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Zawya
05-05-2025
- Business
- Zawya
The vital role of trade agreements in driving South Africa's economic growth
Trade agreements are one of the essential pillars supporting South Africa's economic strategy, shaping market access, investment flows, and international competitiveness. While global discourse on trade has recently focused on negotiations involving the United States, Canada, Mexico, and China, to mention a few, South Africa needs to look closer to home and examine its own trade agreements to capitalise on emerging opportunities and mitigate potential risks. With the African Continental Free Trade Area (AfCFTA), the Southern African Customs Union (SACU), and the Africa Growth and Opportunity Act (AGOA) shaping the country's trade landscape, understanding these agreements and how to leverage them are the keys to navigating an increasingly complex global economy. The importance of trade agreements Trade agreements streamline the exchange of goods and services between countries, reducing tariffs and barriers that otherwise hinder economic growth. Historically based on barter systems, modern agreements involve structured and equitable exchanges. South Africa's participation in agreements such as AGOA and SACU allows businesses to access international markets under preferential conditions, driving growth, enhancing economic development, and supporting job creation. AGOA, for example, gives South African exporters duty-free access to the US market for certain goods, particularly benefiting sectors like agriculture, automotive manufacturing and mining. However, AGOA's non-reciprocal nature means South Africa is vulnerable to US policy shifts. Recent diplomatic tensions - highlighted by the US decision to expel South Africa's ambassador - illustrate how quickly trade dynamics can change, potentially affecting market access. Losing AGOA preferences would subject exports to higher US tariffs, significantly hindering South Africa's competitiveness against countries with lower costs and more efficient supply chains. Challenges in navigating trade agreements Trade agreements also pose several other challenges, particularly regarding compliance with international regulations. For South African businesses, especially SMEs, navigating complex legal and administrative requirements can be resource-intensive. Meeting high standards for exports, for example the stringent sanitary and phytosanitary measures in agriculture, requires significant investment in quality control and documentation. Another significant issue is the infrastructural and logistical barriers hampering trade efficiency. South Africa's ports and border posts, notably Beitbridge Border Post, remain congested and inefficient, negatively impacting trade with neighbouring countries. Delays in customs processes and high transportation costs also limit the competitiveness of South African exports, disproportionately affecting smaller businesses looking to enter export markets. Expanding trade beyond traditional partners Against this backdrop, it is imperative for South Africa to actively strengthen trade relationships within Africa. The AfCFTA offers a historic opportunity to create a unified African market, reducing intra-African trade barriers and promoting economic integration. Recently, South Africa began preferential trade under AfCFTA, enabling duty-free or reduced-duty exports to 12 African countries. However, inadequate infrastructure, regulatory disparities, and non-tariff barriers still hinder growth. To leverage AfCFTA fully, South Africa – and indeed all other African countries - must invest in logistics and border efficiency. Modernising customs procedures, reducing red tape and enhancing transportation networks will facilitate smoother trade flows. Addressing regulatory bottlenecks will also help SMEs participate more fully in regional trade, promoting economic inclusivity. Beyond Africa, engagement with BRICS nations offers additional trade opportunities. While China remains a major partner, other BRICS markets hold untapped potential for South African exporters, particularly in minerals, manufacturing and agriculture. However, non-tariff barriers, such as Brazil's stringent medical equipment import regulations, must be addressed to fully realise these opportunities. Policy considerations and future trade strategies For South Africa to remain competitive globally, a strategic policy approach is essential. Recent EU investments totalling €4.7bn in green energy and vaccine production reflect growing opportunities to diversify trade and attract foreign investment. But it is imperative that we build on this positive momentum. There are some areas where government is doing that – for instance its recent decision to invest R1 billion into local electric vehicle (EV) production, thereby demonstrating alignment with global sustainability trends and hopefully enhancing South Africa's competitive position over time. However, there is still much work to be done and, unfortunately, the recent budget demonstrated that there is not much money to fund that work. In fact, little has been said or done of late to signal serious government intent of any sort to boost economic growth through trade facilitation. Still hope for a future built on strategic trade growth Despite the challenges, though, South Africa still has a unique opportunity to reposition itself as a leader in African trade and beyond. By embracing digital customs processes, strengthening regional trade networks and leveraging public-private partnerships alongside private sector investment, the country can create a more agile and resilient trade environment – one that evolves from merely reacting to global trade shifts to proactively leveraging the power of trade agreements to help shape its own economic destiny and that of the African continent.
