Why loss of AGOA eligibility for some countries is a big deal for sub-Saharan Africa

On the 26th December 2019, the United States (US) announced a revised list of AGOA eligible countries and an adjustment to AGOA benefits for some countries. In the new list, the notable omission was Cameroon, while Niger, the Gambia, and the Central African Republic (CAR) had their textile and apparel market access rescinded. The reason the US removed Cameroon was due to human rights abuses. Meanwhile, the adjustment of AGOA benefits for Niger, the Gambia, and the Central African Republic (CAR) was due to a lack of effective visa systems.

There may be some pan Africanists who will inevitably be annoyed by this development. Broadly, the main argument from some pan Africanists is that the West cannot dictate to Africans how to handle and manage their economies. However, to the progressive liberals and right-minded Africans, this is yet another example of governance failure, which reflects the continent’s inability to attain regional and global integration.

Yes, it is reasonable to argue that the West does not need to dictate to Africa how to run its affairs. But this argument cannot be pursued at the expense of economic development and progress. The continent needs to aspire for a higher standard concerning human rights and to implement real reforms that proffer civil liberties that deepen our democracies. Africa needs to rise above its weaknesses and establish transparent, effective, and efficient systems that elevate the levels of good governance, which are consistent with acceptable global standards.

The continent cannot continue to lag. Africa must lead from the front by setting an excellent example for the world. The counter-narrative Africa needs to articulate is that of class-leading models of human rights records and good governance. In this instance, merely asking the West to keep away from African affairs only serves to justify shallow standards of living and poor governance. Sound principles should be adopted regardless of whether they are native or foreign, and the continent should strive to out-do everyone else in the world in implementing them.

I hope that Cameroon will be added back on the list of AGOA eligible countries soon and Niger, the Gambia, and the Central African Republic will receive full AGOA benefits in due course. Of course, reforms that will lead to their co-option will not just be for the states to enjoy AGOA preferences but also to advance the development of the African continent.

Implications of a “no-deal” Brexit on South Africa’s agricultural exports

The Brexit process has precipitated a political malaise which has brought the UK on the cusp of a national crisis. The departure of the UK from the EU without a deal will have impacts that are going to be felt in other parts of the world, including here in Africa. For instance, a no-deal Brexit means that SACU has to re-negotiate another agreement with the UK outside of the existing Economic Partnership Agreement (EPA).

To that end, and in an effort avert the negative impacts of a potential no-deal Brexit scenario, a SACU-Mozambique-UK “Roll-over Agreement” is being negotiated. The expectation is that the Roll-over Agreement would, over time, lead to a standalone Economic Partnership Agreement (EPA). The purpose of the Rollover Agreement would be to ensure uninterrupted trade between the UK and SACU/Mozambique after the UK leaves the EU, presumably on the 12th April 2019. Assuming that there is a “no-deal Brexit”, the Roll-over Agreement can immediately enter into force from 13th April 2019, such that:

  1. The SACU-Moz-EU EPA is residually in place for a period of 6 months, under the auspices of an MoU. This MoU likely involves a transitional arrangement which would allow, for example, EU certificates of origin, certificates of compliance etc. to remain valid – under the SACU-Moz-UK bilateral. This would also allow for an administrative window to manage the transition.
  2. This will occur concurrently with the finalization of the SACU-Moz-UK EPA, with the six-month period being a window during which the necessary domestic legislative processes for ratification of the SACU, Mozambique and UK EPA can be concluded.

The Department of Trade and Industry (the dti) published a statement on the 13th March 2019, to provide information regarding the progress of the negotiations thus far. Minister Rob Davies noted that the efforts discussed are meant to preserve existing cross border manufacturing activities and supply chains.

However, several outcomes may emerge from the various scenarios that could play out depending on what happens during the course of 29th March to 12th April 2019, and some of these are outlined in Figure 1 below.

Screenshot 2019-03-31 at 20.13.21
Figure 1: Brexit Scenarios: Deal vs. No Deal Outcomes

Since the UK has rejected the Withdrawal Agreement already, it is now highly unlikely that the UK will exit the EU with a deal. This means that the chances of Scenario 1 and 2 occurring are very slim, and Scenario 3 and 4 are now more likely outcomes.

Scenario 3 depends on the UK, Mozambique and SACU striking a deal within the two week period from 29th March to 12th April 2019, which also seems like somewhat of a stretch.

From a SACU and Mozambique perspective, the more urgent business would be to tie up the MoU, and then include the outstanding issues as part of a built-in agenda for further SACU-Moz-UK EPA negotiations over the next six months. While that is more plausible in principle, it may prove a strategic nightmare in the long run for two reasons.

