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  • SOUTH AFRICA AND BRAZIL: FURTHERING SOUTH-SOUTH TRADE

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    South Africa and Brazil: Furthering South-South trade

     

     
     
    International Trade Forum - Issue 2/2010

    The considerable expansion in South-South trade, especially in the last decade, is seen as an exciting new phenomenon with a number of developing countries among the major trade partners. Trade and investment ties between South Africa and Brazil in particular have been strengthening, underpinned by the reach and influence these two countries enjoy in their respective continents. Despite short-term setbacks due to the global financial crisis, differing comparative advantage in products produced in the two countries provides many opportunities for expansion in two-way and regional trade and investment.

    Growth factors

    The growth and importance of South-South trade has been attributed to various factors: the rapid economic progression of certain developing countries, including Brazil and South Africa; improved trade facilitation and transport infrastructure; the strengthening of regional integration; and intra- and inter-firm, as well as intra- and inter-industry, networks and transactions. These factors, together with an increase in financial and commercial liberalization programmes, have contributed to the prominence of Brazil and South Africa in international relations. Trade between these countries has also grown significantly over the last few years, with Brazil currently South Africa's largest trading partner in Latin America. Owing to the regional importance of South Africa and Brazil, the trade relationship between the two countries is also of vital importance for the advancement of the broader development of Africa and South America. While South Africa is one of the largest investors in the sectors of mining, electrical power, financial services and telecommunications in sub-Saharan Africa, Brazil is the driving force for the South American continent.

    However, trade between Brazil and South Africa and with other African countries declined from December 2008 to December 2009, mainly due to the global financial and economic crisis. During this period Brazil mostly imported mineral products from Nigeria and exported food and animal products to Egypt and Angola. Although trade declined in 2009, over the period from 2005 to 2009 trade between Brazil and African countries (excluding South Africa) grew by 9%. In 2009 the trade relationship between South Africa and Brazil accounted for 1% of South Africa's total trade and, despite trade declining in 2009, its exports to Brazil grew by 3% over the 2005-2009 period. South Africa mostly exports machinery, mineral products and chemical products to Brazil while importing animal products, food and tobacco products.

    In terms of Brazilian import tariffs and South African export values, South Africa exports high volumes of mineral and chemical products to various countries, but not to Brazil, which imports large quantities from other countries. Thus, there is an opportunity for South African exporters to increase trade with Brazil in, for instance, aviation spirit, petroleum oils and phosphoric acid. Other products which also show the same potential are aluminium, dump trucks and uncoated paper. However, there may be non-tariff barriers which could hamper the export of these goods to the Brazilian market.

    Trade liberalization and cooperation programmes

    Various financial and commercial liberalization and cooperation programmes have contributed to furthering the trade relationship between South Africa and Brazil. One of the most important projects is the IBSA (India, Brazil and South Africa) trilateral development initiative which links these three economies. This initiative aims at promoting South-South cooperation to explore trade and investment opportunities and exchange information, technology and skills. Through the initiative, opportunities have been created for South African businesses, especially those in biofuels, services and tourism. The Brazil-South Africa business forum strengthens the trade and investment ties between these countries and with South African businesses, from the information technology, mining, finance, infrastructure and pharmaceuticals sectors, that are interested in seizing the opportunity to expand their businesses to Brazil. In terms of financial cooperation two development finance institutions, the Industrial Development Corporation in South Africa and the Brazilian Development Bank, entered into a cooperation agreement, which aims at, inter alia, strengthening trade and economic relations between South Africa and Brazil through cooperating on a number of projects, including several focusing on the automotive and components, food-processing and pharmaceuticals sectors.

    Some South African firms and industries have been successful in penetrating the Brazilian market in recent years. South African mining companies, such as AngloGold Ashanti, and one of its biggest banks, Standard Bank, have established successful operations in Brazil. The South African pharmaceutical industry has set up an international presence in Brazil, while a joint venture between South African and Brazilian pharmaceutical companies aims at developing and manufacturing products on a global scale. The sugar equipment and consulting company, Bosch, has established a subsidiary in Brazil, while Naspers, a South African publishing house, has acquired a share in Brazil's largest magazine publisher.

    Although South Africa currently only exports a small proportion of its total exports to Latin America, exports have grown over the last few years. South Africa and Brazil are focusing increasingly on the importance of South-South trade and this, coupled with increased financial and commercial liberalization and bilateral cooperation programmes, means that Brazil has the potential to provide South African businesses with vast investment and export opportunities.