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Business Standard
24-04-2025
- Business
- Business Standard
India, South Africa discuss preferential trade pact through SACU bloc
India and South Africa have held talks on a preferential trade agreement (PTA) or a limited trade deal via the five-member South African Customs Union (SACU) to expand trade ties, the commerce department said on Thursday. SACU nations include South Africa, Namibia, Botswana, Lesotho and Eswatini and is the world's oldest customs union -- over a century old. Of the five nations, as much as 95 per cent of trade is with South Africa. A nine-member delegation held the Joint Working Group on Trade and Investment meeting with the South African side in Pretoria, South Africa on 22nd-23rd April, the commerce department said in a statement. Both sides also explored potential areas of collaboration such as pharmaceuticals, healthcare, agriculture, MSMEs. They also discussed revival of the CEO Forum, investment cooperation, market access issues with regard to agricultural products, local currency settlement system, among others. South Africa is the largest trading partner of India in the Africa region. Bilateral trade between India and South Africa stood at $19.25 billion in the financial year 2023-24 (FY24). In the past India and SACU nations were in talks for finalising a preferential trade agreement. The 1st round of technical discussions for India-SACU PTA took place in Pretoria in October, 2007, which was followed by four more rounds till 2010.
Zawya
08-04-2025
- Business
- Zawya
Is South Africa ready for strategic tax reforms and infrastructure overhaul?
South Africans have had time to scrutinise the Budget Speech 2025 and its related documents, with diverse responses to key proposals and major decisions. As activities around the speech wind down and the budget documents make their way through Parliamentary processes, it is important to take a step back and consider some of the key macro factors surrounding the budget and how these interplay with the economy, says PwC: Now, more than ever, we need to focus on creating a more prosperous South Africa. Through our Ubuntu Bethu (Our Humanity) strategy, PwC leverages our community of solvers to build trust and deliver sustained outcomes towards creating a more prosperous country. To this end, we have asked some of our brightest minds to consider how we, as a society, can improve upon some of the pertinent factors influencing the state of the fiscus. In our new report Responsible growth for a sustainable future, we emphasise the importance of making the right fiscal choices today in the interest of South Africa's tomorrow. Specifically, we look firstly at the broader context of South Africa's tax increase choices, secondly, the levers to improve economic growth and thirdly, the need for climate-resilient infrastructure. Making the right tax choices South Africa has seen large fiscal deficits over the past decade, resulting in substantial increases in the public debt burden and the amount of money spent on debt servicing. As such, the National Treasury is in search of ways to shore up its revenues towards reducing the fiscal deficit today and, over time, reduce its debt burden. In the Budget Speech 2025, the finance minister proposed that value-added tax (VAT) increase by 0.5 percentage points to 15.5% on 1 May 2025 and another 0.5 percentage points in April 2026. It is estimated by the National Treasury that this could generate R43bn in additional fiscal revenues over the next two financial years. We believe that there are other options available for the National Treasury to also consider as it looks for additional tax revenues. One option would be to invest in narrowing the tax gap (the difference between taxes owed and taxes collected), currently estimated at between R400bn and R450bn. Kyle Mandy, PwC Africa Technical and Tax Policy Leader, says: 'While it is unrealistic to expect that there would be no tax gap in South Africa, a gap of around 20% of theoretical revenues is high. If the country's tax gap could be narrowed by only 10% in 2025/2026, that would give rise to an additional R40bn to R45bn in revenue and would remove the need for VAT increases.' Another option is revising the Southern African Customs Union (SACU) revenue sharing formula, which in 2025/2026 will see R73.5bn paid over to some of our neighbouring countries. The SACU agreement provides for duty-free trade between Botswana, Eswatini, Lesotho, Namibia and South Africa. In 2025/2026, the cost to South Africa of this deal—in the form of revenues foregone relating to domestic consumption of dutiable goods—is estimated by the