Click here to read the full newsletter in PDF format or View this email in your browser.
tralac Newsletter • Issue 9 • February 2019
South Africa: Where does economic policy and governance stand?
Our February 2019 newsletter focuses on South Africa – the most diversified economy in Africa, a notable driver of intra-Africa trade, an important source of foreign direct investment into other African countries, and a key influencer of Africa’s trade and integration agenda. But the country faces daunting governance, economic, and fundamental development challenges at home. Poverty, inequality and unemployment (especially among the country’s youth), compounded by policies that actually militate against structural transformation and employment creation, are still serious markers of our development challenge.

In this newsletter we review select areas of policy and governance that enjoyed prominence in the President’s State of the Nation Address (SONA), which have subsequently been reflected in the Budget presented by the Minister of Finance, Tito Mboweni. This is a very important case study of what can happen when a state is ‘captured’. But equally important is what we learn from what is now described as South Africa’s ‘lost decade’.

The most important election since South Africa’s democratic transition in 1994 will take place this year. There is no doubt that the ruling party, the African National Congress (ANC), will win the election. But what matters much more, since there is effectively no alternative to the ANC, is what happens within the ANC. Cyril Ramaphosa won the ANC leadership battle in December 2017, by a very slim majority, edging out his rival Nkosazana Dlamini-Zuma (Jacob Zuma’s preferred candidate). He became President of South Africa in February 2018, after Jacob Zuma’s ignominious departure from office. Zuma had presided over the systematic decimation of many areas of governance and government (including state-owned enterprises). The full extent of this governance and development travesty is incrementally being uncovered through various commissions of enquiry into state capture and related matters, and other processes. The media has and is playing a very important role in providing access to information on these matters. But no one has yet been prosecuted – the wheels of justice do grind slowly, but they are grinding.

The mantle of power rests uneasily on the shoulders of President Ramaphosa. His support within the ANC is fragile. Since coming to office, he has tip-toed cautiously in some areas. But he has delivered a clear message, perhaps most notably to the international community, and has started to address the litany of challenges. A notable example is his firing of Tom Moyane, Commissioner of the South African Revenue Service (SARS), on 1 November 2018. During Moyane’s tenure, SARS had become a key cog in the wheels of state capture, and its capacity to collect revenue was effectively demolished. The process of rebuilding what was once a model institution has begun, but the devastating effects are clear in the 2019 Budget. The Minister of Finance had to revise the estimate of revenue collection that he had presented in his mid-term budget statement in October 2018, downward by ZAR15.4 billion. Fixing SARS is definitely a priority.

Hopefully, the May 8 election will deliver a stronger mandate for him to do what needs to be done to bring what he is referring to as ‘a new dawn’ for South Africa.

It has been noted that South Africa’s electricity utility (Eskom) poses perhaps the most significant threat to the South African fiscus. The Minister has allocated ZAR 23 billion per year for three years to assist with its debt service, but did emphasise that the government will not take over its debt. The cash support will be accompanied by a restructuring of the utility into three entities – for generation, transmission and distribution. An important question is how Eskom’s debt will be apportioned among these three areas. The saga of Eskom raises broader questions that must take note of technology as well as market developments, and the implications of economic models for reliable, competitively-priced energy in an environmentally responsible manner in the 21st century. The traditional economic model of a natural monopoly is archaic. Issues of economies of scale that motivated strongly for a monopoly utility have been overtaken by technology and the economics of renewable energy generation.

The issue of state-owned enterprises is a complex one. An important issue is perhaps not who runs energy companies, but how they are run. This is where regulation matters – and this is an area where regulatory reform has lagged way behind technology and market developments. In addition to regulation, there is the bigger issue of governance. Energy security – reliable supply at competitive prices – is a concern for all. It is a fundamental governance and development issue in that a child’s capacity to learn is severely compromised if her household does not have a reliable, cost effective supply of energy. For investors, load shedding (Eskom’s management of energy supply deficit, by selectively cutting supply to specific geographic areas at specific times) demonstrates a massive failure to manage basic infrastructure service supply for an economy that really does need foreign direct investment to create jobs, diversify the economy and develop its industrial base. The knock-on effects are clear: South Africa’s industrial policy has to compensate for significant cost disadvantages that firms face in the country. And trade policy (most likely tariff-related instruments) may well be invoked as a shield to import competition from more competitive producers, which most likely do not face the same cost disadvantages. And energy is also an important issue on the trade in services agenda – South Africa does supply energy to several neighbouring countries. But South Africa does not yet have a trade in services strategy.

