Has AfCFTA learnt from the deadlock at the WTO?

Has AfCFTA learnt from the deadlock at the WTO?

On the 3rd of June, the Secretary-General (SG) of AfCFTA, Wamkele Mene, spoke at the 6th International Chamber of Commerce (ICC) Africa Regional Arbitration Conference. He addressed the Dispute resolution body at the AfCFTA. The crux of his message was that the AfCFTA had learned from the deadlock at the WTO and that dispute resolution would open Africa as a continent for business.

The SG highlighted that the emphasis is to improve the rule of law to allow for the resolution of costly and time-efficient disputes with a level of confidence in the system’s objectivity.[1]

This to Mene means allowing for a state-to-state arbitration system only, albeit a tiered system.[2] In his view, arbitration under the AfCFTA is, undoubtedly, integral to the successful implementation of the agreement.[3]

Three key institutions are provided for under the Dispute Settlement Mechanism (DSM), namely:

  1. The Dispute Settlement Body (DSB),
  2. The Adjudicating Panels, and
  • The Appellate Body for second-tier review

The idea is to have a wide-ranging dispute settlement body that will oversee all the disputes that arise under the AfCFTA agreement, whether they are investment-related, trade in goods, trade in services, or market access-related disputes.[4]

It is worth noting that, in addition to the adjudicative process feature in the DSB, Adjudicating Panel, and the Appellate Body, State Parties may also choose to settle their disputes through the good offices of the Secretary-General or conciliation, mediation and arbitration, which may provide even faster track to resolve conflicts.[5] Many believe this will be the most used mechanism, as past practice clearly shows a preference for non-confrontational mechanisms.[6]

Mene sets out the Dispute Settlement Mechanism as a panacea to the deadlock at WTO, which will push African states to utilise African solutions and become the an example for other regions. However, the question to be addressed is will investors in the African economy believe that the rule of law is at the core of the AfCFTA? Will investors be reassured once this dispute resolution mechanism is set up even though it would only allow them to have indirect access to dispute resolution. Some investors may welcome any dispute resolution especially if it is to be found within a regulated environment where investors and states have responsibilities.

Two issues are at the heart of the efficacy of the system. The first is that the process only allows for state-to-state dispute resolution. Investors may prefer to utilise the AfCFTA as a second bite at the cherry. They may rely initially  on ISDS in Free Trade Agreements (FTAs), Bilateral Investment Treaties (BITs), and perhaps even on the application of the Pan African Code on Investment in their home state and then proceed to utilise the dispute resolution mechanism at the AfCFTA.

The second linked issue is that there is no place for setting out conciliation and meditation with private actors as essential first steps before resorting to arbitration. The coming into operation of the Singapore Convention on Mediation has passed the continent relatively unnoticed, which is surprising as it would allow for longevity of investment and compromised solutions to ensure the least disruption to economic growth.

Despite Mene’s optimism, this dispute resolution mechanism may be no different from WTO, perhaps less used due to the African state’s preference to settle issues at the ministerial level through political means. AfCFTA has not taken the lessons of the deadlock to improve the system it has, utilizing a similar approach. The AfCFTA missed the opportunity to focus on commercial mediations and set up a plan that will be sidestepped in favour of investor-state dispute systems under the Pan African Code for Investments, FTAs, and BITs. Finally, the purpose for which the system was created, that is, creating a rule-based system that could be trusted, is absent.

The only solution would be to add an investor-State dispute system linked to the specialized negotiated texts in Phase II, especially investment negotiation, ensuring that the international law preference for lex specialis would ensure that private actors are confined to choosing a system and that they are encouraged to utilise conciliation and mediation.

[1] This follows the definition by Lord Bingham, the preeminent British authority on the Rule of Law.

[2] Article 20 read articles 6 &7 of the Protocol on Rules and Procedures on the Settlement of Disputes.

