How China and the West have distracted South Africa from its one real chance for economic growth to break out of its cycle of inequality and poverty
The recent Forum on China-Africa Cooperation (FOCAC) summit held 4th and 6th September 2024 in Beijing was widely pitched as a success for South Africa. Bathing the country with international attention as the BRICS summit in August 2023 and held in Johannesburg itself, had also done before it. International limelight that the country seems to crave, and almost a foreign policy objective in and of itself.
FOCAC looked to rejuvenate China’s relationship with the Global South that has sagged in recent years, as infrastructure spending and lending to the continent has gone the way of China’s economy.
But for all the august ceremony and speeches, meagre on actionable economic policy as they were, it was hard not to feel a sense of despondent déjà vu towards South Africa’s foreign policy priorities. In its drive to remain relevant on the wider international stage, South Africa is letting a once-in-a-generation opportunity flounder in its own backyard.
As yet another global power bedazzles with a proverbial carrot and promises to deliver where others have failed before them, the Africa Continental Free Trade Agreement (AfCFTA) is being subtly undermined. A travesty given that there is wide consensus that South Africa will be one of the agreement’s biggest beneficiaries.
For if comprehensive action is not taken soon, the continent-wide, no-barrier free trade agreement might go the way of other grandiose pan-African agreements and dreams.
South Africa appears to be on the up and up recently.
There has been a steady trickle of positive news finding its way into the business, finance and economic columns of the international press[1], unprecedented in recent times, a change from decades of doom and gloom and repeated portents of a failed state.
At a recent conference organized by the local media group News24 in Johannesburg[2] that brought together heavyweights that included CEO’s of banks and officials at the highest levels of the civil service, all were ready to open floodgates of optimism, albeit cautiously. The consensus, especially among the finance and business panelists is that South Africa is on the cusp of a cyclical upswing. From better government with a heightened sense of urgency, following the formation of coalition government in June this year, to a more favourable global economic environment with interest rates coming down across the board. Jason Patrick Quinn, Chief Executive of Nedbank predicted that even the one dark cloud looming over the world economy, that of China itself currently dealing with its own structural problems, could prove to be a tailwind for South Africa.
But while the GNU (grand coalition between the ANC and main opposition party the DA, amongst others) has had what many consider to be a solid start, when it comes to international affairs, on both sides of the political aisle, it appears depressingly to be business as usual.
For all the elevated talk at the 9th FOCAC summit and promises of words being backed by action in coming months, tangible benefits from the China-South Africa relationship remain as elusive as ever. Hard analysis of the financial pledges made is difficult, the announcements cloaked in a lack of transparency that has become a cornerstone of China’s tight grip on information flows that now extends even over its own economy.
One insightful source though on the China-Africa relationship is the Wits University-sponsored China in Africa podcast. A show that itself got swept up in the information clamp down when the number of Chinese officials prepared to come on the show dried up shortly after the pandemic. But into this vacuum came erudite analysis.
When it comes to the main proclamations made, Eric Olander, co-presenter on the China in Africa podcast speculated that the largest share of the USD$50.7 billion pledged to Africa at the FOCAC summit– announced in yuan for the first time in another subtle rebuttal to the western-dominated international financial system – would all be in credit lines from the Chinese Export-Import Bank (EXIM) and China Development Bank to Chinese companies that will not serve the interest of Africa’s private sector in any meaningful way. As for the rest, USD$11.27 billion pledged as “assistance in various forms” over three years is meagre by historical standards and eclipsed by the USAID budget to the continent of around USD$8 billion a year. And the rest, USD$9.9 billion would be private investment that Olander observed had no business being part of a state-driven declaration at the FOCAC summit.
In South Africa, the EV plants that BYD – the Chinese electric auto maker – has shown an interest in setting up, probably have tariffs in the West, as high as 100% in the U.S. on its mind as much if not more than harnessing access to critical minerals and engineering skills in South Africa. And while China praises its relationship with the African stalwart that it now considers to be a strategic partnership, one rung below that with Russia, its USD$1billion public-private partnership investment in another part of Africa, the TAZARA railway between Zambia and Tanzania, will almost certainly take traffic away from the port of Durban as Chinese mining companies are redirected to use the railway line that will be built and run by Chinese companies (before being handed over eventually to African operatives in Tanzania and Zambia).
At a press conference following on from the FOCAC summit, and held at the scenic Pretoria National Botanical Gardens, Chinese ambassador to South Africa, Wu Peng, as softly spoken as he was cogent, drove home the official line – that of China as a champion of the Global South and South Africa’s closest international partner. It was noted that President Xi has made more State visits to South Africa, five times, than to any other country.
The only trade announcement though of substance at the press gathering was a deal on South African beef exports, made by President Ramaphosa’s spokesperson, Vincent Magwenya. Magwenya spoke of its ability to transform the entire beef value chain in the country. But again, looking at the bigger picture, South Africa’s ability to export its agricultural produce to China has been stifled. China has a trade deficit in agriculture with the world of about USD$117 billion. That should have presented huge opportunities for South Africa, and yet, it is ranked the 32nd biggest importer into the Chinese market, making up just 0.7% of Chinese agri-imports in 2023.
