African Integration and Trade Incentives: A compelling
proposition for South African manufacturers
Slide 2
Layout Introducing the IDC Types of Trade Incentives Intra
& Extra Regional Trade RSA Imports and Exports to ROA
Slide 3
3 3 Introducing IDC Established1940 Type of
OrganisationDevelopment Finance Institution Ownership 100%
state-owned Total Assets (Group)R139 billion (31 March 2014) Total
Liabilities (Group) R32 billion (31 March 2014) Credit RatingAA+
(Fitch Ratings) Main Business Focus Providing funding for
entrepreneurs and projects that are contributing to
industrialisation and job creation Geographic ActivitiesSouth
Africa and the rest of Africa Products Custom financial products to
suit a projects needs including debt, equity, guarantees or a
combination of these Stage of Investment Project identification and
development, feasibility, commercialisation, expansion,
modernisation Number of Employees 824 (December 2013)
Slide 4
Preferential Trade Agreements Regional trade agreements (RTAs)
can be defined as reciprocal trade agreements between two or more
partners. They include free trade agreements and customs unions; In
the middle of 2014 some 379 RTAs were in force around the world;
Yet only 16% of world merchandise trade receives preferences;
Preference margins of over 10% only account for 2% of world
merchandise trade; Regional trade agreement have increasingly
become an important part of the global trading system; African
countries/regions are part of no less than 23 of such agreements 14
of whom are African RTAs.
Slide 5
AFRICA Intra and Extra Regional Trade In recent years, intra-
regional trade has been growing at the expense of extra regional
trade; Intra regional trade is the lowest in Africa but growing
rapidly off a low base; Constraints to higher levels of intra
Africa trade include: underdeveloped infrastructure border
bureaucratic delays proliferation of preferential trade
agreements
Slide 6
TRAs and Integration of African Economies RTAs in Africa
include Southern African Development Community (SADC) Southern
Africa Customs Union Common Market for East and Southern Africa
(COMESA) East Africa Community (EAC) Economic Community of West
African States (ECOWAS) Economic and Monetary Community of Central
Africa (CEMAC) South Africa is a member of SACU and SADC in Africa
COMESA-EAC-SADC Tripartite established in 2005 aims to deepen
economic integration of the southern and eastern Africa region
Existing RTAs could form the basis of deeper integration of African
economies
Slide 7
Intra and Extra Regional Trade Source: WTO
Slide 8
Intra Regional Trade Advantages Members are encourage to
specialise; Easier access to each others market increase trade;
Producers can benefit from economies of scale; Jobs are created as
a consequence of increased trade; Firms inside the bloc are
protected from cheaper imports from outside. Disadvantages
Distortion of world trade; Benefits of free trade between countries
in different blocs is lost; Inefficient producers within the bloc
can be protected from more efficient ones outside; Retaliation by
other regional trade blocs.
Incentives available in major African economies The efficacy of
incentives in attracting investment remains debatable; Studies have
shown, investors are searching for access to local and regional
market, political and economic stability and favorable bilateral
trade agreements; RSA Incentives APDP MCEP Tax Kenya provides an
array of tax incentives which include: Export Processing Zones,
offers companies a 10-year corporate income tax holiday Tax relief
for research and development (R&D) Nigeria offers a wide range
of incentives including: Up to 120% of expenses on R&D are tax
deductible Local raw materials utilisation 30% tax concession for
five years to industries that attain minimum local raw materials
15% Tax concession for five years employing one thousand persons or
more
Slide 11
South Africas exports into Rest of Africa
Slide 12
South African exports to Africa by product
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South Africas Automotive Trade with the rest of Africa SA
leader in intra-Africa trade; Trade skewed in favour of SA; In 2013
18% of exports destined for Africa but only 9.4% of imports from
continent; Automotive industry leader in exports to Africa mostly
motor vehicles; Africa now largest export market for SA produced
vehicles particularly SADC Source: NAAMSA South Africas Automotive
Exports to Africa, 2013
Slide 14
SA Industry Trend SA Top Export by continent Europe remains the
most important trading partner. Developments in the EU have a
direct and measurable impact on the SA auto industry. Trade
relations with EU are governed by the Trade, Development and
Co-operation Agreement (TDCA). Under the SA-EU Free Trade Agreement
SA produced passenger cars and components with at least 60% local
content are imported into the EU duty-free.
Slide 15
Key challenges to Africa Intra trade Relatively High country
risk factor Commercial and Political risk, thereby resulting in
high cost of funding; Inconsistencies and uncertainties in some
Government policies; Volatility and Erratic market conditions -
Forex fluctuation, duty structure changes; Logistical
infrastructure challenges and lack of distribution networks for
products across the region; Limited statistical data and market
intelligence - Lack of reliable market information ; Grey market
penetration (second-hand vehicle imports)- Grey market estimated to
be 10 times size of new vehicles market size; Skills shortage - The
shortage of requisite skills hinders growth of the motor industry
in Africa.
Slide 16
Conclusion Reliable and efficient infrastructure (i.e. roads,
ports, rail, telecom etc) is key for regional market integration
and connectivity; Apart from investment and tax incentives, studies
have shown, investors are searching for access to local and
regional market, political and economic stability and favorable
bilateral trade agreements; The numerous RTAs need to be
streamlined and consolidated to create a single African market;
Modest levels of intra Africa trade also indicate the potential for
its growth; Regional Market integration is key to attracting
manufacturing industries.