The announcement last week that South Africa had reaffirmed its strategic partnership with Brazil, with ambitions to deepen economic ties, was presented as a diplomatic win; however, this being led by the Department of International Relations and Cooperation instead of the Department of Trade, Industry and Competition, suggests it was a political conversation, not an economic one, business organisation Business Leadership South Africa CEO Busi Mavuso writes in her weekly newsletter.

She points out that South Africa requires a serious trade strategy that is built on analysis of where it can actually compete, not on the optics of summits.

“Brazil is a case study in why getting this wrong might be costly,” Mavuso posits.

She highlights the importance of South Africa diversifying its trade relationships; and of international trade to the country’s economic growth outlook. “We need our goods to be able to reach diverse markets where they can be competitive.”

The work that is under way to improve the performance of the country’s logistics system is one part of the competitiveness equation, Mavuso emphasises, calling for this to be complemented by a trade strategy that strikes agreements with suitable markets to remove trade barriers. 

She also notes that any trade agreement involves reciprocity.

“A trade strategy must focus on markets that offer the right balance – a good market for our goods, without a reciprocal flooding of our market with their goods. Before we rush into a new trade agreement, we must assess the net effect on our economy,” Mavuso stresses.

She points out that South Africa runs a significant trade deficit with Brazil, with the country last year having exported R5.2-billion worth of goods to Brazil, while importing R27.3-billion worth of goods.

Currently, trade is governed by the Southern African Customs Union-Mercosur Preferential Trade Agreement, which provides tariff relief on specified products, but many goods fall outside the preference rules, Mavuso adds.

She highlights the considerable overlaps between the two countries, with both boasting sizeable automotive, mining, agroprocessing, renewable energy, chemicals and pharmaceuticals industries.

“The risk we face is that Brazil is a much larger producer of several sensitive goods, particularly poultry, sugar and certain manufactured goods such as vehicles. A free trade agreement would remove barriers to those goods flooding our market, threatening domestic production.

“Poultry is one area that has historically garnered headlines, with cheap chicken imports from Brazil severely affecting local production. Sugar production is also highly sensitive to cheap imports,” Mavuso explains.

She says the current trade deficit indicates that Brazil would likely benefit more than South Africa would from free trade between the two countries, assuming both sides increase trade in proportion to the existing ratios.

Moreover, it is unknown what the supply response would be to free trade. “No serious modelling of the bilateral supply response has been published. Before any agreement is advanced, that analysis must be commissioned and made public,” she asserts.

BETTER TRADE DEAL CANDIDATES

Mavuso is of the view that the country should pursue free trade with countries that have quite different economies, adding that this list is relatively short at present.

“We actually have a poor set of free trade agreements. There are none with key markets like China, India, Japan, Korea or blocs like the Association of South East Asian Nations,” she points out, singling out Japan, in particular, as one worth examining.

She also notes that there is scope to improve Southern African Development Community arrangements. For example, South Africa has been sitting with a surtax in place on many of the country’s goods imported into Zimbabwe since 2012, which adds 25% in taxes on goods going into the country.

“This has recently been more stringently enforced, resulting in a significant burden on South Africa-based manufacturers who export to Zimbabwe. This asymmetric treatment clearly harms South Africa’s trade and government should be using its diplomatic engagements to work with Zimbabwean counterparts to ensure greater balance.

“South Africa’s trade agreement portfolio is one of the thinnest for an economy of our size. Fixing that is not complicated – it requires effort by both government and business, and a clear methodology for assessing where we can compete,” Mavuso emphasises.