Wandile Sihlobo, chief economist for the Agriculture Business Chamber of South Africa wrote in a recent article for The Conversation– an academic-led Africa-wide media outlet[3]. “South Africa stands as an anomaly among top agricultural exporters with limited access to China for various products.” It is hobbled by competition by the likes of Australia and Chile who have trade agreements in place with preferential access to China’s food market.
Furthermore, it isn’t simply tariffs that are the problem. Non-tariff barriers (NTBs) loom large in the thoughts of the South Africa’s farming community. Impediments such as phytosanitary constraints on rules that regulate production (such as antibiotics) can prove to be just as problematic, if not more. Cobus Van Standen, the other co-presenter on the China in Africa podcast, called them out for being as strict as those applied in Europe and the U.S.
All in all, South Africa continues to be burdened by a large trade deficit with China, importing far more than it exports to it. An imbalance that reached close to USD$600 million in the year leading up to June 2024, according to the Observatory of Economic Complexity (OEC), an international trade data platform.
Like all global powers, with one hand it giveth, and the other it taketh.
South Africa’s real advantage: what it has over Africa, not the rest of the world
For all the energy and attention now being poured into exporting to the Chinese market, South Africa has the largest market with far less NTBs and trade facilitation issues to worry about right on its doorstep. It already exports 38% of all its agricultural produce to the rest of the continent Under AfCFTA, it could truly benefit, something that will only increase as instability wrought by climate change makes food scarcity on the continent more acute.
According to the Institute for Security Studies (ISS) that provides a modelling platform for forecasting Africa’s economic path under various scenarios, South Africa would see the second largest increase in agricultural exports to the continent were the AfCFTA fully implemented. That is an increase in its value by USD$1.5billion a year by 2043 (at 2017 prices), second only to Angola.
But where South Africa stands to gain the most is in manufacturing, and not just by a small margin. According to ISS Africa futures modelling, a country that already dominates the market trading 80% of all manufactured goods on the continent would see the value of its boosted by just under USD$50 billion a year by 2043 under a strong AfCFTA. That’s almost a 50% increase from today, Egypt a distant second at USD$25 billion a year.
The AfCFTA
To be honest, I am tired of hearing about the benefits that could accrue from the trade deal that I can repeat in a mantra-like manner, still all on paper and a distant dream: The largest trading bloc on earth made up of 1.3 billion people, of which 60% will be under the age of 25 by 2050. Lift 50 million out of poverty, catapult collective GDP to USD$29 trillion by the same year and see the value of its exports increase by around USD$560 billion (10%of Africa’s GDP), mainly in manufacturing.
The truth is that since 2015, the year negotiations for AfCFTA were launched, intra-African trade has fallen from a peak of 20-21% to 14-15% in 2023.
On the surface, trade deal negotiations seem to be progressing, if not at a snail’s pace. 48 out of 54 territories have ratified the agreement, and even the last hold out on the continent, Eritrea has apparently agreed to join according to Wamkele Mene, the Secretary General of AfCFTA (and a South African national). 48 tariff offers on trade in goods, of which 45 have been verified by the AfCFTA Secretariat, have been submitted that cover 90% of all tariffs in goods on the continent.
But dig a little deeper and all is not well.
The din of grumbles from those involved in negotiations or with deep knowledge of them are fast becoming an audible chorus. During an ISS seminar on AfCFTA, Tembeki Mlangeni, Director on Market Access Negotiations at South Africa’s Department of Trade, Industry and Competition spoke of misgivings on progress, given that preferential trade under AfCFTA was meant to start in 2021.
To date, only 14 members had reached the final step of gazetting (official government publication) their Provisional Schedule of Tariff Concessions and began preferential trade under the terms of AfCFTA, exclusively in North, East and Southern Africa. That includes South Africa, but always wary of its duties to its own regional economic bloc, the Southern African Customs Union (SACU), it only finalised its schedule once the rest of the bloc had too in January this year and commenced trading under the AfCFTA in February 2024.
Furthermore, the concessions offered do not cover large areas of Africa’s industrial base, in textiles and automotive that remain outside AfCFTA’s reach. Rules of origin, that is how much of a finished product needs to be produced within the trading bloc and how much of it can be imported, especially haunt negotiations. Automotive products in particular appear caught in a Catch 22 – where there is not enough know-how or capacity to produce a vehicle in its entirety in Africa, but where countries are not willing to concede in negotiations so that African producers have time to learn from their partners outside of the continent.
And all these problems just relate to trade in goods. Movement on tariff-free trade in services that includes such lucrative priority sectors in financial, communications, transport, tourism and business services are stuck in the doldrums, with South Africa nowhere in sight. Only 13 countries to date have had their draft schedule of commitments verified by the Secretariat. And problems arising from negotiations on NTBs such as digital certification, simplified customs procedures and anti-dumping rules, could yet kill the trade deal on their own as Mlangeni herself remarked.
