Senior Economist: Trade Research
Over the years, the European Union (EU) has remained a key market for South Africa’s agricultural products. However, with the enactment of the African Continental Free Trade Area (AfCFTA) in January 2020, Africa presents a great market opportunity for South Africa’s agricultural produce given the fast-growing population, among other factors. In this article, I provide insights into what might be done for South Africa to harness the potential opportunities the AfCFTA presents.
What is the status quo?
Since 2010, Africa as a continent has generally implemented more trade distorting interventions than trade liberalising interventions. According to the Global Trade Alert (GTA) platform, the highest number (19) of trade distorting interventions were implemented in 2014 but thereafter such interventions declined to as low as eight (8) in 2020 when the AfCFTA was enacted. The enactment of AfCFTA brought into effect five (5) more trade liberalising interventions leading to a total of 13 interventions. As at the end of 2021, only one new trade harming – and two new trade liberalising- interventions had been introduced. Examples of trade distorting interventions used by African states include import bans, export bans, export licensing requirements, etc.). It is important to note that in some instances both trade liberalising and trade distorting interventions may not per se stand-alone interventions but are rather embedded within enacted state interventions. Whereas trade liberalising interventions may be relatively more straightforward (e.g., tariff reductions, complete removal of import tariffs, social insurance relief), some trade distorting interventions are not based on the classical trade policy instruments, thus they are “murky” (GTA).
For instance, in January 2019, the African Export-Import Bank (Afreximbank) signed a state loan agreement with Egypt, valued at US$ 170 million to promote further expansion of Orascom Investment Holding (OIH) services within Africa. Whereas securing a state loan was good for a fact that the aim is to enable OIH to increase production capacity while fostering higher quality exports through value addition (especially in the agro-processing sector), such a state guarantee and other financial incentives that are bound to influence the restructuring and performance of firms facing international competition, either from imports, in export markets and from foreign subsidiaries. Thus, a state loan secured on behalf of a firm is a “murky” trade distorting intervention.
To date, Africa has 61.9% share of trade liberalising interventions still in force since January 2015, unlike the 85% share of trade harming interventions that are still in force during the same period. Of the trade liberalising interventions, about 92% are based on tariff cuts but a very small proportion (2.69%) of the products (i.e., only 0.27% of agricultural products) benefit from these interventions.
This therefore suggests that to spur intra-Africa trade, tariff rate reduction might not be the silver bullet. Moreover, 20% share of the harmful interventions use “murky” instruments, which are not categorised under the classic trade policy toolkit including import quotas and tariffs. Within agriculture, most trade liberalising interventions have so far benefited the “Food products n.e.c.” sector while on the contrary the “Sugar & molasses” sector has so far been the most affected by the harmful interventions. Specific products that have so far benefited the most from trade liberalisation within Africa include “Preparations used for animal feeding” and “Food preparations not specified” while “Cane or beet sugar and chemically pure sucrose (solid)”, “Food preparations not specified” and “Meat and edible offal, of the poultry, fresh, chilled or frozen” have been the most affected by the harmful interventions.
In conclusion, whereas Africa through the AfCFTA has generally embarked on bold steps towards implementing trade liberalisation interventions as a way of fostering intra-Africa trade, the transition is happening at a very slow pace given that a large proportion (85%) of intra-Africa trade harming interventions that are still into use. Most trade harming interventions are indirectly enshrined in some state interventions; hence tariff reduction interventions are not adequate, most especially when other countries with which they compete in international markets receive subsidies or financial incentives. Therefore, there is a need to scrutinise the various interventions before they are enacted by Africa states, even those that do not directly relate to the classical trade policy instruments (e.g., Egypt’s state loan agreement with Afreximbank). This will lay a foundation for developing harmonised guidelines for state interventions that are cognisant of the various aspects during this era of globalisation.
In addition, South Africa may also consider providing subsidies to producers and other value chains, especially for export-oriented industries. Furthermore, there is a need to explore more of the non-tariff interventions, such as harmonisation of sanitary and phytosanitary measures (SPS) across Africa economies as well as building the physical infrastructure (e.g., road and railway networks) through which goods can easily be transported across the continent for a fact that many countries are landlocked.
Disclaimer: The views and opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of the National Agricultural Marketing Council (NAMC), Mzansi Agriculture Talk or its members.