[3] Article 4 of the Protocol on Rules and Procedures on the Settlement of Disputes

[4] Article 4 of the Protocol on Rules and Procedures on the Settlement of Disputes

[5] Article 8 of the Protocol on Rules and Procedures on the Settlement of Disputes

[6] https://www.afronomicslaw.org/2019/08/19/a-future-court-without-cases-on-the-question-of-standing-in-the-afcfta-dispute-settlement-mechanism

Public-private participation in supporting SMME development

Public-private participation in supporting SMME development

Over the past years, the South African economy has witnessed a year-on-year decline in economic growth and gross domestic product (GDP) growth. In the pre-COVID period in 2018, GDP growth had fallen to 0.8%, while in 2019, this fell to 0.2%, accompanied by a technical recession, and this is in comparison to the average GDP growth of 4.3% between 2000 and 2008[1]. The economy shrank when COVID-19 hit the economy. To add to this burden, South Africa faced a civil disorder (July unrest) while on level three lockdown. The pressures of tighter COVID-19 lockdown restrictions, a spate of civil disorder, and several other headwinds contributed to real GDP slumping by 1,5%[2]. During and pre-COVID, the SMME domain was characterized by, inter alia, low productivity and growth, low levels of innovation, excessive red tape, delayed payments, and exclusion from value chains.

SMMEs provide most job opportunities and contribute significantly to the South African economy. To resolve the current high unemployment rate, decrease inequalities and alleviate poverty, there is a need to create a sustainable and supportive environment that supports the growth, development, and sustainability of SMMEs. Thus, SMME development is critical in mitigating some of the economic challenges faced by the country.

With the current global crisis resulting from the war in Ukraine, lockdowns in China and supply-chain disruptions, stagflation is likely to hamper economic growth. In this case, a global recession will be hard to avoid. Hence, it is urgent to promote SMME development because SMMEs are an economy’s lifeblood and serve as the economy’s backbone. SMMEs, when given the right platform to operate in and are fully supported, not only can they keep the economy going, but they can also lead the way in innovation, thus promoting industrialization.

It is high time that the public and the private sectors join hands in supporting the growth, development, and sustainability of SMMEs. Gone are the days when corporates employ Enterprise and Supplier Development (ESD) strategies as a “box-ticking” exercise to gain compliance points quickly, but it is time to drive the impact of the ESD strategies in promoting SMME development. Sustainable economies require competitive, commercially viable enterprises connected to local and regional market opportunities, underlined by a focus on both the supply and demand sides and the creation of a partnership-driven enabling ecosystem for SMME development.

ESD is one of the most powerful mechanisms to support market access, capacity-building, revenue growth and sustainability for SMMEs. As an element of the broader B-BBEE legislative framework, it accounts for a significant proportion of the total spending on small business development services and financial support. As such, ESD strategies that focus on capacity-building and scaling of suppliers, supply chain access, and revenue generation for new entrants can have an enormous impact on mitigating the currently high failure rate of small businesses.

Enabling an environment that tends to support and develop SMMEs is crucial as local government, local industry, corporates, enabling partners, donors and provincial government should join forces in formulating ESD programmes that genuinely support SMMEs. These programmes should include scaling existing entrepreneurs through improving their competitiveness, nurturing entrepreneurial talent through activities such as mentoring, establishing a supportive partnership framework with SMMEs to enable success as well as aligning and re-designing small business structures if necessary to promote commercial viability and guarantee long-term strategic value add to the market.

It is important to note that it is not only the role of the government to promote SMME development, but both the government and the private sector should join forces. The private sector needs not only to focus on ESD from a compliance angle but on the impact of ESD programmes on SMME Development.

