The African Development Bank (AfDB) launched its annual African Economic Outlook report noting that Africa’s general economic performance continues to recover, with gross domestic product (GDP) growth expected to peak at 4% in 2019 and 4.1% in 2020.
The pro-trade development finance institution was quick to point out that some Southern African Customs Union members have in the past year imposed trade restrictions and local content requirements on imports of certain food products from South Africa, which defeats the rationale of regional integration.
AfDB’s flagship report also notes that adjusted growth for the continent’s GDP was 3.5% in 2018, buoyed by stellar growth in East Africa at 5.7%. Southern Africa lagged at 1.2% in 2018.
First published in 2003, the African Economic Outlook reaffirms the need to reduce trade costs to increase participation in trade supply chains in addition to enforcing the Continental Free Trade Agreement that was signed in March 2018.
An immediate objective of the Continental Free Trade Agreement is to increase participation in cross-border supply chains by reducing trade costs through regional integration,” states the report.
African countries have participated little in global trade supply chains except in upstream activities as providers of unprocessed goods and raw materials.
SA supermarket chains resilient
Despite South Africa not being among the 44 countries that signed the free trade agreement, the latest outlook from AfDB shows that Africa’s most industrialised economy’s supermarket chains have been instrumental in fostering regional integration.
By 2015, South Africa’s largest retail chain, Shoprite Holdings, had some 250 outlets in other African countries. While revenues in the rest of the continent are still much smaller than those from sales in South Africa, they are rising as a share of smaller neighbouring economies.
These outlets are mainly supplied from South Africa, which means that these retail giants have a strong interest in easing cross-border constraints.
Although the supermarket chains are still impeded by poor infrastructure and lengthy delays at borders, which raises operating costs, they are critical in keeping South Africa’s balance of trade position positive.
Trade is currently largely one way: in 2017, the value of South African exports of processed foodstuffs to the rest of the continent was more than five times that of its imports, the report notes.
A victim of their own success across the region, South African supermarket chains have inadvertently attracted tariffs over the past 18 months as local governments look to protect their local suppliers.
The countries that are hosting this South African retail expansion are increasingly concerned with the disadvantaged position of domestic suppliers and, with the support of local firms, neighbouring countries are starting to pressure the supermarket giants to expand domestic supply, according to Reena das Nair, a senior researcher at the Centre for Competition, Regulation and Economic Development at the University of Johannesburg.
Bans and restrictions
In addition, the report notes that member states of the Southern African Development Community (SADC) and the Southern African Customs Union have imposed trade restrictions and local content requirements on imports of certain food products from South Africa.
Botswana, Zambia, and Zimbabwe ban imports of poultry, maize meal, and cooking oil, and Zimbabwe’s competition and tariff by-laws require supermarkets to purchase at least 20% of their products domestically,” says the report.
Meanwhile, most of the chains have introduced supplier development programmes, partly in response to pressure from governments but also as part of their sustainability programmes. A condition of the Walmart/Massmart merger was the establishment by the company of a R240 million supplier development fund.
In Zambia, Shoprite has signed memoranda of understanding with the Zambia Development Agency and Private Enterprise Programme Zambia to promote small firms and Namibia has a formal retail charter, though it is voluntary.
Suggestively, however, the report recognises key trade policy actions such as eliminating bilateral tariffs in Africa, keeping rules of origin simple, and removing all non-tariff barriers on goods – which could potentially bring Africa’s total gains to 4.5% of its GDP (US$134 billion) annually.
With the continent’s working age population expected to rise from 705 million in 2018 to nearly a billion in 2030, regional suppliers have never been more relevant.
South African exports of processed foods are progressively going to the region, highlighting the importance of the region to South African suppliers.
The rapid growth of South African exports into the region is closely linked to the supermarket take-off that started in the early 2000s, and this affirms past studies that claim that the growth of supermarkets is associated with increased trade in processed foods.
Article by Arnold Segawa, Moneyweb South Africa