African trade far from free

The con­ti­nent’s lead­ers need to weigh up the pros and cons of in­tra-African agree­ments care­fully be­fore com­mit­ting their na­tions to them

Mail & Guardian - - Business - Te­bogo Tshwane

South Africa has fi­nally signed the Africa Con­ti­nen­tal Free Trade Agree­ment, but the jour­ney to­wards cre­at­ing a com­mon mar­ket of goods and ser­vices on the con­ti­nent will be chal­leng­ing, if his­tory is any­thing to go by.

The agree­ment seeks to re­move tar­iffs and non­tar­iff bar­ri­ers on the trade in goods to deepen eco­nomic in­te­gra­tion, loosen re­stric­tions on the trade in ser­vices and ease the move­ment of peo­ple across Africa.

Last Mon­day, Pres­i­dent Cyril Ramaphosa fi­nally put pen to paper, join­ing the 44 coun­tries that had signed the agree­ment in March.

Nige­ria and South Africa, the big­gest economies on the con­ti­nent, ini­tially held back on sign­ing the agree­ment when it was launched in Ki­gali, Rwanda. At the time, South Africa said the agree­ment had to be vet­ted by state law ad­vis­ers; Nige­ria said it wanted to pro­tect lo­cal in­dus­tries from cheap im­ports be­ing “dumped” in the coun­try. Nige­ria has still not signed but has launched a broad con­sul­ta­tive process with var­i­ous stake­hold­ers to de­cide wheather it should join.

At present, the agree­ment is merely a com­mit­ment in prin­ci­ple from heads of state to create a more in­te­grated mar­ket across the con­ti­nent and will only come into ef­fect af­ter at least 22 coun­tries for­mally rat­ify it.

But ex­perts say the ben­e­fits of the agree­ment will be lim­ited if pol­i­cy­mak­ers do not tackle the sys­temic and struc­tural is­sues that have sti­fled other free trade agree­ments be­fore.

The agree­ment is de­signed to im­prove trade be­tween the con­ti­nent’s 55 coun­tries, with their com­bined gross do­mes­tic prod­uct of be­tween $2.2-bil­lion and $3.4-bil­lion. A state­ment by ratings agency Moody’s said in­tra-African trade only made up to 15% of the con­ti­nent’s to­tal trade, up slightly from 11% in 2008.

As­mita Parshotam, trade ex­pert at the South African In­sti­tute of In­ter­na­tional Af­fairs, said in a re­port that in­tra-African trade has only av­er­aged 12% to 14% of the con­ti­nent’s to­tal trade bas­ket over the past 20 years.

“We go on to sign these agree­ments at the re­gional and con­ti­nen­tal level but the bot­tom ba­sics have not been re­solved,” said trade ex­pert Ti­nashe Ka­puya.

Many African coun­tries sign these agree­ments with­out fully as­sess­ing the im­pact they will have on their com­mit­ments, which re­sults in mis­align­ment with their na­tional poli­cies, Ka­puya said. This hin­ders im­ple­ment­ing free trade and “some­times they don’t want to amend their leg­is­la­tion be­cause they don’t want to open up their mar­kets”.

These coun­tries want to pro­tect their in­dus­tries from mar­kets such as South Africa, which are more ad­vanced and com­pet­i­tive and would pos­si­bly dom­i­nate their do­mes­tic mar­kets, close down busi­nesses and cause job losses, Ka­puya ex­plained.

Parshotam noted that the agree­ment should be able to pro­tect the needs of less-de­vel­oped coun­tries with smaller and weaker economies, so that ev­ery­one can par­tic­i­pate.

“The [agree­ment] has to find so­lu­tions that mil­i­tate against pro­tec­tion­ism and cater for the needs of both low-de­vel­oped coun­tries and larger economies such as Kenya, Egypt, Nige­ria and South Africa,” she said.

She added that it could prove to be dif­fi­cult to elim­i­nate tar­iffs in the Africa Con­ti­nen­tal Free Trade Agree­ment if one looked at how other re­gional trade agree­ments have played out.

