely imports being curtailed through firms postponing investments. If this strategy was followed it would undermine the export prospects in long run. Alternatively, import declines might be associated with changes of the production base.

Figure 2. Relative contribution of South Africa’s Provinces to total national exports

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Source: Customs and Excise of South Africa.

The above points out that whilst progressively displaced, KZN’s trade is important to South Africa’s trade. In parallel to trade, indicators of KZN’s substantial contribution to South Africa’s manufacturing performance can be found though the 1996 Census of Manufacturing. According to the Census, 20-22% of South Africa’s manufacturing establishments, labour costs and net profits were then accounted for by KZN, again second after Gauteng. Generally, KZN exhibited marginally larger firms in terms of employment - there were, in 1996, 64.4 paid employees per establishment compared to a figure of 55.1 for South Africa -. However, the Province displayed a lower export orientation than that of South Africa in 1996 with 27% compared to 34% of output

2 Yet undoubtedly, South Africa’s relatively rapid stabilisation of its trade balances is also puzzling.

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exported. KZN productivity was then also marginally lower (an output of 227,800 Rands per employee for KZN but a figure of 235,800 for South Africa).

Whilst a detailed and more recent analysis of changes in the relative export orientation of the Province is a task which awaits the new Census of Manufacturing data, WEFA data suggests that the Province would have kept its importance as a manufacturing base. KZN’s manufacturing is set to account for close to 20% of national value added (Table 3), second after Gauteng.

Table 3. KZN’s contribution to South Africa’s GGVA (%) 1990 1996 1997 1998 1999 2000 2001 19.8 19.8 20.1 20.4 19.6 19.6 19.8

Note: GGVA stands for geographic gross value added at basic prices. The figures are for all sectors of economic activities. Source: WEFA database.

Yet, WEFA predicts a growth for KZN below that of the country. Value added has increased the most rapidly in Gauteng and in the Eastern Cape (Table 4). What is underlined is thus a process in which production bases are growing in some other South African Provinces at greater rates than in KZN. Investment issues and KZN specific production development difficulties might accordingly be of importance in assessments of trade patterns and in the taking up of new trade opportunities.

Table 4. Average annual changes in GGVA (% - 1998 to 2001) 2.55 National Total -0.84 Western Cape 3.94 Eastern Cape 3.25 Northern Cape -3.45 Free State 1.63 KwaZulu-Natal 1.10 North-West 5.17 Gauteng 3.53 Mpumalanga -0.71 Limpopo

Notes: Based on GGVA data at 1995 constant prices. GGVA data are estimates. Statistics South Africa (2002) details the performance of gross domestic product for each of the South African region. Source: Ibid.

The above presentation suggests two key features with regard of the relative position of KZN; first, that important changes have taken place over the two periods of analysis and second that there are substantial variations in the pattern of trade across South Africa’s Provinces. This pattern is partially rooted in the large contribution of manufacturing in KZN value added. This share, at 25.5% share in 2001 was substantially in excess to that of the Northern Cape, the Free State, the North-West and the Limpopo Provinces (with shares of 5% to 13.2%) and a little in excess to that of the Gauteng (21.9%), the Western Cape, the Eastern Cape and Mpumalanga.3 It also reflects differences in the contribution of various economic sectors. Generally, KZN activities appear strong as well as resilient. The Province’s economic contribution to South Africa’s overall economic performance is moreover substantial in numerous ways. Latest estimates from Statistics South Africa (Nov. 2002) suggest an above average performance of the region in terms of its growth of gross domestic product (between 2000 and 2001). Also, similarly to South Africa’s performance in its gross domestic product, KZN’s gross domestic product remained positive between 1996 and 2001. Yet, economic growth in real terms between 1995 and 2001 was somewhat below that

3 According to Statistics South Africa (2002), KZN is also relative strong in “agriculture, forestry and fishing”, “construction” and “transport and communication” (amounting in 2001 to 24%, 19.2% and 20.3% respectively of South Africa’s value added at 1995 prices).

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for South Africa at large. Affecting the pattern of relative performance is the take off of specific activities of other province s (i.e. the Limpopo Province). From a trade perspective, KZN pattern of trade appear distinct from that of South Africa. Exports behave somewhat differently, notably over the first period when they grew rapidly. For imports, sharp declines characterise the second period. This points to the influence of some important sectors of activities, specific to the Province, in the overall KZN pattern of trade. 2. THE STRUCTURE OF KZN TRADE: SHIFTS IN THE DOMINANCE OF FEW KEY PRODUCTS

With South Africa well endowed in natural resources, comparative advantages are found in the basic agricultural, extraction and transformation manufacturing sectors of activities.4 The pattern observed for the country at large applies to KZN, more noticeably during the first period of analysis. As such, it is easy to comment, in the aggregate on the overall pattern of Provincial trade.

For export, few sectors located in a series of primary or commodity segments dominate. At a somewhat more detailed level, the dominance of a small set of sub-sectors in KZN trade still applies. As for imports they took place (more notably during the first period) in similar sectors as those in which export occurred (i.e. there is some amount – in the aggregate - of intra-industry trade) and in the “machinery and related equipment” manufacturing sector.

Whilst some of the sectors which drove KZN export performance during the first period continued to dominate in the second period, a more elaborate pattern of trade transpires after 1998. Very loosely, exports are increasingly shifting towards the more labour intensive segment. New sectors (i.e. possibly an increasing number of firms) are connecting to foreign markets. The stabilisation of the firms’ engagement with foreign buyers is new with signs of a reduction of dispersion of exports across sectors of activities over the second period. A similar, albeit more marked, change is observed with imports. Although import changes are influenced by the disappearance of a large sub-sector, a series of factors are likely to matter for the trade performance. The analysis would ideally require that changes in KZN production as well as investment be properly traced over time, a task that has been undertaken by HSRC for its KZN Economic Review concomitantly to this project. It is not possible to identify these at this stage of the research. This section presents the overall composition of KZN exports and imports (Sections 2.1 and 2.2), before engaging with a brief discussion of how the pattern of trade has evolved across sectors (Section 2.3). Sectoral trade performances are closely detailed in the following main section (Section 3).

2.1. The overall composition of KZN exports

This section details the KZN export orientation and the dominant export sectors. Over the first period of analysis data is available from the 1996 Census of Manufacturing which allows a broad assessment of the export orientation of various KZN manufacturing sectors at a point in time. WEFA and Customs and Excise data are used to comment on the changes beyond 1996.

Census data shows that KZN manufacturing and trade was concentrated in few sectors; “refined petroleum, chemical, rubber & plastic” and “basic metals, fabricated metal products, machinery & equipment” had, in 1996, a high export intensity. The lowest export intensities in large manufacturing sectors located in the Province were with “food, food products and beverages” and “textiles, clothing and leather” products (Appendix Table 2, page 26).

4 For instance, the sectors in which South Africa has the highest revealed comparative advantages are coal, coke, inorganic chemicals, metalliferous ores and metal scrap, minerals sugar, pulp and paper, iron and steel. A list of the top five sectors identified by various researchers for 1995 and for the post 1995 period can be found in the literature review of Cassim, Onyango and Van Seventer (2002: 111).

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With the caveat that the classification of manufacturing sectors used for the Census does not closely overlap with that used for the trade data, the 1996 export orientation is not correlated with employment and with investment (capital expenditure on new assets). A (relatively weak) relation was between exports and labour costs (coefficient of correlation, r=0.7). Whilst WEFA suggests changes in the Province’s manufacturing base after 1996, the three most important sectors relative to South Africa are “textile, clothing and leather”, “wood and wood products” and “food and beverages”. KZN would account for as much as 34%, 27% and 24% of South Africa’s value added in each of these sectors. With the exception of “wood and wood products”, these are not sectors which drive the trade performance of KZN. In absolute terms however, the WEFA value added data shows that “metal products, machinery and household appliances” dominated in 2001. The sector is followed closely by the food, beverage and tobacco sector as well as by fuel, petroleum, chemical and other rubber products (amounting to 40% of the Province’s value added - Table 5). Specialised ‘knowledge intensive’ goods (electronics) are estimated to stand at less than 1% of total KZN’s value added.

Table 5. Sectoral composition of KZN Manufacturing Value Added (% for 2001) SIC v. 5 Description %

35 Metal products, machinery and household appliances 21.1 30 Food, beverages and tobacco products 18.9 33 Fuel, Petroleum, chemical, plastic and rubber products 15.1 32 Wood and wood products 12.9 38 Transport equipment 11.3 31 Textile, clothing and leather goods 8.9 39 Furniture and other items 5.6 36 Electrical machinery and apparatus 3.0 34 Other non-metallic minerals 2.0 37 Electronic/sound/vision, medical & other apparatus 0.8

Source: WEFA database. Data are at 1995 constant prices.

