By Simba Takuva, Director Takuva Attorneys and Kudakwashe Bandama, Policy Analyst Takuva Attorneys
Global trade dynamics and domestic policy imperatives
Policy and regulation serve as dual-purpose tools, that must be applied both strategically and judiciously. For many decades, the prevailing orthodoxy in international trade has been dominated by the theory of ‘comparative advantage’; that global trade should be dictated by production efficiencies and not narrow nationalistic concerns. However, just as developing economies have gradually started catching up to the educational and technological efficiencies that can enable them to compete on an even keel in the international markets, it appears that global attitudes are shifting to protectionist market policies.
At the government level, this necessitates a re-evaluation and redesign of trade policy frameworks and the points of departure to focus on achieving our strategic national long-term economic growth objectives.
For businesses in Africa that are reliant on exports, the recent trade policy upheavals are a reminder of why it is crucial to position yourself to remain insulated from political disruptions and leadership transitions to protect your bottom line in the long term.
South Africa’s trade balance
The table below outlines South Africa’s trade balances in 2024.
The table shows that South Africa has a slight trade surplus with the United States, and a large trade deficit with Asia. Case in point, South Africa exported goods worth R221 billion to China and imported goods valued at almost R400 billion; a circa 45% trade deficit. Importantly, the graph shows that South Africa has a significant trade surplus within the African region. This begs, the question why more South African businesses are not going out of their way to enhance regional trade ties.
Barriers to entry and their implications
Whilst recent pronouncements particularly in the West have escalated to tariff barriers and a full-blown trade war, the reality is that many countries have been abusing non-tariff barriers (NTBs), to put a finger on the scale of their trade balance. NTBs create artificial barriers to entry which make it difficult for imports to compete with locally produced goods in the domestic market.
NTBs usually take the form of restrictive local standards, coupled with local production subsidies, affirmative action policies, and other measures to artificially reduce local production costs to bolster local industry and influence trade dynamics and competition. The World Trade Organisation (WTO) recognises that some local regulation has become necessary, such as the Sanitary/Phytosanitary (SPS), which are designed to protect human, animal or plant life or health. However, over the years, clever policy and regulatory actions have enabled developed economies to manipulate such measures and increasingly entrench trade protectionism.
The implication of the proliferation of NTBs and the latest all-out protectionist rhetoric is that African businesses that have a genuine competitive advantage and that rely on export sales for their revenue are placed at significant risk. This has a knock-on effect to the wider African economy, for example through job losses and reduced tax revenues. Trade pacts such as the African Growth and Opportunity Act (AGOA) with the USA, The Forum on China-Africa Cooperation (FOCAC) with China and the Post Cotonou Agreements with Europe, may continue to afford African manufacturers preferential access to developed markets however, the writing is on the wall that it is extremely risky for African businesses to rely on these pacts to base their ‑long-term growth prospects.
Looking South – Leveraging the AfCFTA
Kwame Nkrumah is quoted as having said, “’We face neither East nor West; We face forward”. In our view, the solution for African businesses is to look South to shore up their long-term growth strategies. In this regard, the African Continental Free Trade Area (AfCFTA) presents African businesses with an opportunity to insulate their growth strategies from trade policy upheavals bringing a market of over 1,4 billion consumers needing goods and services. A key feature of the AfCFTA is the NTB reporting mechanism, which aims to address any non-tariff trade restrictions swiftly when they are encountered.
African businesses with significant exposure to export markets, that are interested in sustainable growth in the long-term need to urgently assess the benefits of inter-African trade. This will not only expand the market for their goods and services but also hedge against global protectionist policy headwinds.
The benefit of inter-African trade is clear for South Africa, which already enjoys a positive balance of trade within the region. Maximising on the potential of regional trade will stimulate job creation and foster the growth of Small, Medium, and Micro Enterprises (SMMEs), which currently contribute approximately 60% of employment and 34% of GDP locally.
The regulatory certainty provided by the AfCFTA eradicates tariff barriers and reduces the potential of NTBs to negatively impact on exports, creating favourable conditions for business planning. By actively engaging in trade under the AfCFTA, businesses can boost their markets, hedge against export policy risks, and create value chains that unlock the full potential of inter-African trade.
Looking ahead
The recent trade wars initiated in the first world are a wake-up call to African export-oriented businesses to shore up their long-term growth by capitalizing on regional opportunities. Businesses have been given a safe and sure way to do this by the mechanisms that are built into the AfCFTA to prevent NTBs. This provides a unique opportunity for African manufacturers and producers to leverage the AfCFTA to expand their markets and hedge trade policy risks in the long-term.
