Ireland's trade with South Africa has positively mushroomed in recent years - and the trend has been increasingly in our favour. Official figures show that Irish exports to that country surged from £93 million in 1994 to £152 million last year, while our South African imports over the same period declined, from £42 million to £23 million.
A welcome trend in the past few years has been the ever-increasing proportion of exports from indigenous firms, reversing the situation in which the bulk of goods for South Africa were produced by multinational firms. This is revealed in the threefold growth to 300 in the number of Irish firms exporting to South Africa. Also, the pharmaceuticals, computer components and office equipment that formerly made up the bulk of Irish sales to South Africa have been joined by an ever-increasing array of software products, high-tech electronics and foods. Some of the more notable performers between 1994 and 1996 were: beef, which grew from less than £1 million in 1994 to £16 million last year (Irish beef is considered a premium product among South African consumers); butter, which grew from nothing to over £3 million in the same period, all selling under the Kerrygold brand name; and leather (for car seats and other specialist uses), which grew from a zero base to £15 million over the two years. Last year was an exceptional period for Irish trade with South Africa, according to An Bord Trachtala, which says that exports overall surged by 55 per cent compared to the previous 12 months. That rate of growth can hardly be expected to continue but the board expects to see another 20 per cent or so increase in the current year. Such expansion rates would constitute an impressive performance under any circumstances, but set against the volatility which has beset the rand over the past two years, the Irish trade record with the South Africans can only be described in superlative terms. An Bord Trachtala attributes much of this to the mix of products we are selling, which tend to be high added value, high technology and high quality. It is commodity-type goods that tend to be substituted when currency depreciation makes a country's imports more expensive but it is difficult to find substitutes for application software or pharmaceuticals. A singular success story that stands out is Kerrygold's record in establishing itself as a brand name that South African consumers associate with premium quality.
Although the first shipment of Kerrygold packet butter was delivered only in May of 1995, the brand has since established itself in all the main retail multiples and independent retail chain, in the big pub/restaurant groups such as O'Hagan's and McGinty's, and on the in-flight catering for South African Airways, British Airways and other international carriers within and outside SA.
All told, Kerrygold butter is now sold in over 2,000 South African retail outlets, a rise from zero just two and a half years ago - a performance that is directly comparable with Tony O'Reilly's brand launch in the UK in 1962, says Fergus Kelly, general manager-brands at the Irish Dairy Board.
In establishing itself in this market of 40 million people, the board had benefit of good timing and good luck. Central to the Kerrygold success was the role played by Paddy Broad, then marketing director of the SA distribution group, Cold Chain, and now the board's exclusive agent in South Africa. He made the first approaches in November 1994, having seen Kerrygold distributed in Namibia, and was instrumental in introducing the brand to Cold Chain and its distribution network of 18 large depots around the country.
Kerrygold's successful exploitation of market openings in South Africa is a classic example of comparative advantage in action. Their 7,000 farmers produce about 200 million gallons of milk annually, compared to the 5,300 million gallons produced by Ireland's 39,000 farmers.
Also, periods of too little rain (or too much) produce regular and prolonged shortages of milk for the South Africans, who are then forced to rely heavily on margarine and other non-dairy spreads. Against this background, Kerrygold has been the first to move, becoming the sole European butter to retail in South Africa to date, garnering a 10 per cent market share, and establishing itself almost as a household name. Kerrygold's retail market share is augmented by catering sector sales and exports of food ingredients to manufacturers. Further expansion will depend on the rate and the degree to which import restrictions on cheese categories are relaxed or removed.
Overall, the trade flows with South Africa have undoubtedly favoured Ireland greatly for, as already pointed out, our imports from that country shrank by £19 million between 1994 and 1996. Obviously, much of this reflects the sharp depreciation in the rand over that period, which will have reduced the Irish pound cost of our imports from South Africa, although there were some areas, such as coal, which fell dramatically in recent years in both volume and value terms, reinforcing the trend towards a trade pattern that favoured the Irish. There are certain areas, however, in which the South Africans have a competitive advantage, and which they have exploited successfully. Wine is one such, and the newly available labels have found favour at many an Irish dinner table, while fruit growing and harvesting has been highly developed. A spokesman for Fyffes, agents for Capespan, says imports of South African fresh produce to Ireland have grown steadily in recent years. Producers there have shown themselves very aware of the challenges and opportunities that have come with the lifting of sanctions.
They can broaden their portfolio to cater for increasingly sophisticated western tastes, with the result that trade has bounced back very strongly, he says. Another factor in the South Africans' favour, he says, is that they are among the best shippers of fruit and fresh produce in the world, with technical people who take care to ensure the product gets to its destination in prime condition.
By the end of 1996, the trade balance in Ireland's favour was a massive £129 million, a figure which will probably be reduced in the coming years. South Africa is now endeavouring to replace some of its imports with home produced goods, in an effort to boost its foreign trade balance and to foster the development of the emergent black entrepreneurial class. From the perspective of exporting firms here, this strategy will be felt most when tendering for Government contracts, and the advice from An Bord Trachtala is to establish a presence in South Africa by way of joint ventures with local enterprise, a process the board will assist by way of research.
