How can SA firms get ready for the new African adventure?
The slowdown in traditional export markets strengthens the case for a new focus on the continental trade bloc
It is difficult to see any area of economic activity, apart from the sale of protective equipment and black-market cigarettes, that has flourished in recent months.
Certainly, the pandemic has halted progress towards implementing the African Continental Free Trade Area (AfCFTA), which should have been coming into force about now.
However, trade, industry & competition director-general Lionel October recently told a parliamentary committee that discussions are still under way, and the hope is that the AfCFTA will become operational at the beginning of 2021.
It has been clear for some years that the department’s major trade policy has been expanding our relations with the rest of Africa. This involves not just boosting the flow of goods from one neighbour to another, which is a major challenge in itself when we look at the queues at border posts, made worse recently by Covid rules and work stoppages. It also involves far closer cross-border co-operation in areas such as manufacturing.
We see this already in the automotive sector, where pan-African plans are already taking shape through which vehicles in kit form are being shipped from the hub in SA to other countries, where the assembly is happening. So we are creating regional value chains.
It can be risky taking the EU as a model, but Europe’s market-opening strategy is familiar when we examine the future architecture of the AfCFTA. As well as competing, through selling goods from one African neighbour to another, we are also developing a model of co-operation.
Again using the automotive industry as an example, different components can be produced in different countries without the need for every country to churn out completed vehicles. However, a new mindset is required. We keep the SA market, but we expand it into an African market.
As tariffs fall and cross-border transport eases, our manufacturers and service providers will be given freer access to a growing market. But only if we as business recognise the new opportunities and act faster.
Some of our companies are already operating in Africa and see the growth potential; others are aware of what is out there but are not quite sure how to proceed. But there is also a significant number who are just not up to speed.
So what should an SA firm be doing to prepare for new African adventures as markets open up? Our key advice is that they should complete a readiness assessment, looking at what the opportunities are in those markets and how to overcome the obstacles that will remain.
Too often I find some firms are operating in a knowledge and information vacuum. They are unable, or unwilling, to see what their opportunities should be. What are the practical steps they must take to assess the new markets? What must they do, and how do they go about it?
Any investigation should look at target markets in terms of corporate governance, supply-chain logistics, customs tariffs and product development. This can be a complex exercise, but the rewards will flow if you get it right. You will come unstuck if you get it wrong or just don’t bother to do your research before proceeding.
There is no magic formula, and it will be different for each product. Some will be complex, some quite simple. You need to look at supplier development, at bringing products in from the rest of Africa as well as exporting to the rest of Africa.
As with any focus on cross-border trade, attention needs to be paid to rules of origin, transfer pricing rules, what the rates of customs duty will be, and how much cheaper it will be to sell in export markets and to source inputs from the rest of the continent.
With some exceptions linked to existing trade agreements, the AfCFTA should usher in lower rates of duty on trade within Africa than we will encounter when dealing with the rest of the world. So, a business planning an African adventure needs to work out how much lower the duties will become over time, on what products, and so on. Rules of origin are daunting, but vital when placing a product on the export market.
At what point is a product an African product, what is its composition, and where were its components made? These are sensitive matters, especially for auto and clothing & textiles. But they matter. Get it right and the tariffs begin to dissolve; get it wrong and you face tariff walls that could thwart your export drive. A readiness assessment needs to put flesh on the bone.
Even before Covid-19 descended on us, forces of tariff protection were on the rise — the disputes between the US and China being the most graphic example. The virus will accelerate the contraction of economies, and the economic slowdown in all of our traditional export markets strengthens the case for a new focus on Africa.
Sitting on your hands and fretting will get you nowhere. It is now impossible to travel around the continent because of Covid travel restrictions, but there is much that can still be done to prepare for the implementation of the AfCFTA.
When the tariff walls come down, corporate SA must be prepared, poised and ready to advance. It may just save your business.
• Rheeder is senior customs manager at Cova Advisory.
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