Tshepo Morokong, Louw Pienaar, Wandile Sihlobo, Econ3x3/Agbiz e-newsletter, 16 February 2021, photo credit: Wikipedia
The new African Free Continental Trade Area phases out 90% of tariffs on all goods traded between African Union member states over a 5 to 10 year period. This seeks to boost intra-African trade and investment in regional value chains. The current 41% share of SA agricultural exports that goes to Africa is concentrated in SADC. The opening of other markets presents an opportunity for further expansion in goods such as oranges, apples and wine.
The 1st of January 2021 marked the historic and much-anticipated start of trading under the newly established African Continental Free Trade Area (AfCFTA). This trade agreement, signed by 54 of the 55 African Union member states, seeks to deepen market integration on the continent, boost intra-African trade and promote regional value chains toward economic transformation through industrialisation.
For some years South Africa’s government and the business community have recognised the strategic importance of the African market for increased agricultural investment and exports. After all, the African continent accounts for 41% of South Africa’s agricultural exports of an average R131 billion a year (ITC 2020).
As part of unlocking the agricultural sector’s potential under this new agreement, market research was conducted as part of the Western Cape Department of Agriculture’s Africa Agenda research effort (Morokong & Pienaar 2019). This article highlights reasons why the African market is vital for agricultural trade as well as the main drivers of growth and opportunities for South Africa’s agricultural products.
Agriculture is central to Africa’s development agenda and has the potential to contribute positively to the realisation of the Sustainable Development Goals (SDGs), more especially those aimed at ending poverty, hunger and starvation. Agriculture contributes 15% to Gross Domestic Product (GDP) in sub-Saharan Africa, creates employment for more than 50% of the labour force and is a mainstay of around 33 million smallholder farms (Morokong & Troskie 2019; IFAD 2020).
Moreover, agriculture’s role in facilitating broader economic development in other sectors of the economy has been confirmed for many decades (Morokong & Pienaar 2019). However, to further unlock this potential, productivity growth in agricultural production, coupled with increased regional integration is essential. It will require substantial investment in rural infrastructure, agricultural research, new technologies (both biotechnology and mechanical) and extension services.
Some of the main drivers of demand for agricultural goods and increased intra-African trade include the emergence of the middle class in Africa, rapid urbanisation, and fast-changing dietary preferences that have transformed food systems (Morokong & Pienaar 2019; Johnston & Mellor 1961; Tschirley et al. 2015). The projection that 90% of world population growth is expected to come from Africa (UN 2017) and that many of these economies are amongst the fastest growing in the world suggest that the AfCFTA will translate into increased trade in agriculture and agri-processing products. Naturally, this provides opportunities for the farming sector and various agribusinesses – accompanied by increased competition due to the reduction of tariffs.
The total value of agricultural imports into Africa from the world has grown from R167 billion in 2001 to more than R1.1 trillion in 2019, representing an average annual growth of 12%. South African agricultural exports to Africa has outperformed this growth, increasing from R4.8 billion to R52.7 billion over the same period – an average growth of 14.7% per annum (Ncube & Lufumpa 2014; ITC 2020).