The above pattern of production and of value added alludes to some mismatch with the trade orientation of the Province, in particular for the food sector. There is also no outright strong relation between the size of the sector and their trade orientation either – the largest KZN sectors according to the Monitor Group and Durban Unicity Report (2000: 19) are “clothing” followed by “food and food products”.5 Harmonised system (HS) data supports the above observation of KZN trade being concentrated across few product groups over both the first and second periods of analysis. Four particular sectors drove the export performance viz. metal6, mineral7, “chemical and allied” and paper products (amounting to 80% and 75.5% of KZN exports on average in 1993-97 and in 1998-01). Heavy industry and natural resource goods strongly dominate the composition of exports. In relation to the agro-industry (i.e. food, food products, beverages, tobacco, trade of live animals, meat and seafood and in vegetables, i.e. HS 1 to 24), only 4.4% of the Province’s exports were in such products. This is nevertheless a small export sector for the country at large. Agro industry would account for about 8% of total national exports.8 5 Other large employment sectors are ‘textiles”, “motor vehicles, parts”, “industrial chemicals” and “paper and paper products”. An employment-trade link would loosely be with KZN “industrial chemical” and “paper and paper products”.

6 The metal sector encompasses basic iron and steel bars, pipes and tubes, flat sheet, fittings and structures made of metal, tanks, parts of bridges made of metal, barbed wires, chains, screws, tin and foil, hand tools, scissors etc. (HS 82), filling cabinets and other type of office equipment (HS 83).

7 Minerals refer to salts, sulphurs, plastering materials, limes and cements, earth and stones, ores, slag and ash and mineral fuels and oils as well as mineral waxes.

8 The agro industry’s share in total exports remains relatively stable for South Africa and KZN throughout the two periods of analysis in spite of fluctuations over the years.

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There are important differences between the composition of KZN and that of South Africa which are explained by the fact that South Africa’s exports are primarily in “precious stones and metals” (HS 71), a sector which is generally absent from KZN. Yet, even when this sector is excluded, the strong export position in the Province of metal and paper products as well as of “chemical and allied” goods remains apparent (Table 6, part 1). In contrast, a shift has taken place away from “metal” in the second period in favour of “mineral”.

Table 6. Structure of trade for core sectors: KZN and South Africa Exports

(% of total SA (% of total KZN) (% of total SA) excl. HS 71) 1993-97 1998-01 HS codes 1993-97 1998-01 1993-97 1998-01 Paper 13.9 18.3 47 TO 49 3.1 4.2 4.6 5.2 Chemical & allied 15.1 13.8 28 TO 38 5.8 7.09 8.7 8.7 Mineral 17.6 24.75 25 TO 27 12.5 14.5 18.8 17.9 Metal 33.9 18.6 72 TO 83 14.5 19.6 21.8 24.1

Imports KZN SA (% of total KZN) (% of total SA) 1993-97 1998-01 1993-97 1998-01 Chemical & allied 13.8 16.35 10.8 10.7 Machinery & equipment 15.5 22.2 31.4 28.9 Mineral 31.8 7.3 8 11.9 Textiles 8.4 2.8

Note: Based on a total breakdown of exports and imports across product groups for each year. Average proportions are listed here only for the dominant sectors. Sources: Customs and Excise and TIPS trade data.

Fluctuations typify the export performance of KZN core sectors. As should be clear exports from the metal sector declined markedly whereas those in the mineral sector rose. Fluctuations were the most pronounced in “chemical and allied” as well as in “paper”. The performances differ substantially across the two periods of analysis. KZN has witnessed a recent expansion of its exports in the residual/smaller export sectors (that is with exports in all sectors other than the top four aggregated - Figure 3). Excluding wood products, another rapidly expanding export in the primary commodity group, the expansion occurred after 1999.

Figure 3. Exports from the major sectors (KZN)

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4

6

8

10

12

1993

1994

1995

1996

1997

1998

1999

2000

2001

Rb

�� paper pdt Chemical and allied pdt

�� Mineral pdt

Metal pdt

��Wood pdt All other sectors

Source: Customs and Excise.

11

2.2. The overall structure of KZN imports

KZN imports are also concentrated in a small set of core manufacturing sectors (Table 6, part 2). Mineral products, machinery and industrial equipment and goods from the “chemical and allied” industry averaged 61% of imports in the first period. Changes over the second period were comparatively abrupt for “mineral” and “machinery and equipment”. In a shrinking import base, textile products imports become apparent. One aspect of the second period data is that mineral imports almost disappeared from 1997 onwards. A different pattern of imports comes through once petroleum data (HS 27) but the import pattern of KZN remains different to that of South Africa (Appendix Figure 2, page 30). With, according to the view of a key respondent, no change in KZN refining capacity, either imports have declined following the relocation of a company outside of KZN, or oil prices and/or strong exchange rate effects have affected the values of imports.9 In absolute terms, worryingly, imports in “machinery and equipment” dropped by about 17% per year between 1998 and 2000. For the other main sectors and the residual, imports also declined (Figure 4). Changes might be underway as can be noted through the 2000/01 small upturn in imports.

Figure 4. Imports from the major sectors (KZN)

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14

1993

1994

1995

1996

1997

1998

1999

2000

2001

Rb

��Chemical and allied pdt Machinery and equip

��Mineral pdt Tex pdt

��All other sectors

Source: Ibid.

2.3. A changing pattern of trade?

One feature underlying the pattern of KZN exports and imports is some amount of intra-industry trade. Intra-industry trade can point to a pattern of consumption that emphasises product variety within a particular sector (similar but differentiated products) or to the specialisation of exports within particular product niches.10 Crudely, high intra-industry trade is a feature of higher (increasing) levels of development.

The average across sectors (defined at the 2 digit level of aggregation) of intra-industry trade indices increased between 1993 and 1998 before dropping and stabilising in 2000 (Table 7).11 A change in the 9 The data were recoded and all calculations were checked twice. Ideally, import volumes would need to be examined to identify changing trends and/or the validity of the trade data.

10 A third case is trade of products at slightly different production stages (i.e. electronics components).

11 Grubel-Lloyd indices have been used. These scale the fraction of total trade in a sector that is intra-industry trade.

12

composition of trade then took place. Yet, there are variations across core sectors: the indices are consistently high for the “chemical and allied” sector. Changes were with “mineral” and “paper” from 1999. With the issue of disappearing imports in mineral, either specialisation has taken place within the paper sector or trade is across new sub-sectors. One issue with the indices is that they are influenced by the level of data disaggregation. Intra-industry trade in fact largely disappears at the 4-digit level of data disaggregation.12 The indices might be sensitive to a higher level of disaggregation and the removal of mineral trade data.

Very tentatively, the above suggests a bifurcation of exports and imports. There is little outright evidence of a growing consumer demand for product variety.13

Table 7. KZN Intra-Industry Trade (IIT) Indices IIT 93 IIT 94 IIT 95 IIT 96 IIT 97 IIT 98 IIT 99 IIT 00 IIT 01

Average 37.7 48.8 45.5 51.3 52.8 57.6 48.4 51.0 51.3 Chemical and allied 71.9 93.3 96.1 99.3 99.2 93.0 95.8 93.1 80.4

Mineral 61.3 74.4 64.5 57.9 61.2 77.9 24.5 17.9 22.3 Paper 76.8 46.9 37.3 40.5 44.1 43.0 20.4 28.1 26.8 Metal 36.6 17.7 28.1 20.9 20.2 35.8 39.9 35.2 27.9

Note: The IIT indices have been calculated here for each Chapter. The indices vary between 0 and 100. A figure of 100 would point to a complete overlap between exports and imports. Source: Own calculations based on Customs and Excise data.

In spite of the dominance of few product groups, the dispersion of exports across sectors reduced progressively over time. This is again indicative of a growing convergence of the export values across the various sectors. Loosely this can also indicate that some amount of export specialisation is taking place. Declines in coefficients of variations occurred in 1994/95, and between 1998 and 2001 for exports (Table 8, in line with Figure 3). Imports on the other hand were increasingly dispersed between 1994 and 1997 across sectors. The reduction in dispersion then accounts for the disappearance of a mineral sub-sector. Once mineral imports are excluded from the analysis, reductions in dispersion of imports are more consistent and suggest a pattern of convergence. This is possibly fuelled by the lowering of South Africa’s barriers to trade.14 Alternatively (or in parallel), there might be a process of a rapid development of the production base.

Table 8. Coefficients of variation of KZN exports and imports

1994 1995 1996 1997 1998 1999 2000 2001 CV Export 3.36 2.75 2.83 2.74 2.84 2.79 2.65 2.51 CV Import 2.98 3.25 3.4 3.71 2.33 1.92 1.81 1.91 CV Import

excluding mineral 2.21 2.13 2.19 2.04 2.28 1.97 1.85 1.95

Note: The coefficients have been calculated for trade data at the HS level (99 categories). Source: Ibid.

12 There is one exception to this amongst the large sub-sectors with “aluminium plates, sheets and strips” (HS 7606) in the metal product group; the intra-industry trade index for HS 7606 was 69.3 in 1997.

13 One untested hypothesis is that such diversity is manifest at the country level but that it is satisfied through trade outside of the Province. Subsequent data analysis will return to this point.