  1. SACU and Mozambique agreeing to defer important issues such as cumulation and SPS effectively means that they cede a significant degree of negotiating power that could otherwise be leveraged to ensure a more favourable trade agreement with the UK.
  2. It will be difficult to implement the SACU-Moz-UK EPA if no consensus is reached after the 6 month period lapses.

This leaves Scenario 4 as the more likely outcome, where (i) the UK leaves the EU without a deal, and (ii) fails to reach a deal in the SACU-Mozambique. This is a cliff-edge scenario that would effectively lead to an immediate shift to Most Favoured Nation (MFN) tariffs for 469 tariff lines which are deemed to be sensitive to the UK’s domestic industry sectors.

Of the 469 dutiable product lines, at least 246 are agricultural commodities to which ad valorem tariffs – which range between 6%  and 12% –  are applied. On the same list of agricultural commodities, there are also specific duties on animal and animal products are (i.e. beef, poultry, lamb, cheese, butter etc.).

However, from an agricultural point of view, indications from trade data show that South African exports to the UK have only occurred under 17 of the 246 agricultural tariff lines, with a trade value averaging less than half a million Rand per annum (based on the period 2014-2018). This is essentially less than 1% of South Africa’s total agricultural exports to the UK, which average R9.3 billion per year (between 2014 – 2018).

Given the foregoing, there are two key reasons why a “no deal” Brexit may not have as much of an impact on SACU and South African agricultural exports:

  1. Official documents suggest that most of the South Africa’s trade with the UK will remain duty-free (i.e. between 80% and 90%). This percentage seems to be higher for agriculture, with initial estimations based on the MFN tariff list showing that 99.9% of the value of existing exports will not be subject to duties.
  2. The MFN tariffs (which will apply to the 0,01% balance of products) will be temporary and will apply for a transitional period of 12 months.

However, impacts are going to be dire in sectors outside of agriculture – more specifically, the automotive industry, where tariffs of 10% are going to be applied on R6.6 billion worth of South African exports. This ought to be a seperate subject which I will unpack in an upcoming piece.

The curious timing of Saudi Arabia’s interest in South Africa’s farmland

The Kingdom of Saudi Arabia has maintained a keen interest in deepening economic and trade relations with South Africa over the recent past. The latest expression of intent was a Memorandum of Understanding (MoU) between the two countries on technical cooperation in the field of agriculture, fisheries and aquaculture, where they would identify potential opportunities in trade, investment, capacity building, research and development.

The most interesting part of the Saudi delegation’s visit was their desire to acquire land in South Africa on 99-year leases to produce various agricultural commodities to export to the Kingdom. The timing and content of this visit is curious. The Saudi’s intent to acquire land in South Africa comes against the backdrop of a raging and on-going debate on land reform, and concerns around foreign ownership of large tracts of land.

The Kingdom of Saudi Arabia is among the largest foreign investors globally, particularly in agriculture, where they have acquired about 1.9 million hectares of land for food, forestry, and timber, as well as biofuels production. Of that hectarage, roughly 1.4 million hectares (or 74% of all their acquired farmland) is in African countries such as Morocco, Egypt, Sudan, South Sudan, Ethiopia, Senegal, Mauritania, and Kenya. Two of the largest farmland acquisitions that the Kingdom of Saudi Arabia has made are in Morocco and South Sudan, where they concluded and signed off on 700 000 ha and 105 000 ha land deals, respectively. Overall, 25 of the 31 large scale farmland acquisitions that Saudi Arabia has signed are in Africa. This shows that the Kingdom’s investment appetite for agriculture is biased mainly towards the African continent.

It is therefore not surprising that the Saudi’s are looking at South Africa as the next potential investment destination to add to their considerable global farmland interests. Like most, if not all Gulf States, off-shoring agricultural production has been a key strategy to ensure food security, particularly after the 2008 global food price crisis. Export bans from traditional global surplus producers, as well as volatile and high world food prices, meant that countries like Saudi Arabia have to acquire land overseas and produce agricultural commodities for export into the Kingdom in order to allay prospects of food insecurity.

Thus far, it appears that the Saudi’s have not had any interest in South African agriculture beyond that which they import. South Africa’s agricultural exports to Saudi Arabia are in excess of R5 billion, which only accounts for 2% of South Africa’s overall agricultural exports.  These agricultural exports mainly consist of citrus and subtropical fruits, such as oranges, lemons, pears, grapes, mandarins, apples, plums, grapes, and avocados, amongst other products.

However, much of the Saudi’s trade and investment interest in South Africa has been in the (renewable) energy sector. In its charm offensive, the Kingdom pledged to invest R133-billion in South Africa’s energy sector in 2018, a proposition that boosted President Cyril Ramaphosa’s ambitious plan to attract $100-billion in investment in the country.

