Continental mindset on trade grows

ITS official – trading within the African continent has become the key strategic direction in South Africa’s trade policy.

It is recognised in trade circles that radical changes are needed to Africa’s trading focus. Over the last 20 years intra-African trade has averaged an extremely modest 14% of Africa’s total trade balance. This is ascribed to the continent’s continued dependency on raw materials and low levels of industrialisation, where according to the African Development Bank, 26% of African countries rely on one to two commodities for 75% of their exports.

There is a renewed logic for Africans looking to trade within the continent. The multilateral trading system is in poor shape with the WTO’s failure in concluding the Doha Round after a lingering 17 years. Add to this the rise of anti-globalization sentiments in several leading nations, evidenced in particular by the burgeoning United States versus China ‘trade war’. The rapid rise of emerging market economies has caused a fundamental shift in the trade patterns of many African countries. The failure of several Economic Partnership Agreements on the continent and Brexit dynamics are reshaping trade relations with Europe, and Africa’s trading relationship with the United States under the African Growth and Opportunity Act is set to transform into a series of reciprocal trade agreements after 2025. No wonder then that Africans are taking a keener interest in their more proximate trade relations. To this end enters the African Continental Free Area, AfCFTA for short. With only a handful of countries not having signed the AfCFTA, the vast majority of countries are already seeking domestic ratification of their signed commitments to the AfCFTA. This momentum is likely to see the agreement coming into force in March 2019.

South Africa is part of this critical mass. Briefing parliament recently the dti’s Director General, Lionel October, emphasised that it was a priority of the government is to promote intra-African trade. As a practical step South Africa has acceded to the AfCFTA. The dti hopes to expand African countries as destinations for South African exports, which are already running at approximately 30% of total exports. South Africa has particular strength in providing the rest of Africa with value-added products, thus supporting the policy objectives of industrial development and job creation.

It is notable for businesses involved in exports and imports that tariff reductions in the AfCFTA are to be phased in gradually, over a period of 5 years for developing countries and 10 years for least developed countries. There is also an extended phase-in period for some so-called ‘sensitive products’ over a 10 to 13-year period. Business should be making its tariff preferences heard via industry associations and chambers of commerce, ultimately feeding into NEDLAC.

Those in the boardroom are thus encouraged to take heed to develop their strategic trade plans if the African continent is seen as an important future export destination for their products or services, in line with the country’s current trade policy imperative.