the trouble with exports

[duncan drennan]

I was just reading through Dr Cees Bruggemans weekly comment, and this stood out for me.

This reality of consumer societies, in which producers are being encouraged to become more productive, has of course another self-evident requirement. Redistribution burdens and regulatory burdens should be kept to a minimum. State departments on a mission entirely of their own choosing or ideologically inspired should therefore be refocused on the paramount national mission of the day namely maximizing economic and export growth in tandem.

The state shouldn't pick winning friends or businesses and hand out billions of tax money in the hope of somehow achieving more production and exports. This tends to be a non-productive, or at least a very inefficient, way of applying scarce resources. Instead, government should limit its many burdens on society to the bare necessity.

Something that I want to see,

Lower regulation = higher productivity = more jobs

[Dave A]

It comes back to efficiency, really. This little stat in the same article got me to me:

A perhaps startling fact about South Africa's economic performance these past six years is that export volumes have hardly risen. Whereas GDP today is 25% higher than in early 2000, total export volumes have risen by only 7% over this six-year period (for all practical purposes remaining essentially flat, even as import volumes increased by nearly 55% over the same period).

The good news is that flat export volumes did not prevent the economy from expanding by 25% or imports from rising so strongly. This was only possible because, firstly, our export prices rose faster than import prices (the terms of trade improved by 15%), and secondly we ran up our current account deficit, expanding it from 0.1% of GDP in early 2000 to over 6% today.

The bad news is that it is unlikely that we can keep on improving our terms of trade indefinitely. We aren't so innovative that our export mix can keep on demanding higher price premiums relative to what we pay for our imports, and the rest of the world cannot be expected to keep inflating indefinitely the commodity price windfalls they are periodically willing to send our way (though one must always allow for the potential of surprise, as in 1974, 1980 and 2002-2006).

You can't trade at a loss forever. And in today's global economy there isn't much fat to play with when it comes to sacrificing efficiency for non core-business activities.

[Dave A]

Here is another export problem, although if you go chasing foreign investment to prop up your economy, I guess it goes with the territory.

Here's a rapidly growing export industry the country could well do without: dividends.

South Africa paid out a massive R203-billion in dividends last year. Although oil is our largest import and is widely seen to be the biggest drain on the country's current account, the oil import bill last year was a relatively modest R76-billion.

Dividend payments in the first two quarters of this year have so far totalled R120-billion.

Economic growth has attracted foreign investors to the JSE and seen the country's current account deficit balloon from -2% of GDP in 2003 to -7% in September, according to the Reserve Bank. Prudent levels for a current account deficit should be no more than 3%, economists say.

The huge outflows of dividends since 2007 show that the flow of foreign money into South Africa has come back to bite our economy.
full story from M&G here