Many challenges in expanding SA agricultural exports into Africa
SA’s agricultural sector is arguably one of the most vibrant on the continent.
This has largely been occasioned by technological adaptation, sound knowledge, regional and overseas market access, and logistical efficiency.
Hence, the importance of trade and logistics to SA’s agricultural sector cannot be over-emphasised.
This is because our agricultural sector is highly export-orientated, with roughly half of the produce in value terms exported each year.
However, for the sector to remain vibrant it will have to urgently and continually expand and diversify its markets beyond the traditional ones such as the Southern African Development Community (SADC), the European Union and several in Asia.
This urgent matter came up sharply in a range of engagements my colleagues and I had with agribusiness captains in the Western Cape last week.
I suspect that if one were to have similar talks here in the Eastern Cape, the feedback would broadly be the same, especially as the province is expanding its horticultural production and focusing on boosting exports.
The desired export markets for agribusinesses in horticulture, wine, grains and aquaculture industries, beyond our existing markets, are Japan, China, Saudi Arabia, Bangladesh and India, among others.
There is also interest to expand trade within the African continent beyond the SADC region, where nearly 89% of SA’s agricultural exports to the continent are concentrated.
The continent is also a special case as the African Continental Free Trade Area (AfCFTA) is set to provide further opportunities for the expansion of SA’s agricultural exports, while the rest of the other countries I mentioned still need further engagement to establish market access.
But the main question is whether the African continent can really be the saving grace for SA’s agricultural exports, as it is purported to be.
In an article for Econ3x3, an independent forum for public policy debate, fellow agricultural economist Dr Tinashe Kapuya and I considered this question.
Our view is that the benefits of the AfCFTA are not as much as many have reported, due to structural limitations to expansion into untapped markets in the continent.
Most of SA’s agricultural exports into the African continent (89%) are concentrated within the Southern Africa Customs Union (SACU) and the Southern African Development Community (SADC) Free Trade Area (FTA).
However, the product scope of exports into the SACU and SADC is quite diverse and includes maize, processed food products, apples and pears, sugar, animal feed products, prepared or bottled water, fruit juices and wine.
With 90 cents out of every rand in African agricultural exports earned within the SACU/SADC under an expanded diverse set of products, it is important to diversify export markets beyond the region.
But just how much more can SA export beyond the SACU/SADC, into the West, East and North Africa regions?
The challenge is that Saharan Africa (that is, Algeria, Libya, Mauritania, Morocco and Tunisia) is much closer to Europe and thus its trade activity is more interlinked with the EU than Sub-Saharan Africa.
In addition, SA competes with this region for several products the exports of which the country intends to increase — primarily the high-value horticultural products.
Penetrating and establishing a market presence in North Africa may prove challenging due to direct competition with well-established EU supply chains and competitive local produce.
SA’s realistic opportunity within the African continent is more in the East and West Africa regions.
But we are not sure whether the near-term would yield many benefits for SA in this region due to at least three reasons.
First, the East and West Africa regions have a range of Non-Tariff Barriers (such as the ban of genetically modified products, which are grown in SA), which could remain a hindrance in boosting trade regardless of lower tariffs brought about by the AfCFTA.
Second, the high level of corruption in some of these targeted countries increases the costs of doing business, which has proven to be a major issue of consideration for South African businesses.
Last, the fragmented value chains due to poor connectivity and infrastructure are also major contributors to high transport and storage costs, which tend to increase significantly as goods are transported inland.
This narrow scope of expanding agricultural exports in the African continent is what typically leads to frustration among the agribusiness leaders, who continue to see improvement in production domestically but limited avenues for external sales.
The major economies in the east and west of the African continent, Nigeria and Kenya, remain very small markets for SA’s agricultural exports, each accounting for a mere 2% a year.
The composition of food and agricultural imports into these two countries from the world over is mainly in staple grains and vegetable oils, which is also indicative that SA’s scope to export high-value horticulture, meat and wine products is limited.
Notably, Kenya’s horticultural production is steadily expanding.
In sum, my inference from the Western Cape roadshows is that agribusinesses are eager to work with the government in expanding export markets for SA’s agricultural products.
But due to the aforementioned hindrances, efforts will have to be channelled into the Asian and Middle Eastern markets, such as Japan, China, India, Bangladesh and Saudi Arabia, instead of the African continent, which presents limited opportunities.