AfCFTA – an uphill struggle in quest for regional trade on the continent

Picture : Bloomberg.com

The following article was published by Bloomberg and sketches the day-to-day hardship for cross border trucking through Africa. In a sense it asks the very questions and challenges which the average African asks in regard to the highly anticipated free trade area. While rules of origin and tariffs form the basis of trade across borders, together with freedom of movement of people, these will mean nothing if African people receive no benefit. As globalisation appears to falter across Europe and the West, it begs the question whether this is in fact is the solution for Africa; particularly for the reason that many believe globalisation itself is an extension of capitalism which some of the African states are at loggerheads with. Moreover, how many of these countries can forego the much need Customs revenue to sustain their economies, let alone losing political autonomy – only time will tell.

Nyoni Nsukuzimbi drives his 40-ton Freightliner for just over half a day from Johannesburg to the Beitbridge border post with Zimbabwe. At the frontier town—little more than a gas station and a KFC—he sits in a line for two to three days, in temperatures reaching 104F, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 550 miles farther north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back miles into the bush. “There’s no water, there’s no toilets, there are lions,” says the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads—the kind used in many manufacturing processes—to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to traverse just 1,000 miles. Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes, and a myriad of regulations that vary from country to country have stymied attempts to boost intra-African trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t. The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion and a market of 1.2 billion people. Agreed in May 2019, the pact is meant to take effect in July and be fully operational by 2030. “The AfCFTA,” South African President Cyril Ramaphosa said in his Oct. 7 weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are ever going to achieve their potential. Africa lags behind other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe. As a result, supermarket shelves in cities such as Luanda, Angola, and Abidjan, Ivory Coast, are lined with goods imported from the countries that once colonized them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalized market for services. “We haven’t seen as much institutional will for a large African Union project before,” says Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspeople who are supposed to benefit from it are skeptical. “Many of these governments depend on that duty income. I don’t see how that’s ever going to disappear,” says Tertius Carstens, the chief executive officer of Pioneer Foods Group Ltd., a South African maker of fruit juices and cereal that’s being acquired by PepsiCo Inc. for about $1.7 billion. “Politically it sounds good; practically it’s going to be a nightmare to implement, and I expect resistance.”

Under the rules, small countries such as Malawi, whose central government gets 7.7% of its revenue from taxes on international trade and transactions, will forgo much-needed income, at least initially. By contrast, relatively industrialized nations like Egypt, Kenya, and South Africa will benefit from the outset. “AfCFTA will require huge trade-offs from political leaders,” says Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the AfCFTA may allow poorer countries such as Ethiopia 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five. To further soften the effects on weaker economies, Africa could follow the lead of the European Union, says Axel Pougin de La Maissoneuve, deputy head of the trade and private sector unit in the European Commission’s Directorate General for Development and International Cooperation. The EU adopted a redistribution model to offset potential losses by Greece, Portugal, and other countries.

There may be structural impediments to the AfCFTA’s ambitions. Iron ore, oil, and other raw materials headed for markets such as China make up about half of the continent’s exports. “African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” says Trudi Hartzenberg, executive director of the Tralac Trade Law Center in Stellenbosch, South Africa.

Trust and tension over illicit activity are also obstacles. Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continentwide opprobrium after a recurrence of the anti-immigrant riots that have periodically rocked the nation. This could hinder the AfCFTA’s provisions for the free movement of people.

Considering all of these roadblocks, a skeptic would be forgiven for giving the AfCFTA little chance of success. And yet there are already at least eight trade communities up and running on the continent. While these are mostly regional groupings, some countries belong to more than one bloc, creating overlap. The AfCFTA won’t immediately replace these regional blocs; rather, it’s designed to harmonize standards and rules, easing trade between them, and to eventually consolidate the smaller associations under the continent­wide agreement.

The benefits of the comprehensive agreement are plain to see. It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with in 2019: Zimbabwe insisted that all duties be paid in U.S. dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% during the first year after the pact is implemented and more than double during the first decade. The AfCFTA represents a “new pan-Africanism” and is “a pragmatic realization” that African countries need to unite to achieve better deals with trading partners, says Carlos Lopes, the former executive secretary of the United Nations Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits. He’s relocating from South Africa, where he sold secondhand clothes, to his home country of Nigeria, where he wants to farm fish and possibly export them to neighboring countries. “God willing,” he says, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac. The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the AfCFTA can trim the red tape, at least driving the roads will be more bearable, says David Myende, 38, a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola. “The trip is short, the borders are long,” he says. “They’re really long when you’re laden, and customs officers can keep you waiting up to four or five days to clear your goods.” 

Source: article by Anthony Sguazzin, Prinesha Naidoo and Brian Latham, Bloomberg, 30 January 2020

Angola – New Customs Tariff

Angola CustomsThe introduction in the coming months of a new customs tariff in Angola is feeding expectations among economic agents that replacing the current regime will be a stimulus to the country’s growth.