The East African Com­mu­nity and the Eco­nomic Com­mu­nity of West African States are the only re­gional trade ar­eas with­out tar­iffs among their mem­ber coun­tries. “Mau­ri­tius is the only SADC [South­ern African De­vel­op­ment Com­mu­nity] coun­try that im­poses no im­port tar­iffs on ei­ther SADC or Comesa [Com­mon Mar­ket for East­ern and South­ern Africa] trade,” Parshotam said.

Ka­puya said coun­tries such as Malawi rely heav­ily on tar­iff rev­enue, to the ex­tent that part of its na­tional bud­get de­pends on taxing prod­ucts from other coun­tries. Re­mov­ing these tar­iffs would, in ef­fect, deprive those coun­tries of part of their fis­cal base, Ka­puya said.

This is why the SADC free trade agree­ment has not worked, he said.

“When coun­tries take down tar­iffs, they started in­creas­ing non­tar­iff bar­ri­ers … which makes it ex­tremely dif­fi­cult to trade with other coun­tries, to the ex­tent that you still [can­not] ex­port [to neigh­bour­ing coun­tries],” he said.

Moody’s said non­tar­iff bar­ri­ers — such as in­ef­fec­tive cus­toms doc­u­men­ta­tion and cor­rup­tion — were a ma­jor is­sue on the con­ti­nent, and the World Bank has es­ti­mated that “the costs for in­tra-African trade are the high­est among de­vel­op­ing re­gions, and around 50% higher than in East Asia”.

Mean­while, coun­tries with larger man­u­fac­tur­ing bases are in a bet­ter po­si­tion to tap into the ben­e­fits of fur­ther trade in­te­gra­tion.

Ac­cord­ing to Moody’s, South Africa, Kenya and Egypt are likely to be the big­gest win­ners “thanks to their large man­u­fac­tur­ing bases and rel­a­tively ro­bust in­fras­truc­ture, par­tic­u­larly given their ac­cess to elec­tric­ity”. They were fol­lowed by Morocco, Namibia, Tu­nisia, Côte d’Ivoire, Sene­gal and Cameroon.

“There is a sense that Nige­ria had a prob­lem with trade agree­ments lately,” Ka­puya said, not­ing that the coun­try had also re­fused to sign the West Africa-Euro­pean Union Eco­nomic Part­ner­ship Agree­ment.

“I think it’s okay for coun­tries to take time to re­flect on agree­ments, es­pe­cially if they have far-reach­ing con­se­quences. These free trade agree­ments have the po­ten­tial to af­fect coun­tries in a ma­jor way — it can be pos­i­tive and it can be neg­a­tive,” Ka­puya said.

Speak­ing at the In­ter­na­tional Press In­sti­tute World Congress in Abuja in June, Nige­ria’s fi­nance min­is­ter, Kemi Adeo­sun, ex­plained why Nige­ria de­cided to con­sult be­fore sign­ing the agree­ment. “It’s not about speed; it’s about do­ing it right,” she said.

“We have to deal with an agree­ment of that na­ture in a way that is win-win. There’s no coun­try that works against its own in­ter­est, even for love of its con­ti­nent or re­gion. What we are hop­ing is [that] all the stake­hold­ers will be in­volved in the way for­ward as well, so that this is not a case of gov­ern­ment telling the busi­ness com­mu­nity what to do,” said Adeo­sun.

African coun­tries will con­tinue to dis­cuss the agree­ment for the rest of this year. There are still out­stand­ing is­sues to ad­dress re­lated to tar­iff con­ces­sions, trade in ser­vices and rules of ori­gin. A sec­ond phase of ne­go­ti­a­tions on in­tel­lec­tual prop­erty, in­vest­ment and com­pe­ti­tion pol­icy is due to be­gin at the end of 2018.

There have been con­cerns that the ne­go­ti­a­tions have ne­glected “new­gen­er­a­tion” is­sues such as the im­pact of the fourth in­dus­trial rev­o­lu­tion on trade re­la­tions and in­dus­try.

“Ne­go­tia­tors’ ap­par­ent re­luc­tance to [ad­dress this] raises ques­tions as to how the agree­ment will cater for African coun­tries leapfrog­ging their de­vel­op­ment into the 21st cen­tury, and what this will mean for their trade re­la­tions with third par­ties,” Parshotam said.

