Analysing the effectiveness of trade facilitation in South Africa

MCom (International Trade), North-West University, Potchefstroom Campus, 2015The export performance of Africa has declined over the past couple of decades as a result of an increase in trade costs and the time taken to complete a trade transaction. As a result of an increase in competition, countries need to improve their efforts in adopting and developing a trade development initiative. Trade facilitation has been recognised as an element of economic growth, and it is thus seen as the most prominent trade development initiative in stimulating exports. The general objective of this study was to investigate the current state and effect of trade facilitation in South Africa and to develop a measurement to compare South Africa's state of trade facilitation performance with that of other countries in the world. The purpose of this study was to analyse and present the importance of implementing a trade facilitation programme as a trade development initiative. The need to eliminate trade barriers such as increased trade costs and the time taken to complete a trade transaction were emphasised because of the threat that they pose to efficient trade facilitation reform. Although the advantages of trade facilitation reform have long been recognised, studies on the measurement of trade facilitation are very scarce. Similar studies make use of a gravity model or a Computable General Equilibrium (CGE) model in order to quantify the effects, but due to indirect costs, statistical errors, incorrect proxies and other unrecognised variables, no exact index exists to measure the trade facilitation performance of world countries. Four very relevant trade performance indexes, the Logistics Performance Index, the Doing Business Report, the Enabling Trade Index and the Global Competitiveness Report, are associated with measuring a country's domestic trade variables, present in either the "hard" or the "soft" infrastructure of a country. From these indexes, 18 relevant variables were chosen that were effectively used to construct the Trade Facilitation Index whereby the trade facilitation performance of world countries was compared to that of South Africa. In South Africa, the urgency to improve the general trade environment has been recognised as trade performance in South Africa has declined considerably. Based on the relevance of trade facilitation and the beneficial effects it has on a country, the role of trade facilitation in South Africa was analysed, as well as its performance in the Trade Facilitation Index in comparison to that of other world countries. The Trade Facilitation Index also correlates to a country's GDP and its exports, proving that an increase in the Trade Facilitation Index may lead to an increase in the country's GDP and also its exports. The Trade Facilitation Index therefore serves as a useful resource for policy makers who want to apply reform strategies to trade development initiatives.Master