The African Continental Free Trade Area (AfCFTA) : opportunity or pipedream for South Africa’s agricultural exports

Thesis (MAgricAdmin)--Stellenbosch University, 2022.

ENGLISH SUMMARY: The conclusion of the Uruguay Round of multi-lateral trade talks gave rise to a new era of agricultural trade that is more fair and competitive, globally (UNCTAD, 2020). However, failure to achieve set deadlines to further liberalise total trade (agricultural and other) on a global scale shifted the goal posts for countries to focus more on Preferential Trade Agreements. Between 2012 and 2021, the number of Regional Trade Agreements on the African continent increased from 28 to 45, focused on structural reforms designed to aid in opening up economies to execute export-orientated policies, which are more market driven, competitive and democratic. The African Continental Free Trade Area is the most recent addition to the Free Trade Agreements on the African continent. Africa is characterised by rapid Gross Domestic Product growth, population expansion, urban migration, changing dietary patterns, and a growing working-age population (Ekobena, Coulibaly, Keita and Pedro, 2021; van Berkum, 2021). Additionally, it is forecast that agribusiness trade is expected to grow by up to 30% by 2050 (Moyo, 2020). However, Africa’s share in receiving South Africa’s agricultural exports has been decreasing. Therefore, the research question is whether the African Continental Free Trade Area presents an opportunity for South Africa to further expand agricultural exports into the continent, or is it just a pipedream? To address this question, various trade indices were used to analyse the nature of trade between countries in different Regional Economic Communities (REC’s) on the African continent. The indices used in this study include, the Regional Trade Introversion index, the Intra-Industry Trade coefficient, the Regional Orientation Index and Gini-Index and lastly the import Gini-Hirschman Index. A grouping of agricultural products (processed and unprocessed) that belong in both South Africa’s top 80% agricultural exports to the world and in the top 80% imports of each respective Regional Economic Community from the world was used. Through the combined used of these trade indices, the identification of countries that represent an opportunity for South Africa’s agricultural export sector was done. It was found that the level of trade introversion among the Regional Economic Communities varies greatly, and the level of introversion for the selected processed agricultural products tended to be larger than that of the unprocessed agricultural products. The results for unprocessed products show that several Regional Economic Communities are highly dependent or becoming more dependent on extra-regional trade (e.g., Arab Maghreb Union (AMU), Common Market for Eastern and Southern Africa (COMESA), Economic Community of West African States (ECOWAS), Community of Sahel Saharan States (CEN-SAD), Economic Community of Central African States (ECCAS), Intergovernmental Authority on Development (IGAD)), except the East African Community (EAC). The high level of trade introversion for processed agricultural products in all Regional Economic Communities suggests that South Africa could experience difficulties in exploiting market opportunities despite tariff reductions, but the opposite is true for unprocessed agricultural products, except perhaps in the EAC. Overall, the unprocessed agricultural products show the highest potential for market expansion, supported by the Intra-Industry Trade values and the trade balances of the respective products, including maize, fresh apples, fresh or chilled potatoes and frozen, boneless meat of bovine animals. South Africa’s regional orientation shows that exports of the selected agricultural products are strongly oriented towards SADC. South Africa’s Regional Orientation Index for certain exports of unprocessed agricultural products were highest for the ECOWAS and CEN-SAD Regional Economic Communities, which implies that trade creation effects would be higher than trade diversion effects from increased exports into those Regional Economic Communities due to reduced tariffs. The high Gini coefficients show South Africa’s exports of the selected agricultural products into Africa are highly concentrated in a few markets, mainly SADC. The AMU Regional Economic Community has the lowest import concentration for imports from South Africa of the selected agricultural products implying that South Africa has a minimal market share in the region. A Composite Country Priority Index was also developed to identify potential export markets for South Africa to prioritise on the African continent. The Composite Country Priority Index is composed from three dimensions that affect the trade potential of an export destination, namely (i) Market Conditions, (ii) the Business Environment, and (iii) the Logistical Conditions of each country. The results show that (i) South African exports of processed and unprocessed agricultural products into different countries are not prioritised in the same manner, (ii) different regions pose different levels of opportunities for trade expansion, and (iii) export volumes to some countries are far greater than what is suggested by the Composite Country Priority Index. The latter point can be explained by, among other things, the proximity of certain countries to South Africa, the competitiveness of South Africa’s products as opposed to imports from elsewhere, and the availability of products within the home country. The results of the Composite Country Priority Index analysis emphasise that the Composite Country Priority Index and its comparison with trade values should be used as a basis to further investigate the appropriateness of an identified export market. Finally, this study shows there is no conclusive evidence that the African Continental Free Trade Area is a pipedream for South African agricultural exports, but it is certainly not a silver bullet to significantly expand agricultural exports, at least not in the short to medium term. Furthermore, tariff reductions alone will not lead to notable export increases if Africa’s non-tariff barriers are not resolved. This applies to destination countries and transit countries, as the latter act as the pathway for South Africa’s agricultural exports into Africa.

