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Weekly UpdatesEXECUTIVE SUMMARY
The objective of this paper is to conduct a comprehensive analysis on the competitiveness of the agribusiness sector in South Africa. Three instruments emerged from this viz the AGRIBUSINESS COMPETITIVENESS STATUS (ACS) index; the AGRIBUSINESS EXECUTIVE SURVEY (AES); and the AGRIBUSINESS CONFIDENCE INDEX (ACI). The framework developed in this paper combines quantitative and qualitative analyses to develop strategies to enhance the competitiveness of the sector. This study can act as a basis for strategic planning, policy development and strategic positioning by the agribusiness sector in South Africa and will allow for future monitory and anal) sis of competitive performance.
Keywords: Competitiveness, Confidence, Agribusiness, Porter Analysis, Relative Trade Advantage, Sooth Africa
INTRODUCTION
In today's global economy, where agribusinesses worldwide face an increasingly competitive trade and production environment, many questions are being asked about the competitiveness of the South African agribusiness sector. For example: "What is competitiveness?"; "How competitive are the sector?"; and, "How can it be measured practically?" The competitiveness of the agribusiness sector in South Africa furthermore depends on a number of technological, sociopolitical and economic factors. One of the most pervasive influences is that of the external environment, and in particular, the set of policies which operate in the market for agricultural goods. These factors have also a direct influence on the business confidence of agribusinesses in South Africa. Appropriate adjustments could therefore contribute to changing negative situations into positive status. It will however, be important to identify the particular set of factors which needs to be adjusted.
The main question to be answered by this paper is: "Can the South African agribusiness sector successfully compete on a sustainable basis within the global environment?" The result or outcome of being in a position to successfully compete will clearly be manifested in a number of propositions. These will include acceptable levels of profits and returns on resources invested in the South African agribusiness activities and the concomitant ability of such economic activities to consistently attract resources from other (non- agribusiness) economic activities to sustain the sector.
Five secondary questions are locked into this main question. The first question to be answered is: "How is competitiveness defined and measured?" The second question to be answered is: "How competitive is the South African agribusiness sector globally?" The third question that needs to be examined is: "What are the key success factors and what are the main constraints impacting on the competitiveness of the South African agribusinesses sector?" The fourth question to be considered is: "How favourable is the decision-making environment in which South African agribusinesses operates?" Knowing the state of competitiveness and the factors impacting on competitiveness the last question can be answered: "How can the competitiveness of the South African agribusiness sector be enhanced?" (I.e. the strategic approach to achieve and sustain competitiveness).
These questions are well motivated by Michael Porter (1998): "A firm must understand what (it is about its home nation that) is most crucial in determining its ability or inability to create and sustain competitive advantage in international terms."
In order to meet the challenges imposed by this situation, economic analysis have an important contribution i.e. to pinpoint inefficiencies and weaknesses in the business systems, whilst emphasizing elements that could provide a sustainable competitive advantage to the agribusiness sector in South Africa with regards to both the challenge of global competition, the satisfaction of customer demand and the incorporation of socioeconomic and equity considerations--and thus developing new competitiveness strategies to respond to these dynamic challenges.
DEFINING COMPETITIVENESS AND ANALYTICAL FRAMEWORK
A framework consisting of five steps was developed to answer the first question: "How is competitiveness defined and measured?" The five steps of the framework developed, consist of the following (see also Figure 1):
Step 1: Defining competitiveness: This step is important as it focuses the competitive measurement and analysis of the agribusiness sector in South Africa. The definition of competitiveness guides the choice of methodology and consequently the data needed and the gathering process. Four notions of competitiveness emerged, after a comprehensive study of the evolution of the competitiveness theory, as important in the context of agribusinesses operating for gains in the new globalized world economy, namely:
(i) The ability to trade for gain by competing at both export and import levels under real world conditions such as uneven economic "playing fields," distorted economies and different regimes.
