Global trade uncertainty confirms that Africa’s leaders correctly read the horizon when they signed the African Continental Free Trade Area (AfCFTA), in the process creating the world’s largest integrated free trade zone.
Trade challenges around the world have further signalled to African countries that the continent must ramp up the free flow of trade and movement of business people as soon as possible.
There has been tremendous impetus to get the ball rolling from most signatories to the AfCFTA agreement. Since April, 45 African countries have published their provisional schedules of tariff concession to the protocol on trade in goods and 39 are trading under the Guided Trade Initiative (GTI).
SA stands to reap potentially immediate benefits from AfCFTA, with its manufacturing capabilities and existing infrastructure assisting it to tap into the opportunities on offer. With the recent imposition of a 30% tariff on certain goods exported from SA to the US, this position within Africa’s free trade zone is opportune.
Government intervention
The 30% US tariff imposed on most goods from SA (save for certain goods, including critical minerals) spurred the government to act quickly to address the effect on exporters. The country’s top exports to the US include precious metals, vehicles, iron and steel, and citrus products. Most of these exports, in particular vehicles and citrus, face steep duties.
To assist SA exporters the trade, industry & competition minister, in consultation with the Competition Commission, issued the draft block exemption for the promotion of exports (regulations) on August 12. The intention is to assist SA businesses exporting goods and services to work together to mitigate the economic impact of increased trade tariffs imposed by the US.
However, the new exemption does not only affect exports to the US it encompasses a broad framework that applies to all SA’s export markets. While the exemption shields exporters under SA law, they must still comply with all foreign antitrust enforcement frameworks, including those in the US and Europe.
In reaction to the US tariff, SA exporters are already exploring trade partnerships with other markets, including buyers in China, Japan, the Middle East and EU. However, trade with each country has its own regulatory challenges. For example, the EU has stringent sanitary and phytosanitary standards that present challenges for the agricultural industry.
That said, EU markets are lucrative for those who can comply and significantly do not compete with domestic EU producers as the two markets are counter-cyclical.
Avenue for growth
While automotive exports are not yet included in AfCFTA’s early trade, sectors such as agriculture and consumer goods are gaining traction in other African markets. According to the department of trade, industry & competition, SA is already exporting mining equipment, electrical machinery & appliances, food items, apparel & textiles and plastics & packaging materials to Algeria, Cameroon, Egypt, Ghana, Kenya and Rwanda under the GTI.
However, businesses collaborating under the exemption in SA must be aware of competition laws in Africa, including how the implementation of the new AfCFTA competition protocol may affect trade in future. Though not yet implemented, the protocol promotes cross-border competition and mutual recognition of enforcement decisions.
If SA firms were to engage in behaviour that affects markets in other African countries, especially in terms of price fixing, market allocation or exclusionary practices, they would face scrutiny under local, regional, and soon continent-wide legal frameworks.
This is important to consider when designing resilient and sustainable trade flows in response to either the US tariffs or the opportunity offered by AfCTA once it is fully operational.
• Nyali is a partner at Bowmans.
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