14 Undoubtedly, the depreciation of the Rand would have induced some firms to either curtail or postpone investments. The point here is that firm-level data would inform on this. In the trade data some indication for this can be found through the decline in imports of goods used for production. Since such goods are scattered across a wide range of HS codes, we are concerned here as a first proxy with the trends in imports of “machinery and equipment” goods.

13

2.3. Summary

The above discussion confirms the pattern partially already identified in the first section of marked changes having taken place between the first and second period of analysis. KZN has successfully integrated in the international economy insofar as first, export has recently started to take off from new sectors of activities and second, as a more balanced composition of export across sectors is progressively emerging. However issues remain towards the factors driving the average export orientation and that of some of the large production sectors, in particular over the second period. It is most likely too early for a sharper export pattern to emerge. Yet, whilst KZN production base is dominated by a small number of manufacturing activity, exports are in an even smaller number of sectors. The pattern at hand is one more typical of areas at lower level of development. Qualitatively, a worrying trend is towards the declining and rapidly rationalising of imports. Here declines in imports of “machinery and equipment” might underlie reductions in investments. The observation varies depending on whether mineral import data are included. A radical change occurred with mineral imports in the sector period. We return to this subsequently. 3. KZN TRADE: DETAILED SECTORAL PERFORMANCES

This section details the export and import performance across a series of manufacturing sectors as well as changes in trade balances over the period. A first sub-section zooms onto the trade performance of those sub-sectors that drive provincial trade. A second sub-section sets out some general changes for the sectors that have experienced marked changes. This is to fill a gap in the above analysis which lies with the fact that the excessive dominance of some sectors overshadows changes within smaller sectors. In addition, the position of the agro-industry is here explicitly isolated as it is a large sector of activity within the Province. A third sub-section typologizes the sectors according to their performance across the two periods.

3.1. The dominant key sectors: a small trade platform

The pattern of trade being concentrated across few sectors of activities is generally maintained at the sub-sectoral (4 digit) level. This does not preclude shifts in terms of the changing dominant sub-sectors over time. The following emerges when focusing on the core manufacturing sub-sectors.

• Imports of mineral products are primarily in the mineral fuels and oil group. Whilst exports were first spread between the petroleum fuel and “ores, slag and ash”, there has been a progressive shift away from the former in favour of the later sector. An important issue is with regard to the disappearance of a particular sub-sector, HS 2709, “oils and oils obtained from bituminous minerals, crude” in 1998 (Appendix Figure 1, page 29).15 Some mineral fuel imports remained. There was, for instance, an increase in imports of “coal, briquettes, ovoids and similar solid fuels manufactured from coal”. Imports of “asbestos” were maintained.

• In metal, there was a reversal to the first period trend of exports shifting away from articles of “iron and steel” towards “aluminium” items (more specifically in items of unwrought aluminium, in “flat rolled iron and steel” and “angles and shapes and sections of iron and steel”). This evolved after 1997 when new products became dominant (Table 8).

15 The mineral sector spans HS 25 to HS 27, encompassing “salt, sulphur, earths and stone, plastering materials, lime and cement”, “ores, slag and ash” and “mineral fuels, oils and products of their distillation, bituminous substances; mineral waxes”. Imports of “petroleum oils and oils obtained from bituminous minerals, crude” dominate in the first period and “mineral fuels, oils and products of their distillation; bituminous substances; mineral waxes” at the end of the second period. Imports of “petroleum bitumen”, “calcium phosphates” and some mineral substances (within HS 2713, 2510 and 2530) disappeared after 1997. To re-iterate the point, removing HS 27 values from the import data does not alter the fact that KZN pattern of import is markedly different from that of South Africa at large.

14

• For machinery equipment an excess of 70% of items imported fell in the mechanical appliances group but there was a great diversity of appliance type traded and complex changes over time; pumps/compressors; bulldozers and other extracting machineries and, recently, machinery for the tobacco industry were imported. Bells, burglar and fire alarms, parts of broadcasting instruments, centrifuges and pulley tackles and hoists were exported.

• A much less consistent pattern appears for chemical and allied with trade switching across sub-sectors depending on the year under consideration. For exports, the share of inorganic chemical products declined in favour of an increasing share of miscellaneous chemical and allied items. More specifically for the first group, exports of “chlorides” were first displaced by “titanium oxides”. A new export sub-sector then appeared (Table 8). In the second group, KZN exports primarily “insecticides, rodenticides, fungicides and herbicides”. “Organic chemicals” and “tanning/dyeing extracts and inks” somewhat lost their relative importance. The share of imports of “inorganic” chemical items increased, displacing imports of the “miscellaneous chemicals” category. However this changed again in the second period although imports are still important in these segments. Inorganic chemical imports were in “artificial corundum” and in “sodium hydroxide (caustic soda); potassium hydroxide (caustic potash); peroxides of sodium or potassium”. Other imports are concentrated and “chemical inhibitors and anti-knock preparations”, in “binders for foundry and moulds” and in “insecticides, rodenticides, fungicides and herbicides” (suggesting intra-industry trade in the latter sub-sector). The second period fluctuations across the major “chemical & allied” sectors are depicted in Appendix Figure 1.

• Finally “chemical wood pulp and other fibrous cellulosic items” remained the dominant export sub-sector within “paper”.

Some of the sectors – i.e. chemical and allied - exhibit a complex pattern of trade. This is less so in other sectors. Table 9 summarises some of the 4-digit level sectors that drive the trade performance of the Province can be decomposed. There are some of the more complex changes in imports discussed subsequently.

Table 9. Sub-sectoral structure of KZN exports (1997 & 2001) 1997 2001 OF WHICH 1997 2001

Paper

Pulp of wood or of other fibrous cellulosic material; waste and scrap of paper or paperboard. 67% 57%

Chemical wood pulp, dissolving grades. 74% 67%

Chemical & allied Titanium oxides 67% 38%

Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes. 56% 43%

Diphosphorus pentaoxide; phosphoric acid and polyphosphoric acids.

18% 37%

Mineral Ores, slag and ash. 53% 63% Iron ores & concentrates 31% 58%

Metal Iron & steel 46% 64% Flat-rolled products of iron or non-alloy steel (HS 7208) 26% 14%

Aluminium & articles of 46% 21% Unwrought aluminium 92% 1%

Pig iron and spiegeleisen in pigs, blocks or other primary forms.

11% 19%

Aluminium plates, sheets and strip, of a thickness exceeding 0.2 mm.

3% 80%

Note: The first breakdown is the proportion of a main sub-sector in a major product group (i.e. 67% is the percentage of pulp exports within the paper products export group in 1997). The breakdown in the shaded columns refers to the share of the main export group within the secondary product (i.e. 74% is the percentage of chemical wood pulp exported within the pulp of wood export group). Source: Own calculations based on Customs and Excise data.

The information set out in the above Table reflects the trend in the Province of a comparatively rapid shift in the product exported within the major export groups. This manifest itself in a drop in the share of the main sub-sector(s) within each main export sector over time. Thus, the aforementioned pattern of export rationalisation has been accompanied by a shift of trade into new sub-sectors. Exporters are

15

involved with new orders in both, the main export groups as well as in the more labour intensive manufacturing sub-sectors. We turn attention next to detailing the changes in the trade performance of the small sectors.

3.2. Changes in the trade performance of the small sectors

The analysis has identified that some fluctuations occur over time which affect a clear-cut identification of consistent performance over a long period of time. Whilst some amount of change is driven by the large trade sectors, other changes are less easily identifiable. A difficulty with the second period is that performances vary depending on whether 2000 or 2001 data are considered. Because of the break in the trade performance between the first and second period trends are here taken and considered for each of the period and then overlapped.

• A series of small sectors displayed a continuous export growth. These are primarily located in the light manufacturing group (“arms”, a small trade sector, “made up”, “toys and games” and “waxes, animal and vegetable oils”). Other larger groups were “clothing” and “vehicles and transport”. The latter was in a trade surplus position from 1996 to 2000. Above average export growth was observed for “mineral”, “chemical” and “paper” across the two periods although imports in “chemical and allied” were, in parallel, consistently high.

• In contrast, some cases of difficulties could be identified for products of “stone, plaster and ceramic”, “accessories”, “plastic and rubber”, “machinery and equipment” and “leather and hide”. The “accessories” sector, with imports growing relatively rapidly in the second period, might be experiencing difficulties.16 Metal also displayed declining export growth over the second period.

• “Footwear” with a combination of continuous export decline and high import growth can be considered a sector in difficulty in the Province.

• The trade changes of “agro-industry” sub-sectors stand out in the analysis. In parallel to high import growth of “live animal, meat and seafood”, there was a reversal in this sub-sector in the decline in exports. A recent expansion of production might support the change. As “vegetables and grains” underwent export and import changes similar to those observed for “food, beverages and tobacco”, the question of underlying production changes becomes pertinent. Census data suggests that agro-industry is by and large turned to the domestic market; the output of food (food products and beverages) grew by 2.5% in real terms per annum between 1993 and 1996 and this is a small trade sector for South Africa generally. KZN food output growth was nevertheless below the rate of growth of output in the Province (8.9% per annum).17 WEFA estimates contrast with these. Value added would have declined by 0.6% per year in real terms (1995 prices for SIC 30 v. 5) between 1998 and 2001 in KZN.

