The year 2020 has seen its fair share of major historic events, and South Africa has witnessed three quarters of recession, with Q2 resulting in the GDP contracting by as much as 51%.
Manufacturing, trade and transport sectors alone have contributed to 27,9% of GDP decline.
But third quarter (Q3) indications reveal that contractions are decelerating and, according to Dr Greg Cline, head of corporate accounts at Investec for Business, the signs of recovery are starting to shine through.
“If we consider that factories in China, Germany and France have reopened with exports booming and imports from China to the US reaching an all-time high in August, it’s clear that global trade and economic activity are in a phase of rebound,” says Cline.
“What’s more, despite ocean freight prices surging since the lockdown lifted, according to Alphaliner, inactive container shipping fleet reached 11,6% at end of May, and while these remained inactive for a number of weeks this indicator improved substantially by end August to just 3,4%.
“Currently demand for ocean freight out of China is still outpacing supply and the charter market continues to see rapid recovery, with charter rates in many cases back to or higher than their pre-Covid levels.”
In the last three months, all cargo line carriers reported positive earnings before interest and tax (EBIT) on their twenty-foot equivalent units (TEU), Cline says.
“All liners have been profitable in the last few months – a first since 2010 – and a strong indication that global economy and trade is starting to recover as demand increases.”
While no-one predicted that the container industry would be doing this well, this quickly, according to Cline, one of the main drivers of global trade optimism is tied to availability of the vaccine.
“The fastest vaccine launched to market prior to this was four years for mumps and Ebola in the 60s and 70s respectively and, while there has been advances in technology and genetic typing which allows us to fast track testing, we are most likely to only see proper viable vaccines towards the middle-end of next year and markets are going to be responsive to this.”
Cline notes that when the vaccine trials in Oxford were suspended, global markets took and dip. “What is encouraging is that at least three drug companies are in phase 3 trial.”
So how does the sector build resilience?
Says Cline: “Given the strength of the South African economy in relation to the continent and the influence that Africa wields, there’s no doubt that we are desirable trading partner.
“We are also highly dependent on close trading relations and agreements, especially considering we import in the range of more than a trillion worth of goods on an annual basis.
“As such, to build further resilience, we need to focus on two key areas – country stability, from a political, resource and confidence perspective, and top line growth to drive liquidity into the market.”
Cline indicates that we have moved from survival mode to a much-needed focus on “rebooting the economy” mode.
“We need to make sufficient capital available in the market for companies to access so that they can restart their businesses, get favourable trading terms in place and making sure that they’ve got sufficient working capital to operate and grow. Only then will we start to reduce unemployment, increase disposable figures and drive FDI – which is very much needed.
“We are always going to be passengers to forex fluctuations and the strength of the rand is a big determinant but we are seeing noticeable recovery in the trade sector and the bullish view is that import and export demand will continue grow,” Cline adds.