Time to support exporters

Time to support exporters

Exports have to come to the country’s rescue, in the face of persistent slow economic growth and government’s small room to manoeuvre on the domestic front.

When Finance Minister Malusi Gigaba presents his first budget speech this week, he will have to reckon with managing debt and tax levels. He has little in his armoury in the Medium-Term Budget Policy Statement (MTBPS) to spur the economy, set to grow at only half a percent this year, or boost business confidence, at its weakest in 30 years according to the South African Chamber of Commerce and Industry’s index in August 2017.

Earlier this year the Industrial Development Corporation (IDC) advised that “the South African economy will most likely have to rely on exports for a positive performance”. Signs of an export boost are encouraging. Demand in the markets of our key trading partners is looking up.

For example, the European Union (EU) – our biggest trading partner as a region – is expected to achieve ‘above-potential’ growth levels this year and in coming years on the back of much stronger performance in the first part of 2017. The IDC predicts that economic activity will continue to expand in the US, Eurozone and China at least over the shorter term. A relatively competitive exchange rate helps.

Firms which can take advantage of global market opportunities will be in a stronger position to weather the challenges in the domestic market in South Africa. These firms can continue to employ people and contribute to the broader economy through linkages with other firms, payment of taxes and consumption of infrastructure services at ports etc. Exporters engaged with developed country markets have been shown to have high levels of productivity, produce high-quality products, employ highly skilled workers and pay high wages. South Africa needs to encourage these kinds of firms to contribute during grey days for the economy as a whole.

One way to provide such encouragement that does not put a further strain on limited government resources is to negotiate favourable market access conditions for South African exporters with key trading partners. The government did this when it signed a comprehensive free trade agreement with the EU in 2016. The Southern African Development Community (SADC) Economic Partnership Agreement (EPA) with the EU entered into force just over one year ago and there are already signs of increased exports from South Africa to Europe for an expanding range of products.

The IDC confirmed that there is strong existing trade in motor vehicles and machinery between EU countries and South Africa. Possible export development opportunities exist across a much wider range of industries, including in agriculture, electrical equipment, processed fish, jewellery and footwear.

More could be done to take advantage of the SADC-EU EPA and to ensure that trade with Europe continues to make a positive contribution to the South African economy. Raising awareness of the opportunities and providing information to potential exporters is an important first step. Ensuring access to the necessary testing facilities and quality assurance infrastructure is another area where the government can work closely with the private sector to maximise exports. Assistance with access to trade finance and supporting participation in marketing activities also requires a new momentum and emphasis.

Gigaba faces the pull of many competing forces, and it will be interesting to see if the MTBPS spares any thought for the exporting community. These firms continue to provide employment and some relief in difficult times.

This article was originally published by Business Report, on 23 October 2017, and is available here.

Photo credit: Renate Dodell via VisualHunt /  CC BY-ND
Regional trade needs to be a top priority for African leaders

Regional trade needs to be a top priority for African leaders

Sometimes what official statements don’t say is as important as what they do. Such is the declaration released at the recent Southern African Development Community (Sadc) summit.

The meeting, held in Pretoria, attracted public attention because it did not feature Zimbabwe’s first lady, Grace Mugabe, whose presence some seemed to think would be necessary for her to qualify for diplomatic immunity for an alleged assault. And, while it was expected there would be discussions on both political and economic challenges facing Southern Africa, reading the declaration left one wondering what had transpired behind closed doors in the capital.

What the official communiqué of the 37th summit did not mention was trade. This is odd in the light of some indications of trade tensions during the interactions between Sadc ministers in the meetings held in the weeks leading up to the summit. Issues covered in the communiqué range from food security to gender representation in politics to recognition of plant varieties. Most of the document is devoted to the political situations in Lesotho and the Democratic Republic of the Congo (DRC).

Investment was also overlooked. From an economic perspective, continued priority is given to industrialisation including through interactions with the private sector.

For years, trade was at the heart of the economic agenda of the Sadc. It now seems to have fallen by the wayside. It could be argued that this reflects the fact that much of the action in setting up a free trade area took place about 10 years ago and there is a framework in place to govern the movement of goods under the Sadc trade protocol.

On paper, this is so, but much remains to be done to achieve higher levels of intraregional trade and ensure an environment that encourages firms to maximise opportunities. The industrialisation agenda, if it could reach its full potential, would no doubt help to bring this about.

What is really required is a display of leadership from Sadc governments that reinforces the agreements they have already signed and provides a degree of certainty for the private sector in the region. It is worthwhile noting that 10 of the Sadc countries have recently entered into trade arrangements with the EU under the economic partnership agreements (EPAs).

The Sadc EPA, comprising Botswana, Lesotho, Namibia, Mozambique, SA and Swaziland, and the Eastern and Southern Africa (ESA) EPA, Madagascar, Mauritius, the Seychelles and Zimbabwe, have the potential to act as building blocks for stronger regional economic integration.

Such agreements reinforce commitments already entered into by Sadc member states at multilateral and regional levels, including the elimination of nontariff barriers, improving trade facilitation and implementing effective standards to protect human, animal and plant health.

While it is true that there is not one EPA for all the Sadc countries, there is still scope to use the agreements to encourage linkages in the region and develop value chains, particularly those designed to lift exports, or those linked to European firms. This can be done by taking advantage of the more flexible rules of origin, for instance. Europe remains a key trading partner for the Sadc for value-added products in sectors such as automotives and processed agricultural goods.

The EPAs that were negotiated provide continued policy space for development in the Sadc.