Meanwhile, Saudi Arabia is the leading supplier of South Africa’s oil imports, accounting for about 42% in 2018. Bilateral trade between the two countries amounted to R76 billion in the same year. This makes Saudi Arabia one of South Africa’s key strategic trade and investment partners not just in the Gulf Region, but in the world.

To proponents, Saudi Arabia’s investment appetite in the agricultural sector will not only lead to significant capital inflows in a sector that has suffered from years of under-investment, but it will also likely improve South Africa’s trade balance with Saudi Arabia considerably. South Africa has a negative trade balance of R65 billion against Saudi Arabia. Agricultural exports to Saudi Arabia from acquired farmland would definitely go some way in re-balancing the trade deficit.

To the skeptics, however, the model of rich Gulf States off-shoring agriculture in the African continent has been viewed with a healthy amount of negative sentiment. First, over and above the sensitivities around the land issue, the job-creating potential of the investments will be called into question. Issues around the creation of decent jobs and minimum wage requirements will obviously become a major talking point.

Secondly, there will be intense scrutiny regarding who benefits from exports from the acquired land, with many questioning the extent to which export revenues would benefit the South African economy. This important question would be prefaced by criticism of land being secured for the exclusive benefit of the Saudis, at the expense of South African citizens. The likelihood of negative consequences would, however, boil down to the terms and conditions of the contract itself. The problem is that in most, if not all cases, the terms and conditions of land deals are never disclosed to the public.

Its time for Minister Rob Davies to withdraw the AGOA Poultry Rebate, and here’s the reason why…

In previous articles, I have written about how US tariffs have instigated a number of retaliatory measures from some of its major trade partners – bringing the entire global trading system on the cusp of a global trade war. I have also argued in past writings that the agricultural sector – particularly of the third world – was likely to become collateral damage of the tit-for-tat measures being initiated by the likes of China, Canada and the European Union (EU).

While the reciprocal measures of trading partners have become somewhat of a public spectacle, there has been negotiations behind the scenes. The US has entered into discussions with the likes of Canada, Mexico and the EU to negotiate for tariff exemptions and other related bilateral concessions.

For instance, in terms of steel tariffs, the US granted country exemptions to Argentina, Australia, Brazil and South Korea, while reaching in-principle agreements with Argentina, Australia, and Brazil. For aluminum tariffs, the US granted country-exemptions to Argentina, Australia, and Brazil, while reaching in-principle agreements with Argentina, Australia, and Brazil.

South Africa has been an affected party of the US’ steel and aluminum tariffs – with a 25% increase on steel and 10% increase on aluminum. Like other countries, South Africa has also been engaging the US and has since requested for exemption from duties. Unfortunately, South Africa has not been included under the list of countries that were granted temporary exemption from steel and aluminum tariffs, despite the country not being a threat to the US market.

The tariffs imposed on South Africa’s steel and aluminum equate to a partial withdrawal of the country’s benefits under the Africa Growth Opportunity Act (AGOA). This situation presents a potential problem for South Africa, because it means that the country may now be compelled to withdraw the temporary rebate provision on poultry. Under item (i) of Annexure 1.1 of South Africa’s “Temporary Rebate Provision” which provides for rebate of the full anti-dumping duty on bone-in cuts from the United States, the text reads:

This rebate item shall be suspended if any benefits that South Africa enjoyed under AGOA as at 1 November 2015 are suspended, and shall remain suspended for as long as those benefits under AGOA remain suspended…”

It appears that there might be grounds for anti-dumping duties on US poultry to be re-introduced.  For this to happen, Minister Rob Davies has to submit a written confirmation to the Minister of Finance that [part of] South Africa’s benefits under AGOA have been suspended. There is a lacuna in the provision – as it omits to specify if Minister Davies’ submission may be initiated after either “partial” or “full” suspension of AGOA. But this is open to debate for legal experts.

Minister Davies is now under pressure to reach an agreement with the US quickly before the private sector – particularly poultry producers – approach the courts, to force him to implement the withdrawal of the Temporary Rebate Provision.

Meanwhile, the poultry quota has already increased from 65 000 tons to 65 417 tons. Since the notice for this amendment was only published in the Government Gazzette on 27thJuly 2018, the rebate provision will be applied retroactively from 1stApril 2018 – meaning that the additional increase volume will be carried forward and distributed into the remaining quarterly periods in the 2018-19 year. In the previous year, US poultry exporters filled 87% of their allocated quota under the poultry rebate.

South Africa should actually be withdrawing the rebate in accordance with the provisions of the Temporary Rebate Provision, rather than increasing the quota of imports.


