finweek

From the Cape to Cairo – it’s Ramaphosa’s turn

Peter Fabricius is a consultant to the Institute for Security Studies (ISS) and a freelance foreign affairs journalist.
Peter Fabricius is a consultant to the Institute for Security Studies (ISS) and a freelance foreign affairs journalist.

Your Hinterland is there,” reads the inscription under a statue of the arch-colonialist Cecil John Rhodes, still – despite the ferocious Rhodes Must Fall agitation – standing, with his left arm raised, facing north, in the Company Gardens in Cape Town. 

It’s a touch ironic but that could almost be President Cyril Ramaphosa standing there. And saying that. He is the champion of the African Union (AU)-Nepad North-South Road, Rail and Related Infrastructure Corridor which aims to connect the “Cape to Cairo”. 

That was also the great dream of Rhodes. Ramaphosa’s reverie is, of course, to flood the hinterland with South African exports, not with conquering redcoats, though some rival countries on the continent are bound mischievously to conflate the two.

His instrument is the African Continental Free Trade Area (AfCFTA), which is supposed to create the world’s largest market on 1 July, when trade under the agreement is due to start. 

The North-South Corridor is one of the many projects under the Presidential Infrastructure Champion Initiative (PICI), which together aim to fill the gaps in the necessary bricks-and-mortar infrastructure foundation for the AfCFTA. 

Ramaphosa has made implementing the AfCFTA one of his priorities as AU chair this year and that’s no surprise. It’s good for the continent but it’s also potentially very good for SA. 

Nigeria may have overtaken SA to become the continent’s largest economy in GDP terms but it’s not the most sophisticated. 

SA accounts for the biggest chunk of intra-African exports by far, with 34% – which also constitutes a substantial 27% slice of SA’s total exports to the world. Nigeria trails a poor second at only 9% of total intra-African exports. 

This explains in a nutshell why Nigeria has been so reluctant to join the AfCFTA. And it’s clear that the competition Nigeria most fears under the AfCFTA is from SA. 

Perhaps that’s why Nigeria competed so fiercely to get the job of the first secretary-general of the AfCFTA at the AU summit in Addis Ababa last month. It eventually lost to SA and so Pretoria’s top trade official, Wamkele Mene – who helped to negotiate the AfCFTA – got the job instead. 

Abuja may have been hoping that having a Nigerian in the chair of the AfCFTA secretariat would give it greater control of the way the trade deal works.

The trade negotiators are now frantically meeting to try to agree on the trade rules so they can be presented and adopted at the AfCFTA summit which SA is to host on 30 May for this purpose. 

The negotiators missed their last deadline in February to do this and Pretoria for one is getting worried. 

It hopes the fear of being embarrassed at the summit may galvanise the trade negotiators.The countries must present offers to liberalise 90% of trade in goods and some services; not easy decisions. 

And they must also agree on “rules of origin”, which basically stipulate how much input from outside Africa is allowed in locally-produced goods for them still to qualify for tariff-free passage within the free trade area. These rules of origin (RoO) are critical. 

“They can make or break an FTA,” says Trudi Hartzenberg, head of the Trade Law Centre (Tralac) at Stellenbosch. 

“Too stringent and very little trade will take place even with extremely low tariffs. SADC is a good example – RoO for clothing and textiles, which require two-stage transformation, basically make it impossible to meet the requirement – because there is very little in the way of a textile industry across the region.”

On the other hand, RoO that are too lax can allow mere trans-shipment of goods coming from outside the FTA, with little more than cosmetic additions in Africa to enable them to qualify for entry into all the continent’s markets. 

These dodges are called “screwdriver operations”.African countries which have their own substantial manufacturing industries – or intend to build them – naturally have most to fear from lax RoO and “screwdriver operations” as these would expose their own manufacturers in effect to competition from big offshore manufacturers like China.

And so, it was not surprising that Ramaphosa spoke out strongly against lax RoO when he addressed the AU summit last month after being elected as its chair. 

“We must all ensure that the AfCFTA does not become a conduit for products with minimal African value addition to enter and penetrate our local markets under the guise of continental integration. 

“There must be a reasonable standard set for what constitutes a product that is ‘Proudly Made in Africa’. The era of economic colonialism and imperialism, under which Africa is a pit stop in the global assembly line, has passed.”

SA is pushing for at least 41% Africa-produced input for a product to qualify for duty-free movement across continental borders under the AfCFTA.

Tighter rules will also favour the external investors which Africa is hoping the AfCFTA will attract here. On the other hand, African countries with little of their own manufacturing are pushing for easier rules.

Intra-African exports now constitute only about 16% of the continent’s total exports; compared with about 68% for intra-European exports, nearly 60% for intra-Asian exports and 55% for intra-American exports. 

The most important measure of the success of the AfCFTA would be if that 16% rose significantly. If it did, Ramaphosa, for one, would be smiling. And maybe even the ghost of CJR. 

Peter Fabricius is a consultant to the Institute for Security Studies (ISS) and a freelance foreign affairs journalist

This article originally appeared in the 19 March edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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