Brics+ must move beyond rhetoric and build a concrete and mutually beneficial trade alliance if it's to become an alternative to the US export market, says Wandile Sihlobo, Agbiz chief economist and Brics Business Council advisory member for agriculture.
While the US accounts for roughly 4% of South Africa's agricultural exports, they are concentrated in a few critical areas that rely heavily on that market, making it extremely difficult to replace, he said..
“The US remains important and it cannot necessarily be substituted by saying we are leaving and we are focusing on other countries. South Africa must work on mending relations with the US because it remains a high consumer market.”
Regions such as the Western Cape, Mpumalanga and KwaZulu-Natal are expected to be affected because of their production of goods that are popular in the US, such as nuts, citrus, table grapes, ostrich products and wine.
The tariffs are high because Brics remains in a political setting
— Wandile Sihlobo, Agbiz chief economist and Brics Business Council advisory member for agriculture
Sihlobo said the Brics community was “very important in terms of agriculture” as it accounted for roughly half of global agricultural trade when newly added members were included. However, the challenge was that trade within the bloc remained fairly low, mainly due to high intra-Brics tariffs.
“The major issue that we all encounter is the higher import tariffs. It's not so much that the products are not aligned. The products that Brics imports are some of the products that the likes of South Africa, South America and Brazil are exporting.
“The tariffs are high because Brics remains in a political setting. It doesn't have an ambitious trade agreement that is necessary to facilitate a tariff engagement among these countries. That is the key missing link.
“So there are two things that the Brics community can consider. One is for us to formulate a Brics agricultural trade agreement, which would mean reducing the tariffs and encouraging agricultural trade between our countries, and also addressing the phytosanitary barriers, which are an issue.
“Or figure out a mechanism through which we can encourage bilateral trade agreements in agriculture between a few Brics countries. And I think that's the part that we are moving on, because as much as the Brics market is big at over $300bn (R5.3-trillion), there are few countries that are as significant [as China].”
China accounts for roughly $200bn of agricultural imports a year — roughly 70% of Brics' agricultural imports. Other countries that are set to join, such as Saudi Arabia, spend around $20bn on agricultural imports.
Sihlobo said the local agricultural sector could still grow, but the country needed better engagement with the US.
The minister of trade, industry & competition, Parks Tau, said while South Africa and China had in-principle agreements to enhance trade ties, this should not be seen as a quick solution to the trade ructions with the US.
China announced at this year’s Forum on China-Africa Cooperation (Focac) that it would offer zero tariffs to all African countries — except Eswatini, which recognises Taiwan as an independent country.
“It is not as simple as opening up floodgates. Of course, there have been a few developments in regards to China. Those include the fact that China announced at Focac this year that [they] will reduce [tariffs] to zero percent for all countries but one.
“And we took the opportunity to engage with the Chinese to say, 'What does this mean? How do we implement it?' And this was two weeks ago. They said we need to sign ... a China-Africa economic partnership agreement, or some form of economic agreement, so we [can] unlock this.”
Bastian Teichgreeber, chief investment officer at Prescient Investment Management, said while the US tariffs were “not meaningless”, they were “not all that dramatic from a more macroeconomic point of view”.
“China is a bigger trading partner than the US and the EU. But the US is not that small. So, they make up for roughly 7% of exports, which is not the largest number, but it is meaningful. Out of that 7%, roughly 40% are commodities, which means they are completely exempt from any tariffs, which takes us down to around 4% of our trade being subject to these increased tariffs.”
He said the most favourable option for South Africa would be to secure a trade deal framework with the US.
“Negotiating with the US to get these deals...[and] these tariffs down again, [is] certainly an approach which we should be going for. Tariffs are never good. There are no winners in that. We are strong believers in free trade.”
He said the market reaction to the tariffs this week was more stable than when the tariffs were first announced in April because this time around they were expected, and the risk was priced in.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.