A new customs tariff system, submitted to the Council of Ministers and expected to be implemented this year, proposes cuts on import duties on foodstuffs such as fruit and vegetables, cooking oils and grains (including wheat flour), as well as raw materials such as iron, steel and aluminium products as well as second-hand cars, the Angolan press reported.

The aim is to replace the existing customs tariff system – introduced in 2014 before the start of the economic and financial crisis now facing the country – which is generally regarded as protectionist of local farmers and manufacturers, seeking to make imports more expensive in order to encourage diversification of an economy that is highly dependent on oil.

The current tariff has been the subject of much criticism from local and international companies as well as from the World Trade Organization (WTO).

In its most recent report on Angola, the Economist Intelligence Unit (EIU) said replacing the current tariff would likely be a positive move, as it had the effect of increasing the cost of domestic production and reducing competition in the market.

Despite tariff protection, the EIU points out that operational challenges – such as a lack of electricity, poor supply chain management and lack of human resources – have kept the country dependent on imports.

In addition to this, the fall in the price of oil following the introduction of the 2014 tariff has limited access to foreign currency for Angolan companies, making payments to suppliers abroad difficult and, as the kwanza has weakened, imports have become significantly more expensive.

“If and when (the new tariff is) applied, the cost of imports should fall and this should help fight inflation. A less protectionist customs regime should also stimulate Angola’s trade with its neighbours and can help the country finally meet the long-standing promise of joining the Southern African Development Community’s free trade zone,” the EIU said.

“A review of Angola’s current punitive customs regime should give a positive boost to the national economy. However, it is still unclear when the new tariffs will be applied,” it said.

In 2016, Angola formalised its accession to the International Convention for the Simplification and Harmonization of Customs Procedures (Kyoto Convention) of the World Customs Organisation, which aims to facilitate international trade.

Each acceding country has a deadline of 36 months to apply the general rules of this agreement, which provides for the minimisation of customs controls between members, thus facilitating and simplifying international trade. Source: macauhub

TRALAC – What has happened since customs duties on 124 clothing tariff lines were increased in 2009?

I really enjoy TRALAC’s Newsletter – their analysis is always concise and down-to-earth. This Hot Seat Comment is no exception. One often wonders about the impact and nett result of tariff changes and trade remedies. Here we get some insight.

The clothing and textile industry has a long history in South Africa and is still a very important source of employment, especially for women and in poorer communities. The industry is geographically bound to specific provinces, including the Western Cape, KwaZulu-Natal, the Free State and Gauteng. In many rural areas the clothing and textile sector is often the only source of formal employment. Since about 2002 the Rand appreciated substantially and South African exports became less competitive in the global market. Coupled with the trade liberalisation, in terms of South Africa’s WTO offer, the clothing and textile industry has experienced sustained import competition due mostly from Asian imports. In order to try and remedy large-scale factory closures and employment losses in the industry the Southern Africa Clothing and Textile Workers Union (SACTWU) applied for an increase in the import tariffs of 124 clothing tariff lines to the WTO bound rates of 45 percent in 2009. These clothing tariff lines are classified under Chapter 61 and 62 of the South African Tariff Book and include various clothing items, including men’s woven and knitted shirts, jackets and trousers; babies’ garments; and women’s woven and knitted jackets, skirts, dresses and trousers. Although the retailers objected to an increase in import duties the International Trade Administration Commission (ITAC) granted the application and general customs duties on 121 clothing tariff lines were increased from 40 percent to 45 percent, while the general customs duties on three tariff lines (hosiery) was increased from 20 percent to 45 percent.

imagesIn its application SACTWU stated three reasons for the application: there has been a significant increase in imports under these 124 tariff lines flowing into South Africa; market disruptions in the SACU industry which have resulted in factory closures and retrenchments warranted increased protection for the domestic industry; and increased tariffs will provide both relief and show increased confidence in the industry. The retail industry objected to the application on the following grounds: the loss of business in the manufacturing industry can not only be attributed to price competition, but also inefficiency in the local industry; increased duties will have an inflationary effect impacting the ability of consumers to buy clothing at competitive prices; and increased duties will have a punitive effect on the rail sector and the end consumers. In its decision the Commission found the declining rate of investment and employment in the clothing sector coupled with increased imports a disturbing trend. The Commission decided that an increase in customs duties will enable manufacturers to protect existing jobs, increase market penetration and price competition and growth the domestic manufacturing sector in the export market. However, the question of whether the increase in these customs duties have been successful in reaching its goal of decreased imports and increased domestic production, sales and exports still remain.