Sars names and shames rogues

In a week in which sus­pended South African Rev­enue Ser­vice com­mis­sioner Tom Moy­ane said noth­ing, Sars sang like a ca­nary as it named and shamed tax­pay­ers con­victed for not sub­mit­ting their tax re­turns. Moy­ane called a press brief­ing to up­date the pub­lic about the on­go­ing in­quiries he’s fac­ing into his time at Sars. He sat qui­etly while his lawyer, Eric Mabuza, read out his state­ment and an­swered ques­tions. Moy­ane has wel­comed the pres­i­dent’s re­quest for more time to re­spond to his de­mands to stop ei­ther one or both of the probes into his con­duct. As for non­com­pli­ant tax­pay­ers, the chick­ens have come home to roost. Among them is foot­ball star Teko Modise, whose name was among the 10 dis­closed as not hav­ing sub­mit­ted their tax re­turns. Those who have been con­victed now have crim­i­nal records.

Strikes at record high last year

The de­part­ment of labour re­vealed that work stop­pages reached record highs in 2017. Strikes in­creased by 8%, from 122 in 2016 to 132 in 2017, but more of those strikes were pro­tected. The main causes were wage and com­pen­sa­tion de­mands. About 125 000 work­ers were in­volved in labour dis­putes in 2017, 38.6% more than in 2016. This re­sulted in es­ti­mated wage losses of R251-mil­lion. The re­port comes as wage ne­go­ti­a­tions kicked off in the strug­gling gold in­dus­try, and the Min­er­als Coun­cil has said it is crit­i­cal that the par­ties find com­mon ground to en­sure the sus­tain­abil­ity of the in­dus­try.

Eskom wage talks drag on

This week, wage talks be­tween Eskom and the Na­tional Union of Minework­ers, Sol­i­dar­ity and the Na­tional Union of Met­al­work­ers of South Africa stalled. Unions are re­port­edly de­mand­ing a mul­ti­year agree­ment, start­ing with an in­crease of 8.5% this year, but Eskom is of­fer­ing 7.5%. Fi­nance Min­is­ter Nhlanhla Nene called on the unions to put pro­pos­als on the ta­ble for how their de­mands could be met, af­ter they asked Nene and Pub­lic En­ter­prises Min­is­ter Pravin Gord­han to in­ter­vene. Trea­sury spokesper­son Jab­u­lani Sikhakhane told the Mail & Guardian that Nene had asked unions to meet with him wear­ing two hats: one as trade union­ists and the other as tax­pay­ers. “As trade union­ists, they can re­quest the fund­ing and, as tax­pay­ers, they can ex­plain how they pro­pose to fi­nance the fund­ing they re­quest,” said the fi­nance min­istry’s state­ment. The min­istry has, as yet, not re­ceived a for­mal re­quest from the unions to meet.

US-China trade war looms

Rum­blings of a trade war con­tinue un­abated as the United States pre­pares to im­pose 10% tar­iffs on an­other $200-bil­lion worth of im­ports from China, and China vows to re­tal­i­ate as it has pre­vi­ously done with du­ties on US goods. Re­search by Ox­ford Eco­nomics says bi­lat­eral dis­cus­sions be­tween the two coun­tries may not defuse ten­sions but are nec­es­sary to avoid es­ca­la­tion into a full-blown trade war. Ac­cord­ing to the re­search con­sul­tancy, ad­di­tional 10% tar­iffs on top of the ex­ist­ing

25% tar­iffs on $50-bil­lion worth of im­ports from China, with cor­re­spond­ing re­tal­ia­tory tar­iffs from China, would knock 0.2 per­cent­age points off of China’s gross do­mes­tic prod­uct growth in 2019. Ef­fects on the US will be muted but the dam­age will start be­ing felt in 2020, it says. A full-blown trade war will have ma­jor im­pli­ca­tions for the global econ­omy.

“We go on to sign these agree­ments at the re­gional and con­ti­nen­tal level but the bot­tom ba­sics have not been re­solved”

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