Business Maverick

TRADE AND DEVELOPMENT

Rise of ‘friend-shoring’, highlighted in Unctad report, raises red flag on SA’s perceived Russia stance

Rise of ‘friend-shoring’, highlighted in Unctad report, raises red flag on SA’s perceived Russia stance
Russian President Vladimir Putin and South African President Cyril Ramaphosa at the Russia-Africa Summit on 24 October 2019 in the Black Sea resort of Sochi, Russia. (Photo: Mikhail Svetlov / Getty Images)

‘Friend-shoring’, a new term of art that refers to a reorientation of bilateral trade flows to states that share broad political values, has risen sharply, according to a recent report by the United Nations Conference on Trade and Development (Unctad). This is a red flag for South Africa and its dangerous dance of ‘neutrality’ with Moscow.

Shared political values are increasingly directing the flow of trade between countries. Even the US and China, long locked in a dance of trade dependency, are becoming less dependent on each other. The implications for global trade patterns are profound. And for South Africa, they are downright chilling as Pretoria’s ham-fisted diplomatic dance with Russia threatens to alienate crucial Western trade partners.

“Friend-shoring” – or “ally-shoring” – are new terms of art that refer to the growing concentration of trade between countries that have broadly shared political values. Since late last year, this trend has been steeply rising, according to an Unctad report published last week.  

Read more here: Global Trade Update (June 2023)

“Friend-shoring has been on the rise since late 2022, characterised by a reorientation of bilateral trade flows to prioritise countries that share similar political values. The war in Ukraine, the decoupling of the United States-China trade interdependence, and the consequences of Brexit have played a significant role in shaping key bilateral trade trends during this period,” Unctad said. 

Trade between the US and China, the world’s biggest economies, is the starkest example on this front. In recent decades, China increasingly manufactured many of the goods that the US once produced itself, a development that, among other things, suppressed already stagnating US blue-collar wages. Boiled down to its basics, the Chinese produced and the Americans consumed.

“Over the past year and a half, the United States has become relatively less significant as an export market for China. During this period, the United States’ dependency on China as a supplier has decreased even further,” the report says. 

America’s trade dependence on China over that period decreased 2%, which might not seem like a lot. But this is a trade relationship that reached $690-billion last year, so it is significant. The percentage point change is computed as a four-quarter (Q2 2022-Q1 2023) average relative to the same period in the previous year (Q2 2021-Q1 2022).

Over the same timeframe, China’s trade dependence on the US declined 0.9%, while the UK’s dependence on the EU fell 2%. Ukraine’s trade dependence on the EU, by contrast, soared 20.5%, while Russia’s with China rose 3.7%. 

The Unctad report is the latest to highlight how economic ties, be they trade or investment, are increasingly reflecting geopolitical trends in a world that is also becoming more polarised. 

“Over the last decade, the share of foreign direct investment (FDI) flows among geopolitically aligned economies has kept rising, more than the share for countries that are closer geographically, suggesting that geopolitical preferences increasingly drive the geographic footprint of FDI,” the International Monetary Fund said in its latest World Economic Outlook published in April.

Read more in Daily Maverick: SA’s embrace of global pariah Russia could have serious foreign direct investment consequences

These trends are a red flag for South Africa and its dangerous dance of “neutrality” with Russia, a country that is an insignificant trade and investment partner. 

As Stanlib Asset Management noted earlier this month, the US and the EU between them account for over 30% of South Africa’s exports compared with 0.23% for Russia. 

It estimated that South Africa could lose over R600-billion in exports if the West took action against Pretoria over perceptions that its neutrality in Russia’s war in Ukraine is a sham. 

Read more in Daily Maverick: South Africa risks losing $32bn on Russia stance, Stanlib says 

South Africa’s favourable access to US markets under the African Growth and Opportunity Act (Agoa) is at risk as this status may not be renewed when it expires in 2025. 

The South African Reserve Bank in May warned of catastrophic consequences if secondary sanctions were imposed on South Africa over its stance on the Russia-Ukraine conflict. 

Read more in Daily Maverick: Reserve Bank warns of a shock to the system over SA’s ‘neutral’ Russia-Ukraine stance

“Should this risk materialise, the South African financial system will not be able to function if it is not able to make international payments in USD and it could lead to a sudden stop to capital inflows and increased outflows,” warned the SA Reserve Bank, which is not known for hyperbole. 

“Friend-shoring” makes all of these scenarios plausible. And if South Africa loses access to US and EU markets, Russia – with an economy smaller than Italy’s – is hardly going to step up to that plate. 

As our editor Branko Brkic noted in an editorial this week, South Africa is indeed committing a serious historic mistake with Vladimir Putin’s Russia. DM

Gallery

Comments - Please in order to comment.

  • Andrew Blaine says:

    Economic action replacing/reinforcing diplomatic or military action could force the creation of uneasy alliances. In South Africas case, has the ANC choir not left the building to sing its own tune?

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.