Benefits, pitfalls of trade agreement
YANNA SMITH - The African Continental Free Trade Area (AfCFTA), which entered into force on 30 May this year, has caused quite a furore across the continent and the common view is that the agreement is set to “change Africa forever”, according to Francis Mangeni, director of trade and customs at Comesa (the Common Market for Eastern and Southern Africa).
“For African political, private-sector and intellectual leadership, the call of duty now is to ensure that this trajectory is irreversible, and that decent jobs and incomes are equitably generated from increasing trade and investment,” Mangeni writes.
Africa has a combined gross domestic product of roughly US$6.7 trillion in purchasing power parity, with business and consumer spending at US$4 trillion. There are more than 400 companies with revenues of over US$1 billion and the continent has 60% of the world’s arable land and a vast supply of strategic minerals.
However, not all African states were created equally.
In its EY Attractiveness Programme Africa, dated September this year, Ernst and Young writes that East African states grew on average by 7% in 2018 while Southern Africa lagged behind at 2.6%. West Africa grew at a rate of 3.2%, led by Ghana, and North African states grew by 4.1%, led by Egypt.
“East Africa’s growth remains world leading. Kenya, along with neighbouring Tanzania, Uganda, Rwanda and Ethiopia, are all growing well above 5% per annum.”
Sub-Saharan Africa has limped in its growth, mainly due to the struggling economies of South Africa, Angola and Nigeria.
In its economic outlook for July 2019, the Bank of Namibia writes that the domestic economy is expected to fall into a deeper contraction during 2019 before returning to positive growth in 2020. “The domestic economy is projected to contract by 1.7% in 2019 before recovering to positive growth of 0.8% and 1.2% in 2020 and 2021, respectively.”
Namibia is already struggling to develop certain key industries including poultry, dairy, egg and pork production. The challenges in this regard are multi-layered, of which the importation of cheaper products from South Africa, Brazil and the EU plays a significant role. With the local consumer under extreme pressure, cheaper products will always be king.
A case in point is the local milk industry. According to the managing director of Namibia Dairies, Gunther Ling, the milk industry is shrinking and is under severe pressure.
“Unlike other countries such as Botswana, the USA and Japan, to name but a few of the numerous countries that have dairy industry protectionism, there are currently no protective measures in place to protect the Namibian dairy industry,” Ling says.
The infant industry protection that was in place for long-life milk ceased a number of years ago.
“There currently is no protection in place, and the local dairy industry is shrinking rapidly amidst the cost pressures which put this industry at risk.
“Sustainability is a key concern not only for the affected farmers, processors and parties in the value chain, but also for the public and the country at large. Namibia used to produce its own cheese and butter, but similar pressures to the ones we currently experience led to this component of the local industry eventually collapsing, and now Namibians are price takers who need to take whatever quality of cheese and butter is available through imports, at whatever the price the seller wants.”
The free trade agreement certainly raises red flags but, according to Anton Faul of the Agricultural Trade Forum, the agreement, “like any modern free-trade agreement, will provide for a dispute settlement mechanism, as well as specific safeguard clauses, that could be used by members in the case of dumping, unfair trade or import surges”.
Member states will also be able to reserve their rights in the World Trade Organisation (WTO) for this purpose. “In theory,” Faul says, “a country can still utilise its rights under the WTO to protect its markets from dumping or import surges.”
According to Faul, there will be a list of sensitive products that will not be included for liberalisation under the agreement. These products, he says, will still attract duties which will allow them to remain protected.
However, Namibia needs to make sure that it submits its list of sensitive sectors and/or products into the negotiation process as soon as possible. Whether this will include protection for the dairy industry is not known.
Egg production in Namibia is also under pressure. Rene Werner, head of the Namibian Poultry Producers’ Association, tells Business 7 that the industry faces challenges in the “retail part of the business as most big retailers in Namibia are from South Africa and they are allowed to import eggs under their name from South Africa. Many years ago there was an effort to stop this, but as they are under the name of the retailer, there was little one could do.”
Werner says in light of the agreement and should the importation of eggs increase, “we will start the process again in trying to protect the industry”.
“South Africa can produce eggs at a much cheaper price as everything they put into the production is much cheaper than in Namibia. As long as they, and other countries, are allowed to export eggs and meat into Namibia these industries will struggle to grow.”
And the pork industry is no different.
Gideon Goosen, head of the Pork Producers’ Association in Namibia, says pork consumption in South Africa is seasonal and “they have issues with the control of animal diseases. This leads to price fluctuations and whenever there is a drop in the producer price the abattoirs try to offset the oversupply with exports. Since Namibia is a safe and easy exporting destination they tend to dump meat here.”
