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Imports as percentage of total manufacturing sales
Date: 25 July 2018 Category: Economics |
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We take a look at the value of total imports and express it as a percentage of total manufacturing sales. And we find that this ratio is far greater in South Africa than the USA.
Sure not all locally produced goods are not consumed in the local economy and that locally produced goods are also exported, but the ratio of imports to total manufacturing sales does provide insights into the dependence of the local economy on imports. And also serves as a guide as to the openness of a economy. |
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So how does SA compare to the United States of America?
The line chart below shows the percentage of total imports over the total value of manufacturing sales for both the USA and South Africa per quarter from the start of 2010. And from the line chart it is clear that the ratio of imports over total manufacturing sales is far greater in South Africa than it is in the United States (all though this ratio has started increasing in the USA).
So what is this ratio suggesting or implying about a country, its manufacturing sector and its economy? Well if the ratio is high (as it is in the case of South Africa), it shows that the country imports a large amount of items, relative to what it produces within the borders of a country. So why would this ratio be high?
Well lets take a look at South Africa for example, we know what manufacturing production hasn't really grown at the same rate as the economy in recent times, which has seen South Africa's manufacturing sector becoming ever less import in terms of South Africa's overall economy. South Africa's biggest import supplier is China (as mentioned earlier a country from which cheap imports can be obtained), so it looks like some manufacturers have given up the fight to compete with cheap Chinese imports and have stopped producing, boosting the need for additional imports. And a lot of what South Africa imports cannot be built in South Africa due to limited resources (be they skilled staff, technology, cheap electricity or energy to run huge production plants).
South Africa has pretty restrictive labour laws which makes it hard for multinational companies to "hire and fire" people, South Africa has expensive electricity and it has a massive labour force of unskilled/semi skilled labour and not a lot of supply of highly skilled and technical staff available. The concern for South Africa is the fact that it's economy is so open (i.e the dependence of South Africa) in imported goods opens it up to exchange rate fluctuations and "importing" inflation if the exchange rate weakens, and exporters to South Africa might charge South Africa more than they would other countries as they know South Africa cannot produce these goods themselves and needs to import it.
- 1. The country is not manufacturing or producing enough to meet local demand and needs to import additional goods to keep up with demand
- 2. The country imports a lot of goods of high value, while it might produce goods of a lesser value for the local and export market
- 3. The country cannot produce or manufacture certain items due to lack of skills, resources, technology etc and it needs to import these items (think cars, machinery and equipment, trains etc).
- 4. It is cheaper to import goods than to produce it locally which could lead to suppressed local production and increased imports, in particular from countries where goods are produced cheaply, think China, Thailand etc.
Well lets take a look at South Africa for example, we know what manufacturing production hasn't really grown at the same rate as the economy in recent times, which has seen South Africa's manufacturing sector becoming ever less import in terms of South Africa's overall economy. South Africa's biggest import supplier is China (as mentioned earlier a country from which cheap imports can be obtained), so it looks like some manufacturers have given up the fight to compete with cheap Chinese imports and have stopped producing, boosting the need for additional imports. And a lot of what South Africa imports cannot be built in South Africa due to limited resources (be they skilled staff, technology, cheap electricity or energy to run huge production plants).
South Africa has pretty restrictive labour laws which makes it hard for multinational companies to "hire and fire" people, South Africa has expensive electricity and it has a massive labour force of unskilled/semi skilled labour and not a lot of supply of highly skilled and technical staff available. The concern for South Africa is the fact that it's economy is so open (i.e the dependence of South Africa) in imported goods opens it up to exchange rate fluctuations and "importing" inflation if the exchange rate weakens, and exporters to South Africa might charge South Africa more than they would other countries as they know South Africa cannot produce these goods themselves and needs to import it.
So the above provides a few possible reasons as to why the imports as percentage of total local manufacturing sales are so high in South Africa, and so much lower in a more developed and skilled labour force country such as the USA. But worrying for the USA, and perhaps part of the reason for the push by President Trump to bring manufacturing back to the USA is the fact that the ratio of imports over total manufacturing sales was less than 40% in Q1:2010 and it is now sitting at close to 43% in Q1:2018.
The below shows the total value (in USD dollars) of local manufacturing sales and imports for Q1:2018 for both South Africa and the United States:
As a aside, South Africa manufactures roughly 2.77% of the total value of goods that the United States manufactures, while South Africa imports around 4% of the value of goods that the USA imports.
The below shows the total value (in USD dollars) of local manufacturing sales and imports for Q1:2018 for both South Africa and the United States:
- South African imports: $25 096 907 403
- South African manufacturing: $41 151 248 731
- United States of America imports: $632 104 987 500 (note this is an in house seasonally adjusted figure based on un adjusted data)
- United States of America manufacturing:$1 482 075 000 000
As a aside, South Africa manufactures roughly 2.77% of the total value of goods that the United States manufactures, while South Africa imports around 4% of the value of goods that the USA imports.