The planned creation of a 26-nation African Tripartite Free Trade Area (FTA) will draw industrial investment to South Africa by making it a springboard for low-duty access to other parts of the continent, trade and industry director general Lionel October said on Monday.
“From the private sector side, two of the big markets in this FTA [are] Egypt and Kenya and if they can then get duty-free access into those markets in north and central Africa then South Africa becomes a production base,” he told a media briefing in Cape Town.
“Currently, [most of the exporters coming from Europe or Asia] pay big duties on that and that (benefit) kicks in then immediately because of the bigger volumes. We begin to crack the numbers … so I think the benefits from investment [kick] in immediately because of the prospects of a big market.”
October said the announcement this weekend of the establishment of the free trade zone by 2013 would “absolutely” enhance South Africa’s weight within the Brazil, Russia, India, China and South Africa (BRICS) group of emerging markets.
“We will no longer be a pimple.”
The proposed free trade zone will merge the three regional blocs covering southern, central and eastern Africa.
These are the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (Comesa), and the East African Community (EAC), which have a combined population of 580-million people.
Trade and Industry Minister Rob Davies said the move to cut barriers in an area stretching from Cape Town to Cairo made sense in terms of global development trends.
He pointed to the “very significant contribution” their big internal markets made to the development of India and China.
“A free trade area across big areas … is very much compatible with what is needed at this stage of the development of the world economy which we find ourselves in. It is very compatible with what successful developing countries are doing.
“Having large and significant internal markets and the development of those are a significant requirement of their growth processes.”
Davies said integration would enhance Africa’s chances of capitalising on the two drivers of its faster growth rates — the mineral boom and the growth in the domestic market.
“As individual countries, the prospects of that are limited. As regions, the process starts to crack the numbers that make some significant sense.”
He said that merely lowering tariffs would not give regional trade enough of a boost.
The free trade deal was, therefore, only one leg of a complex process to promote inter-regional trade, which currently accounts for only 10% of total African trade, and to integrate development within Africa.
Commitments made at the weekend’s summit of leaders of SADC, EAC, and Comesa also saw an agreement to jointly develop infrastructure and to co-operate on industrial development.
Also part of negotiations are plans to facilitate the movement of business people between African countries, which Davies said was hampered by regulations aimed at deterring crime and illegal immigration.
“We need to make that much easier, so that when people come to trade, to invest that is much easier. That’s what has been agreed upon,” he said.
Davies said tariff liberalisation would be “substantial” and might be phased in.
Observiing local customs
He dismissed concerns that it could starve some smaller African nations of one of their main sources of fiscal revenue.
“Many countries are trying to reduce their reliance on customs duties. Custom duties are an incredibly volatile source of revenue, that is the problem. If trade takes a dip, the customs revenue takes a huge dip.
“That is the problem that is confronting some of our neighbours and their fiscal situations, those that are the most dependent on [Southern African Customs Union (Sacu)] revenue have been the most affected by the fact that there was a very significant drop in Sacu revenue during the recession.
“I haven’t heard anybody raise this as an objection to the FTA.” — Sapa