National Treasury at R73.5bn. This foregone revenue must be weighed up against the benefits to South Africa of having duty-free access to its neighbouring markets; exports by South Africa to the SACU economies amounts to around R200bn annually. Accelerating economic growth to create more tax revenues Plans around VAT increases, the size of the tax gap and adjusting the SACU revenue sharing formula might be less of a focal point if South Africa's economy was growing at a healthier pace. Real GDP growth measured only 0.6% in 2024, down from an already meagre 0.7% in the preceding year. Meanwhile, population growth exceeds 1.0% per annum. As a result, the country's real GDP per capita has now been declining for the better part of a decade. There is a close relationship between nominal economic growth and tax revenue growth, with a long-term average of 1:1. So, if we can get the economic levers right, we can help improve the course of the fiscal ship. One of the ways that South Africa's economy can grow faster is through productivity gains. We know what the levers are that need to be pulled to accelerate South Africa's productivity and economic growth, with energy, logistics and infrastructure being some of the main ones. Lullu Krugel, PwC South Africa Chief Economist, says: 'South Africa's private sector has in recent years forged strong co-operative relationships with the government in support of enabling key reforms in critical bottlenecks for economic growth. Work in energy, transport and logistics, and crime and corruption have had some positive results, though as the meagre economic growth numbers for 2023–2024 shows, more work still needs to be done.' Investing in climate-resilient infrastructure Budget Review 2025 announced that, over the next three years, R1tn will be spent on public infrastructure. This is a massive investment in physical capital—a key contributor to economic productivity. However, frequent references in Budget Review 2025 to infrastructure spending are not accompanied by discussions about the impact of climate and weather on infrastructure. This is because, while South Africa wants to increase funding for climate-resilient infrastructure, the fiscus cannot afford to financially support the amount of investment that is required. Chantal van der Watt, PwC South Africa Director for Sustainability, adds: 'Climate-resilient infrastructure includes the design, construction and maintenance of infrastructure systems that can withstand and adapt to the impacts of climate change. "With extreme weather events becoming more frequent and more severe, South Africa needs roads that can handle heavier rains, bridges that can withstand the torrent of more severe flooding in rivers, and power grids that do not buckle under increasingly stronger winds.' There are, however, some considerations that could improve traditional infrastructure delivery processes to increase the climate resilience of fixed capital, while keeping in mind that financing falls short. These include: • Incorporate climate risk assessments into project planning: South Africa's Environmental Impact Assessment (EIA) already has stringent requirements for infrastructure projects to include climate-change assessments. Adding climate-risk assessments during the planning phase helps identify how risks may evolve over time, guiding the design to account for material risks. • Nature-based solutions: Human-made infrastructure interacts with natural processes, and nature can protect against extreme weather events. Wetlands and mangroves, for example, can absorb floodwaters and provide natural barriers, benefiting infrastructure and local communities. • Community engagement: South Africa's public participation process in EIAs often focuses on impacts rather than gathering insights for resilient infrastructure design. Local knowledge of extreme weather events can be invaluable, and involving communities can enhance volunteer efforts in maintaining natural defences. • Updating building codes and standards: Building codes need adjustments to address climate-change realities, with more frequent and severe weather conditions. Engineers must design buildings to withstand increased heat, moisture and wind, balancing climate and financial challenges within funding constraints. • Attracting private-sector investment: The Budget Review 2025 emphasises the need for higher capital investment and private-sector participation in public infrastructure. Private investment is crucial for communities needing infrastructure but lacking government funds, helping manage risks like supply-chain disruptions. All rights reserved. © 2022. Provided by SyndiGate Media Inc. (