[1] See Industrial Development Corporation ‘Economic Trends: Key trends in the South African Economy’ Department of Research and Information, December 2013

[2]See Statistics South Africa. The third wave of COVID and civil disorder pummel the economy as GDP falls by 1,5%. https://www.statssa.gov.za/?p=15008

 

WEF Davos 2022: Youth holds the key to unlocking Africa’s potential, but action is needed

WEF Davos 2022: Youth holds the key to unlocking Africa’s potential, but action is needed

Africa’s potential in the global context has been highlighted yet again – this time at the World Economic Forum (WEF) Annual Meeting. In May of this year, the WEF held its first in-person Annual Meeting since the advent of the COVID-19 pandemic. Themed “History at a Turning Point: Government Policies and Business Strategies”, Davos saw delegates from across the globe, including those from selected African countries, attend the long-awaited, in-person event. Among the prominent issues that were raised, which included rapidly rising food and fuel prices, the war in Ukraine, climate change, and the ongoing COVID-19 pandemic,[1] one stood out – the potential of Africa’s youth and, by extension, that which must be done to unlock their potential and the likely consequences of inaction.[2]

Africa is the fastest-growing continent with the youngest population, and it is estimated that, by 2035, more young Africans will enter the workforce each year than in the rest of the world combined.[3] While a young and fast-growing population may present many opportunities, it may also pose several challenges. Thus, various prerequisites must be satisfied. Most prominently, human capital investment, energy poverty alleviation, technological advancements and private sector growth are musts. While the opportunities include higher employment rates, a higher standard of living and increased state revenue collection (which could result in further investment and a further improved business environment), the challenges could be dire.[4]

Without the abovementioned conditions, many school-leaving youths will be inadequately trained or not have the expected employment opportunities even if they are adequately trained. On the lower end of the scale, the absence of the above reforms, in conjunction with rapid population growth, results in joblessness, lowered living standards and a potential increase in petty crimes. On the higher end, it could see unemployed youth, out of financial desperation, affiliate themselves with terrorist organisations or “throw themselves in the ocean and try to immigrate somewhere.”[5]

Whether on the higher or lower end of the scale, the potential impacts will not bode well for countries of the continent, surrounding regions, and the world’s entirety. While leading economies and prominent entities have supported Africa’s development, more must be done. A greater intensity of relief initiatives from multilateral groups and institutions, such as that on debt repayments, must also be extended. This is of necessity, especially, within the context of the post-pandemic recovery and the Russia-Ukraine war, as a failure to do so could see many developing countries, including those in Africa, to face the prospect of economic collapse.

This blog is, therefore, a call, however small, for country leaders, the political elite, multilateral institutions, and captains of industry to invest in Africa. Not to make pledges or promises, and, especially, not to offer loans in exchange for natural resources and proceed to claim critical infrastructure should one default on repayments. Instead, the continent needs transparently conditioned investment in energy, technological advancements, human capital and the private sector to unlock potential via its youthful population. This will not only benefit the continental context, but countries of the world will be able to enjoy greater access (market or otherwise) to a peaceful, stable, and economically growing Africa.

[1] Business Standard, ‘WEF 2022: Ukraine conflict to climate change, here’s what happened at Davos,’ https://www.business-standard.com/article/current-affairs/world-economic-forum-wef-2022-ukraine-conflict-to-climate-change-here-s-what-happened-at-davos-122052700400_1.html

[2] World Economic Forum, ‘Preparing for Africa’s Growing Global Role – Original,’  https://www.weforum.org/videos/davos-annual-meeting-2022-preparing-for-africa-s-growing-global-role-original

[3] Ibid.

[4] Ibid. 

[5] Ibid.

Tutwa’s first Webinar Series of 2022: Capacity-Building Webinars on Industrialisation and the  AfCFTA

Tutwa’s first Webinar Series of 2022: Capacity-Building Webinars on Industrialisation and the AfCFTA

AUDA-NEPAD, with support from JICA, commissioned Tutwa to conduct Capacity-Building Webinars on Industrialisation and the African Continental Free Trade Area (AfCFTA). The webinars aimed to create momentum on dialogue around industrialisation in the context of regional integration and intra-African trade. Three Webinars were held on 26 February, 3 March and 10 March, marking Tutwa’s first trade event of the year.

The webinars drew experts from various organisations, with participants hailing from most African countries and some international ones too. They included participants from the private sector, public and regional economic communities across the continent. Within the context of industrialisation, the webinars considered a range of topics focusing on policy-making and trade facilitation; the role of FDI and linkages to local economies; with a final session drawing on practical case studies of African countries’ readiness for the AfCFTA and ASEAN (The Association of Southeast Asian Nations) FTA agreement experience.

