BUANews (Government of South Africa)

Tough talk over industrialisation expected for FTA - Davies

Compiled by the Government Communication and Information System

4 Nov 2011

Cape Town - As South Africa moves to bolster industrialisation efforts within its own borders, the planned roll out of a giant free trade area across Africa may hit a snag when it comes to negotiating about trade in manufactured goods between member countries, the Minister of Trade and Industry Rob Davies said yesterday.

An agreement signed in June this year between the Common Market for Eastern and Southern Africa (Comesa), the East African Community (EAC) and the Southern African Development Community (SADC) provides a roadmap towards setting up a tripartite free trade area (FTA) across the continent, comprising 26 countries with a combined gross domestic product of $833 billion.

Addressing a forum titled "From Cape to Cairo: Prospects for Free Trade in Africa" at the Centre for Conflict Resolution, Davies said he expected there to be very tough negotiations over the industrial development component of the three-year roadmap.

He said in question would be the rules of origin - where products were really manufactured.

"A number of countries are opening up special economic zones with a number of other countries which are coming in, probably bringing the labourforce coming from that country.

"Are we going to let products from that sort come into the FTA, is that going to be a qualification? Those are going to be some very very tough nuts (to crack)," noted Davies.

The negotiations over trade in manufactured goods in the FTA will be a particular concern to South Africa, with the department’s current drive to vamp up industrialisation through the Industrial Policy Action Plan (IPAP), launched last year.

Davies said regional integration could boost South Africa’s economic and industrial development and create employment.

Unlike its exports to the rest of the world, a high percent of the South Africa’s exports to the continent were already made up by value-added products, said Davies.

Africa, despite being the second fastest growing region in the world with 60% of the world’s unused arable agricultural land, did not have enough industrial capacity, he said.

He said African countries did not have diversified production structures, leaving African economies to be too based on producing raw materials rather than finished products.

Davies said under the 2008 SADC free trade agreement, South Africa had done away with duties on 97% of goods coming into the country from the rest of the SADC region in 2005, but that little had changed in trade in the region.

"But you look at the trade patterns and they are pretty much as they’ve always been - there’s a huge imbalance in South Africa’s favour and they think this says to me that the issues are not tariffs.

"The issues about changing the balance and about having a more equitable, more value-added trade on a more balanced basis - that’s got to do with things like real economy constraints, infrastructure problems and things like that," he said.

However, despite this he expected Africa’s output in the next five years to expand by 50%, with average gross domestic (GDP) growth over this period of 5.5% and with GDP per capita mushrooming by 30%.

Africa’s total trade will grow dramatically from $654 billion to $1.6 trillion by 2015, he said, with capital inflows expected to reach $150 billion by then, he said.

Also speaking at the forum, Liepollo Lebohang Pheko, an expert on trade and managing director of Four Rivers, said there were certain challenges to expanding trade across the continent and to creating a FTA.

Pheko said the fact that many African countries belonged to more than one regional economic community, was problematic and created uncertainty for the local and international business community as well as huge amounts of paperwork, and added that legal issues could result from states’ dual membership to regional economic communities.

There was also a question of how to phase out the three regional economic communities, as well as Southern Africa Customs Union, when the tripartite FTA kicked in, she said.

She said economies like Mozambique, Lesotho and Malawi, with a combined GDP representing less than four percent of the SADC region, may feel they were being held hostage to the FTA agreement and that they were forced to make concessions on their agricultural and raw mineral products.

The decrease or removal of tariffs may also impact on the ability of some member states to spend on social programmes and could lead to job losses, she cautioned.