The headline of this post captures the consistent question I kept getting from folks after publishing an essay arguing that the recently launched African Continental Free Trade Agreement would potentially open additional avenues for South African products to destinations where the country hasn’t largely participated in over the recent past.
So for a background; on 14 August 2019, we learned that Nigerian President, Muhammadu Buhari, has instructed the country’s central bank to stop providing foreign currency for food imports. President Buhari took it to Twitter to explain his rationale behind this step (see here). In brief, Buhari wants to improve Nigeria’s agricultural production and attaining more food security. And his hope, I think, is that a reduction in imports in the face of solid domestic food demand will be a catalyst for domestic production.
From a South African perspective, Nigeria is potentially an important market because of its purchasing power and population. My hope, as I explained in this essay, was that countries such as Nigeria would in future be areas that South Africa would have to expand its agricultural footprint under the African Continental Free Trade Agreement. This might still hold, but it is not clear how long will the Nigerian government restrict the foreign exchange for food imports.
As things stand, Nigeria’s action will have minimal impact on South Africa’s agriculture and food industry. Over the past five years, Nigeria accounted for a mere 2% of South Africa’s agricultural exports to the African continent. The products involved are apples, pears, prepared food, wines, grapes, fruit juices, sauces and seasonings, amongst other products. While these are high-value products, it’s a small share of South Africa’s agricultural (and food) exports that goes to Nigeria and can be diverted to other markets within the continent where South African has a footprint or in the global market.
What will be interesting to watch over the next few months is whether Nigeria succeeds in this policy approach (Let us face it; there are better ways of improving one’s agricultural sector than limiting foreign exchange for imports. This is a topic for another day). Over the past five years, Nigeria’s agricultural and food imports averaged US$4.7 billion, as shown in Figure 1 below. The products on top of the imports list are wheat, sugar, milk, palm oil, sauces and seasonings, bottled water, apples, pears, maize and vegetables oil.
Figure: Nigeria’s agricultural trade
Source: ITC, Agbiz Research
There is a potential to reduce the imports of some of these products, but this won’t be an overnight event. It will take years of investment in agricultural production and value chain. I will revisit this topic in a few months’ time when we have some evidence on how this policy approach has been accommodated by the Nigerian people and businesses.
The bottom-line view is that this development will have minimal impact over the foreseeable future to farmers in South Africa.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