Although chronically in deficit, the performance of this sector improved. In 2001, exports were back to their 1994 level. Imports reached their 1994 level in 1999. There is an apparently long period of adjustment with an export take off from 1999 onwards. Figure 5 shows a progressive and recent reversal of some of the first period difficulties.

16 Accessories are headgear, umbrellas, artificial flowers and articles of feather (“accessories” - defined here more narrowly than with the overall conventional HS to isolate footwear - corresponds to HS 65 to HS 67 items.)

17 Ideally one would however want to adjust changes in food production to account for population growth.

16

Figure 5. Agro-industry trade indices (1994=100)

0

20

40

60

80

100

120

140

1993

1994

1995

1996

1997

1998

1999

2000

2001

Imports

Exports

Notes: Based on data at 2000 constant prices. “Agro-industry” is defined as encompassing “live animals & meat & seafood”, “vegetables”, “waxes and edible oils”, “food, beverages and tobacco”. These are HS 1 to 24. Source: Customs and Excise of South Africa.

Trade varies substantially depending on the food sub-sector considered. In the second period, imports progressively shifted away from “waxes and edible oils” to “food, beverages and tobacco” most sharply between 2000 and 2001. Exports were driven by the “food, beverages and tobacco” segment, albeit with fluctuations. “Food, beverages and tobacco” exports are driven by the sugar exports. Fluctuations in exports of sugar and occasional declines in exports disappeared from 1999 although sugar exports exhibit a cycle. Sugar accounts for between 45% and 77% of the “food, beverages and tobacco” segment (45% to 55% between 1999 and 2001). The fluctuations in sugar and a complex international sugar trade regime affect the performance of this small sector.18

Figure 6. The export performance of “food, beverages and tobacco” (1994=100)

0

50

100

150

200

250

300

350

1993 1994 1995 1996 1997 1998 1999 2000 2001

Food, beverages and tobacco excl. sugar exp Sugar

Source: Ibid.

18 Fluctuations in vegetables exports which might account for climatic changes do not overlap with those observed for sugar. Zooming temporarily onto the markets of destination of KZN sugar, these were Japan and the Republic of Korea over the first period. See the breakdown for “food, beverages and tobacco” in Appendix Table 4, page 27 which includes sugar for 2001.

17

3.3. A typology of changes in the trade performance

There are numerous ways to set up a typology of trade performance. Besides, the methodology adopted by the Monitor Group and Durban Unicity exposed in the introduction of this report, the International Trade Centre (ITC) sets performances by benchmarking countries’ sectoral export performances against growth in international demand. We set performances relative to two main dimensions: whether the sector has a continuous trade surplus or deficit and whether the export growth of the Province for a sector is in excess to that of South Africa. KZN trade performances are thus defined here relatively to South Africa – and thus accounting for Province specific endowments - whilst incorporating the overall strength of the sector in foreign markets in terms of exporters’ capacity to expand or maintain orders and the overall capacity of the sectors to meet KZN demand. Needless to say that whilst care has been taken to consider the performances over time, performances are sensitive to the choice of an end-point.

A typology of sectoral export potentials is drawn in terms of how exports have grown at the provincial level relative to South Africa (the various rows of Appendix Table 1, page 25). As set, the method enables the “stars” to be distinguished from other sectors. There are still potential export prospects for sectors in deficit at the Provincial level but whose export growth was in excess to that of South Africa.

Underlying the first period typology of sectoral performances is an overall pattern of trade specialisation; sectors in deficit in 1993 and 1994 fell further in deficit whereas sectors in surplus improved their position.19 Only a small core of sub-sectors in deficit shifted to a surplus. With the exception of “vehicles and transport” these are small trade sectors. When the conventional “textiles and textile articles” sector is disaggregated, clothing and “made up” fall in this category, generally experiencing surpluses from 1995. The surplus is not sufficient to substantially alter the textiles deficit however in spite of a strong expansion of exports. Another sector in a large trade deficit position in 1993 temporarily turned to surpluses between 1994 and 1995, the “chemical and allied products” sector. The deficit which then re-emerged (and increased afterwards to reach 0.3 Rb in 1997) disappeared in the second period. The trade surplus was at 1.4 Rb in 2001.

With the caveat that the typology is affected by the selection of the end-year (2000 or 2001), the second period highlights that the pattern of sectoral trade performances somewhat links to first period changes. Downward shifts - that is deteriorations in position - are from sectors that were already in trade deficits in the first period. Some of the sectors that displayed trade balance improvements shifted to display an export growth above that for South Africa. There is thus a continuous demarcation of sectors. Finally, some sectors – such as “live animal, meat and seafood” and “footwear” - remain poor performers and might thus be considered as sectors in difficulties or exiting. Although this suggests a pattern of change according to comparative advantages, KZN growth in excess to that for South Africa in the first period is at times however in fact accompanied by a decline in the second period. Table 10 below relates to the typology drawn from Parts 1 and 2 of Appendix Table 1.

Table 10. Typology of manufacturing sectors in KZN on the basis of their trade performance

Potentially deteriorating path Potential but (still) under-performing

Consistent strong sectors/new “star” potential

Strong deterioration signs Leather and Hides Textiles Machinery and equipment Miscellaneous manufacturing products (other) Accessories Unclear developments in the long run Metal (?) Vehicles and transport (?)

Mineral products Food, beverages and tobacco Jewellery & stones Made up Precision & optical Waxes & Animal & veg. Oils Toys & games Made up Precision & optical

Paper Wood Chemical and Allied Clothing

Note: The trade balance captures the gap between production and domestic demand. This does not exclude the possibility that a sector can be in a strong exporting position – as is the case with textiles.

19 Coefficients of correlation between 1993 and 1997 trade balances, between 1993 and 1997 imports and between 1993 and 1997 exports are all in excess of 0.9 (0.92, 0.98 and 0.99 respectively). However, the coefficients between trade balances and exports and trade balances and imports are 0.49 and –0.54 for the period of analysis.

18

The above information misses out on the quality of the aforementioned sectors’ trade developments. Yet, the paper and chemical and allied sectors are ‘attractive’ sectors of activities according to the Monitor Company Report.20 Also, not only have three of the four sectors important to the Province maintained their trade performance, new smaller sectors have emerged as “with potential” or “stars”. A worrying trend is however with “metal” with exports declining in the second period. The dismantling of the General Export Incentive Scheme (GEIS) might account for the change.21 What the typology moreover does not indicate is whether the extent to which trade performance is linked across sectors of activities (i.e. “wood” and “paper”) and whether new trade deficits – as for the vehicle sectors – are to be viewed as problematic. Again, more information in terms of production and investment changes is required to make an informed assessment.

4. THE DESTINATION OF EXPORTS AND ORIGIN OF IMPORTS

At the aggregate level, there have been few notable changes in the markets of destination of KZN goods within each of the period (Figure 7 and Appendix Figure 1, page 29). Distinct overseas markets were however targeted by or involved with KZN across the two periods of analysis.

Figure 7. KZN Trade Partners

Destination of exports (%)

0

5

10

15

20

25

30

35

40

1993 1994 1995 1996 1997 1998 1999 2000 2001

Americas excl. NAFTA Middle East

SADC NAFTA

EEC East Asia & Pacif ic

Other

In the first period the “East Asia and Pacific” region displaced the EEC in 1995. The former

absorbed between 29-39% of KZN exports, compared to 21-29% for the latter (with variations across the years). Part of the displacement results from rates of export growth differentials (15.1% and 11.4% to the two regions respectively per annum in real terms between 1994 and 1997). The share of exports going to the Middle East also marginally declined. In the second period, the EEC temporarily returns to being the dominant market following the East Asian

20 In contrast, “wood and wood products” are not relatively competitive - a result that is not substantiated by the sector’s trade performance - but it is an attractive sector. Clothing is in an intermediary position according to the report.

21 The GEIS was dismantled in 1997. The prime beneficiaries in 1994/95 of the GEIS were “producers of primary goods (steel, paper and primary foods)”. According to Valodia (1996:65), steel was the largest GEIS recipient. In 1994/95 ISCOR received Rm120.6 through the GEIS (in Budlender, D., The Women’s Budget, Idasa CTN, Institute for Democracy in South Africa).

19

crisis. Its share stabilises in 1999 at around 22%. In the second period trade expands towards NAFTA and towards smaller regional partners.

Origin of imports (%)

0

5

10

15

20

25

30

35

1993 1994 1995 1996 1997 1998 1999 2000 2001

Other Americas excl. NAFTA

Middle East SADC

NAFTA EEC

East Asia & Pacif ic

Note: For each year the sum of the share of each market adds up to 100% The other regions are: Rest of Europe (excluding EEC), Eastern Europe & Central Asia, Americas excluding NAFTA, Eastern & Southern Africa excluding SADC, West Africa, North Africa and South Asia. Source: Customs and Excise of South Africa.

