How can Google's search algorithm be used to analyse trade?

South Africa Hits Record Trade Surplus

Hooray! South Africa recorded a R18.7bn trade surplus in May (we exported more than we imported…for a change). This was nearly 5x economists’ expectations of R4.1bn. Exports were up 10.2% vs. the same period last year compared to imports, which were only up 3.4%.

From the FT

From the FT

Is this good news? Well, the big driver is clearly the weak rand. The country hasn’t transformed overnight into an export-driven industrial giant. The slow growth of imports is also a sign of a weak consumer, while the decrease in the imports of machinery and equipment points to declining investment rates. In an ideal world we need to see sustained growth in exports coupled with increasing consumer spending and investment. SA is a net exporter to the UK, so expect headwinds following the Brexit mess.

(Financial Times, Business Day) 

How to use Google to Improve Trade in Sub-Saharan Africa (but not in the way that you think!)

The International Monetary Fund [“IMF”] recently published a report called “Trade Integration and Global Value Chains in Sub-Saharan Africa [“SSA”]”. In this report the IMF uses Brin and Page’s 1998 PageRank algorithm in cool new way to measure a country’s “centrality”. Centrality is a measure of how interconnected a country is within the web of global trade. Page and Brin’s mathematical formula treats a county just like a webpage and calculates the probability that an exporting country is chosen as a trading partner by an importing country. Centrality is important because it measures not only the size of exports for a particular country, but also the diversity of its trading partners and the relative weight of these partners in global trade.

The bottom line is that countries should focus on making their scores as high as possible because increased and more diversified trade leads to economic growth. Unfortunately, as the chart below shows, SSA is the least integrated region in the world, with centrality roughly half that of other emerging regions. Even South Africa is in a substantially weaker position than Brazil or Mexico.

Exports from Sub-Saharan Africa [“SSA”] increased by around 500% in the period 1995-2013, which was a powerful driver for regional economic growth. However, looking forward, slowing growth in China, stagnant economies in Europe, falling commodity prices and global financial volatility will make trade growth more challenging than it was in the past.

The most important thing that countries can do to boost trade is improve infrastructure (e.g. ports, roads and rail). The IMF estimates that raising infrastructure to the global average level of quality could increase trade in SSA by 42%. Increased access to credit for the private sector could improve trade by 29%, while measures to lower non-tariff barriers to trade (e.g. corruption, regulatory requirements and delays in clearing customs) could boost trade flows by a further 28%. Finally, lowering tariffs (customs duties) themselves to the average global level could yield an additional 14% trade growth.

Inter-regional trade in SSA is 85% lower than it is in South East Asia and this is despite a plethora of intraregional trade agreements. This is a strong indication that talk is cheap and that to make tangible progress on centrality governments need to focus on the real improvement suggested by the IMF above.

(International Monetary Fund)

GE Opens R500m Innovation Hub in Johannesburg

US multinational, General Electric (GE), has opened a 2700m2 “African Innovation Centre” just off the M1 in Rosebank, Johannesburg. This is GE’s 10th such facility globally, but the first in Africa. The goal of the innovation hub is to be a centre of excellence for GE, its customers and stakeholders. The facility has an Experience and Exploration centre, agile workspaces and an “Innovation, Ideation and Collaboration centre”. Probably the most interesting section is a Healthcare Experience centre with virtual and augmented reality displays that replicate areas in hospitals such as an operating theatre and ICU.

This substantial investment in SA against a weak economic backdrop and low point in the commodity cycle is very welcome. GE is restyling itself as a digital industrial company. This should also be an interesting focus area for SA. I’ve recently spent time visiting innovation hubs around Johannesburg and I’ve been really impressed by some of the mobile and tech companies. For a really awesome company check out Eduze, which is TED Talks’ first venture capital investment www.eduze.com .

(GE, Engineering News, SouthAfrica.info)

Dr Andrew Louw CFA