In addition to the series of Blogs, we also review South Africa’s recent trade performance and trade relationships with key partners – our traditional trade partners (European Union, United States), our BRICS partners (in particular China) as well as partners across the African continent. President Ramaphosa has not devoted a great deal of time to talking about trade policy matters, but in SONA he did make some remarks that are important for shaping a trade policy debate for the ‘new dawn’. He specifically mentioned trade in services. This is very welcome, because the current trade policy (the latest update is from 2014) does not articulate a strategy for trade in services. Given that about two-thirds of South Africa’s gross domestic product is accounted for by services, this is an important policy lacuna. This broader policy area also includes issues such as e-commerce, which are deserving of serious policy enquiry and debate. He noted that South Africa should increase its exports; he did mention reducing imports. Read in isolation, this sounds very much like a very old-style mercantilist strategy. A smart import strategy, recognising the importance of competitive imports to support South African producers, as well as to provide variety and choice at competitive prices, is also important.

The President made mention of the African Continental Free Trade Area (AfCFTA), and South Africa’s trade with the rest of Africa. But he has yet to present a clear statement of South Africa’s strategy for Africa. The Department of Trade and Industry on 27 February presented an overview and update on South Africa’s trade policy and trade relations to the Parliamentary Portfolio Committee for Trade and Industry. The update included the confirmation that a review of SACU (Southern African Customs Union) was underway – focusing on specific issues, including

  • Review of the architecture on tariff setting and administration
  • Identification of public policy interventions to promote regional value chains
  • Review of the revenue sharing arrangement

There is a great deal to learn from SACU, for South Africa’s trade and integration agenda with rest of the continent. It presents, for example, a highly integrated commercial space, with well-integrated services sectors, despite the fact that the SACU Agreement does not cover services. Regional stability is also an important consideration that must be factored into the political economy discourse and the review of SACU.

A brief review of South Africa’s trade performance is a clear reminder of the importance of its closest neighbours as export destinations. Namibia and Botswana are amongst South Africa’s most important global trading partners. When looking at intra-Africa trade, it is notable that more than 50% of that intra-trade takes place within SACU, and more than 60% takes place among the member states of the Southern African Development Community (SADC). South Africa is a clear driver of intra-Africa trade. What is our strategy to engage our partners beyond these two regional economic arrangements? Over the past two decades, an important structural shift in South Africa’s trade relations has taken place – China has come into the picture as (now) South Africa’s most important export destination and import source (looking at individual countries rather than trade blocs such as the European Union, which remains most important). And we do not have a preferential trade agreement with China – will this be on our new trade policy agenda?

tralac will be hosting its 2019 Annual Conference in Nairobi, Kenya, 21-22 March, and a Workshop focusing on Kenya’s trade agenda on 20 March.

We look forward to hearing from you and to meeting many of you in Nairobi.

Trudi Hartzenberg and the tralac team

tralac Annual Conference 2019

This year’s tralac Annual Conference will be held in Nairobi, Kenya from 21-22 March under the theme, ‘Africa’s Integration Agenda – from Aspirations to Pragmatic Implementation’. The conference brings together stakeholders representing government departments and agencies, as well as non-state organisations from across the continent and further afield. We’ll discuss global trade governance developments and implications for African countries, with a special focus on Africa’s trade, integration and industrial development agenda.

Download the draft programme

Also taking place in Nairobi:

Workshop on current and emerging trade issues for Kenya - 20 March (draft programme)

Launch of tralac’s Women in Trade Governance Network (WiTG) - 22 March

tralacBlog is a forum to share and engage with the views of tralac researchers and Associates, as well as guest contributors, on pressing regional integration and trade policy issues affecting African countries in order to encourage relevant, topic-related discussion and debate.

New Working Paper
The South African Constitutional Court annuls decision on SADC Tribunal: What are the Implications?

This paper discusses the judgement by the South African Constitutional Court regarding South Africa’s involvement in the process resulting in the demise of the original SADC Tribunal, as well as some of the implications.