AFRIKAANSE OPSOMMING: Die afsluiting van die Uruguay-ronde van multilaterale handelsgesprekke het gelei tot ’n nuwe era van billiker en mededingende landbouhandel wereldwyd (UNCTAD, 2020). Die versuim om vasgestelde sperdatums te haal om die totale handel (landbou en ander) op wereldwye skaal verder te liberaliseer, het egter die doelpale verskuif vir lande om meer op voorkeurhandelsooreenkomste te konsentreer. Tussen 2012 en 2021 het die aantal streekshandelsooreenkomste op die vasteland van Afrika toegeneem van 28 tot 45, met die fokus sterk op strukturele hervormings wat ontwerp is om ekonomiee oop te maak om uitvoergeorienteerde beleide uit te voer, wat meer markgedrewe, mededingend en demokraties is. Die Afrika Kontinentale Vryhandelsgebied is die mees onlangse toevoeging tot die vryhandelsooreenkomste op die vasteland van Afrika. Afrika word gekenmerk deur ’n snelgroeiende bruto binnelandse produk, bevolkingsgroei, stedelike migrasie, veranderende dieetpatrone en ’n groeiende bevolking van werkende ouderdom (Ekobena, Coulibaly, Keita en Pedro, 2021; van Berkum, 2021). Boonop word daar voorspel dat handel deur landboubesighede teen 2050 na verwagting met tot 30% sal groei (Moyo, 2020). Daar was egter ’n afname in Afrika se aandeel in Suid-Afrika se landbou-uitvoere. Bied die Afrika Kontinentale Vryhandelsgebied dus ’n geleentheid vir Suid-Afrika om landbou-uitvoere na die vasteland uit te brei, of is dit net ’n pypdroom? Om ’n antwoord hierop te verkry, is verskeie handelsindekse gebruik om die aard van handel tussen lande in verskillende streeksekonomiese gemeenskappe op die vasteland van Afrika te ontleed. Die indekse wat in hierdie studie gebruik is, sluit in, die streekshandelinversie-indeks, die intra-industriële handelskoeffisient, die streeksorientasieindeks en Gini-indeks en laastens die invoer Gini-Hirschman-indeks. ’n Groepering van landbouprodukte (verwerkte en onverwerkte) wat in beide Suid-Afrika se top 80% landbou-uitvoere na die wereld en in die top 80% invoere van elke onderskeie ekonomiese gemeenskap in die Afrika-streek uit die wereld hoort, is gebruik. Deur ’n kombinasie van die handelsindekse te gebruik kan lande geidentifiseer word wat ’n geleentheid vir Suid-Afrika se landbou-uitvoersektor bied. Daar is gevind dat die vlak van handelsintroversie onder die streeksekonomiese gemeenskappe baie verskil, en die vlak van introversie vir die geselekteerde verwerkte landbouprodukte is geneig om groter te wees as die van die onverwerkte landbouprodukte. Die resultate vir onverwerkte produkte toon dat verskeie streeksekonomiese gemeenskappe hoogs afhanklik is of meer afhanklik word van buite-streekshandel (byvoorbeeld AMU, COMESA, ECOWAS, CEN-SAD, ECCAS, IGAD), behalwe die EAC. Die hoe vlak van handelsintroversie vir verwerkte landbouprodukte in alle streeksekonomiese gemeenskappe dui daarop dat Suid-Afrika probleme kan ervaar om markgeleenthede te ontgin ondanks tariefverlagings, maar die teenoorgestelde geld vir onverwerkte landbouprodukte, behalwe miskien in die EAC. Oor die