There is, in contrast, an initial messy pattern of changes in terms of the origin of the Province’s imports. Notably the Middle East, in a negligible position in 1993, rapidly became the major trade partner. This is because of the importance of petroleum in the composition of the Province’s imports. Its share dropped rapidly in the second period. The EEC continuously progressively displaced in the first period regained its position stabilising at about 35%. East Asia and the Pacific is the second most important partner over the second period. Some changes appeared between 2000 and 2001 again in terms of the relative contribution of new markets.22

The above hides important variations in the regional pattern of trade across product groups. Focusing on the 4 dominant KZN export sectors and on the first period, “chemical and allied products”, “paper” and “mineral” were primarily destined to East Asia and the Pacific. Surprisingly, “metal” were for the NAFTA region.23 Appendix Table 3 page 26 reports regions of destination for KZN goods. 5. WITHIN KZN - TRADE AT THE LEVEL OF THE LOCALITIES

1997 trade data point out that Central to Southern Durban is the dominant trading zone for the period under study. As a locality it was involved with 57% of the Province’s exports and 72% of its imports.

22 Following declines between 1993 and 1995 in the share of imports from “unknown countries” and from Eastern Europe and Central Asia, the share of imports from “other” regions evolved in the first period.

23 There was, in the first period a far less clear-cut a pattern for “minerals” and “paper products”. In both cases East Asian countries were, generally, over the period the main purchasers of these goods. Imports were from the Middle East (mineral products), the EEC (“machinery and equipment”) and East Asia and Pacific in 1996-97 (“chemical and allied”).

20

Empangeni accounted in 1997 for another 30% of the Province’s exports. Empangeni, Pinetown and the Pietermaritzburg areas were involved with another 10%, 8.5% and 5% of KZN imports. Generally there is a relatively strongly localised pattern of trade. The bulk of all two-HS-digit level goods was imported by the Central to South Durban area. The exception was with “arms”, 55.5% of which was destined for Pinetown. Similarly most exports were from Central to South Durban. In terms of the contribution of other localities to sectoral trade, 35% of “vegetables” were exported from the Ladysmith area, 59% of “footwear” from Pietermaritzburg and 97% of “arms” and 56% of “accessories” from Pinetown. Although 53% of “chemical and allied” products were exported from Empangeni, localities other than Durban were typically involved with small trade sectors. Excluding “chemical and allied” the concentration was the greatest for paper and mineral (97% and 62% of the Province’s exports were, in 1997, from Central to South Durban). For metal goods, exports from Empangeni were almost on par with those from Central to South Durban (47.3% compared to 47.8%). The aforementioned description overshadows the fact that there is some specialisation of trade in the localities (Table 12). Whilst the pattern is, at first sight, indicative of clusters of activities, the breakdown of exports across product group for each of the locality in fact, does not reflect the structure of production (compare Appendix Table 5 and Appendix Table 6, page 31 ). In other words, the sectors in which exports happened were not large production sectors at the locality level. The Durban area is possibly an exception to this.

Three possibilities might account for an absence of overlap between output and export. First, that trade takes place in an area other than that of production (within or outside of the province). Second, that there are important variations in consumption across localities. Third, that local trade is generally taking place in small manufacturing sectors.24

6. SUMMARY AND CONCLUSION: CONTEXTUALISING KZN TRADE PERFORMANCES

Focusing on KZN, the trade performance is driven throughout the period of analysis by few manufacturing sectors and sectors biased towards a relatively limited processing of commodities. Notably, in 1996, the metal, mineral and “chemical and allied” sectors had a comparatively strong export intensity. An expansion of production in these sectors is likely to be associated with an export growth. The “wood and paper” sector is an intermediate export position but the trade data analysis points out that exports in this sector are decreasingly driven by “paper” products. Nevertheless, changes in the structure of imports and exports appeared progressively in the direction of a pattern of reduced disparities. Tentatively, we take this as a (weak) sign of export specialisation.

As such, a series of issues rapidly emerge from the trade data analysis. A first set of questions arises from the dominance of KZN trade in heavy and basic commodities manufacturing. Sectors for which exports would be time critical are in small trade sectors over our period of analysis. Having said that, there might be barriers to trade that are sector specific.25 Generally a broader question is whether the Province’s export intensity is still below that of South Africa for a series of other large manufacturing sectors. This needs addressing to emphasise the barriers associated with beneficiation.

Our research draws upon the possibility that the level of development might be the foremost constraint to an expansion of trade. Associated with changing levels of development are changes in consumption. Within the Province a case in point is with the agro-industry, a large production sector. Whilst South

24 To illustrate the ambiguities, according to Census data, “paper” accounted in 1996 for 25% of Empangeni’s output. Yet, the sector’s share in the area’s exports is 0.2% only. In contrast, the export share of the sector in Durban was marginally greater than the production share of the sector. Also, Empangeni exports less than 1% of its output whereas the figure is 47% for Durban.

25 For instance, whilst specific infrastructure developments might facilitate new trade, other constraints facing the firms might lie with low profit margin that impede an expansion of capacity/investments.

21

Africa’s share of export in this sector is only twice that of KZN, specific issues are with a lack of a clear-cut expansion of direct exports in this sector. Notwithstanding the possibility that some amount of KZN goods might be traded outside of the Province, another possibility is that agro-industry production is consumed domestically/nationally leaving little vent for exports.

In the same line is the limited role of localities other than Durban and Empangeni in provincial trade. In spite of variations with regards to the importance of the localities across product groups, Census data suggests that trade in areas other than Durban has again taken place in small manufacturing sectors. This at least means that not only developments specific to the Durban area will impact strongly on the trade performance of the Province. Other questions are in terms of the possibility to integrate most of the Province with foreign markets and towards the desirability of such strategy.

Some of the above emerging questions are to be examined from the perspective that whilst KZN’s trade risks lagging behind other Provinces its consumption pattern might be distinct. A few points are worth stressing when setting the position of KZN manufacturing trade relative to the performance of South Africa. First, the Province is an important and consistent contributor to South Africa’s manufacturing trade (and, most likely, to national economic development). Thus, what happens at the Provincial level does have a considerable impact on South Africa’s overall trade performance. Second, the 1998-2001 trade performance has become somewhat atypical to that of South Africa at large. This came after a phase in which both KZN and South Africa underwent an expansion of their trade (although rates of export and import growth differed).

Figure 8 page 22 which crudely sets out the sectors which dominated over the second period the export composition of Gauteng, the EC and WC Provinces (as well as South Africa) alludes to a series of critical differences between KNZ and other Provinces: KZN is in a strong and unique position in “paper” products and potentially in “mineral” and “metal” goods.26 In other words, its exports are truly dominated by heavy industry exports. Also, agro-industry is with the WC Province and lighter manufacturing exports are taking place from the EC Province. Some amount of competition would be with Gauteng in “machinery and equipment” and in “metal” goods. What is clearly not addressed here is the nature as well as origin of the differences across South Provinces.27 Another dimension not consider in its impact on trade is the relative investment performance of the Province.

Positively, KZN has recently integrated with new markets and the share of exports to SADC has remained stable at 10%. Moreover, not only have new small export sectors emerged in the Province, the large sectors have generally maintained their performance throughout the period of analysis. The new trade opportunities available for South Africa might thereby generate a new export momentum. As these became only available in 2000/01 and the data are up to 2001, it is difficult to assess a response. However, we sketch how the discussion of the trade performance of the various sub-sectors can be further refined for purpose of discussion.

One key trade policy development over the period of analysis was towards the opening of the economy with South Africa embarking on a process of trade barriers reduction and rationalisation at the beginning of 1995. The presentation of trade as set out for this report would suggest some role of the opening of the economy in the expansion of imports for some sectors. It is typically difficult to establish a link between import changes and liberalisation. The issue of establishing a link is further complicated by the fact that a parallel export impetus would have resulted from the reduction of trade barriers from South Africa’s trade partners following the Uruguay Round.

Setting aside the aforementioned ambiguities, tariffs are positively correlated with processing with the exception of food and agricultural products which are heavily protected (referred to as a pattern of tariff

26 A similar exercise has been carried out for imports that shows less diversity in the pattern of import across Provinces – figure available on request.

27 Only a time-series analysis can properly identify a pattern of export specialisation. Data would need to account for how changes in trade overlap with production changes. There are differences with imports as well. Whilst these are not reported here, the share of “machinery and equipment” for KZN is below that for South Africa. The caveat is how imports in this sector link with mineral processing activities.

22

escalation). As such, KZN exports at low level of processing are likely to face comparatively small tariff overseas. In turn, South Africa applied a similar principle of protecting sectors at higher processing stages and, as widely documented, sectors which are labour intensive.28 Whilst according to Kuhn and Jansen (1997), South Africa’s average manufacturing tariff (unweighted) were set to decline from 16% to 9% between 1993 and 1999, the rates are generally lower for the sectors that dominate KZN trade, with some exceptions (for instance soap and cosmetics in the chemical sector for which the tariff level would be of 17% in 1999 - Table 11).

