editors: ludo cuyvers wilma viviers publishers: african sun media 1

Editors: Ludo Cuyvers Wilma Viviers Publishers: African Sun Media 1

Background of the DSM research 2006 NWU, Univ of Antwerp and VU Brussels research project on information needs of exporters Prof Cuyvers (UA) Board of Directors of FIT (Flemish Investment and Trade: 1994 -): development of DSM Prof Viviers research in international trade, SEDA trainer, ITRISA certificate etc.. Viviers approached dti DSM for SA reasons: scarce resources, focused export promotion The DSM provides a focused approach to export promotion by identifying and prioritising export opportunities on a scientific basis 2007- 2011 DSM for SA on SITC 4, HS 6 (twice) Why this book on Export promotion and DSM take stock of developments of DSM since 1994 AND requests of dti, prov govt, export councils, etc 2

Outline of the book Chapter 1: Introduction PART I: The development of a decision support model for export promotion Chapter 2: The political economy of public export promotion: the case of the Flemish region, Belgium Chapter 3: Overview of international market selection methods Chapter 4: Methodology of the decision support model. PART II: Applications of the DSM in selected countries Chapter 5: Belgiums export opportunities and export potentials in the world: A quantitative assessment using the DSM approach Chapter 6: Realistic export opportunities and export potentials: a comparison using DSM results for Belgium, South Africa and Thailand Chapter 7: The identification of export opportunities for South Africa in the rest of the African continent PART III: Strategic use of the DSM methodology and results Chapter 8: The assessment of public export activities using DSM results: the case of Belgium Chapter 9: Developing strategies for export promotion using a decision support model: South African case studies Chapter 10: Adaptation and application of the DSM for services in South Africa Chapter 11: Exporters information requirements: competitive intelligence as an export promotion instrument 3

A Decision Support Model to identify realistic export opportunities for South African products and services Pr Prof Wilma Viviers Dr Ermie Steenkamp Dr Sonja Grater

Outline Background DSM Dashboard Methodology Results Applications and work in progress 5

Background the dti, National Export Strategy, 2007: the lack of a scientific method to prioritise markets and products resulted in a shotgun approach to export promotionThe challenge lies in how to select and prioritise markets from a global list of export opportunities... NIPF (2007) importance of diversification of exports New Growth Path (2010) to increase exports for job creation The DSM provides a focused approach to export promotion by identifying and prioritising export opportunities on a scientific basis. 6

5403 HS 6-digit PRODUCTS COUNTRIES (240) ? ? ? ? 1,296,720 possible country-product combinations 7

986 SITC 4- digit PRODUCTS COUNTRIES (240) ? ? ? ? 236 640 possible country-product combinations Starting from 1,296,720 possible world- wide possible export opportunities... Use a filtering process to select export opportunities with the most potential 8

DSM methodology in a nutshell The DSM uses a sequential filtering process (4 filters) that will eliminate less promising export opportunities and focus on those countries and product-country combinations that show the most potential 9

The DSM Dashboard Examples: General DSM dashboard information Product: Oranges (HS 080510) Automobiles (HS 870323) 10

DSM methodology Filtering process Filter 1 Filter 2 Filter 3 Filter 4 11

Filter 1 Filter 1.1 Country risk scores for political and commercial risks (ONDD) Filter 1.2 GDP (IMF, World Bank) GDP per capita (IMF, World Bank) GDP growth (IMF, World Bank) GDP per capita growth (IMF, World Bank) Cut-off value: X Should be selected based on GDP or GDP per capita for at least two years. 12

240 countries 209 countries with a country risk score below 9.286 196 countries enter next stage due to data limitations Results: Filter 1.1 Country Risk Ratings 7

196 countries 65 countries selected i.t.o both GDP growth & GDP per capita growth Total selection of 106countries after filter 1 Data available for only 101 countries that enter filter 2 Filter 1.2 GDP and GDP per capita analysis 67 countries selected i.t.o GDP &GDP per capita 8

the filtering process Filter 1 Filter 2 Filter 3 Filter 4 15

Filter 2 Relative market size and -growth: Import statistics per country/product combination on a HS 6-digit level (UN Comtrade) Imports as proxy for demand potential (market size) Import growth in the short and long term 16 Category Short-term import market growth Long-term import market growth Relative import market size 0000 1100 2010 3001 4110 5101 6011 7111

545,703 country / product combinations Category 3 17,494 139,115 country / product combinations Category 4, 5, 6 106,985 Category 7 14,636 Categorization of countries and products 11

Filter 3.1 Market penetration (concentration ratio) Herfindahl-Hirschman-index HHI ij = (X kij / M tot,ij ) 2 X kij the exports of country k to country i for product category j. M tot,ij country is total imports of product category j. More concentrated markets, more difficult to penetrate 19