algemeen sluit die onverwerkte landbouprodukte wat die grootste potensiaal vir markuitbreiding toon, ondersteun deur die intra-industriele handelswaardes en die handelsbalanse van die onderskeie produkte, mielies, vars appels, vars of verkoelde aartappels en bevrore, beenlose vleis van beeste in. Suid-Afrika se streeksorientasie toon dat uitvoere van die geselekteerde landbouprodukte sterk op die SAOG gerig is. Suid-Afrika se streeksorientasieindeks vir die uitvoer van sekere onverwerkte landbouprodukte was die hoogste vir die ECOWAS- en CEN-SAD streeksekonomiese gemeenskappe wat impliseer dat handelskeppingseffekte hoer sou wees as handelsafleidingseffekte van verhoogde uitvoere na daardie ekonomiese streeksgemeenskappe as gevolg van verlaagde tariewe. Die hoe Gini-koeffisiente toon dat Suid-Afrika se uitvoere van die geselekteerde landbouprodukte na Afrika hoogs gekonsentreer is in enkele markte, hoofsaaklik SAOG. Die AMU ekonomiese streeksgemeenskap het die laagste invoerkonsentrasie vir invoere uit Suid-Afrika van die geselekteerde landbouprodukte wat impliseer dat Suid-Afrika ’n minimale markaandeel in die streek het. ’n Saamgestelde Land Prioriteitsindeks is ook ontwikkel om potensiele uitvoermarkte vir Suid-Afrika te identifiseer om op die Afrika-vasteland te prioritiseer. Die Saamgestelde Land Prioriteitsindeks bestaan uit drie dimensies wat die handelspotensiaal van ’n uitvoerbestemming beinvloed, naamlik (i) Marktoestande, (ii) die Besigheidsomgewing en (iii) die Logistieke toestande van elke land. Die resultate toon dat (i) Suid-Afrikaanse uitvoere van verwerkte en onverwerkte landbouprodukte na verskillende lande nie op dieselfde wyse geprioritiseer word nie, (ii) verskillende streke verskillende vlakke van geleenthede vir handelsuitbreiding inhou, en (iii) uitvoervolumes na sommige lande veel groter is as wat deur die Saamgestelde Land Prioriteitsindeks voorgestel word. Laasgenoemde punt kan verklaar word deur onder meer die nabyheid van sekere lande aan Suid-Afrika, die mededingendheid van Suid-Afrika se produkte in teenstelling met invoere van elders, en die beskikbaarheid van produkte binne die spesifieke land. Die resultate van die Saamgestelde Land Prioriteitsindeks-analise beklemtoon dat die Saamgestelde Land Prioriteitsindeks en sy vergelyking met handelswaardes as basis gebruik moet word om die toepaslikheid van ’n geidentifiseerde uitvoermark verder te ondersoek. Laastens toon hierdie studie dat daar geen afdoende bewyse is dat die Afrika Kontinentale Vryhandelsgebied ’n pypdroom vir Suid-Afrikaanse landbou-uitvoere is nie, maar dit is beslis nie ’n silwer koeel om landbou-uitvoere aansienlik uit te brei nie, ten minste nie op kort tot medium termyn nie. Tariefverlagings alleen sal ook nie tot noemenswaardige uitvoerverhogings lei as Afrika se nie-tariefhindernisse nie opgelos word nie. Dit geld vir bestemmingslande en transitolande, aangesien laasgenoemde as die weg vir Suid-Afrika se landbou-uitvoere na Afrika dien.

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