Through the numerous back-and-forth attempts to find speakers and send interviews into the stratosphere, our goal was always to have maximum impact. In just one month, I had learned the intricacies of Zoom webinars, how to embed a survey and how to extract attendance reports on zoom. I had built relationships with the graphic designers and various panelists and experts that I’m sure we will continue to rub shoulders with in future. After weeks of planning, and assisted by efficient Zoom Masters Marco and Cindy Jacobs, we were finally able to get the webinars off the ground.

The webinars featured keynote speakers that gave some opening and closing remarks on the work underway. These distinguished guests included AUDA-NEPAD’s Mr. Amine Idriss Adoum, the Director of Programmes Management and Delivery; JICA’s Mr. Minoru Honma, the Chief Representative of South Africa; the AfCFTA Secretariat’s Ms. Demitta Gyang, Head of Customs Cooperation, Trade Facilitation, and Transit; Dr Bernice McLean, Ag. Head Industrialisation Division at AUDA-NEPAD; with Mr George Murumba from AUDA-NEPAD closing of the last webinar.

Webinar 1: Trade Policy and Trade Facilitation was facilitated by Tutwa’s Catherine Grant Makokera and introduced participants to the trade policymaking process and how it is linked to industrialisation objectives in African countries. It outlined the policy-making cycles and introduced ideas about how trade agreements are domesticated, including through industrial policy tools. It further outlined the role of various stakeholders, including the private sector and civil society organisations in the trade policy formulation process. Speakers included Dr. Francis Mangeni, Head of Trade Promotion & Programs, AfCFTA; Ms. Demitta Gyang, and Dale Mudenda, from the University of Zambia.

The webinar also outlined the components of the trade facilitation agenda, including as set out by the WTO Trade Facilitation Agreement, relevant regional free trade agreements, and the AfCFTA. Participants were exposed to the views of the private sector on trade facilitation challenges to develop a broad understanding of the impact on business from a panel that included: Mr. Elisha Tshuma, a Customs, Tax, and international Trade Advisor; Dr. Richard Adu-Ggyamfi, a Small and Medium-sized Enterprise and Trade Expert; Mr. Tulo Makwati, Coordinator of the SADC Business Council; and Mr. Ziad Hamoui from Borderless Alliance in West Africa.

Webinar 2 was facilitated by Tutwa’s Judy Smith-Höhn and focused on the role of FDI and linkages with local industries, looking at the importance of phase II negotiations of the AfCFTA to support industrialisation. It introduced participants to the developments and changes around globalisation, regional integration, and its links to industrialisation. It outlined the renewed call for localisation and what this means for regional integration and industrialisation in the African context; while also highlighting the need for innovation, digital transformation and technology transfer. Experts unpacked how investment can support the AfCFTA and its linkages to local economies. There were presentations from Dr. Laura Páez Heredia, the Chief Market Institutions, Regional Integration, and Trade Division at  UNECA; Ms. Treasure Maphanga, Director at the African Electronic Trade Group; and Dr. Richard Adu-Ggyamfi, a Small and Medium-sized Enterprise and Trade Expert.

The second webinar also featured a panel with Mr. Tambe Oswarld, CEO of the Cameroon Intellectual Property Awards Association, and Legborsi Nwiabu, Esq. a Trade Lawyer and Private Sector Specialist who highlighted experiences from RECs and African organisations involved in phase II issues, with a particular focus on intellectual property rights. Mr. Victor Djemba, Chief, Regional Division Africa at UNIDO, provided some feedback on the webinar and its importance in influencing the industrialisation agenda.

I facilitated the last webinar on The AfCFTA and Member States, which introduced participants to the developments around the AfCFTA taking place and how it is linked to industrialisation objectives in African countries. It outlined how national governments can align and domesticate the objectives of the agreement towards ‘national AFCFTA strategies’ to ensure effective implementation. This was presented by Mr. Cham Etienne Bama, a Senior Trade Policy Advisor.

