South Africa remains the third largest African economy behind Nigeria and Egypt. In 2020, South Africa’s GDP was about US$ 302bn. Although primarily mining-based, the country has grown world-class manufacturing skills: its exports are growing and diversifying from products based on raw materials to industrial goods. Vehicle and machinery exports alone amount to nearly one-fifth of total exports. The largest contributor to GDP (around 73%) is the country's thriving service sector.

However, during 2020, the global economy experienced a record-level contraction, with South Africa’s economy shrinking by a historic 7% in 2020. The downturn was due to restrictions imposed because of three waves of COVID-19 infections, as well as the structural constraints that are created by a pandemic. The recovery in global growth and some positive signs seen locally during the first quarter of 2021 suggest a return to the South Africa’s longer-term economic trajectory.

On a positive note, South Africa´s exports have shown remarkable results even throughout the COVID-19 pandemic and have grown by 7.5% while Imports have fallen by 11.5%. The EU remains South Africa’s largest trading partner, accounting for 22% of total trade.  Meanwhile, South Africa’s annual trade deficit with the EU has shrunk considerably, from R84 billion in 2019 to R22 billion in 2020. Furthermore,  South Africa’s exports to the EU are more diversified than to other partners in SADC. The combined exports of agri-food, vehicles and transport equipment, machinery, chemicals, and plastics accounted for almost 60% of its export basket towards the EU.

Remarkable is the export growth of agricultural products into the EU which was almost double compared with exports to the rest of the world. The three largest agricultural commodities exported to the EU are citrus, grapes and wine, accounting for more than 40% of agri-exports. Major imported commodities include wheat (18%) and oil (9%).

In January 2021 the African Continental Free Trade Area (AfCFTA) launched officially. This change signals the creation of the largest free trade area in the world, where South Africa is likely to play a major role in Sub Saharan Africa. AfCFTA will enhance intra-African trade through progressive elimination of tariffs, rules to manage non-tariff barriers, cooperation on customs, enhanced cooperation on technical barriers to trade and sanitary and phyto-sanitary measures. The expectation created by the agreement is already enhancing the investor climate in Africa.

South Africa’s slow way to recovery

The South African economy is projected to rebound by 3,8% in 2021 and 2,5% in 2022. The strong rebound by the end of 2020 has slowed down in the first half of 2021 due to protracted third way of the virus that has held back economic activity. However, growth is projected to pick up in the last part of the year, driven by domestic demand and commodity exports. Household consumption showed growth as economy reopened.

Inflation is increasing, but remains under control below Reserve’s bank target, allowing monetary policy to maintain current low level of interest rates. However, fiscal policy will continue to be constrained to limit debt growth that reached 80% of GDP in 2021.

The most resilient sectors in 2021

StatsSA reports eight of ten industries recording positive gains in the first quarter of 2021, with finance, mining and trade making the most significant contributions. The above-mentioned industries were the main drivers of output on the production side of the economy, while household spending and changes in inventories helped spur growth on the expenditure side.

Investment also contributed strongly to the rebound, growing by 12%. The agriculture sector has already recovered to pre-crisis levels boosted by favorable rainfall conditions. Mining activity is also high, strongly supported by robust foreign demand and high commodity prices. However, manufacturing and construction remain subdued, affected by low demand, destocking, and persistent bottlenecks to production. The service sector is still impacted, held back by the low level of tourism, transport, and trade.

Below we report a snapshot of performances of the major industries in SA in 2021.

Mining

The mining sector has certainly been shooting the lights out this year as the prices of key commodities, such as palladium, rhodium and iron ore, have hit record highs amid shortages and expectations of massive infrastructure spending in key economies such as the US and China. Off a low base, mining output soared by 116.5% year on year in April 2021.

ICT

The total sector revenue (telecommunications and broadcasting) slightly increased by 2% form R238 billion in 2019 to 243R billion in 2020. The broadcasting services revenue decreased by 6.6% from R38 billion to R35 billion. Telecommunication services revenue slightly increased by 2.4% from R194 billion in 2019 to R201 billion in 2020. The ICT industry saw the recent roll-out of 5G technology across the country: faster internet speeds will allow for improved business competitiveness and opportunities for innovation, but above all ensure online access to essential goods and services during the coronavirus pandemic. However, the COVID 19th has also boosted digital inequality and exclusion in regions without internet access. South Africa’s Innovation and Technology sector is strong, with more than 20,000 companies that contributes approximately 8% to South Africa’s GDP, also thanks to the access to the newest technologies. However, there is a considerable lack of technical expertise in the sector.

Renewable Energy

The recent opening of the power space to allow companies to generate up to 100MW for their own purposes is welcome, considering the Eskom failure to satisfy the country electricity demand. The announcement of the licence-exemption cap on self/ distributed-generation plants raised from 1 MW to 100 MW was well welcome by most industries especially the mining sectors

This amendment to the regulation is set to create great opportunity for collaboration with Italian Energy companies and it will help addressing the country’s electricity crisis.

Finance and Business services

Despite the pandemic the financial sector is well capitalized and liquid. All prudential ratios are above the minimum requirements.