South Africa: where there should be energy and adroitness there is only delay and intransigence
South Africa, while implementing parts of the AfCFTA, has shown no drive or authority in promoting the trade deal to guarantee its success. It has acted as a bit player, a country amongst equals when its economic weight and self-interest should have dictated it be far more proactive.
As Mlangeni, herself in a South African civil servant laments, the AfCFTA has no real teeth, it has a monitoring system but no legal or institutional framework to keep members accountable. South Africa should have long ago leveraged its considerable weight to both assist and cajole members into applying the trade deal. Magwenya spoke of President Ramaphosa’s annoyance when he learns that a trade deal has not been implemented at the FOCAC press conference in Pretoria. Without the country extending its institutional and bureaucratic know-how, especially to countries that stand to lose in the short-term under the AfCFTA, it is likely the President’s annoyance will only get worse.
South Africa though has not only left a vacuum, but has put up subtle resistance to several aspects of the deal, in a drive that only serves the country’s near-term interests. While it co-sponsors the Protocol on Digital Trade for example, that under the AfCFTA would allow barrier-free continent-wide digital commerce, it opposes an extension to a moratorium (along with India and Indonesia) on a ban on customs duties on digital trade at the WTO, something that is central to any potential digital trade deal under the AfCFTA.
Nowhere though can its intransigence be seen more than in not signing up to the Pan-African Payment and Settlement System (PAPSS). Even Mene himself, in a recent article for CNBC Africa[4] expressed disappointment that Africa’s largest economy had been slow to sign up, a country he believes stands to benefit the most with its already strong trade flows in manufacturing and agriculture to the rest of Africa.
PAPSS allows countries to trade with each other in the continent’s 42 currencies, without the need to convert to an outside one – almost exclusively the U.S. dollar – and then convert back again into the local currency. The system is likely to save the continent about USD$5 billion dollars a year, paid exclusively by companies who export their goods into Africa. To put it in context, as Mene highlighted, a company that sells say USD$500 worth of goods across an African border, currently pays about USD$50/60 more to use the international; dollar-denominated SWIFT system. Under PAPSS they would pay just USD$2 fir that transaction.
The Africanised payments system goes far beyond bestowing economic benefits and a cheaper way of doing business. On an increasingly unstable global geopolitical stage, where the U.S. and Europe are prepared to cut those they deem to be destabilising the world order like Russia from the SWIFT system, South Africa could easily find itself in the crosshairs with its tilt east one day soon, especially under a Trump presidency.
As Mene put it in the CNBC interview, “If today you upset somebody in Washington, in London, you will be kicked out of SWIFT and you will not be able to transact with the rest of the world. So, it is not just about the issue of ensuring payments, it is also about the political sovereignty. It is a political economy question.”
Better to be a big fish in a small pond than a small fish in a big pond
So, it begs the question, why does South Africa drag its heels?
South Africa’s robust financial sector is strongly tied to that of the U.S. and Europe. It probably worries that PAPSS would undermine that relationship. But more than that, South Africa – with its turn to BRICS+ and closer ties to China, might feel that the system would de-stabilise its ability to participate in that trading bloc, still all hypothetical of course, unlike under AfCFTA where preferential trade is already in place. First mooted at the BRICS+ summit in Johannesburg late last year is the idea of a single currency amongst BRICS+ countries. Something that if South Africa’s government is taking seriously behind closed doors, would almost certainly weigh on its consideration in ratifying PAPSS.
The longer South Africa lives under grandiose delusions that it is a big global player, more style than actual substance, and lacks a clear long-term focus over its own trade policies, the more it will erode the one trade deal from which it has much to benefit from and that would be the easiest option in lifting its own people out of unemployment and poverty. Just as frustrating is the lack of media attention on AfCFTA and the slippage it is now suffering, that instead goes to FOCAC, China, BRICS+ and the country’s legal crusade against Israel.
It is time for South Africa to be cogent and use its considerable African economic weight to inject impetus and help make the African trade deal a tangible success. A trade deal that it stands to benefit the most, far more than unrealised promises, not just from China, but every other large trading bloc in the world.
As Jean-Bertrand Azampo, Strategic Adviser to the AU Commission expressed succinctly at the ISS seminar, “The only option for Africa is to realise its economic integration. You can have all the agreements you want with the rest of the world, but to go from Point A to point Z, we need that integration. No-one is going to solve our problems. Development is a do-it-yourself affair. No-one is going to do it for you.”
FOOTNOTES
[1] (Bloomberg: ‘Dubious About South African Democracy? The Bond Market Isn’t’ on 15th July 2024, ‘South Africa’s Coalition Government Triggers Wave of Investment’ on 23rd July 2024, “South African Stocks Tipped to Extend Record-Setting Rally” on 30th September 2024).
[2] 27th September 2024, News 24 On The Record at the Forum Campus, Bryanston, Johannebusrg
[3] 15th September 2024 “South African agriculture needs to crack the Chinese market. How to boost exports.”
[4] 27th August 2024, “AfCFTA Sec-Gen laments South Africa’s Absence from PAPSS”