However, there is a pork marketing scheme which protects the local industry to some extent in that processors must use local production before they are allowed to import. But, according to Goosen, “as we all know, no intensive animal production can be economically run in Namibia without some kind of protection from imports. The fact is Namibia is a net importer of feed and to offset the cost in production you will have to get a better price for your produce”.
Goosen confirmed that the industry would, in light of the free-trade agreement, fight to keep protection in place.
“It is imperative that we keep the protection in place. The pork marketing scheme has been running since September 2012 and if we lose that we certainly will not be able to continue farming.”
He continues by saying that “should the scheme be cancelled it would be very difficult or even impossible to keep farming at current feed prices and the much lower production cost of producers in South Africa”.
“The processors have the idea that the pork marketing scheme is in place to protect one producer since both Mariental and Tsumeb are owned by the same company, but it should be considered that we are protecting the industry, not just one producer. If the border closes for imports due to a crisis in South Africa, it would take six weeks to import from Europe at the very least.
“If we can grow the Namibian pork industry we can be more self-sufficient since we are currently only producing 55% of consumption. In order to do that we will have to have some kind of protection and it would have to be in place indefinitely for all the above reasons.”
And for broiler chickens the story is much the same.
Currently embroiled in a High Court matter where the South African Poultry Association is trying to have import restrictions set aside, Namib Poultry Industries has stockpiles of 1 800 tonnes and SMEs are struggling to market their poultry products.
Pieter van Niekerk, commercial manager at Namib Mills, says poultry dumping into Namibia comes mainly from the EU and Brazil, but there is a constant battle to limit imports from South Africa. The Meat Board too has recently been sued by a South African national residing and working in Namibia and who wants permission to import 100 tonnes of chicken from South Africa monthly.
Van Niekerk says AfCFTA “should be very carefully negotiated now and monitored in the future, otherwise we could struggle to expand into new products. If we, for example, do not have an industry at this moment and we agree to allow a more industrialised country to export said product, but in future we want to start developing that specific industry, that industry could fail in Namibia. What trade agreements we need now, compared to what trade agreements we could need in the future, makes these ACFTA negotiations very important.”
The agreement, Faul says, will have a minimal impact on SACU as it negotiates as a bloc.
“SACU will make one [a joint] tariff offer to the CFTA countries. The Common External Tariff will therefore remain intact. There will therefore not be any adverse impacts on SACU as a customs union.”
Industry protection, according to Faul, will still be in place, “provided that those industries have been identified up front as sensitive industries and are excluded from tariff liberalisation. Otherwise, policy space to protect industries will be eroded by the agreement over time”.
The agreement has entered into force but according to Faul, implementation in real time will still take a while.
“The fundamental components that actually make up a trade agreement are still missing - these being the actual tariff preferences and the related rules of origin criteria. No tariff offers have been exchanged as yet between any of the CFTA countries and until such a time that tariff schedules have been negotiated and agreed, and subsequently incorporated into tariff books and gazetted, no preferential trade will take place under the CFTA. The process to negotiate tariff schedules is not an easy task and it can still take a few years to conclude that, despite the political pressure to fast-track these negotiations.”
And there are some concerns, says Faul.
“We have seen from past experiences (SADC Trade Protocol for example) that the non-tariff matters are more important in terms of facilitating trade than merely removing or lowering tariffs. Proper customs procedures and trade facilitation measures, as well as sound infrastructure (roads, documentation, policies, procedures, etc.) are equally important.
“Despite SADC being a free-trade area, very little trade has taken place because countries still use non-tariff barriers, standards, quantitative restrictions, permit control and more to restrict trade. It is still easier to send a container to the EU than to try and send the same container to a country in SADC, for example.
“A further concern is the supply-side capacity in CFTA countries to make use of the market opportunities that the agreement will provide. Only countries such as Egypt, Kenya, South Africa and to some extent Mauritius and Nigeria have diversified supply-side conditions and capacity to export value-added goods and services.
“Most other CFTA countries export mainly commodities and these are going to the US under Agoa and the EU under EBA/EPA, or to China for example, where these achieve quite high prices. Additional trade within Africa, or trade diversion away from the US/EU/China, will only be created if the prices that can be obtained in the African markets are higher than those that are currently being obtained in the EU/US/China, and all other obstacles and non-tariff barriers are also removed.
“Another area of concern is the lack of political will for dispute settlement. We have seen very few, if any, cases where countries that violate the provisions of the trade agreements have been taken to dispute settlement on the African continent. We seem to agree on a trade agreement with provisions to liberalise trade, but then we do not care about implementation and we tolerate violations of such agreements without using the dispute settlement mechanisms of the very same agreements.
“In SADC, this has always been the case. Despite the fact that all trade in SADC was supposed to be fully liberalised by 2012 already, countries continue to charge duties and tariffs on a substantive number of goods and/or products, and non-tariff barriers have not been removed either. This is a major concern.”