Filter 3.2 Market accessibility index i.International shipping time per country (ocean freight) from Durban harbour to the main port in the destination country (source: freight forwarder) ii.international shipment cost (ocean freight) from Durban harbour to the main port in the destination country (source: quotes obtained from freight forwarder) iii.domestic time to import (source: Doing Business Report, The World Bank) time required for obtaining all necessary documents, inland transport and handling, customs clearance and inspections and port and terminal handling iv.domestic cost to import similar to iii (source: Doing Business Report, The World Bank) v.logistics performance index (source: Arvis, Mustra, Ojala, Shepherd and Saslavsky, 2010) the efficiency of the customs clearance process; quality of trade and transport-related infrastructure; ease of arranging competitively priced shipments; competence and quality of logistics services; ability to track and trace consignments; and the frequency with which shipments reach the consignee within the scheduled or expected time vi.ad valorem equivalent tariffs per product-country combination (source: UN Comtrade ) vii.Ad valorem equivalent NTB per product (source: Kee, Nicita and Olarreaga, World Bank) 20

Filter 3.2 (continues) An index value compiled by means of an principle components analysis. Three factors that measure the market accessibility of a market: a domestic factor that incorporates domestic time and cost and the LPI; an international factor that includes international shipping time and cost; and a barrier factor that includes tariff and non-tariff barriers. The three factor scores added to arrive at a market accessibility index for each product-country combination that entered filter 3. Provides a score for each product-country combination relative to all other product-country combinations included in the analysis. 21

Category 3 48.1% concentration allowed Category 4, 5, 6 49.9% concentration allowed Category 7 51.7% concentration allowed 139,115country / product combinations enter filter 3 66,222 country / product combinations enter filter 4 Filter 3 89,229 country/product combinations selected based on market concentration 115,360 country/product combinations selected based on market accessibility A cut-off value is defined based on the average and standard deviation of the market accessibility index over all countries. Cut-off: 35.81% market accessibility 15

Filter 4 Classification of REOs Market characteristics (size and growth, filter 2) Relative market share of South Africa 24

Filter 4: Classification of realistic export opportunities (REOs) Market share of South Africa relatively small Market share of South Africa intermediately small Market share of South Africa intermediately high Market share of South Africa relatively high Large product market Cell 1Cell 6Cell 11Cell 16 Growing product market (ST+LT) Cell 2Cell 7Cell 12Cell 17 Large and growing product market (ST) Cell 3Cell 8Cell 13Cell 18 Large and growing product market (LT) Cell 4Cell 9Cell 14Cell 19 Large and growing product market (ST+LT) Cell 5Cell 10Cell 15Cell 20 25 DSM methodology

DSM results 27

Geographical distribution of potential value of export opportunities

Top 10 countries (total potential export value)

Top 10 products and services RankProduct category Service sector 1 870323 - Automobiles, spark ignition engine of 1500-3000 cc 241 - Travel Personal - Health-related. 2 271011 - Aviation spirit 280 - Architectural, engineering and other technical services. 3 710239 - Diamonds (jewellery) worked but not mounted or set 239 - Travel Business Other. 4 270112 - Bituminous coal, not agglomerated242 - Travel Personal - Education-related. 5 710231 - Diamonds (jewellery) unworked or simply sawn, cleaved 213 - Air Transport Other. 6 260300 - Copper ores and concentrates 238 - Travel Business - Expenditure by seasonal and border workers. 7 750210 - Nickel unwrought, not alloyed 247 - Communications Services - Telecommunication services. 8 760110 - Aluminium unwrought, not alloyed 251 - Construction Services - Construction in the compiling economy. 9 711011 - Platinum unwrought or in powder form 260 - Financial services. 10 940190 - Parts of seats275 - Legal services. 10

Top 10 product-country and services-country combinations Rank Top product-country combinations from the DSM for products Top services-country combinations from the DSM for services CountryProductsCountryServices 1United States 870323 - Automobiles, spark ignition engine of 1500-3000 cc China208 - Sea Transport - Freight 2United States 710239 - Diamonds (jewellery) worked but not mounted or set United Kingdom243 - Travel Personal - Other 3Japan 270112 - Bituminous coal, not agglomerated Japan208 - Sea Transport - Freight 4Canada 870323 - Automobiles, spark ignition engine of 1500-3000 cc China243 - Travel Personal - Other 5 United States 271011 - Aviation spiritCanada243 - Travel Personal - Other 6Hong Kong 710239 - Diamonds (jewellery) worked but not mounted or set Russia243 - Travel Personal - Other 7India 710231 - Diamonds (jewellery) unworked or simply sawn, cleaved Saudi Arabia243 - Travel Personal - Other 8Japan 260300 - Copper ores and concentrates Germany243 - Travel Personal - Other 9United Kingdom 270799 - Coal tar distillation products Romania243 - Travel Personal - Other 10United States940190 - Parts of seatsFrance243 - Travel Personal - Other

