- South Africa has gazetted African free-trade deal regulations, including a list of thousands of products that can be imported and exported duty-free in future years.
- This could bring new competitors from other African countries to the local market, and also create opportunities to expand in other markets.
- It may take many more months for other countries to set up the same legal structures, but South African business can start to explore opportunities in Egypt, for example.
- For more articles, go to www.BusinessInsider.co.za.
For South African businesses, the new African free trade deal kicked in at the start of 2021.
This may have big implications for them: it could bring new competitors to the local market, while also affording great opportunities in other markets on a continent which houses more than 1 billion people.
Apart from Eritrea, all 54 of the other African countries have now agreed to the African Continental Free Trade Area (AfCFTA), which means that they will over time scrap import tariffs on 90% of imports from other African member states within five years. They still need to agree on some important outstanding issues, including “rules of origin” - the criteria to define where a product was made. Products must be mainly produced in Africa.
Rules of origin for agricultural products are relatively easy to define: it is simply where the product grew or animal was raised.
But things get more complicated for machinery or vehicles, for example, when there are different components from different sources. Or even for something like fisheries, where the rules of origins may include ownership of the fishing boat, the jurisdiction under whose laws the vessel (its flag) is registered, and even the nationality of crew members, said Trudi Hartzenberg, executive director of the Trade Law Centre (Tralac), during a Cliff Dekker Hofmeyr seminar about the free trade agreement last week.
While the rules of origin, as well as some tariff levels, may still be outstanding, a couple of African countries can already trade under the new deal.
Among them, South Africa. At the end of December, it gazetted regulations to incorporate the deal into local law. The regulations included a long list of products that won’t have any import duties within five years. (But the list still excludes some products from certain sensitive industries such as vehicles, sugar and textiles from other African countries.)
The new regulations are only valid for other African countries who have also adopted AfCFTA into law. So far, only Egypt and the island nation São Tomé and Príncipe have done the same.
It looks as if eastern African countries could move next, says Caroline Rheeder, associate director for customs at the consultancy firm Cova Advisory and Associates. The East African Community customs union - Burundi, Kenya, Rwanda, Tanzania, and Uganda – has been very proactive, and indicated that they could adopt the trade deal regulations soon.
So, what does all of this means for South African businesses?
Companies need to study SA’s AfCTA regulations
Specifically: the column with planned tariff changes. There are thousands of products that could be subject to 0% customs duty within the next five years, says Rheeder.
This means a local company that, for example, manufactures umbrellas, may need to be aware that African competitors could enter the market duty-free in the next few years. Currently those exporters may have to pay tariffs of up to 30%.
“Local manufacturers need to at least be aware that they may have to contend with new competitors,” says Rheeder.
But the list also gives an indication of products that could now potentially be exported from South Africa tariff-free to other African companies.
Register with SARS
To export under the new deal, companies must be registered with SARS Customs under the AfCFTA regulations, similar to other trade agreements such as SADC.
Rheeder says SARS is already processing applications. “Companies can start to get their admin in order.”
Look at opportunities in Egypt
Given that both Egypt and South Africa now have harmonised trade regulations in place, companies could start to explore opportunities in that market, says Rheeder. Egypt has a population of more than 100 million people, with a higher GDP per capita rate than South Africa.
Rheeder says it will take another couple of months for more countries to incorporate the deal into law. Then, a protracted bureaucratic implementation is expected, as border posts and customs officials across the continent will have to get acquainted with the new tariffs.
But the potential pay-off is massive, she believes. Instead of sourcing products from overseas, the tariffs cuts should encourage a shift in supply chains to African businesses.
Currently, African countries don’t trade with each other much. In fact, while almost two-thirds of African countries’ exports go to Europe, only 17% of exports go to other African countries.
Previously, the United Nations estimates that by removing tariffs, intra-African trade could increase by 52% in less than five years.
(Compiled by Helena Wasserman)