What was beneficial from a grassroots perspective, according to feedback from participants, were the case study presentations. The first case study presentation was by Dr. Aladdin D. Rillo, a Senior Economic Advisor for the Economic Research Institute for ASEAN and East Asia. He highlighted the evolution of ASEAN and its current initiatives, including the various FTAs that it has established with dialogue partners. He pointed to the challenges, successes and lessons that African countries could learn from the ASEAN integration process. The Nigerian case study by Dr. Adebayo Adedokun, from the Department of Economics, University of Lagos, and the Cameroonian case study by Dr. Manfred Kouty, a Lecturer, Trade Policy and Trade Facilitation Expert, educated participants on how these countries’ government institutions, private sector formations and other stakeholders have prepared and readied themselves for the AfCFTA.

As we evaluated the webinars, I believe we achieved the maximum impact we were aiming for. We had good audience participation; the first webinar had over 100 participants online for the entire duration of the session. Those who are all too familiar with zoom fatigue will know that this is a solid achievement for a 3-hour session. Similar levels of active participation were achieved for the two other sessions. The positive responses received from webinar participants are a testament to the commitment of the Tutwa and AUDA-NEPAD organising team, supported by JICA. Moreover, the feedback we received indicated an appetite for continued engagement on this particular topic. My/Our hope is that this is but the beginning of fruitful engagements that seek to address the challenges of industrialisation in Africa through programmatic interventions in support of the AfCFTA.

*Click on the links to access the information from the webinars: Webinar presentations; Recordings for  Webinar 1Webinar 2;  Webinar 3.

 

The TRIPS Waiver Compromise Draft: A promising or compromising text?

The TRIPS Waiver Compromise Draft: A promising or compromising text?

After nearly 18 months of negotiations, there has finally been some progress with regard to the request to waive certain provisions of the TRIPS Agreement in response to the COVID-19 pandemic. It was in October 2020, during the meeting of the WTO’s TRIPS Council, that India and South Africa initially tabled this waiver request. A revised proposal was subsequently submitted in May 2021.

Following intensive quadrilateral negotiations between South Africa, India, the United States and the European Union on 15 March 2022, a compromise agreement was tentatively reached that will now be presented to other WTO members for their consideration and possible adoption.[1] It will be interesting to see what benefits this is going to reap, as some have argued that there is likely to be little practical impact from any waiver of IP rights.[2]

The compromise draft text has drawn criticism from both those who support and oppose the waiver request.[3] The proponents of the waiver request find the compromise draft text disappointing. They argue that it is a very limited and narrow agreement. It only covers vaccines, and it limits “eligible members” to developing countries.[4] On the other hand, opponents of the waiver maintain the view that the compromise draft is a solution in search of a problem.[5] However, it remains to be seen if this compromise draft text would constitute the basis of any final waiver that may be adopted by the TRIPS Council.

Essentially, the May 2021 revised proposal sought a waiver of TRIPS obligations relating to the application and enforcement of copyright, patent rights, industrial designs, and the protection of undisclosed information.[6] These obligations were to be waived ‘in relation to health products and technologies including diagnostics, therapeutics, vaccines, medical devices, personal protective equipment, their materials or components, and their methods and means of manufacture for the prevention, treatment or containment of COVID-19.’ According to the revised proposal, the waiver should be in place for at least 3 years.[7]

However, the provisions of the compromise draft text are far from the demands contained in the revised waiver proposal. According to Oke, one could convincingly argue that the text is probably closer to the positions of both the EU and the US in this regard.[8] The compromise text merely provides some concessions regarding the rules governing compulsory licensing contained in Article 31 of the TRIPS Agreement, and its scope is limited to the production and supply of COVID-19 vaccines for now at least. This is basically in line with the position of the EU and the US on the waiver request. Although initially opposed to the waiver request, the US eventually expressed its support for the waiver proposal in May 2021. This support was, however, strictly limited to the production of vaccines.[9] In June 2021, the EU subsequently tabled its own counterproposal at the TRIPS Council, which essentially revolved around clarifying the rules relating to compulsory licensing in Articles 31 and 31bis of the TRIPS Agreement.[10] Nevertheless, when compared with the permanent waiver codified in Article 31bis of the Agreement, one could say that the provisions of the compromise draft text are not as cumbersome and complex as the provisions contained in Article 31bis.[11]