Strategic implications for Export promotion organisations (Number of export opportunities for products) 32 Market share of South Africa relatively small Market share of South Africa intermediately small Market share of South Africa intermediately high Market share of South Africa relatively high Total Large product/market (Cell 1) 6,901 (10.42%) (Cell 6) 1,236 (1.87%) (Cell 11) 1,065 (1.61%) (Cell 16) 505 (0.76%) 9,707 (14.66%) Growing (long- and short-term) product/market (Cell 2) 37,929 (57.28%) (Cell 7) 530 (0.80%) (Cell 12) 435 (0.66%) (Cell 17) 1,710 (2.58%) 40,604 (61.31) Large product/market short-term growth (Cell 3) 3,522 (5.32%) (Cell 8) 508 (0.77%) (Cell 13) 445 (0.67%) (Cell 18) 222 (0.34%) 4,697 (7.09%) Large product/market long-term growth (Cell 4) 2,436 (3.68%) (Cell 9) 275 (0.42%) (Cell 14) 260 (0.39%) (Cell 19) 173 (0.26%) 3,144 (4.75%) Large product/market short- and long- term growth (Cell 5) 6,266 (9.46%) (Cell 10) 722 (1.09%) (Cell 15) 697 (1.05%) (Cell 20) 385 (0.58%) 8,070 (12.19%) Total 57,054 (86.16%) 3,271 (4.94%) 2,902 (4.38%) 2,995 (4.52%) 66,222 (100%)

Strategic implications for Export promotion organisations (Potential export values $US thousands) Market share of South Africa relatively small Market share of South Africa intermediately small Market share of South Africa intermediately high Market share of South Africa relatively high Total Large product/market (Cell 1) $ 205,653,864 (14.50%) (Cell 6) $ 112,747,189 (7.95%) (Cell 11) $ 200,820,439 (14.16%) (Cell 16) $ 34,514,286 (2.43%) $ 553,735,778 (39.04%) Growing (long- and short-term) product/market (Cell 2) $ 133,329,726 (9.40%) (Cell 7) $ 9,362,623 (0.66%) (Cell 12) $ 7,103,761 (0.50%) (Cell 17) $ 4,400,947 (0.31%) $ 154,197,057 (10.87%) Large product/market short-term growth (Cell 3) $ 88,536,232 (6.24%) (Cell 8) $ 75,182,198 (5.30%) (Cell 13) $ 52,654,041 (3.71%) (Cell 18) $ 10,243,510 (0.72%) $ 226,615,981 (15.98%) Large product/market long-term growth (Cell 4) $ 52,093,557 (3.67%) (Cell 9) $ 14,598,390 (1.03%) (Cell 14) $ 27,515,113 (1.94%) (Cell 19) $ 6,944,440 (0.49%) $ 101,151,500 (7.13%) Large product/market short- and long- term growth (Cell 5) $ 199,523,135 (14.07%) (Cell 10) $ 78,457,237 (5.53%) (Cell 15) $ 67,578,840 (4.76%) (Cell 20) $ 37,159,984 (2.62%) $ 382,719,196 (26.98%) Total $ 679,136,514 (47.88%) $ 290,347,637 (20.47%) $ 355,672,194 (25.08%) $ 93,263,167 (6.58%) $ 1,418,419,512 (100%) 33

Applications of the DSM and work in progress New research unit: TRADE (Trade and Development) June 2012 Rerun of DSM for South Africa to the rest of the world and Africa Linking DSM export opportunities with provincial production and IPAP 2 clusters and impact on employment. Firm-level survey on exporters Production, sales and export, export destinations, employment, investment, capital and labour inputs, productivity, etc. In-depth market studies on selected realistic export opportunities Examples: dried apricots, red meat, macadamia nuts to Germany, extruders to Tunisia. 34

Other publications on DSM methodology and South Africa results STEENKAMP, E.A., ROSSOUW, R., VIVIERS, W. & CUYVERS, L. 2009. Export market selection methods and the identification of realistic export opportunities for South Africa using a decision support model. http://www.sadctrade.org/node/281. Date of access: 17 Dec. 2009. VIVIERS, W., STEENKAMP, E.A. & ROSSOUW, R. 2010. Identification of realistic export opportunities for South Africa: application of a decision support model (DSM) using HS 6-digit level product data: report prepared for the Department of Trade and Industry, South Africa, September. 57p. PEARSON, J.J.A., VIVIERS, W., CUYVERS, L. & NAUDE, W. 2010. Identifying Export Opportunities for South Africa in the Southern Engines: A DSM Approach. International Business Review 19(4): 345-359, August. GRATER, S., STEENKAMP, E.A. & VIVIERS, W. 2011. Identification and comparison of export opportunities for South African products and services. In Dumont, M. & Rayp, G. (eds). 2011. International Business. Garant Publishers: Antwerp, Belgium. 35

Thank you Questions? Contact details: [email protected] 36