Table 11. Tariff range for core sectors (output protection) 1993 1999 Paper (pulp, paper and paperboard) 6% 5% Chemical Industrial chemicals

1% to 29%

1% to 17%

Metal Iron & steel – basic industries Cutlery, hand tools & general hardware

7% to 14%

3% to 11%

Non-metallic mineral products 11% 7% Source: Based on Kuhn and Jansen (1997).

Figure 8. Composition of exports of South Africa and selected Provinces: 1998-2001

28 This might explain why Holden (2001: 712) finds that South African’s simple average tariffs were higher in 1997 for semi-processed than for finished goods in June 1997. Also the dispersion of tariff rates around the mean was the highest for primary goods.

Note: The products (HS) considered are those that account for 5% or more of the average composition of exports over the period for each of the Province.

Metal (20%) Jewellery & stones (19%) Mineral (14.5%) Machinery & eq. (9%) Vehicles & transport (8%) Chemical (8%)

��

WC

Veg, food, bev. & tob., live animal, meat & seafood (18% + 16.5% + 9%) Mineral (16%) Metal (7%) Machinery & eq. (6%) Vehicles & transport (5.5%)

KZN

GP

Mineral (25%) Paper (18%) Chemical (14%) Metal (19%) Machinery & eq. (5%)

Metal (27%) Mineral (15%) Machinery & eq. (11%) Jewellery, stones (18%) Vehicles & transport (7.5%) Chemical & allied (7%)

EC

Vehicles & transport (37%) Machinery & eq. (23%) Textiles (10%) Misc. mfg products (6%) Skins and hides (5%) Plaster and Rubber (5%)

23

Sectors at higher level of processing are thus likely to display more pronounced changes of performance following South Africa’s own process of trade barriers reduction. The issue is however complicated domestically, by the presence of export incentive measures that are sector specific and externally, by the fact that it is the tariffs facing South Africa relative to that of its competitors that matter (the margins of preferences).

Holden (2001) provides data about sectoral changes in import penetration and export intensity for South Africa between 1993 and 1996. These allow some key insights in terms of the sectoral prospects available to sectors that dominate KZN trade over the first period of analysis.

Table 12. Changes in import penetration and export intensity for core sectors (1993 to 1996)

Import penetration Export intensity RCA* Paper ↑ ↑↑ YES Chemical Industrial chemicals Non-industrial chemicals

↑ ↓

↑

↑↑

YES

Metal Iron & steel – basic industries Non-ferrous Fabricated metals

↑↑

↑↑

↑ but below average

↑ but below

average ↑↑ ↑↑

YES

Mineral Non metallic mineral

↓ ↑

n.a. ↓↓

YES

Motor vehicles (excl. transport equip. ) Transport equipment

↑ but less than average

↓↓

↓

↓↓

Food ↑↑ ↑ YES (cereals, sugar & bev.)

Key: ↑↑: sharp increase; ↑: increase; ↓: decrease; ↓↓: pronounced decrease. *: The conventional revealed comparative advantage (RCA) index positions the share of trade by a country in a commodity relative to the world and then sets a country’s export relative to world exports. One problem with the above table is that Holden (2001) does not explicitly address the issue of comparability of figures between 1993 and 1996. Typically, 1993 output excludes output from the TBVC States, whereas this is included in 1996 figures.

What the above illustrates is, for some sectors, parallel trends in export intensity and import penetration at the broader level of aggregation. However, if the Province follows South Africa’s trends in terms of import penetration and export intensity, then:

• “paper” was expected to display a further expansion of its exports; • Some “chemical and allied” sub-sectors, viz. non-industrial chemicals were set to expand further. • There are nuances around the performance of the metal sector which favour fabricated metal.

For some of these sectors, the performance of a small number of firms will matter – paper, chemical and motor vehicles displayed a high concentration ratio (in 1993) according to calculations by Holden (2001). One issue identified by Kuhn and Jansen (1997) is however that some agro-industry products (tobacco, sugar refineries, slaughtering and preparation and preserving of meat – together with clothing) are affected by high effective rates of protection.29 This, which translates into a high anti-export bias, might account for the poor export performance of the agro-industry sector. This is in spite of an important export incentive (the GEIS) having been in place for part of their period of study. In the light of the fact that South Africa displayed a revealed comparative advantage in some agro-industry sectors in the period under study, the Provincial trade performance of this particular sector is

29 The effective rate of protection takes into account how the protection of inputs affects domestic value added, causing domestic value added to differ (exceed) value added with factors of production at world prices.

24

disappointing. The poor performance can be further questioned in light of the fact that some agro-industry sub-sectors are set to take up some of new trade opportunities available through the Trade and Development Cooperation Agreement (TDCA) that underpins the EU-South Africa Free Trade Area deal. Whilst there are complexities in the analysis of the Agreement insofar as there is an asymmetric timing of the liberalisation, the deal is important for KZN given that a substantial amount of trade takes place with that market. Jachia and Teljeur (1999), find that “vegetables” and “live animals, meat and seafood” exports from South Africa are set to achieve the highest relative gain around preference margins. Additional sectors with high preference margin gains are “textiles”, “base metals” and “vehicles and other transport equipment”, some of which are comparatively large production sectors in the Province. South Africa’s vegetables and “base metals” are moreover predicted to benefit from a net export expansion under the deal. Generally, the Province is well equipped to witness a further/renewed momentum of its exports with the EU. Yet, metals were, for the period under study, destined to NAFTA and “East Asia and the Pacific” before the EEC. For vegetables, there are some fluctuations over time in terms of the region of destination but the EEC comes second after SADC (Appendix Table 4, page 27). Finally, and in contrast to the position in the EU, Stern and Netshitomboni (2002) identify few opportunities available for an expansion of the exports to the US, on the basis of the current pattern of export performance. Besides clothing, for which opportunities are available, the authors identify two types of product groups for which AGOA is relevant: 1) sub-sectors that are under-traded;30 2) products that would qualify for AGOA but are little traded. In their analysis, at a refined level of aggregation, three products identified in the first group were exported by the Province (“petroleum and oils obtained from bituminous minerals other than crude”, “motor cars and other motor vehicles principally designed for the transport of persons” and “unwrought aluminium”). The export performance of these products thus has to be followed up. In the second group, one particular vehicle sub-sector has export prospects, HS 8704, a motor vehicle sub-sector that accounted for about 46% and 55% of the Province “vehicles (excluding railway or tramway rolling-stock) and parts and accessories thereof” exports in 1997 and 2001 respectively. What the above points out is that whilst there are limited exports from the Province, substantial opportunities are available to some core manufacturing sectors. Some of these sectors are already in a comparatively strong position. Others might experience a subsequent export expansion. The changes affecting specific sub-sectors have to be determined on a longer time horizon together with sectors in which the Province has comparative advantage.

30 This is based on a differential between South Africa’s exports to the world and the share of exports going to the US (with figures taken for 1999) in excess of one percentage point.

25

APPENDIX 1

Appendix Table 1. Typology of manufacturing sub-sectors relative to South Africa trade performance

Part 1: 1994-97

Trade surplus throughout the

period (KZN)

Trade deficits in

1994 - surplus in 1997 (KZN)

Trade balance fluctuates

(surplus/ deficit) over the period

(KZN)

Trade deficits throughout the period

(KZN)

Sect

ors

disp

layi

ng a

n ex

port

decl

ine

(KZN

).

Jewellery & stones*, Wood and articles of, Residual (goods not specified in other HS codes)

Live animals & meat & seafood, Footwear, Vegetables & grains

Sect

ors

disp

layi

ng a

n ex

port

grow

th

– bu

t gro

wth

be

low

that

for

SA.

Metal, Miscellaneous manufacturing products

Made up Chemical and allied products

Food & beverages & tobacco, Mineral products, Precision and optical products

Sect

ors

who

se

expo

rt gr

owth

is

posi

tive

and

in

exce

ss to

that

of

SA

Paper*** Clothing, Vehicles**

Accessories, Leather & hides***, Toys & games, Stone & plaster & ceramic products, animal and veg. oils & waxes**, Plastic & rubber products, Textiles, Machinery & equipment***, Works of art

Oth

ers

(trad

e da

ta n

ot

avai

labl

e)

Arms, Special equipment

*: negative export growth rates at the Provincial as well as at the countrywide level. For all other sectors the export decline is observed at the Provincial level only. **: negative growth of imports by South Africa, but positive for KZN. ***: decline in KZN import growth only.

Part 2: 1998-2001

Trade surplus throughout the

period (KZN)

Trade surplus in 1998 – to deficit in

2001 (KZN)

Trade balance fluctuates

(surplus/ deficit) over the period

(KZN)

Trade deficits throughout the period

(KZN)

Sect

ors

disp

layi

ng a

n ex

port

decl

ine

(KZN

).

Stone & plaster & ceramics products, Arms, Metal, Miscellaneous manufacturing products

Vehicles and transport1

Art

Live animal, meat & seafood Plastic & rubber products, Footwear, Textiles, Accessories, Leather & hides, Machinery & equipment

Sect

ors

disp

layi

ng a

n ex

port

grow

th

– bu

t gro

wth

be

low

that

for

SA.

