South Africa and the African Continental Free Trade Are
The African Continental Free Trade Area (“AfCFTA”), which was endorsed in 2012, seeks to enhance trade integration on the African continent. It is an idea that was conceptualised by the Heads of State and Government of the African Union in 2012.
Pursuant to this and on 30 May 2019, an Agreement establishing the AfCFTA came into effect and launched on 1 January 2021. All the African Union states have signed the Agreement, except Eritrea. As at 8 February 2021, 36 African Union states, including South Africa, have ratified the Agreement.
According to the World Bank, the Agreement will create the largest free trade area in the world based on the number of participating states. Furthermore, it estimates that: (i) the African income could be boosted by $450 billion; (ii) it could bring 30 million people out of extreme poverty; and (iii) it could boost the incomes of 68 million people by 2035.
The Agreement aims to, amongst other things, create a single market on the African continent for goods and services, increase trade flow within the African continent and eliminate import duties to commodities, goods and services across the African continent. South Africa, having one of the largest economies in Africa, signed and ratified the Agreement on 1 July 2018 and 10 February 2019, respectively.
Existing Trade Agreements and the Southern African Customs Union
South Africa is a member of a number of trade agreements which has enhanced its access and experience to the global markets. Examples of the trade agreements include the SADC Free Trade Area, EU-SADC Economic Partnership Agreement, and the Africa Growth and Opportunity Act.
Importantly, member states of the AfCFTA have agreed that the AfCFTA will not affect existing trade agreements between states and therefore, South Africa will continue to enjoy trade under the above mentioned trade agreements. South Africa is also one of the member states of the Southern African Customs Union (“SACU”), the oldest customs union in the world. The member states of SACU include Botswana, Swaziland, Lesotho and Namibia.
The objective of SACU is to maintain free interchange of goods between member states. Given that South Africa belongs to SACU, it negotiates preferential tariffs collectively to offer protection to the common external tariff and common customs territory of SACU. Having regard to the aforegoing, it is clear that South Africa is no stranger to trade agreements.
The Implementation of the AfCFTA in South Africa and Administrative Enhancements
The South African Government and its agencies, particularly the Department of Trade, Industry and Competition, as well as the South African Revenue Services (“SARS”) have endorsed the AfCFTA negotiations. The South African Government has put into place legal and administrative processes for preferential trade under the AfCFTA. Part of the legal and administrative processes in place include the gazetting of tariff offers, rules of origin and general notes to schedule 1 of the Customs and Excise Act.
The South African Revenue Services has enhanced its systems, which includes, inter alia: (i) its tariff management system in order to cater for the reduced tariff rates contained in the AfCFTA Agreement; and (ii) its declaration system in order to cater for the import and export transactions. It has stated that exporters will have to be registered by SARS before they can trade under the AfCFTA Agreement and will have to submit the relevant paperwork and supporting documents to Customs Branch Office of SARS.
Although customs arrangements have been introduced by South Africa in order for it to trade under the AfCFTA, the implementation thereof has been delayed and South Africa is currently unable to commence trading under the AfCFTA Agreement as one of the SACU member states, Botswana, has not ratified the Agreement.
It is a requirement that all SACU member states ratify the AfCFTA Agreement before they can trade under the AfCFTA, alternatively, take a decision to permit trade for those SACU member states that have ratified the AfCFTA. Furthermore, the SACU member states, as well as the member states listed in the general notes to Schedule 1 of the Customs and Excise Act are required Existing Trade Agreements and the Southern African Customs Union The Implementation of the AfCFTA in South Africa and Administrative Enhancements to submit finalised tariff offers which are scrutinised by South Africa for reciprocity with the tariff schedules.
In instances where a SACU member state has not ratified the AfCFTA agreement, it would be allowed to trade under the AfCFTA Agreement if it is allowed to trade under the SACU Schedule of Tariff Concessions. Currently, only Egypt and Sao Tome and Principe have been incorporated into South Africa’s Customs and Excise Act as South Africa’s trading partners under the AfCFTA.
It is common cause that the success of the implementation of the AfCFTA will be contingent on, inter alia, efficient industrialisation, digitisation, manufacturing, transporting systems, information technology, border control and energy supply. South Africa has been riddled by various challenges, including corruption, poor border control and load shedding, which will all have a direct impact on its enjoyment of the success of the AfCFTA.
Notwithstanding these challenges, South Africa remains the largest exporting and importing country in Africa, with a ratio of exports and imports to GDP exceeding 58% as of 2017, and the 36th largest export economy in the world, with an export total of $109 billion in 2019.
To a large extent, the AfCFTA offers important benefits that will improve socioeconomic challenges, market access and efficiency of intra-regional trade in South Africa and the African continent. This, however, can only be achieved through addressing the challenges listed above which may take years before South Africa can truly yield the full benefit of the AfCFTA.