Although South African agriculture contributed approximately $10 billion to the nation’s exports at the end of 2017, it has yet to benefit fully from exports to African nations that spend more than $60 billion annually on food imports. However, discussions on the removal of trade barriers and creation of future trade zones could result in this situation changing.
This is according to Nico Groenewald, head of Agribusiness at Standard Bank, who states that agricultural trade barriers in Africa, which take the form of geographical borders and high import tariffs, have been instrumental in limiting trade in food and food products. Presently, only around 16% of the continent’s agricultural production is traded between African countries; the rest is exported.
Loosening the reigns
“There is no doubt that agricultural exports have been artificially constrained for many years by tariffs and border controls. We therefore cannot take advantage of the lower logistic costs associated with intra-African trade that would benefit us and, particularly, sub-Saharan Africa countries.
“It is hoped that initiatives such as the African Continental Free Trade Area (AfCFTA) and the Tripartite Free Trade Area (TFTA) could change this picture in the future. The AfCFTA agreement that was recently signed by 44 of the 55 African Union member states will improve matters. The agreement commits countries to remove tariffs on 90% of goods, with 10% of ‘sensitive items’ to be phased in later. It will also liberalise trade in services and might in future include free movement of people and a single currency.
“The AfCFTA will now have to be ratified by each country. By creating a free-trade zone, significant strides could be made in ensuring that food produced in Africa stays in Africa. The beneficiaries would be local and regional economies and the continent’s burgeoning population.
“Loosening the controls over agricultural imports could also give a boost to creating production facilities for the local beneficiation of imported crops. Significant economic and job opportunities could be created by in-country food processing factories meeting the needs of consumers in participating countries. Estimates by the African Centre for African Transformation say that nearly 1,2 billion people and states with a combined GDP of $2,2 trillion could be impacted. The opportunities for South African exporters would be massive.”
However, says Groenewald, the promise offered by the AfCFTA agreement could be muted by the non-participation of some major countries. Concerns over the impact a trade zone would have on employment, particularly low-level jobs, could delay introducing the ground-breaking agreement in member countries.
Ratification is now needed
Discussing the TFTA, launched in June 2015 in Egypt, as a basis for engaging in the ongoing AfCFTA negotiations, Groenewald says that South Africa became a signatory in 2017. The parties for the agreement are the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and Southern African Development Community (SADC).
South Africa signed the agreement in July 2017, which will only come into force once ratification is received by 14 member states.
“The TFTA has been used as a basis for engaging in the ongoing AfCFTA negotiations. Ratification by South Africa will send a strong signal of the country’s commitment to regional integration. It will also bring South African exporters a step closer to enjoying preferential treatment under the TFTA.
“Both these trade agreements have the potential to transform intra-African trade in agricultural products and related goods. As negotiations between countries are complex and involve the consideration of local and international issues, finalisation of these accords may take several years to conclude. The results, as far as South African agriculture is concerned, will be worth waiting for,” he says.
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