Mineral products2

Food & beverages & tobacco, Jewellery & stones2

Sect

ors

who

se

expo

rt gr

owth

is

posi

tive

& in

ex

cess

to

that

of S

A

Wood2, Clothing2, Paper Chemical & allied

Animal & veg. oils & waxes Precision and optical products, Toys and games, vegetables & grains**, Special equipment **

1: deficit only in 2001. 2: Would shift row if 1998/2000 performance was considered.

26

Appendix Table 2. Export intensity and share of core manufacturing sectors (KZN 1996)

Output

Structure (%) % of output

exported Share in

exports (%) % of paid

employees Refined petroleum products, chemical, rubber & plastic products 18.8 31.4 22.1 10.5

Basic metals, fabricated metal products, machinery & equip. 18.5 72.4 50.1 14.6 Food, Food pdcts & beverages 17.6 5.8 3.8 13.6

Wood, wood pdcts, paper & paper pdcts 15.9 24.0 14.3 13.5 Textiles, clothing & leather goods 13.7 7.1 3.7 32.6

Transport equip. 10.0 9.5 3.6 6.1 Furniture & other major groups n.e.s. 2.2 15.0 1.2 4.1

Non-metallic mineral products 1.7 3.7 0.2 2.8 Electrical machinery and apparatus 0.9 22.8 0.7 1.0

Precision & optical & communication equip. & apparatus 0.6 4.6 0.1 0.9 Total 100 26.7* 100 100

Notes: *: Proportion of provincial output exported. N.e.s.: not elsewhere specified. The table presents the sectors as defined in the 1996 Manufacturing Census for KZN. The figures are to be treated with caution; 1) the sectors are not defined as HS; 2) not all sectors are listed consistently in the Census. Sources: Census of Manufacturing (1996) and Customs and Excise trade data.

Appendix Table 3. Consistent areas for origin of imports and destination of exports (1993-97) Manufacturing sector HS Regions of destination Origin of Imports

Clothing 61 TO 62 EEC East Asia & Pacific Made up 63 EEC East Asia & Pacific Footwear 64 EEC East Asia & Pacific Toys & games 95 EEC East Asia & Pacific Jewellery & stones 71 EEC EEC Machinery & mechanical appliances 84 TO 85 EEC EEC Plastics & rubber products 39 TO 40 SADC EEC Precision and optical 90 TO 92 SADC EEC Leather & hides 41 TO 43 EEC South Asia Vehicles & transport equipment 86 TO 89 SADC EEC Textiles 50 TO 60 East Asia & Pacific East Asia & Pacific Metal 72 TO 83 East Asia & Pacific East Asia & Pacific Wood 44 TO 46 East Asia & Pacific East Asia & Pacific Food, beverages & tobacco 16 TO 24 East Asia & Pacific Chemical and allied products 28 TO 38 NAFTA Waxes & oils 15 SADC Mineral 25 TO 27 Middle East Paper pdt 47 TO 49 EEC Special equipment 98 East Asia & Pacific Stone, plaster, ceramic products 68 TO 70 EEC Vegetables and grains 6 TO 14 East Asia & Pacific Accessories 65 TO 67 East Asia & Pacific

Note: There was over the first period, a lack of consistent region of destination for a range of produces traded by KZN across the years (i.e. “live animals, meat and seafood”). The table reports the cases in which a dominant region emerged consistently (with the exception of “art” and “miscellaneous products” not reported here).

27

Appendix Table 4. Distribution of KZN exports by sector across foreign markets (% for 2001)

Chapter Live animals,

meat & seafood Vegetables Edible fats & waxes Food, beverages &

tobacco Mineral pdt HS 1 TO 5 6 TO 14 15 16 TO 24 25 TO 27

Americas excl. NAFTA 1.1 1.6 0.1 3.0 1.0 East & South Africa excl. SADC 7.0 8.3 4.7 21.6 2.2 East Asia & Pacific 20.7 9.1 0.0 16.9 28.9 Eastern Europe & central Asia 0.0 1.3 0.0 0.3 0.6 EC 10.9 21.1 2.6 10.3 18.9 Middle East 8.0 9.7 0.0 9.9 0.2 NAFTA 1.3 2.2 0.1 9.1 16.7 North Africa 0.0 0.0 0.0 0.2 0.0 REST OF EUR exc EC 0.2 1.5 0.0 0.5 1.4 SADC 49.5 39.5 89.6 12.9 8.0 South Asia 0.4 0.7 0.0 5.3 0.3 Unknown 0.4 0.0 0.0 0.6 21.0 West Africa 0.6 4.8 2.8 9.5 0.8

Chapter Chemical & allied Plastics & rubber Leather & Hides Wood pdt Paper pdt Textiles

HS 28 TO 38 39 TO 40 41 TO 43 44 TO 46 47 TO 49 50 TO 60 Americas excl. NAFTA 4.0 0.9 1.5 0.1 5.7 1.6 East & South Africa excl. SADC 2.2 12.1 4.4 1.8 3.9 2.8 East Asia & Pacific 24.9 8.2 2.8 78.8 33.8 14.1 Eastern Europe & central Asia 0.4 0.1 0.3 0.1 0.0 0.5 EC 19.2 17.0 74.3 14.2 32.9 27.9 Middle East 5.3 2.5 0.0 1.1 5.0 6.8 NAFTA 16.0 2.6 8.5 2.3 3.2 10.0 North Africa 0.4 0.5 0.0 0.4 0.1 2.5 REST OF EUR exc EC 0.5 0.1 2.6 0.1 0.6 2.0 SADC 7.2 43.3 4.6 0.9 5.2 22.6 South Asia 18.1 0.6 0.5 0.0 4.4 5.4 Unknown 0.1 0.1 0.0 0.0 0.1 0.0 West Africa 1.7 12.0 0.5 0.1 5.2 3.7

Chapter Clothing Made up Footwear Accessories Stone, plaster

& ceramic pdts Jewellery &

precious stones HS 61 TO 62 63 64 65 TO 67 68 TO 70 71

Americas excl. NAFTA 2.2 0.1 1.4 1.5 0.2 0.0 East & South Africa excl. SADC 0.6 0.8 11.0 3.7 0.8 0.3 East Asia & Pacific 1.8 1.9 4.7 0.0 21.2 0.0 Eastern Europe & central Asia 0.0 0.0 0.0 0.0 3.1 0.0 EC 27.0 51.3 27.3 43.5 55.4 82.2 Middle East 0.6 1.4 0.5 0.0 0.4 0.6 NAFTA 64.4 13.9 2.6 25.6 4.6 3.0 North Africa 0.0 0.0 0.0 2.1 0.0 0.0 REST OF EUR exc EC 0.1 0.4 0.1 6.8 4.4 0.0 SADC 3.1 28.6 49.4 16.0 4.8 13.8 South Asia 0.0 0.0 0.0 0.0 1.0 0.0 Unknown 0.0 1.1 0.0 0.0 3.9 0.0 West Africa 0.2 0.5 3.0 0.7 0.2 0.0

28

Chapter Metal pdt Machinery & equip vehicles & transport

Precision & optical Arms

miscellaneous manufacturing

goods HS 72 TO 83 84 TO 85 86 TO 89 90 TO 92 93 94 & 96

Americas excl. NAFTA 7.1 0.9 0.9 1.8 0.0 3.5 East & South Africa excl. SADC 3.4 2.3 3.2 21.2 0.0 5.9 East Asia & Pacific 23.1 14.9 4.4 2.9 0.4 3.8 Eastern Europe & central Asia 0.4 1.0 0.0 0.0 0.0 1.2 EC 18.4 34.8 27.5 30.2 2.9 69.4 Middle East 5.5 4.0 0.5 0.3 0.0 1.3 NAFTA 28.5 6.8 26.7 6.2 0.2 6.2 North Africa 0.0 6.9 0.1 0.0 96.3 0.0 REST OF EUR exc EC 1.7 4.5 0.2 0.2 0.0 0.1 SADC 5.8 21.6 28.8 28.5 0.1 8.4 South Asia 4.5 0.6 0.0 3.3 0.0 0.0 Unknown 0.0 0.0 0.1 0.3 0.0 0.0 West Africa 1.5 1.7 7.5 5.0 0.0 0.3

Chapter toys & games art special

equipment residual HS 95 97 98 99

Americas excl. NAFTA 1.6 0.8 0.00 2.41 East & South Africa excl. SADC 4.9 1.0 0.00 0.00 East Asia & Pacific 8.1 1.9 0.00 0.00 Eastern Europe & central Asia 0.0 0.5 0.00 5.14 EC 19.3 20.0 0.00 22.86 Middle East 1.0 0.1 0.00 0.00 NAFTA 29.6 74.5 0.00 18.13 North Africa 0.0 0.0 0.00 0.00 REST OF EUR exc EC 1.5 0.6 0.00 0.00 SADC 33.7 0.0 81.85 25.68 South Asia 0.1 0.6 0.00 0.00 Unknown 0.0 0.0 18.15 23.37 West Africa 0.2 0.0 0.00 2.42

Source: Customs and Excise trade data.