South Africa: trade data analysis

South Africa had a small trade surplus of US$998 million for 2018, with total merchandise exports of US$94.4 billion and imports of US$93.4 billion. South Africa’s top trading partners for 2018 are China, Germany, the United States, India and the United Kingdom.

More than 26% of exports from South Africa are to the rest of the African continent. Key exports include mineral fuels, machinery, vehicles and iron and steel. The European Union (EU) is also an important export destination, with exports accounting for more than 23% of the value of South Africa’s merchandise exports. Between 2017 and 2018, exports to China remained unchanged, while exports to the USA were down by about 4%. Exports to the UK increased by 27%.

A series of infographics are also available to download. Read more...

South Africa: Intra-African trade and tariff profile

In 2018, South Africa exported and imported goods to and from the rest of Africa to the value of US$25 billion and US$11.5 billion, respectively. Intra-Africa exports account for 26% of South Africa’s total exports and imports for 12% of total imports for 2018.

Between 2017 and 2018, South Africa’s intra-Africa exports increased by 7%, while intra-Africa imports increased by 35%.  In terms of South Africa’s total trade (exports + imports) with the rest of the continent, Namibia (13%), Botswana (12%), Nigeria (12%) and Mozambique (12%) are South Africa’s main African trading partners. Read more...

New: AGOA guides and info-graphics
tralac has produced a number of info-graphic type brochures (see section on / Exporter Toolkit) covering a range of AGOA-related topics, including on AGOA’s legal provisions with regard to eligibility and annual/out of cycle reviews, rules of origin, AGOA FAQs, sector-focused brochures (textiles and clothing, agriculture), as well as national AGOA brochures covering Botswana, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Mauritius, Namibia, Nigeria, South Africa and Tanzania.
AGOA Business Connector
The AGOA Business Connector is new online facility on rolling out shortly. Its objective is to help enable trade and business connections between producers, exporters, importers, sourcing agents, trade-related service suppliers including trade finance, logistics and related services, support organisations such as business chambers and exporter associations and others, across sub-Saharan African AGOA beneficiary countries and the United States.
AGOA trade to November 2018 shows slight decline over comparable 2017 period
Combined exports from AGOA beneficiary countries to the US were up by 1.7% compared to the same period in 2017, from $22.43b to $22.81b. Trade under AGOA/GSP was slightly lower at $11.32b compared to $12.13b over the same comparative period. Among the leading exporters, South Africa, Nigeria and Angola recorded lower AGOA exports while those from most of the other AGOA exporters (such as Chad, Kenya, Ghana, Congo Republic, Lesotho, Cote d’Ivoire, Madagascar, Ethiopia and Cameroon) were all up year-on-year.
Key trade stats for AGOA beneficiaries to end November 2018

Aggregate exports to US: Year to Date to November 2018: $ 22.81 billion (up 1.7% yoy)

(Share) of AGOA exports: Year to Date to November 2018: $ 11.3 billion (down -6.7% yoy)

With respect to the apparel sector, exports claiming AGOA preferences have continued to rise year-on year, and are 19% higher for the year to November 2018, with Kenya the leading exporter ahead of Lesotho, achieving more than double the AGOA exports in this sector of Mauritius and Madagascar combined.

Latest AGOA news updates
AGOA utilization strategies: Sierra Leone became the latest country to develop its AGOA utilization strategy for the period 2019-2025, publishing it earlier in February 2019. It can be viewed and downloaded on in the National Strategies section. These strategies have been prepared by AGOA beneficiaries as part of their planning to enhance the utilization of preferences under AGOA.
AGOA eligibility update: US President Trump recently announced that Mauritania would lose its AGOA beneficiary status as of the beginning of January 2019. This is due to the country’s non-compliance with AGOA’s eligibility requirements, and specifically, it’s failure to make progress on human rights (slavery). “Despite intensive engagement with the United States, the Government of Mauritania has failed to meet critical required benchmarks to address these issues to date” – according to the Presidential Proclamation. See the updated list of AGOA beneficiary countries at this link.
Copyright © 2019 Trade Law Centre, All rights reserved.

You are receiving this email because you are on the Trade Law Centre (tralac) electronic mailing list.

Our mailing address is:
Trade Law Centre
PO Box 224
Stellenbosch, Western Cape 7599
South Africa

Add us to your address book

Want to change how you receive these emails?
Update your preferences here or unsubscribe from this list.