The aspects of the draft text that may be considered as gains for proponents of the waiver request include paragraph 2 of the text which allows that :

“…an eligible Member may authorize the use of patented subject matter under Article 31 without the right holder’s consent through any instrument available in the law of the Member such as executive orders, emergency decrees, government use authorizations, and judicial or administrative orders, whether or not a Member has a compulsory license regime in place…”

According to the text, the ” law of a Member” referred to in Article 31 is not limited to legislative acts such as those laying down rules on compulsory licensing. It also includes other acts, such as executive orders, emergency decrees, and judicial or administrative orders.[12]

Although the scope of the compromise text is currently limited to the production of vaccines, Oke argues that paragraph 3(c) of the compromise text is an implied admission of the practical difficulties associated with the use of Article 31bis of the TRIPS Agreement. [13] Paragraph 3(c)  is a crucial departure from the strictures codified in Article 31bis, which was, ironically, originally intended to address the problems associated with Article 31(f), especially for countries with no or insufficient domestic manufacturing capacity.[14] It permits an eligible member to ‘waive the requirement of Article 31(f) that authorised use under Article 31 be predominantly to supply its domestic market’. Paragraph 3(c) further provides that an eligible member ‘may allow any proportion of the authorised use to be exported to eligible Members and to supply international or regional joint initiatives that aim to ensure the equitable access of eligible Members to the COVID-19 vaccine covered by the authorisation.’[15]

Paragraph 6 addresses the question regarding the duration of the compromise waiver. However, as can be read from the text, there is no consensus in this regard. The text refers to both 3 and 5 years. “An eligible Member may apply the provisions of this Decision until [3][5] years from the date of this Decision…”. Could this be a suggestion that the waiver could be in force for at least 3 years? It is certainly effective to clarify this in the text of the compromise waiver. Paragraph 6 goes on to state that ‘the General Council may extend such a period taking into consideration the exceptional circumstances of the COVID-19 pandemic. The General Council also has authority to review annually the operation of this Decision’.[16]

Before outlining some of the gains from the outcome of the quadrilateral negotiations, I highlighted some of the reasons why the proponents of the waiver are disappointed with the draft compromise text. First of all, the compromise text only covers the compulsory licensing of patents. This is not satisfactory as the waiver proposal requests for the waiver of obligations relating to copyright, patents, industrial designs, and the protection of undisclosed information. The scope of the compromise text is also limited to the production and supply of COVID-19 vaccines.

As indicated above, the definition of an ‘eligible Member’ in the compromise waiver text is another area of concern. The compromise waiver text defines, in a footnote, an ‘eligible Member’ as ‘any developing country Member that exported less than 10 % of world exports of COVID-19 vaccine doses in 2021.’[17] As noted by Oke, “this automatically excludes developed countries from the scope of the compromise waiver. It further narrows down the number of developing countries that can effectively use the waiver to export vaccines to other developing countries”.[18] This limited scope is likely to face more challenges as the compromise agreement is presented to other WTO members.

Having said the above, one may question the use of negotiations that are open to only four WTO members to deal with an issue that is affecting the entire international community?  I guess the answer will lie in the reaction of the other WTO members to the compromise waiver text as it is presented. At this point, whether or not the compromise waiver text would also constitute the basis of any final waiver decision is still subject to debate. As has been said elsewhere, it will be up to the remaining WTO members to decide whether this is a promising or a compromising text.

 

[1] E.K Oke, “The TRIPS Waiver Compromise Draft Text: A Preliminary Assessment” 18 March 2022 [Accessed 30 March 2022] Available online at: https://www.afronomicslaw.org/category/analysis/trips-waiver-compromise-draft-text-preliminary-assessment.

