opinion
6 finweek 19 March 2020 http://www.fin24.com/finweekAFRICAN TRADE
Pho
to:
Sh
utt
ers
toc
k
y
our Hinterland is there,” reads the inscription under a
statue of the arch-colonialist Cecil John Rhodes, still- despite the ferocious Rhodes Must Fall agitation –
standing, with his left arm raised, facing north, in the
Company Gardens in Cape Town.
It’s a touch ironic but that could almost be President
Cyril Ramaphosa standing there. And saying that. He
is the champion of the African Union (AU)-Nepad
North-South Road, Rail and Related Infrastructure
Corridor which aims to connect the “Cape to Cairo”.
That was also the great dream of Rhodes.
Ramaphosa’s reverie is, of course, to flood the
hinterland with South African exports, not with
conquering redcoats, though some rival countries
on the continent are bound mischievously to conflate
the two.
His instrument is the African Continental Free Trade Area
(AfCFTA), which is supposed to create the world’s largest market on
1 July, when trade under the agreement is due to start. The North-South
Corridor is one of the many projects under the Presidential Infrastructure
Champion Initiative (PICI), which together aim to fill the
gaps in the necessary bricks-and-mortar infrastructure
foundation for the AfCFTA.
Ramaphosa has made implementing the
AfCFTA one of his priorities as AU chair this year
and that’s no surprise. It’s good for the continent
but it’s also potentially very good for SA. Nigeria
may have overtaken SA to become the continent’s
largest economy in GDP terms but it’s not the most
sophisticated.
SA accounts for the biggest chunk of intra-African
exports by far, with 34% – which also constitutes a substantial 27%
slice of SA’s total exports to the world. Nigeria trails a poor second at
only 9% of total intra-African exports. This explains in a nutshell why
Nigeria has been so reluctant to join the AfCFTA.
And it’s clear that the competition Nigeria most fears under the
AfCFTA is from SA.
Perhaps that’s why Nigeria competed so fiercely to get the job of
the first secretary-general of the AfCFTA at the AU summit in Addis
Ababa last month. It eventually lost to SA and so Pretoria’s top trade
official, Wamkele Mene – who helped to negotiate the AfCFTA – got
the job instead. Abuja may have been hoping that having a Nigerian in
the chair of the AfCFTA secretariat would give it greater control of the
way the trade deal works.
The trade negotiators are now frantically meeting to try to agree
on the trade rules so they can be presented and adopted at the
AfCFTA summit which SA is to host on 30 May for this purpose.
The negotiators missed their last deadline in February to do this
and Pretoria for one is getting worried. It hopes the fear of being
embarrassed at the summit may galvanise the trade negotiators.
The countries must present offers to liberalise 90% of trade in
goods and some services; not easy decisions. And they must also
agree on “rules of origin”, which basically stipulate how much input
from outside Africa is allowed in locally-produced goods for them still
to qualify for tariff-free passage within the free trade area.
These rules of origin (RoO) are critical. “They can make or
break an FTA,” says Trudi Hartzenberg, head of the Trade Law
Centre (Tralac) at Stellenbosch. “Too stringent and very
little trade will take place even with extremely low tariffs.
SADC is a good example – RoO for clothing and textiles,
which require two-stage transformation, basically make
it impossible to meet the requirement – because there is
very little in the way of a textile industry across the region.”
On the other hand, RoO that are too lax can allow mere
trans-shipment of goods coming from outside the FTA, with
little more than cosmetic additions in Africa to enable them to
qualify for entry into all the continent’s markets. These dodges are
called “screwdriver operations”.
African countries which have their own substantial manufacturing
industries – or intend to build them – naturally have most to fear from
lax RoO and “screwdriver operations” as these would expose
their own manufacturers in effect to competition from big
offshore manufacturers like China.
And so, it was not surprising that Ramaphosa spoke out
strongly against lax RoO when he addressed the AU summit
last month after being elected as its chair.
“We must all ensure that the AfCFTA does not become
a conduit for products with minimal African value addition
to enter and penetrate our local markets under the guise of
continental integration.
“There must be a reasonable standard set for what
constitutes a product that is ‘Proudly Made in Africa’. The era of
economic colonialism and imperialism, under which Africa is a pit stop
in the global assembly line, has passed.”
SA is pushing for at least 41% Africa-produced input for a product
to qualify for duty-free movement across continental borders under
the AfCFTA. Tighter rules will also favour the external investors which
Africa is hoping the AfCFTA will attract here. On the other hand,
African countries with little of their own manufacturing are pushing for
easier rules.
Intra-African exports now constitute only about 16% of the
continent’s total exports; compared with about 68% for intra-
European exports, nearly 60% for intra-Asian exports and 55% for
intra-American exports.
The most important measure of the success of the AfCFTA would
be if that 16% rose significantly. If it did, Ramaphosa, for one, would be
smiling. And maybe even the ghost of CJR. ■
[email protected]
Peter Fabricius is a consultant to the Institute for Security Studies (ISS) and a freelance
foreign affairs journalist.The July kick-off to the Africa-wide free trade deal hinges on getting rules of origin exactly right.
From the Cape to Cairo – it’s
Ramaphosa’s turn
By Peter FabriciusSA accounts for the biggest
chunk of intra-African
exports by far, with34%
- which also constitutes a
substantial 27% slice of SA’s
total exports to the world.