Department of Agricultural Economics

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Browsing Department of Agricultural Economics by Subject "African Continental Free Trade Area"

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    The African Continental Free Trade Area (AfCFTA) : opportunity or pipedream for South Africa’s agricultural exports
    (Stellenbosch : Stellenbosch University, 2022-12) Annandale, Desmond Lawrence; Jooste, André; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Agricultural Economics.
    ENGLISH SUMMARY: The conclusion of the Uruguay Round of multi-lateral trade talks gave rise to a new era of agricultural trade that is more fair and competitive, globally (UNCTAD, 2020). However, failure to achieve set deadlines to further liberalise total trade (agricultural and other) on a global scale shifted the goal posts for countries to focus more on Preferential Trade Agreements. Between 2012 and 2021, the number of Regional Trade Agreements on the African continent increased from 28 to 45, focused on structural reforms designed to aid in opening up economies to execute export-orientated policies, which are more market driven, competitive and democratic. The African Continental Free Trade Area is the most recent addition to the Free Trade Agreements on the African continent. Africa is characterised by rapid Gross Domestic Product growth, population expansion, urban migration, changing dietary patterns, and a growing working-age population (Ekobena, Coulibaly, Keita and Pedro, 2021; van Berkum, 2021). Additionally, it is forecast that agribusiness trade is expected to grow by up to 30% by 2050 (Moyo, 2020). However, Africa’s share in receiving South Africa’s agricultural exports has been decreasing. Therefore, the research question is whether the African Continental Free Trade Area presents an opportunity for South Africa to further expand agricultural exports into the continent, or is it just a pipedream? To address this question, various trade indices were used to analyse the nature of trade between countries in different Regional Economic Communities (REC’s) on the African continent. The indices used in this study include, the Regional Trade Introversion index, the Intra-Industry Trade coefficient, the Regional Orientation Index and Gini-Index and lastly the import Gini-Hirschman Index. A grouping of agricultural products (processed and unprocessed) that belong in both South Africa’s top 80% agricultural exports to the world and in the top 80% imports of each respective Regional Economic Community from the world was used. Through the combined used of these trade indices, the identification of countries that represent an opportunity for South Africa’s agricultural export sector was done. It was found that the level of trade introversion among the Regional Economic Communities varies greatly, and the level of introversion for the selected processed agricultural products tended to be larger than that of the unprocessed agricultural products. The results for unprocessed products show that several Regional Economic Communities are highly dependent or becoming more dependent on extra-regional trade (e.g., Arab Maghreb Union (AMU), Common Market for Eastern and Southern Africa (COMESA), Economic Community of West African States (ECOWAS), Community of Sahel Saharan States (CEN-SAD), Economic Community of Central African States (ECCAS), Intergovernmental Authority on Development (IGAD)), except the East African Community (EAC). The high level of trade introversion for processed agricultural products in all Regional Economic Communities suggests that South Africa could experience difficulties in exploiting market opportunities despite tariff reductions, but the opposite is true for unprocessed agricultural products, except perhaps in the EAC. Overall, the unprocessed agricultural products show the highest potential for market expansion, supported by the Intra-Industry Trade values and the trade balances of the respective products, including maize, fresh apples, fresh or chilled potatoes and frozen, boneless meat of bovine animals. South Africa’s regional orientation shows that exports of the selected agricultural products are strongly oriented towards SADC. South Africa’s Regional Orientation Index for certain exports of unprocessed agricultural products were highest for the ECOWAS and CEN-SAD Regional Economic Communities, which implies that trade creation effects would be higher than trade diversion effects from increased exports into those Regional Economic Communities due to reduced tariffs. The high Gini coefficients show South Africa’s exports of the selected agricultural products into Africa are highly concentrated in a few markets, mainly SADC. The AMU Regional Economic Community has the lowest import concentration for imports from South Africa of the selected agricultural products implying that South Africa has a minimal market share in the region. A Composite Country Priority Index was also developed to identify potential export markets for South Africa to prioritise on the African continent. The Composite Country Priority Index is composed from three dimensions that affect the trade potential of an export destination, namely (i) Market Conditions, (ii) the Business Environment, and (iii) the Logistical Conditions of each country. The results show that (i) South African exports of processed and unprocessed agricultural products into different countries are not prioritised in the same manner, (ii) different regions pose different levels of opportunities for trade expansion, and (iii) export volumes to some countries are far greater than what is suggested by the Composite Country Priority Index. The latter point can be explained by, among other things, the proximity of certain countries to South Africa, the competitiveness of South Africa’s products as opposed to imports from elsewhere, and the availability of products within the home country. The results of the Composite Country Priority Index analysis emphasise that the Composite Country Priority Index and its comparison with trade values should be used as a basis to further investigate the appropriateness of an identified export market. Finally, this study shows there is no conclusive evidence that the African Continental Free Trade Area is a pipedream for South African agricultural exports, but it is certainly not a silver bullet to significantly expand agricultural exports, at least not in the short to medium term. Furthermore, tariff reductions alone will not lead to notable export increases if Africa’s non-tariff barriers are not resolved. This applies to destination countries and transit countries, as the latter act as the pathway for South Africa’s agricultural exports into Africa.