This comes against the backdrop of Africa being the largest market for SA’s agricultural sector - accounting for an average 43% (or US$4,1 billion) a year of all agriculture exports over the past decade.
Having said this, Wandile Sihlobo, Agricultural Economist and Head of Agribusiness research at the Agricultural Business Chamber (Agbiz), asks the question: how much more potential can be unlocked in the African market? Considering that the benefits of the AfCFTA are not as much as previously thought, due to structural limitations that will prevent the agricultural sector from expanding its exports into untapped markets.
Expanding beyond the SACU and SADC trade areas
Firstly, most of the country’s agricultural exports into the African continent (89%) are concentrated within the Southern Africa Customs Union (SACU) and the Southern African Development Community (SADC) Free Trade Area (FTA). However, the product scope of exports into SACU and SADC is quite diverse and includes maize, processed food products, apples and pears, sugar, animal feed products, prepared or bottled water, fruit juices and wine are some of the key products exported to this region.
With 90 cents out of every rand in agricultural exports earned within SACU/SADC under an expanded diverse set of products, it is important to diversify export markets beyond the region.
The most reasonable assumption is for South Africa to target West, East and North Africa.
Competing against well-established EU supply chains
Secondly, and given the forgoing, Africa north of the Saharan, more specifically the Maghreb region (i.e., Algeria, Libya, Mauritania, Morocco and Tunisia) is much closer to Europe, and thus its trade activity is more interlinked with the EU rather than sub-Saharan Africa.
In addition, South Africa competes with this region for a number of products the country intends to increase its exports, primarily the high-value horticulture products. Penetrating and establishing a market presence in North Africa may prove challenging due to direct competition with well-established EU supply chains and competitive local produce. As such, South Africa's realistic opportunity within the African continent is more in East and West Africa.
East and West Africa as future markets?
Thirdly, with South Africa's opportunity set is being clearly more defined in East and West Africa, leveraging the AfCFTA's tariff-free movement of goods would potentially boost the country's agricultural exports to these regions.
Analysts are however hesitant that the near-term would yield many benefits for South Africa due to at least three reasons:
- East and West Africa regions are known for having a range of Non-Tariff Barriers (NTBs) which could remain a hindrance in boosting trade regardless of lower tariffs brought by the AfCFTA.
- High levels of corruption in the inland borders which increase the costs of doing business have proven to be a major issue of consideration for business in South Africa.
- Fragmented value chains owing to poor connectivity and infrastructure are also a major contributor to transport costs, which tend to increase significantly as goods are transported inland.
This narrow scope of expanding agricultural exports in the African continent is what typically leads to frustration amongst business leaders, who continue to see improvement in production domestically, but limited avenues for sales.
Nigeria and Kenya as major economies
The major economies in the East and West of the African continent, Nigeria and Kenya, remain very small markets for South Africa's agricultural exports, each accounting for a mere 2% a year. Still, Nigeria spends over US$6.0 billion on agricultural imports a year, despite its new policy of reducing food imports. The key beneficiaries in the Nigeria agriculture market are Brazil, the US, China, Russia, Canada, New Zealand and Germany amongst others. This is through imports of wheat, dairy products, sugar, processed food, palm oil and maize, amongst other products.
Meanwhile, Kenya is a relatively small market with just over US$2 billion worth of agriculture and food imports a year. The key suppliers are Indonesia, Malaysia, Argentina, Russia, Pakistan, Uganda, Tanzania, India and Egypt. The key agriculture and food products Kenya imports are palm oil, wheat, rice, sugar, processed food, maize, dairy products, pasta and sorghum, amongst other products.
The composition of food and agricultural imports into these two countries is also indicative that South Africa's scope to export high-value horticulture, meat and wine products is limited. These countries primarily import staple food products, and as such, they are a market that would have been worth pursuing for grain farmers.
Still, the non-tariff barriers we referred to earlier remain a stumbling block even for grains as Kenya still prohibits the importation and growing of genetically modified (GM) maize. This is a significant hindrance for South Africa as roughly 80% of maize grown in the country is genetically modified.
Limited agri export opportunities calls for a new approach
What is clear is that South Africa's agriculture export opportunities will not only be limited in general but also most likely be opportunistic and focused on specific commodities or products in the short to medium term.
For instance, South Africa's maize exports have been relatively high during drought periods in East Africa, and under special circumstances that require short-term contingent policy measures to allow for GM maize exports.
Beyond maize, the approach will have to be more deliberate. For example, South Africa will have to consider a shift towards exports of processed food products. Data from Trade Map shows that Africa's imports of processed food products grew by 25% between 2018 and 2020, which is an opportunity for South Africa to explore.
The sector will have to develop markets for processed food in East and West Africa, which represents the remaining frontier to grow the African market further beyond current levels. From a policy perspective, the South African government may need to revise the Africa Strategy and establish task teams that can facilitate and broker market access for agribusinesses that seek to establish a market presence and investments in these key regions.