Comparing agricultural policies of ZANU PF and the MDC Alliance: A quick look at the manifestos

As Zimbabweans brace themselves for what has been seen as a historic and inter-generational election, it is important to reflect on the political content of the policy positions of the main contesting parties. In this piece, I do a quick review of 8 key thematic areas concerning agricultural policy and rural development which are described in the political manifestos of the MDC Alliance and ZANU PF, the two largest political formations in the country. While I had access to the MDC Alliance’s full 106 page manifesto, I unfortunately could only get ZANU PF’s 23 page summary of its own manifesto. By corroborating the summary points with its current policy initiatives, I made an attempt to provide a more rounded picture of the ZANU PF policy thrust on agriculture. Whether this approach provides an accurate description of ZANU PF’s policy stance on agriculture will be open to debate, but I believe it will provide us a good starting point to make a more complete comparative analysis. You can access the comparison here.


Can the costs of Zimbabwe’s failed “fast track” land reform programme be quantified?

There is a recent article that has quoted renowned and respected economists who have pointed out that Zimbabwe has lost a total of US$17 billion in potential earnings over the past 17 years, due to from a combination of factors directly linked to the fast track land reform programme. Agricultural production lost due to stalled farm operations, destruction and rampant theft of farm infrastructure (such as irrigation equipment), the disruption in agricultural exports – including the disruption of export-driven supply chains – all led to falling output revenue that could’ve maintained economic stability, created new jobs, and strengthened the sector’s contribution to overall growth.

But that value understates the true extent of the cost of the fast track land reform. Zimbabwe did not just lose out on earnings from timber, cotton, tobacco, wheat, fresh flowers and other commercially-produced crops. The cost also paid a heavy price through exceptionally high levels of agricultural imports, particularly on food that the county was traditionally a surplus producer of. Zimbabwe has become the largest importer of maize in the region, and currently produces levels of wheat output that the country used to produce in the early 1960s. The country has spent at least US$3 billion in grain imports since the fast track land reform started, which brings the costs from export revenue lost, and imports gained at US$20 billion. With former white commercial farmers claiming compensation in the region of US$9 billion, the direct cost of ‘fast-tracked” land reforms Zimbabwe nears US$30 billion.

This estimate, of course, excludes lost job opportunities both within the agricultural sector and through direct and indirect linkages in the manufacturing sector. Not to mention the broader effects of general food insecurity, stunted economic growth, falling average incomes, and the collapse of social and economic services – such costs are difficult to quantify, or in some cases, difficult to even attribute them to land reforms. What is clear, however, is that the costs are quite staggering, and these can lead to an inter-generational crisis that a country might not be able to resolve easily.

If you studied agriculture, you are less likely to become a dollar millionaire

There has been plenty of talk about young people finding agriculture unfashionable, and there seems to be a consensus position that something needs to be done to make agriculture more attractive. Prominent young agricultural economists such as Wandile Sihlobo and Thabi Nkosi have been at the forefront of shoring support for and promoting agriculture in South Africa as a career choice. This message, however, will be dampened by the fact that those that study agriculture are less likely to become US$ millionaires, compared to other professions.

A recent article by BusinessTech has brought evidence to re-inforce the general opprobrium of the sector’s “poor man’s” status. Agriculture is not among the top 7 most rewarding professions in South Africa – which explains why many youth would rather go for Law, Finance and Economics, Accounting, Computer Science, Medicine, Engineering, Actuarial Science. If you studied law, there is a 27% chance that you will be among the High Net Worth Individuals (HNWI) – i.e. individuals who have net assets of $1 million or more.

Table 1: What HNWIs have studied

Screen Shot 2018-04-08 at 4.10.57 PM

Source: BusinessTech (https://goo.gl/kJkzSK)

Table 2: What industries HNWIs are involved in

Screen Shot 2018-04-08 at 4.33.38 PM

Source: BusinessTech (https://goo.gl/kJkzSK)

Overall, only 8.3% of HNWI that are engaged in agriculture are dollar millionaires. This is far less than other prominent sectors such as Financial and Professional Services – which includes banks, law firms, accountants, fund managers and wealth managers – (26.8%); and Real Estate and Construction (19.7%). The one caveat to take into account is that agriculture is comingled with mining – meaning that the actual percentage for agriculture alone is much less than 8.3%. One can argue that this number can improve if agriculture is also considered within the context of the farm-to-fork perspective. So if off-farm opportunities are considered – which include other parts of the value chain, such as the Fast Moving Consumer Goods (FMCG) industry linked to  food processing, distribution and retail, then you can add 6.4% to bring the total percentage to double digit levels.