[2] G. Quinn, “COVID IP Waiver Attempts are Becoming Harder to Justify” [accessed 30 March 2022] Available online at https://www.ipwatchdog.com/2021/10/20/covid-ip-waiver-attempts-becoming-harder-justify/id=138993/.

[3] E. MacDermott, “Latest WTO Waiver Compromise Text Targets COVID Vaccine Patents, Draws Criticism from Both Sides” [Accessed 30 March 2022] Available online at https://www.ipwatchdog.com/2022/03/16/latest-wto-waiver-compromise-text-targets-covid-vaccine-patents-draws-criticism-sides/id=147576/.

[4] J. Love, “QUAD’s tentative agreement on TRIPS and COVID 19” [Accessed 30 March 2022] Available online at https://www.keionline.org/37544.

[5] E.K Oke, “The TRIPS Waiver Compromise Draft Text: A Preliminary Assessment” 18 March 2022  [Accessed 30 March 2022].

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9]Statement from Ambassador Katherine Tai on the Covid-19 Trips Waiver: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/may/statement-ambassador-katherine-tai-covid-19-trips-waiver.

[10] E.K Oke, “The TRIPS Waiver Compromise Draft Text: A Preliminary Assessment” 18 March 2022 [Accessed 30 March 2022].

[11] Ibid.

[12] TRIPS COVID-19 solution (the outcome of the quadrilateral discussions at the end of last week, to be presented to WTO Members).

[13] E.K Oke, “The TRIPS Waiver Compromise Draft Text: A Preliminary Assessment” 18 March 2022 [Accessed 30 March 2022].

[14] Ibid. See also TRIPS COVID-19 solution (the outcome of the quadrilateral discussions at the end of last week, to be presented to WTO Members).

[15] TRIPS COVID-19 solution (the outcome of the quadrilateral discussions at the end of last week, to be presented to WTO Members). para 3(c).

[16] TRIPS COVID-19 solution (the outcome of the quadrilateral discussions at the end of last week, to be presented to WTO Members). para 6.

[17] TRIPS COVID-19 solution (the outcome of the quadrilateral discussions at the end of last week, to be presented to WTO Members). Footnote 1.

[18] E.K Oke, “The TRIPS Waiver Compromise Draft Text: A Preliminary Assessment” 18 March 2022 [Accessed 30 March 2022].

Inequality vs Disinvestment: The case for a South African Wealth Tax

Inequality vs Disinvestment: The case for a South African Wealth Tax

Last week, Minister of Finance, Enoch Godongwana, delivered his maiden Budget Speech and, like many economists, I was eager to delve into the country’s financial standing. I was equally eager to attend Mazars Budget Analysis, a virtual event that took place the day after Budget 2022. The event, cleverly entitled From Viral Dis-ease to Sustainable Growth, provided expert, between-the-lines analysis of the National Budget. Among the financial successes and failures that were reiterated and the potential consequences of the Russia-Ukraine conflict that were alluded to, one area of the analysis remained with me – the mooted wealth tax and potential to reach it in South Africa.

The 2022 Budget Review indicates, inter alia, that provisional taxpayers with assets more than ZAR 50 million are expected to declare assets and liabilities at market value for their 2023 returns. Previously, the declaration would have been at cost rather than market value. This change is expected to assist with the detection of non-compliance or tax fraud.[1] It has also been speculated that another implication of government’s new requirement is that the information gathered may be used in the formulation and implementation of a wealth tax in South Africa.[2] Given the deep inequalities which plague South African society, the desire to implement such a tax is unsurprising, but the broader implications could prove harmful.

In 2019, almost three decades into its democracy, South Africa was recognized as the most unequal country in the world.[3] Figures indicate that the top 10% of the country’s earners take home 65% of total income, while 90% get the remaining 35%. Similar inequalities are apparent in wealth – the top 10% controls 93% of the country’s wealth while the other 90% controls a mere 7%.[4]  Inequalities are also found to perpetuate on racial, gender, and spatial grounds.[5] Between 2011 and 2015, whites earned an average monthly salary more than three times that of Africans, females earned 30% less than males, and individuals in Gauteng and Western Cape had the highest provincial annual mean and median expenditures while those living in Limpopo and Eastern Cape had the lowest.[6]

Figure 1. Earnings among South African race groups

Source: Own computation using information from Stats SA 2020.

