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Intracontinental trade unbalanced for South Africa because incentives aren’t yet right

Bhaso Ndzendze
By Bhaso Ndzendze
19 Aug 2024
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Regional integration is an increasingly attractive proposition for cushioning Southern African Development Community members as other parts of the world undergo disputes, outright wars and other instabilities that are disruptive to Africa’s economies. Forward-looking leadership would turn these crises into opportunity.

The 44th Southern African Development Community (SADC) summit got under way in Harare, Zimbabwe, this past week, amid the usual tensions among some member states, notably over trade matters. 

A closer look at this year’s summit theme (“Promoting Innovation to Unlock Opportunities for Sustained Economic Growth and Development Towards an Industrialised SADC”) suggests that the event has adopted its familiar nonchalant fashion even in the face of lingering disagreements over trade and other geopolitical issues.

This appears to have been the key message of Claver Gatete, the United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa, who, in his address to delegates, emphasised the importance of working together.

It has long been observed that African countries do distressingly little trade with each other. On average, official intra-African trade averages between 12% and 14% in any given year in the 2020s (there have recently been calls for recognising the informal trade sector, but that is by definition impossible to do accurately).

By comparison, the average is between 60% and 70% for intra-Asian trade, and more than 80% for many states in Europe. The prime movers behind these success stories are regional trade instruments, market diversity (including segmented value chains), and infrastructure.

Africa a statistical anomaly


Indeed Shannon K O’Neil’s recent book The Globalization Myth: Why Regions Matter, makes clear that regional trade still far outweighs global trade for most economies. Africa is clearly a statistical anomaly.

The continent’s leaders have always known this, of course. To remedy its situation, which represents an opportunity cost for industrialisation, job creation and economic growth, the continent has embarked upon the African Continental Free Trade Area. The deal was opened for signature in 2018 and came into operation in 2021 to much fanfare – it was the realisation of an ideal many decades in the making.

Trade data indicates that the country’s import ties to the continent are not getting stronger since the introduction of the free trade area. Both exports and imports were higher 10 years ago than they are today.

To some extent South Africa’s imports from Africa have grown, from R119.9-billion since 2020 (the year before the free trade area became operational), to R174-billion in 2023. On the face of it, this might seem like an increase (by R54.1-billion in fact).

However, the proportion of these within South Africa’s overall imports is disappointing. Indeed, it represents a statistical move backwards: in 2020, goods from Africa had a 10.5% share within South Africa’s import basket. This has since moved down to 8.8% as of 2023.

Each year since the signing of the African Continental Free Trade Area in 2018, the number has been consistently moving down: 12% in 2018 and 2019, 10.5% in 2020, 9.7% in 2021, 8.7% in 2022, and a slight rebound to 8.8% in 2023.

A slightly better picture


When examining South African exports to Africa, we note that they have moved from R323.7-billion in 2020 to R547.9-billion by 2023. Statistically, this represents a slightly better picture.

In percentage terms, the share of Africa in South Africa’s exports has grown from 23.1% in 2020 to 26.8% by 2023. The figure represents actual growth and is above pre-Covid-19 pandemic levels.

Still, this growth in Africa’s exports to the rest of the continent must be looked at with cautious optimism as it is still lower than 10 years ago (2014) when it was at 29.7%. The same goes for imports from Africa, which were at 13.3% in 2015, against the 8.8% figure noted in 2023.

The same pattern is replicated closer to South Africa’s immediate neighbours. The country’s proportional imports from the Southern African Development Community have been declining, moving from 7.16% of all its imports in 2018, to 5.7% in 2023. By comparison, the region’s share in South Africa’s overall exports has grown from 22% in 2018 to 24.28% in 2023.

Nevertheless, it is clear that South Africa has had more success in getting its products into the African market than the other way around. This is hardly surprising given the absolute and comparative advantage enjoyed by South Africa as the continent’s most industrialised economy, and (once more) its largest in terms of GDP.

Overall, South Africa enjoys a widening trade deficit with the continent. The African Continental Free Trade Area seems to have ramped up the unbalanced trade in South Africa’s favour (in 2021, the country’s trade deficit grew by 23.2% and by 31.46% in 2022).

Anxieties


From the onset, it was clear that the free trade area would not be a simple cure for problems of African trade. In my research visits across countries in east and southern Africa in the late 2010s, it was already evident that there were anxieties among the smaller or otherwise less industrialised countries about being overrun by their larger counterparts.

Those concerns are proving valid, given the statistics just observed.

A second weakness is that the agreement is not what it has been understood to be. It is not a treaty that abolishes tariffs across the continent. Rather, it commits signatories to the “progressive elimination” of tariffs and non-tariff barriers.

Consequently, it is still about 6.1% more expensive to import from other African countries compared with outside markets.

The document also provides a number of exceptions for countries to renege on this already diluted commitment. Both of these have combined to undermine intra-African trade, and to foment trade disputes among neighbours, a phenomenon I have recently written about in these pages with regards to the Botswana-South Africa and DRC-Zambia disputes.

The Southern African Development Community summit’s theme is apt and relevant. Industrialisation will be key to the region and continent’s trade and development prospects. The question is whether South Africa will continue to be an enabler or a hurdle.

The irony is that South Africa’s own domestic economy is struggling with high unemployment and desperately needs economic growth despite the impressive trade performance.

And as it stands, there are no incentives for coordination (eg, breaking up value chains or moving manufacturing processes to regional neighbours a la the North American Free Trade Agreement, Nafta). There are therefore no short-cut solutions towards inclusive, collective development in the region.

The recognition of the attractiveness of a policy, especially in economic terms, is not by itself sufficient for its implementation. Incentives also need to align. If the continent’s people and leaders are to obtain true integration, South Africans in particular will need to commit politically and forgo some short-term comforts and trade off individual prosperity for collective development.

Radical change


Presently, this is unlikely unless there is a radical change in domestic incentives for both politicians and those who elect them. Two may be beginning to emerge.

Firstly, there is a clear tide in sentiment against South Africa-bound economic immigrants from other countries in the region. This negative trend could be turned on its head and be used to make the political case for fostering economic development in the major source countries, which would in turn boost those countries’ exports (all other things being equal, of course).

Secondly, regional integration is an increasingly attractive proposition for cushioning the region as other parts of the world undergo disputes, outright wars and other instabilities that are disruptive to Africa’s economies. Forward-looking leadership would turn these crises into opportunity.

Only time will tell whether the newly emerging political order of shared power in South Africa will encourage such a forward-looking approach, with all its electoral risks.

One thing is certain, though: African economic integration hinges on the buy-in of ordinary South Africans who have an ultimate veto through the ballot box and their wallets – regionalism will be a hard sell without first turning the economy around at home.

Only a strong South Africa can foster meaningful regional integration in Africa, be it in the Southern African Development Community or beyond. DM

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