Can regional trade recover post-Covid?

There is much that needs to be done to facilitate smooth regional trade post-Covid

The African Continental Free Trade Area is scheduled to go into operation in January 2021, thereby theoretically providing a historic opportunity to deepen trade and economic integration. A recent IMF Working Paper on competition, competitiveness and growth in Sub-Saharan Africa gives empirical evidence that, compared to other policy actions, trade liberalisation appears to be a particularly potent tool for mitigating market power and encouraging industrialisation. This should further strengthen the role of trade policy as a tool to boost efficiency strategies for recovering from the crisis.

The Southern African Development Community (SADC) has a market population of 344,8-million (if the four island nations are included). This is a population larger than the US (although with less buying power). Turning the SADC into a customs union such as the East African Community (EAC) would remove the current barriers caused by customs and excise duty on goods.

The introduction of efficient transit systems to overcome all the current burdensome customs regulations and unnecessary police interventions would save about 20% of the current road transport costs of interstate trade. The current cost of excess delays is about $ 1,3 billion a year (R21,3 bn), which is paid primarily by the landlocked interior countries and has negative connotations for regional competitiveness.

In South Africa, is essential for radical change to improve the ease of doing business and encourage successful regional market competition, and that could be implemented relatively inexpensively. For example, the number of state agencies that require paperwork, inspections and fee payments at the borders of South Africa for goods to move into or out of the country is ridiculous. The bilateral cross-border (exit-tax) permits in all SADC countries (South Africa R400 million a year), are an example of unnecessary and fruitless imposts, as agreed by the SADC Tripartite in the trade liberalisation study 2010 – 2013  .

For South Africa, as the largest exporter of finished goods in the region, there is a need to improve the efficiency of the movement of goods on the trade corridors into the region. The current cost of a 30-ton load or a container between Durban and Lubumbashi is approximately
US$10 600 or $350 (R5 600) per ton due to the many charges and delays on the North-South Corridor. The costs have serious impact on the potential for RSA exports into the region, and restrictive impacts on industrial development in the landlocked countries. South Africa exports approximately 40% of agricultural production to international destinations, but the intraregional trade consist mainly of processed foods and some consumer and industrial goods.

Post-Covid recovery will require increasing local production of consumer and industrial goods, which will depend on efficient distribution channels and measures to promote industry and employment, whilst reducing the costs of transport.

The challenge for South Africa is to redevelop much of the industrial capacity that has been exported to the east, as the means to absorb unemployment and reduce dependence on government grants and poverty relief measures. The promotion and acceptance of South African industrial products in the region will be dependent on their cost and quality, in competition with the large-scale imports from more developed countries. Exorbitant local transport costs will be counter-productive. As road freight is by far the most important mode for distribution into the region, it is important that the road transport industry takes the initiative to introduce efficiency measures, in cooperation with the authorities in the region. Failure to address the problems will lead to further erosion of the interior markets and increasing pressures for regional producers to find alternative supply chains and import/export corridors.

Fast-tracking the movement of goods is essential for productivity and efficiency and to reduce the costs of imports and exports in all countries of the region. For this reason, the Federation of East and Southern African Transport Associations (Fesarta) has initiated a process to create a Freight Transport Carnet (FTC) system similar to the internationally accepted Transports Internationaux Routiers (TIR) system of the International Road Transport Union (IRU). The system will serve the primary purpose of providing a guarantee to all national customs that all excise dues, fees and levies will be paid by a local entity, in the event that seals are broken and goods missing at a border.

The payment is guaranteed, irrespective of the nationality of the vehicle or the cause of the irregularity. The certainty of the guarantee obviates any need for customs to inspect goods and permits rapid transit of vehicles with FTC sealed loads. The simplicity of the system reduces the national bond documentation, and the electronic pre-clearance and GPS tracking provides rigid control of the movement of goods. The system will become available to operators registered with and monitored by the transport associations, thus permitting the industry to self-regulate compliance.