SA is dancing the tango at the ballet with its localisation plan

The African Continental Free Trade Agreement (AfCFTA), to which SA is party, promises businesses and entrepreneurs secure trade and investment opportunities with access to a $3.4-trillion market.

With the agreement entering into force in May 2019 after four years of negotiation, SA has nondiscrimination obligations and commitments, undertaken so that exporters, investors and service suppliers can enjoy reciprocal rights to treatment no less favourable than those accorded to other African investors and product and service suppliers.     

However, this golden age of accomplishment under the AfCFTA will not materialise if parties to the agreement continue to prioritise discordant policy options such as localisation, instead of thoughtfully and aggressively championing buy-continental policies.

SA’s localisation plan, which intends to reduce imports at least 20% to promote local content on the expectation of netting the country an estimated R200bn, is distressing news for the AfCFTA. It is a plan forged under pressure to produce a strategy for economic recovery, and ignores the implications for one of the most historically significant global trade agreements of our time.

This merits a range of sober questions which discussions of the plan must carefully examine and address. First, to what extent will this 20% directly and indirectly affect goods and services to be traded under the AfCFTA? Would this not be a form of trade diversion in so far as it subverts the objectives of the AfCFTA? Furthermore, is localisation not counterintuitive to stimulating regional/continental supply chains? 

Second, is the short-term gain of R200bn (projected, not guaranteed) worth the risk to the medium- and long-term inclusive growth gains from the AfCFTA for SA exports and jobs? What are the risks for our exports and investments in the nonlocalisation demarcated sectors? Third, what signal is SA, as an AfCFTA state party, sending to the rest of Africa?

Fourth, what are the probable systemic consequences and, more importantly, immediate and prospective costs for businesses exports, operations and investments on the continent if similar measures were encountered by them in other African markets, resulting in a sort of reverse discrimination?

Finally, in the medium- and long-term, will proliferating localisation or inclusive continentalisation of value chains create deeper value for SA and Africa? Is localisation a friend or foe of sustainable integration and continental competition?

These questions highlight the unpredictability and uncertainty around the plan’s design and implementation. We know that SA direct investors into the rest of Africa, especially in services sectors, have already taken huge risks to operate in environments where great regulatory uncertainty exists. Have we conducted sufficient due diligence and factored in how our localisation plan could trigger copycat measures or new retaliatory discriminatory measures against SA businesses operating in or entering markets in the continent?

The plan itself points out that the African market represents a R7-trillion market opportunity for goods manufactured on the continent to replace those now being imported from outside. But will SA have full access to these new opportunities or will they be stymied by similar localisation and other discriminatory retaliatory measures introduced in those markets? Will we have grounds to initiate a dispute on such measures if the response from other countries is that they are merely imitating SA? 

The notion that progressive localisation can help us build back better is far from sound. Localisation in the form found in the plan will not help SA nor boost trade integration or promote business on the continent. The proliferation of localisation measures on the continent in the era of the AfCFTA will achieve only one thing: the neutralisation of trade preferences that have taken years to negotiate.

The vision for the AfCFTA to benefit all businesses with export capability and potential, irrespective of sector or size, should not be sacrificed to stimulate the recovery of a few companies. SA must genuinely reflect on localisation’s long-run inefficiencies and risks, especially the materially detrimental impact on the AfCFTA. It must also rapidly recognise that coherent, integrated aligned policies and actions are what matter most for the successful implementation of the AfCFTA. This means SA cannot automatically continue to rely on its old toolbox of policy options in the AfCFTA era.

It would be prudent, with a view to not undermining SA’s standing in the ongoing AfCFTA negotiations, to immediately withdraw the plan until the questions raised above have been carefully considered. This would not only demonstrate SA’s unwavering commitment to the continental trade and integration agenda, but also promote more rigorous planning, capable of deep-dive futurist introspection that mitigates risks and potential threats to business growth on the continent.

• Dr Pillay is a lead senior negotiator on the AfCFTA at the department of trade, industry & competition. She writes in her personal capacity.