African free-trade pact gives reason for hope in SA agriculture

African free-trade pact gives reason for hope in SA agriculture

by | Aug 24, 2019 | Agricultural Trade

The African Continental Free Trade Agreement (AfCFTA) was recently ratified. Although it is well understood that a reduction of tariffs in isolation won’t necessarily encourage trade, it is still an important development from an agricultural perspective. This is because there is still a lot of work to be done across the continent to address the lack of infrastructure, costly and prohibitive border processes, corruption and weak institutions.

The growth that South Africa’s agricultural sector has enjoyed over the past few decades was largely export-driven, and the African continent has been a key market. Hence, the prospects for South Africa’s agriculture can only be bolstered by trading under the AfCFTA, which is scheduled to start on 1 July 2020. Over the past 10 years, the African continent accounted for an average of 44% of South Africa’s agricultural exports, which equals to US$3.9 billion, up from an average of less than 30% in the prior decade. The top ten markets for South Africa’s agricultural exports were Botswana, Namibia, Mozambique, Lesotho, Eswatini, Zambia, Zimbabwe, Angola, Mauritius and Nigeria.

The growing middle class and more spending power have partly been the catalyst for the growth of South Africa’s exports to the African continent. This means that the economic trajectory of the aforementioned countries is important for South Africa’s agricultural prospects as it influences the domestic demand of the importing countries.

Also, worth noting is that aside from Nigeria, the remaining nine of the aforementioned countries are part of the Southern African Development Community (SADC), and currently account for 82% of South Africa’s agricultural exports to the African continent (meanwhile, the overall SADC region accounts for 88% of South Africa’s agricultural exports to the African continent).

This means that, what has really been an underpinning driver of South Africa’s agricultural exports to the African continent, has in fact been the SADC region and not so much the overall continent. The main explanation is that SADC is a tariff-free zone for South Africa and existing infrastructure facilitates trade with the neighbouring countries.

The products exported to the continent are diversified, ranging from sugar, beverages, spirits, to grains (mainly maize, wheat and sorghum), cotton, beef, and vegetable oils, amongst other products. With the exception of grains (especially maize), the share of agricultural products to the continent has grown over the past decade. The decline in grain exports is mainly due to the development of domestic grain production in a number of countries in the continent. Meanwhile, horticultural products, beverages and spirits production in the continent remains limited. The profile of agricultural exports has also been influenced by changing consumer taste with high-protein foods being more preferable.

The role of maize is by no means diminishing, as the livestock sector, which I believe will grow in the coming years in the continent, will require it as feed. Also, the decline of South Africa’s share of the continent’s maize exports has not caused disruption in domestic production since the maize industry has active markets in the Far-East region.

In response to the opportunity presented by the AfCFTA, South Africa will invariably need to expand its agricultural production in areas that still have underutilised land. In the past, I have argued for market development in Asia and the Middle-East, however, the African continent remains an important market which shouldn’t be ignored.

With South Africa’s agricultural exports within the African continent concentrated within the SADC region, the African Continental Free Trade Agreement offers hope for potential trade expansion. As set out in these pages in July in an essay co-authored with Michael Ade and Tinashe Kapuya, the newly launched trade agreement is expected to make 90% of trade within the continent duty-free by July 2020, and this is set to increase to 97% over the next decade as more duties on an additional number of products are phased down.

With such developments, the continent needs to address the lack of infrastructure and unconducive business environments that make trade across borders particularly costly and nearly prohibitive. It is only through the adoption of such a multifaceted approach that the African continent will fully benefit from the numerous opportunities that AfCFTA presents for its agricultural sector.

This essay was written for and first published on Business Day on 22 August 2019.

Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Does the African Continental Free Trade Agreement offer opportunities for SA Agriculture?

Does the African Continental Free Trade Agreement offer opportunities for SA Agriculture?

by | Aug 5, 2019 | Africa Focus

The South African agricultural sector, and specifically the expansion in the sector over the recent past, is heavily reliant on exports. In fact, South Africa exports roughly 49% of its agricultural products in value terms. Hence, the newly launched African Continental Free Trade Agreement (AfCFTA) would potentially open additional avenues for South African products to destinations where the country hasn’t largely participated in over the recent past. This would practically mean, an increase in the share of South Africa’s agricultural exports to the continent, rather than mainly focusing on growing other well-established markets.

Moreover, the AfCFTA is expected to make 90% of trade within the continent duty-free by July 2020, and this is set to increase to 97% over the next decade as more duties on an additional number of products are phased down. While some African countries will be deprived of revenue currently derived from trade tariffs, the expectation is that the benefits will exceed the costs, as countries will eventually benefit from trade creation, production diversification, job creation, industrialisation with increased corporate income tax revenue as a corollary, and higher personal income tax revenue.

However, the African continent is beset by other systemic problems such as poor quality or lack of infrastructure, unconducive business environments that make trade across borders particularly costly and nearly prohibitive, corruption and weak institutions which render legal recourse and dispute settlements redundant, among others.

With the AfCFTA providing a potential opportunity to unlock further growth in trade, this will not be possible unless and until the abovementioned issues are sufficiently addressed. The precedent of African countries collaborating politically and economically set by the AfCFTA should translate to deep and fundamental reforms that unlock the existing barriers to intra-regional trade.

The make-or-break of the AfCFTA will come when trade under the agreement officially kicks off in July of 2020. Although the African Export-Import Bank has reserved $100 billion to help member countries alleviate trade adjustment costs and facilitate the creation of a common payment system, concerns still remain. Previous experiences from the Regional Economic Communities such as SADC show that tariff phase-down have been matched with, and exceeded by non-tariffs barriers (NTB), such as the excessive documentation needed for cross-border trade transactions, administrative bottlenecks and stipulated trade quotas aimed at curbing the quantity of traded goods.

The extent of these NTBs effectively reversed the potential gains of the SADC Free Trade Area. In the AfCFTA scenario, policymakers have indicated that NTBs will also be given equipollent attention as its contemporaneous existence could threaten the growth of intra-African trade and impede the effective operationalisation of the AfCFTA.

Overall, this relationship would not be one way. South Africa remains an importer of poultry meat (edible offal of fowls), rice, wheat, sugar, palm oil, soybeans, beer, fish, sunflower oil, soybean oilcake, and tobacco, amongst other agricultural commodities. Ideally, the African countries can also have room to participate in the South African market by supplying these products.

But most African countries do not have the capacity to export significant volumes of the aforementioned agricultural products, at least not to the extent of satisfying South Africa’s import requirement. The onus, however, lies on the Member States and their respective industries to realise that there is demand in South Africa, and start investing in production and providing an enabling environment for such industries to thrive.

With thanks to Tinashe Kapuya, PhD.

Written for and first published by the Agricultural Business Chamber of South Africa (Agbiz)

Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

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