In November 2020, I posed several parliamentary questions to the Minister of Trade, Industry and Competition, Ebrahim Patel, regarding South Africa-China trade relations. Of concern to me at the time was the R6.9-billion trade deficit we experienced for 2019, as well as the absence of a trade deal between our two countries.
In response, Patel cited two issues that his department had identified with our trade relations, namely the composition of trade, and underinvoicing by the Chinese.
With respect to the composition of trade, he stated that “… our concerns are that exports to China are largely made up of raw materials, whilst we principally import finished goods”.
In relation to underinvoicing he was concerned that there is a “… significant and systematic under-declaration of the true value of manufactured goods coming from China”.
These concerns raised by Patel are real and do warrant further discussion.
Historically, the structure of our economy has dictated that we are an exporter of primary goods as opposed to secondary goods. Through a series of domestic policy blunders, we have failed to develop a capacity to adequately beneficiate and add value to raw materials that can be sold at higher prices and leave us less reliant on the importation of finished goods.
In order for this to change, there needs to be a greater emphasis on re-developing manufacturing capacity through providing a stable electricity supply, pro-market reforms and incentives to grow industry. In the mining context, this also means scrapping the mining charter which deters both domestic and foreign investment in the industry.
In addition, there is a serious case to be made for SARS to conduct a thorough investigation into the discrepancy between South Africa’s stated imports from China, and China’s stated exports to us, with the latter’s value being much higher than that of the former, even though they should be the exact same. The purpose of this exercise is to be able to establish whether or not the Chinese have inflated values and why South Africa has underreported on its figures.
Despite him raising these pertinent issues, there was no mention of a potential trade deal.
I find the absence of such a trade deal to be peculiar, considering the strong economic, historical and political ties that exist between our countries as a result of the proximity of the ANC to the Chinese Communist Party (CCP).
Furthermore, our association with BRICS and the fact that China has been one of our leading trading partners since the advent of democracy in South Africa, makes the absence of a trade deal more apparent.
According to South African trade think-tank Tralac, out of the 54 countries on the continent, only Mauritius has successfully concluded a free trade agreement (FTA) with China as of 2019.
Thirty of the continent’s least developed countries (LDCs) such as Angola, Lesotho and Mozambique have access to a unilateral preferential scheme that grants them market access to certain goods on the proviso that rules of origin and documentation requirements are met.
The balance of African countries, including South Africa, do not enjoy the same kind of preferential access to the Chinese market and are subject to the Most Favoured Nation applied tariffs, which in essence means that they get the same treatment as all other members of the World Trade Organisation.
However, “under the Mauritius-China FTA, 93% of Mauritius’ exports to China will be able to enter the Chinese market duty-free”.
The question then is – why is Minister Patel so reluctant to take a similar approach to that of Mauritius? There is no doubt it presents us with the opportunity to boost our trade with the Chinese and open up the economy.
Is it because he is not willing to embrace capitalism in the same way his “communist brethren” in the CCP have – or is it purely down to a lack of interest in pursuing a proactive trade agenda? To hazard a guess, I assume it is a combination of both.
I strongly argue that we should pursue an FTA rather than opting for the alternative, which is the Belt and Road Initiative. It is well documented that several other countries such as Kenya, Tanzania and Sri Lanka have slid into either debt traps by selling the Chinese government bonds or have fallen victim to exploitative infrastructure financing agreements.
The irony being that both the ANC and CCP are avowedly anti-imperial and self-acclaimed champions of the Global South, yet they are perfectly fine with the above practices taking place. However, as we know, geopolitics and international trade are fraught with hypocrisy and doublespeak.
Another consideration is the inclusion of our regional trading partners into a FTA in the form of the South African Customs Union (Sacu) and Mozambique, who share a homogenous tariff liberalisation regime.
Similar arrangements are in place with the Sacu-M European Union and United Kingdom Economic Partnerships, respectively. This will allow for a relatively seamless transition into trade relations between China and an existing free-trade area that will prevent both trade disputes and provide economic benefit to our regional partners.
The DA has actively chosen to start this conversation in the interests of free trade, economic growth and human development. We can’t sit on our hands while lethargy consumes Minister Patel and his department.
It is incumbent upon government to leverage existing economic capabilities and develop new forms of specialisation and comparative advantage.
If we are to ever recover from the devastating impact of the Covid-19 pandemic and improve our citizens’ quality of life, then we need to use the trade policy tools available to us to assert our position as the “Gateway to Africa”. DM