Import and export data sourced from the World Trade Atlas (2013) and production and sales data sourced from Statistics South Africa (2013) show the following patterns in the clothing industry between 2009 and 2012:

  • Over the time period imports of the 124 clothing tariff lines increased by 15 percent, from approximately US$ 834 million in 2009 to approximately US$ 1.2 billion in 2012.
  • The top five importing countries were China, Mauritius, India, Madagascar and Bangladesh, accounting for 89 percent of the total imports of these clothing articles into South Africa over the time period.
  • China mainly exported men’s, boy’s, women’s and girl’s cotton trousers; knitted sweaters and pullovers; cotton and knitted t-shirts; and knitted babies’ garments to South Africa between 2009 and 2012.
  • South Africa’s exports of these clothing tariff lines increased by 6 percent, from approximately US$ 71 million in 2009 to approximately US$ 84 million in 2012.
  • These clothing articles were mainly exported to African countries, including Zambia, Mozambique and Zimbabwe.
  • The production index of the physical volume of production (base year is 2005) show there has been a significant decrease in the volume of production of knitted and crocheted articles and wearing apparel in South Africa. The index decreased from an average of 108.11 in 2009 to an average of 79.82 in 2012.
  • The sales of knitted and crocheted articles and wearing apparel also declined over the time period. Actual value of sales declined by 3 percent, from approximately US$ 18 billion in 2009 to approximately US$ 16 billion in 2012.

Although there has not been a significant lapse of time since the increase of import tariffs the data gives the short term response of imports, exports, and production to the change in import duties in November 2009. Immediately after the increase in tariffs there was an initial decrease in exports, production and sales.  However, exports recovered by the end of 2012, while production and sales are still significant lower than pre-2009 levels. SACTWU has also recently indicated that employment in the clothing, textiles and leather sector seems to be more stable over the last two years. However, one of the main objectives of the increase in import duties, to deter lower priced imports mainly from Asia, has not been accomplished. Source and content credit – Willemien Viljoen, TRALAC Researcher.

Customs Core Skills – in danger of extinction or a casualty of progress?

The recent death of a close friend and colleague – Lester Millar – brings to mind, once again, the dire situation of a dwindling ‘knowledge base’ in the area of Customs’ core competency. In an era where most customs or border management authorities are happy to employ people with a variety of tertiary qualifications – with the idea that this alone will be sufficient to ‘arm and support’ them in the field of customs/border control and management – what happened to the skills of yesteryear which allowed both government and trade practitioners to exercise their technical abilities to agree or disagree amicably on a customs tariff or valuation interpretation that could result in thousands of rands (ZAR) going to state coffers or the retailer’s bank account?

Many would argue that with the extent of automation and modern techniques, customs core skills are no longer valid or even necessary. Indeed the extent and design of systems goes so far as removing the relevance of human intuition and decision-making. Today we have automated risk management, automated duty calculation and declaration processing, automated cargo and goods accounting, any even a call centre – so is there really a role for a Customs specialist in the 21st century? Customs Managers today have their reports and other so-called ‘empirical data’ to rely on for decision-making and strategizing. The year-end revenue rush, it-self, relies on such computer generated reports negating the need for an internal ‘think-tank’ to devise means of collecting the hidden revenue before the deadline.

For those in the trade, a similar situation exists, with some difference however. The traditional customs clearance and cargo reporting process is highly mechanised these days and if your systems are up to the task, you can rest assured staff can remain glued to their seats and screens without having to venture to the Customs House. Here too, lies a significant change. The traditional Custom House no longer exists and is basically home to the ‘Customs Frontline’ which deals with ‘physical’ intervention and other trade services. Tariff, Valuation and Origin are now confined to back-office functions accessible via a call centre or tiered response mechanisms embedded in Customs’ new automated workflow; that is, if physical or telephonic access to regional customs specialists have been removed.

Few can dispute the advantages of technology supported processes. Yet, when things go array, even the knowledgeable people have difficulty in resolving an issue. Some suggest that human discretion is dangerous and counter-productive, which perhaps is true if left to an uncouth, power-crazy customs or border control official. Yet, ‘discretion’ is a tenet most necessary for interpretative and cognitive skills which once most Customs Officials used to have.

So what is this core competency to which I refer? First of all Customs competency requires an officer to reason, interpret and apply the customs law in the “fairest” possible way based on the facts at his/her disposal. So it means the officer must have an ability to discern; importantly between right and wrong. Discernment must also take into account an acute understanding of previous/historical evidence relating to a case. For a customs official, it will be important to comprehend the rights and legal obligations of the parties concerned, as well as the documentation relating to the case/transaction. Moreover, where a case/transaction deals with a matter of ‘tariff’, or ‘valuation’ or ‘origin’ the officer must at least have the basic knowledge and skills of the internationally defined rules of interpretation in these disciplines. I say ‘at least’, because in any of the mentioned areas, it may require an expert opinion to further conclude the outcome of a matter.

While automation will take care of validation and computation to the n’th degree, storing and retrieving vast amounts of data in milliseconds, the fact remains that a competent ‘human being’ is still required to preside over a complex decision. Good systems are built on ‘rules’, not exceptions. It is the latter therefore that requires ‘customs core competency’ to resolve.

Our dear friend and colleague Lester was gifted with a phenomenal ability to distill and comprehend information. This knowledge made him one of our finest, and sadly virtually last remaining tariff experts. Add to this, a wonderful and helpful nature and willingness to serve the public – a not too common trait nowadays. Adios Lester…..since we did not fully profit from your time with us, may we at least profit from our loss!