JOHN MARÉ: Obstacles to improving African trade pile up

The challenges to improving African trade, critically important for economic growth, are already considerable and overcoming them remains a priority for the continent. Despite many successes in improving conditions, the obstacles continue to appear, including with a decline in the rules-based system of the World Trade Organisation (WTO), and new regulations being imposed by key trading partners with extraterritorial impact.

The general international push for green economies has in particular often been accompanied by trade-related response measures as applied by the EU, US, UK, Australia, Canada, Japan and others. The EU, SA’s leading overall economic partner and a leading economic player for much of Africa, has been a global leader for creating and imposing new trade-related policies that threaten African trade, even though they are supposedly intended to strengthen actions supportive of environmental wellbeing along with the European Green Deal and counter climate change.

One of the most challenging new EU policies affecting African trade is the carbon border adjustment mechanism (CBAM) now being implemented. This is the world’s first carbon border tax, being aimed at embedded greenhouse gas emissions of carbon-intensive products imported into the EU. In aiming to reduce carbon emissions, it is a key policy facet in the context of the European Green Deal and related in turn to combating climate change.

The CBAM and other new EU requirements, including various new due diligence procedures being imposed on many imported products, impose substantial hurdles for African trade. Their linkages to environmental concerns make them especially relevant and potentially harmful for African bio-economies, something of growing relevance and potential for SA and Africa, as the successes already being achieved by the SA commercial forestry sector illustrate. Other threats to African exporters, again with particular relevance to the bio-economy, are the new EU deforestation regulation and the upcoming US Forest Act. Many see most of these non-tariff barriers as protectionist actions, whether by intent or unintentionally.

African exporters face great challenges to comply with these regulations, usually requiring considerable funding and other resources often not possible to meet. When they are complied with, the African exporters are still at a particular disadvantage due to the higher tariffs or penalties often imposed by the EU, undermining African economic growth while discouraging trade and related interaction with the EU.

Apart from inhibiting factors from outside Africa, the supportive infrastructure within African countries continues to need improvement, especially given the need to move towards the full implementation of the African Continental Free Trade Area (AfCFTA). Improved transport infrastructure can facilitate growth in intra-African trade as well as the integrated, diversified regional economies seen as essential for improving African economic growth, and the benefits of the AfCFTA, yet less than 20% of Africa’s trade is now intra-regional. Improved logistics are also critically important for building the global value chains that are much needed in Africa.

Africa’s physical infrastructure and regulatory infrastructure need improvement, including policies, institutions and procedures to support trade as well as legal systems closely linked to good governance. Harmonising and co-ordinating regional and national legal systems remains a challenge but is essential for intra-African trade and AfCFTA implementation. In addition, trying to meet the new external regulatory challenges for trade only adds to the complexity of all internal regulatory needs inside African exporting countries

As with legal matters there are many peculiarities unique to Africa relating to finance, a critical factor for African trade. The dimensions and complications regarding African trade finance, which can often arise when international dimensions are also present, are many and again unfortunately the African input into the relevant systems is too weak for African circumstances to be taken into account.

It would seem imperative for diplomatic dialogue between the EU and affected African countries, including SA, to take place as soon as possible to find options for overcoming the problems, especially matters that need urgent attention such as CBAM. Options need to be found that take into account the interconnections of supply chains and the global effect of market-driven decisions.

At a recent Round Table of the Africa-Europe Centre for Investment & Trade (AECIT) held at the SA campus of Henley Business School, suggestions included that regulations should be coupled with appropriate technical assistance and capacity-building programmes for African exporters while stakeholders in markets should incentivise sustainable suppliers. The global transition to sustainable development has numerous effects on trade and must be addressed in a holistic manner, cutting across all spheres of government and policy. Africa has to address the reality that it is subject to economic coercion wielded by the dominant trading powers in the international community.

SA is the only African country that is a formal strategic partner of the EU, so this could be an opportunity for SA leadership on behalf of many African economic interests to help improve the situation. Nevertheless, the timing of the next high-level EU-SA summit still seems uncertain, with media recently carrying allegations that SA has ignored EU requests for a new summit for more than a year, something subsequently denied by both sides.

Unfortunately, the concerns of African exporters, especially those linked to small and medium enterprises (SMEs), are usually not known in Brussels or Washington, where decisionmakers often don’t fully comprehend the impact of what they are doing on sustainable development in Africa. The need was stressed at the AECIT event for a stronger African voice in the capitals of major trading partners. A variety of African experts and stakeholders must engage EU and other non-African decisionmakers, with the private sector playing a key role. Stronger public-private sector co-ordination is imperative.

The need for improved intra-African dialogue nationally, regionally and on a continental basis is also relevant. The SA government, as with many others in Africa, must understand the dire need for improved infrastructure and procedures. Innovative options for improving trade conditions, especially beneficial for the bio-economy, must be found and consideration of such models — such as that between business and the government in Sweden — must be explored for local implementation.

• Dr Maré is a former SA diplomat, now an adviser on international public affairs and diplomacy.