However non-performing loans rose from 3.9 percent to 5.2 percent from end-2019 to end-2020 but remain moderate.

Profitability in the banking and life insurance sectors has declined significantly. While the full extent of the deterioration in the loan portfolio in the pandemic is not yet known, and the banks are not expected to return to pre-pandemic profitability before 2022, their capital buffers appear still adequate. Credit to the private sector has slowed significantly. Total loans and advances grew by 2.7 percent in 2020, against 6.4 percent in 2019. Although low real interest rates supported household demand for mortgage and instalment sale credit, lower consumer confidence on the back of depressed economic growth and job losses saw growth in credit to households slowing from 6.4 percent in 2019 to

3.9 percent in 2020. 

Wholesale/Retail Trade

South Africa's retail trade grew 10.4 percent from a year earlier, however this numbers need to be analysed. It was the third straight month of increases in retail activity, reflecting low base effects from the pandemic shock last year and the ongoing economic recovery. Sales grew at a softer pace for food, beverages & tobacco (8.2 percent vs 53.7 percent in May); pharmaceuticals and medical goods, cosmetics and toiletries (5.4 percent vs 7.3 percent); textiles, clothing, footwear and leather goods (4.6 percent vs 15.3 percent) and "all other retailers" (34.5 percent vs 82.7 percent). On a monthly basis, retail sales went up 0.6 percent, slowing from an upwardly revised 2.3 percent rise in the previous month.

Infrastructure

Established in August 2020 the Infrastructure fund is targeting investing 100 billion rand in infrastructure over the next decade -- directing financing toward projects that have a positive social impact, including the construction of new transport links and student accommodation, and improving access to water and the internet. It may also help cash-strapped state companies and municipalities fund infrastructure plans that they can’t afford to finance on their own.

The Infrastructure Fund is not a fund in the traditional sense, but more of an enabling platform that packages projects and programs.  However, as organization such as Business leadership South Africa pointed out in their recent report, Capital constraints, skills shortage as well as financial pressure on both general government and SOEs is slowing down project’s implementation.

ITALIAN – EXPORT MARKET TO SOUTH AFRICA

Due to its diversified economy, South Africa is the prime trading partner to Italy in Sub-Saharan Africa. The number of Italian exports to South Africa, consisting mainly of machinery, has increased considerably in the last few years. In 2018, Italian exports registered an increase of about +8.5%. However, in 2020, South Africa's imports from Italy decreased by 21% compared to 2019. The largest imported category of goods from Italy remained machinery, nuclear reactors and boilers which however saw a decrease of 26%. Pharmaceutical products, food products and railway rolling stock were the only items that saw an increase in import value in 2020.

SOUTH AFRICAN - EXPORT MARKET TO ITALY

South Africa's economy is still largely reliant on the export of primary and intermediate commodities to industrialized countries. The total value of goods exported to Italy from South Africa amounted at € 580 million in 2020, decreasing by 11,6% from 2019.  

The lion’s share of South African exports to Italy come from the class of iron and steel with ferro alloy and stainless-steel products being top of the list, making up over 25% of total exports to Italy during 2020, even if it decreased by 18% from 2019.

Interestingly, this is followed by the category “Fish, crustaceans, molluscs, aquatics invertebrates”, making up 9,8% of the exports to Italy. This encouraging data regarding fish production and exports, provide scope for the development of a sustainable and sound blue economy in South Africa.

Fruit, nuts, and citrus come at the third place, maintaining a stable 8% share in the exports to Italy. Processed food and juices are also increasing their presence in the Italian food market, sign that a more and more developed food processing industry is emerging in South Africa.

FDI Inflow To South Africa

Traditionally, European countries are active investors in South Africa (Italy, United Kingdom, Netherlands, Belgium, Germany, and Luxembourg), as well as the United States, Japan, China, and Australia. Most of the investment is directed to the financial, mining, manufacturing, transportation, and retail sectors. According to UNCTAD's Investment trends monitor of January 2021, FDI to South Africa almost halved to $2.5-billion in 2020 from $4.6-billion in 2019. However, large investment projects were announced, including an investment by Google (US) of approximately $140-million and an additional investment of $360-million by PepsiCo.

Italy remains among the top 10 investor economies in Africa with an increase in FDI stock from 2015 to 2019 from $21-billion $31-billion. When it comes to South Africa, Italy is increasing its investment shares into the country comparing to other major European Economies such as Germany, the Netherlands, and the UK.

Investments from major energy companies such as Enertronica Santerno, Enel Green Power and Ansaldo Energia are major contributions in this regard. The decision in late June to permit independent power producers to generate up to 100MW of their own electricity, along with the big push toward renewable energy, is likely to be a drawcard for FDI and an opportunity for Italian companies to seize.

Italian Presence In South Africa

The Italian South African Chamber of Trade and Industries mapped most of the Italian Companies with a presence or represented in South Africa. From the analysis conducted we can easily state that the major industries which seen Italian as protagonist in the market are Energy, Engineering and Fashion and Apparel.

This article originally appeared in the 2021/2022 Directory of the Italian South African Chamber of Trade and Industries ITALCHAM