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How SA Can Enhance Trade With Africa

Published date:
Thursday, 23 October 2003

For all its efforts to boost ties with the region and the continent, South Africa imported a minuscule 3% of its needs from other African countries during the first six months of this year.

The balance of trade with Africa is weighted eight-to-one in South Africa’s favour, aggravated by the economic collapse of the country’s largest continental trading partner, Zimbabwe.

South Africa’s traffic with Zimbabwe is starting to take on the complexion of emergency relief, with trade in vegetable products trebling in value between 1999 and last year. The obvious drop in machinery and equipment exports to Zimbabwe since 1999 — from 21% to 15% of total trade between the two countries — reflects the scale of the business shutdown in that country.

According to the SA Department of Customs and Excise, exports from South Africa to the rest of Africa grew 38% last year, helped by a rand that spent much of the year above R10 to the dollar. Exports to Africa maintained double digit annual growth over the past decade, but off a tiny base. Africa now absorbs just 14% of South Africa’s exports and accounts for less than 10% of its total trade.

Corporate South Africa’s push into Africa, backed by investments worth more than $1 billion, provides impetus to the growing trade with the continent. Increased corporate investment in Africa accounts for much of the growth in exports of capital goods from South Africa, helped by the SA Department of Trade and Industry’s Export Credit Insurance Corporation, which is more willing than other export credit agencies to provide insurance cover for exports to African markets.

Though regional trade patterns are slowly changing, South Africa remains largely dependent on developed markets for its exports. Most of its exports go to the United Kingdom, United States, Germany, France and Japan, and increasingly China.

The story is the same for most other African countries, whose transport networks were designed to serve colonial rather than neighbouring markets. Trade patterns are further distorted by preferential trade agreements, such as the free trade agreement between the Southern African Customs Union (SACU) and Europe, and the US’s Africa Growth and Opportunity Act (AGOA).

South African exports to Africa are mainly value-added items such as machinery, vehicles, chemicals, base minerals and prepared foods. Its imports from Africa comprise lower-value products such as tobacco, beverages and prepared foodstuffs, wood products and textiles.

According to the World Trade Organisation (WTO), only 8% of Africa’s total exports in 2001 were intra-African, compared with intra-EU trade of 62%.

The Southern African Development Community (SADC) Free Trade Agreement aims to promote intra-SADC trade by phasing out import tariffs by 2008. Tariffs between zero percent and 17% have already been scrapped, and those up to 30% will be phased out over three years.

The benefits in terms of increased intra-SADC trade are already evident in products such as clothing from Mauritius, which pays a 20% tariff on entering South Africa, as opposed to 40% for clothing from non-SADC countries. Zimbabwe increased its exports of particle board and other building products to South Africa as a result of lower tariffs.

Research by the International Trade Centre suggests that SACU has the potential to increase imports from the SADC by $1,9 billion, three times the current level. This figure would reduce South Africa’s trade balance with the SADC from 8:1 to a more acceptable 2,5:1.

If this is the potential, why isn’t it being realised? Perhaps the biggest obstacle is one of perception, according to a recent paper by Whitehouse and Associates, an Africa trade research and consulting firm. South African businesses are often unaware of the products on offer in the SADC.

“There is a perception that Africa does not produce any of the products South Africa is importing and that, where these products are being produced, they are of a lower quality than those produced elsewhere in the world,” says Liz Whitehouse of Whitehouse and Associates.

Whitehouse says an area that needs urgent address is the lack of harmonised trade and product standards. South Africa continues to purchase canned tuna from Thailand and the Philippines, but refuses entry to canned tuna from Mauritius because it does not meet the standards set by the South African Bureau of Standards. This could change with better communication between the region’s standards authorities.

Another obstacle to trade is the proliferation of trade blocs. There are 14 economic units in Africa, many with overlapping memberships.

The stronger rand should help in reducing South Africa’s trade balance with the continent. But so long as Africa remains trapped at the lower end of the commodity value chain, trade will remain pretty much a one-way street in South Africa’s favour.

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