29

Appendix Figure 1. Key changes in KZN imports in some sectors and sub-sectors Mineral

��

��

02468

101214

1997 1998 1999 2000 2001

Rb

HS 2709��

All mineral

Chemical & Allied

��

��

��

��

��

��

��

��

��

��0.0

0.5

1.0

1.5

2.0

2.5

1997 1998 1999 2000 2001

Rb

��Organic chemicals Inorganic chemicals

��Miscellaneous chemical products

Source: Ibid.

30

Appendix Figure 2. KZN and SA pattern of exports excluding petroleum oil (HS 27)

14

15

16

17

18

19

20

21

22

23

1993 1994 1995 1996 1997 1998 1999 2000 2001

Rb

KZN

110

120

130

140

150

160

170

180

Rb

SA

KZN imports excluding HS 27 SA imports excluding HS 27

Sources: Customs and Excise and TIPS database.

31

Appendix Table 5. Origin of exports within the KZN Province (% for 1997)

HS 2 Newcastle [1]

Ladys. [2]

Pmb. [3]

Emp. [4]

Pinetown [5]

Central to South Durb.

[6]

Outer North Durb.

[7]

Port Shep. [8]

Kokstad [9]

Mineral 25 TO 27 76.6 19.5 Vegetables 6 TO 14 49.0 Chemical & allied 28 TO 38 21.3 31.9 27.9 11.3 Metal 72 TO 83 32.4 56.0 29.4 12.9 Machinery & special equipment

84 TO 85 17.7 28.2 18.3 35.1

Plastics & rubber products 39 TO 40 11.2 Paper 47 TO 49 18.8 Food, beverages & tobacco 16 TO 24 15.2 Misc manuf. Products 94 & 96 52.8 58.1

Notes: The breakdown is based on total exports calculated for each of the above area so that if all figures for all sectors were provided, each of the column would add up to 100%. Only key figures are reported. The table refers to trade of the localities, not towns. Ladys.: Ladysmith; Pmb.: Pietermaritzbug; Emp.: Empangeni; Durb. :Durban; Shep.: Shepstone. Source: Customs and Excise.

Appendix Table 6. Output share in the localities of key sectors of activities (% for 1996) Newcastle Ladysmith Pmb Emp. Durban

area Port Shep. &

area Mineral 3.5 11.4

Vegetables 7.1 Chemical & allied n.a. 3.8 6.3 13.4

Metal 1.9 4.7 5.0 Machinery & special

equipment 3.2 1.8

Plastics & rubber products 0.4 Paper 12.4

Food & beverages. 12.2 Misc manuf. Products 1.3

Notes: Based on total production for each of the locality. Only key figures are reported. Durban here corresponds to columns [5] to [7] and Port Shepstone to columns [8] to [9] of Table 12. The localities as drawn from the Census at times poorly overlap with those defined for Appendix Table 6. Source: KZN Census of Manufacturing (1996).

32

APPENDIX 2

ABOUT THE DATA USED FOR THIS BRIEFING

The bulk of the data referred to in this Report are from the Customs and Excise of South Africa. 1993-97 data have been analysed for the Province of KZN only whereas trade date is available for all South African Provinces from 1998 to 2001. South Africa trade generally refers to aggregated provincial trade data for the second period (unless otherwise specified – as explained below).

Customs and Excise data are at current prices and specified at the 9-digit level of the Harmonised System (HS) nomenclature. The discussion is here largely with trade data re-aggregated at the 4 and 2-digit level at 2000 constant prices. Whilst disaggregated data are particularly suited to the calculation of specific indicators (for instance intra-industry trade and revealed comparative advantage indices), this is a long run task given the size of the database and the difficulties in working when required with data in different nomenclatures. To the knowledge of the researchers, the Customs and Excise database has been rarely used.

Customs and Excise’s trade gives trade as it originates from/reaches the postcode area were the firm that engages in the trade is located. Thus, the final destination of imports (and conversely, the area of production) does not have to be the Province under consideration. Also accordingly, trade data are sensitive to relocations of companies outside of a given Province. We cannot address these shortcomings in the absence of firm level data.

The trade data is deflated by import and export price series from the Reserve Bank of South Africa. These are deflator series KBP5031J and KBP5035J with exports excluding gold.

Trade data for South Africa for 1993 to 1997 are from TIPS’ database. TIPS trade data for

South Africa between 1998 and 2001 does not overlap well with the total of trade across the various Provinces as calculated from Customs and Excise data. Whilst there are some occasional errors in the Customs and Excise data,31 there is no ready explanation for the differences. There is no systematic bias either although the sum of Provincial exports – that yields total South African exports – is lower (except in 2001) and imports are higher than TIPS figures. A simple arithmetic average of the two data series was taken whenever relevant.

Occasionally referred to here is the Census of Manufacturing (1996) by Statistics South Africa,

“Principal Statistics on a Regional Basis ZwaZulu-Natal”, Report No. 30-01-08. The production price deflator applied to these data is series KBP7046J, “production prices of goods for domestic use produced in South Africa for total manufacturing, seasonally adjusted” from the Reserve Bank of South Africa.

Gross geographic value added estimates from WEFA (that is GGVA at basic prices - the sum of

geographic compensation of employees, net operating surplus and consumption of fixed capital, taxes on production net of subsidies) permit production trends at the Provincial level to be updated. Original data are provided at 1995 constant prices.

WEFA manufacturing data are for broad sectors - given for SIC version 5 at the 2-digit level – and are for all nine Provinces of South Africa.

31 Errors were with the fact that not all HS codes could be identified in the HS nomenclature (also some trade specified at the 8 rather than 9 digit level). The researchers for this project had difficulties in locating a series of postcodes – the South African Post Office was contacted for this and the respondents were unable to locate these codes either, possibly postcode changes over the year are hard to track.

33

For KZN, estimates are also given for each of the Magisterial Districts. An attempt has been made to replace trade of the localities (see below) by Magisterial District trade. Issues were with the fact that, according to Customs and Excise trade data - converted from HS to SIC – there was trade in sectors in which WEFA gives zero value added. Also, there were cases in which trade was in excess of value added – i.e. yielding export intensity ratios in excess of 100%. It is for these reasons that trade at the level of the localities has only been presented for 1997. Data from the last Census of Manufacturing would help overcome these problems.

ABOUT THE LOCALITIES AND THE PROVINCES

How are the localities mentioned in the briefing defined? The localities referred to in the briefing are as defined in terms of postcodes. Central to South Durban includes areas such as Umkomaas, Illovo, and Amamzimtoti. Pinetown (Outer West Durban area) and outer North Durban (including Umhlali, Tongaat, Stanger etc.) are also distinguished. The Empangeni area includes Richards Bay, Eshowe, and Ulundi. Newcastle (encompassing Tugela, Dundee, Howick, Eascourt, Newcastle and Dannhauser), Ladysmith (Ladysmith, Bergville, Harrismith and Colenso etc.) are defined as well as Pietermaritzburg and surrounding area, Port Shepstone and surrounding area and finally Kokstad and surrounding area. About South Africa’s Provinces As noted above, trade is specified at the postcode level. The South African Post Office area codes do not always closely coincide with Provincial boundaries. We have kept the postcode groups as defined by the Post Office for the WC and the EC Provinces. For Gauteng, geographical (map) boundaries were taken into account and trade data regrouped accordingly. REFERENCES

Cassim, R.; D. Onyango and Van Seventer, D.E. “The State of Trade Policy in South Africa”, Draft. Johannesburg: TIPS.

OECD (2002) “Intra-Industry and Intra-Firm Trade and the Internationalisation of Production”, Economic Outlook, No. 71. Paris: OECD, Chapter 6 of the Economic Oultook. http://www.oecd.org/pdf/M00030000/M00030802.pdf (consulted 15/01/03)

Holden, M. (2001) “Trade Policy in a Liberalizing Economy”, Journal of International Development, Vol. 13, pp. 711 – 723.

Jachia, L. and Teljeur, E. (May 1999) “Free Trade between South Africa and the European Union: A Quantitative Analysis”. Geneva: UNCTAD Discussion Paper UNCTAD/OSG/DP/141.

Kuhn, G. and Jansen, R. (April 1997) “The Effective Protection Rate and Anti-Export Bias”, Johannesburg, IDC Research Paper Series, Technical Series TS I / 97.

The Monitor Company (Dec. 2000) “Durban at the Crossroads”. A report prepared by the Monitor Group and the Durban Unicity.

Statistics South Africa (November 2002) “Gross Domestic Product per Region: Annual Estimates 1995-2001”. Johannesburg: Discussion Paper.

Stern, M. and Netshitomboni, N. (2002) “Africa Growth Opportunity Act: Hot Air or Hot Stuff?” Johannesburg: TIPS. <www.tips.org.za>.

Key Features of the Post-1994 Pattern of Trade of the ...sds.ukzn.ac.za/files/rr57.pdf · Myriam Velia & Imraan Valodia School of Development Studies University of Natal February

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