Notes: The figure above displays mean real monthly earnings among South African race groups over the period 2011-2015.

Exacerbating the issue of inequality in South Africa were the harshest days of the COVID-19 pandemic and the nationwide lockdown which followed. In terms of access to water and sanitation, job security, education, internet access, and food security, the hard yet much-needed response served to highlight and indeed, deepen the gross divide between those with and those without.[7] Thus, the driving force behind the implementation of a wealth tax should be to narrow this divide. At the same time, however, it may serve to drive investment to other destinations, further dampening the country’s economic growth prospects. Over the last decade, approximately 4,200 high net-worth individuals left the country, and the prospect of higher taxes may cause this figure to grow.[8]

Should the South African government be certain about the implementation of a wealth tax, stringent monitoring is a key requirement. The South African Revenue Service, due to the upskilling of personnel and investment in their information and communications technology (also discussed at the Mazars event), may very well be able to pull this off. However, a cushion to the brain drain and disinvestment blow must be found. To this end, government must reinvest revenues received from the wealth tax in developments within the realms of water and sanitation, healthcare, energy, education, telecommunications, and stimulating innovation rather than simply handing the funds out. But even if these recommendations are followed and even if funds are correctly appropriated (which is a tough ask in South Africa), it may be long before the benefits materialize.

Nevertheless, credit must be given to the government for requiring provisional taxpayers with assets greater the ZAR 50 million to state them at market value as it will assist in determining the structure and distribution of wealth in South Africa[9], thus, allowing for better planning should a wealth tax truly be under consideration.[10]

[1] Business Tech, ‘Government knows wealthy taxpayers are leaving the country’, February 24, 2022, https://businesstech.co.za/news/finance/562204/government-knows-wealthy-taxpayers-are-leaving-south-africa-analyst/.

[2] Business Tech, ‘Government knows wealthy taxpayers are leaving the country’, February 24, 2022, https://businesstech.co.za/news/finance/562204/government-knows-wealthy-taxpayers-are-leaving-south-africa-analyst/.

[3] Khanyi Mlaba, ‘5 Shocking facts  that show why South Africa is the “most unequal country in the world”’, Global Citizen, November 27, 2020, https://www.globalcitizen.org/en/content/facts-why-south-africa-most-unequal-country-oxfam/.

[4] Dennis Webster, ‘Why South Africa is the world’s most unequal society’, Mail and Guardian, November 19, 2019,  https://mg.co.za/article/2019-11-19-why-sa-is-the-worlds-most-unequal-society/.

[5] Dennis Webster, ‘Why South Africa is the world’s most unequal society’, Mail and Guardian, November 19, 2019,  https://mg.co.za/article/2019-11-19-why-sa-is-the-worlds-most-unequal-society/.

[6] Government of South Africa, Department: Statistics South Africa, How unequal is South Africa?, (online), http://www.statssa.gov.za/?p=12930.

[7] Lauren Graham, ‘Pandemic underscores gross inequalities in South  Africa and the need to fix them’, The Conversation, April 5, 2020, https://theconversation.com/pandemic-underscores-gross-inequalities-in-south-africa-and-the-need-to-fix-them-135070.

[8] Business Tech, ‘Government knows wealthy taxpayers are leaving the country’, February 24, 2022, https://businesstech.co.za/news/finance/562204/government-knows-wealthy-taxpayers-are-leaving-south-africa-analyst/.

[9] Business Tech, ‘Government knows wealthy taxpayers are leaving the country’, February 24, 2022, https://businesstech.co.za/news/finance/562204/government-knows-wealthy-taxpayers-are-leaving-south-africa-analyst/.

[10] Amanda Visser, ‘Wealth declaration is not all negative’, Moneyweb, February 28, 2022, https://www.moneyweb.co.za/mymoney/moneyweb-tax/wealth-declaration-is-not-all-negative/.