Under the Sadc EPA, safeguards are in place to protect regional industries in the event that imports of a specific product increase to such an extent that they cause injury or disturbance.

The EPA protection goes beyond that provided under the World Trade Organisation rules and will apply indefinitely. Infant industries can also be protected under the safeguard provisions of the EPA. Export taxes can be introduced on exports to the EU under certain circumstances, such as for reasons of fiscal revenue, environment protection, protection of infant industry or industrial development.

Trade negotiators in the Sadc can draw on the experience they have gained over many years during the sometimes difficult engagement with counterparts from the European Commission to revitalise the regional trade agenda. Much can still be done to encourage greater levels of interaction in both the trade in goods and services and in supporting investment.

This article was originally published on BusinessDay, 1 September 2017.

Photo credit: GovernmentZA via Visual hunt /  CC BY-ND
SADC Border Chaos

SADC Border Chaos

Following on the introduction of SI 113 of 2017, Amendment of the Customs and Excise (General) Regulations, SI 154 of 2001, Section 60 by the Zimbabwe Revenue Authority, there is total chaos at the borders with that country. The amendment requires that all vehicles are to be fitted with Customs seals, by the authorities.

The seals are to be paid for by transporters in US dollars, and unsealed vehicle must be escorted in convoys, as and when organised by the Commissioner; this sometimes causes delays of up to 5 days. At the Forbes-Machipanda border the 10 kms of vehicle queue includes hundreds of fuel tankers and fertilizer carrying vehicles which is a dangerous cocktail waiting for another Kasumbalesa disaster to happen, with vehicles taking 72 hours to cross the border.

Unfortunately the queue at Machipanda had already claimed a life when a child was driven over in the queue.

Similar queues and obstructions are being experienced at all borders. The amendment is already causing considerable obstruction with vehicles being delayed for up to 24 hours waiting for seals; removal of existing seals (which are required by consignors to verify load integrity); refusal to endorse documents, when seals are tapered with or removed; even damage to vehicles (drilling holes to fit seals) and further harassment regarding routes and police road blocks.

The costs of the seals and penalties are unacceptable additions to the already high cost of crossing Zimbabwe borders and the increased delays and stoppages experienced on the corridor are significant barriers to efficiency and contribute to reduced safety of vehicles and cargoes.

The Federation has initially addressed this matter by registering a NTB (NTB-000-782) as well engaging with SADC in terms of the Protocol on Transport. Urgent meetings have been arranged in Harare with FESARTA representatives attending to voice their condemnation and to insist on review of the entire process.

This latest obstruction to free trade and transport in the region follows closely on the restriction introduced by Zambian Revenue Authority by arbitrary introduction of increased documentation required at borders in June 2017. This resulted in the chaotic conditions at Chirundu

Chirundu border post following Zambian Revenue Authority introduction of increased documentation requirements at borders.

This is SADC’s so called OSBP and supposedly the flagship of OSBP’s in Africa as stated by TMSA prior to their closure in 2013. The level of obstruction at this border post is such that the average GPS tracking data on crossing times as monitored by TLC for the last two years at Chirundu Zambia is consistently around 18 plus hours, mainly due to systems and inefficiencies inherent in all SADC borders.

While in East Africa order and efficiency prevail as seen below at Rusumo OSBP (One Stop Border Post) between Tanzania and Rwanda. This Yard or Customs Control Zone has the capacity for in excess of 200 HGV (Heavy Goods Vehicles) at any one time all parked in this neat and orderly fashion, all Tankers and DGV (Dangerous Goods Vehicles) are separated from other cargo vehicles which park in the front rows and Tankers/DG vehicles in the back rows with easy access to exit routes from the border.

In total contrast to Beitbridge and Chirundu the Malaba border post between Kenya and Uganda, which is now busier than Beitbridge, and probably the busiest in Africa, has traffic volumes of 900 Westbound and 600 Eastbound trucks per day clearing at an average of under 6 hours with the norm being under 30 minutes for Tankers and other SCT cargo. Busia which is comparable to Chirundu in Traffic Volumes for trucks at 450 Westbound and 700 Eastbound clears at an average of under 3 hours and 10-20 minutes for Tankers and other SCT cargo. The efficiencies have been caused by the focused efforts of the RECs and the donor agencies as well the cooperation of the transport industry in ensuring workable designs and systems.

The chaotic conditions are endemic to the SADC corridors with 50 vehicle queues at Martins Drift, near disaster at Ressano Garcia from road closure, (only just alleviated by MCLI) and constant delays at Beit Bridge. The border and corridor management in SADC indicate minimal intention by the Member States to adhere to the principles of the Protocol on Transport and almost total disregard for the effects of the inefficiency. The cost of a 30-ton load (or container), from Durban to DRC is approximately $10,200 made up of 25-30{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} cross-border taxes and charges; 25-30{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} by delay costs and approximately 50{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} for the actual cost of transporting the load.

FESARTA will be seeking opportunity to engage with the international donor agencies which are spearheading the funding of several current and proposed developments as there are indications that these are likely to increase the bureaucratic obstructions and continue to incur costs without addressing the root causes of the inefficiencies. It is essential to change the apparent official perspective in many countries that border posts are the simplest point at which to extract maximum revenue from transport and trade and the issue of cost-efficiency of goods movements is a secondary consideration.

A coordinated analytical, professional and pragmatic appraisal of the entire SADC transport and trade network is required to provide the basis for making the necessary changes, to produce the results that are being achieved in East Africa, and this is urgently needed NOW.

Article written by FESARTA CEO Mike Fitzmaurice, originally published by FESARTA, 20th September 2017.