(ii) The ability to sustain the gains achieved through the consistent mobilization and attraction of scarce economic resources from other, less competitive economic endeavours, thus allowing it to reinvest, innovate, expand, and perform in a sustainable and profitable manner.
(iii) The ability to predict change correctly and act upon such predictions in an innovative manner to mobilize rents and returns.
(iv) Competitiveness is not a clear theoretical economic notion but a business concept depending on profits, business strategies, corporate culture, etc. and also non-economic issues such as innovation, ethics and political stability. Economics has sometimes a too narrow scope on competitiveness. Competitiveness is a holistic viewpoint on the continuously ability of companies to exploit the market reality for gain. Therefore a situation whereby government, for example, positions a particular firm to compete favorably must be accepted. However, such action may not be sustainable as markets will be distorted leading to inefficiencies and eventually uncompetitiveness.
Furthermore, a business that operates in a country where education, science and infrastructure is not upgraded continuously or social and political stability is lacking, will not be able to compete in the long-term, despite having a mere perfect business strategy or making sufficient short-term profits. Competitiveness should thus not be defined in economic terms; however, the notion of sustainability clearly requires that competitiveness be contextualised by an economic framework to ensure a sustainable process.
From these notions competitiveness was defined as the ability of a sector, industry or firm to compete successfully in order to achieve sustainable growth within the global environment while earning at least the opportunity cost of returns on resources employed. To compete means to try to gain or win something by defeating other competitors.
From the definition, five aspects emerged as being important to focus the competitive measurement and analysis of the agribusiness sector in South Africa, namely:
* Competitiveness is a dynamic and involved process, instead of an absolute state of affairs.
* Competitiveness can only be assessed Within a relative sense.
* Competitiveness is a tool for agribusinesses to continuously exploit the local and/or global market reality, including uneven economic "playing fields," for gain relative to other competitors. Competitiveness can therefore only be measured by the gains from this trade.
* Competitiveness is a holistic viewpoint on the ability to sustain the gains achieved through trade and is dependant on key success factors and constraints that must be identified.
* In order to sustain competitiveness it is important to predict change correctly and act upon such predictions in an innovative manner m mobilize and attract scarce resources from other economic endeavours.
Step 2: Measuring the competitiveness status: The second step is to measure whether the South African agribusiness sector can compete internationally. To determine which of the South Africa commodity and product chains can compete in the global market, the Revealed Comparative Advantage model as developed by Balassa (1977, 1989) and extended by Volrath (1991) to the Relative Trade Advantage (RTA) method, was used. This method supports the definition developed on competitiveness. To measure how competitive the agribusiness sector in South Africa is, it is necessary to determine how successfully the sector sold its products over time in the local and global market. The RTA-method allows for the measurement of competitiveness under real world conditions such as uneven economic "playing fields," distorted economies and different trade regimes and are therefore the most suitable method for measuring competitiveness status.
Step 3: Analyzing the competitiveness status: The challenge is to determine how the competitive performance of the agribusiness sector in South Africa is achieved. The aim is to determine the key success factors that established a competitive advantage and the constraints that impacted negatively on the competitiveness of agribusinesses. The determinants of competitiveness, as described by Porter (1990, 1998), are used as basis. The focus of this institutional analysis is at the firm level i.e. individual firms are requested to participate in the data gathering process through questionnaires. Thus executive opinions are gathered through an Agribusiness Executive Survey (AES).
Whereas the hard data in step 2 of the framework was used to measure competitiveness status over a specific period, the survey data measured competitiveness as it is perceived. The survey responses reflected different perceptions on factors influencing competitiveness by business executives who are dealing with global business situations. Their responses are more recent and closer to reality since there is no time lag, which is often a problem with hard data. The Executive Survey offered a unique measure and captured the informed judgments of business leaders and decision-makers in the agribusiness sector of South Africa on issues that influence their sector's competitiveness.
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