The implications of the African Continental Free Trade Area on South African agricultural trade: An application of the partial equilibrium mode

Abstract

Background: The African Continental Free Trade Area is currently a negotiated agreement that comprises 54 African countries and aims at eliminating trade barriers between its member states. Advocates of the Free Trade Area point to the numerous benefits of the agreement, though less has been said about the potential implications on economic strategic sectors such as the agricultural sector.

Aim: The study explores the potential economic impact of a full tariff liberalisation as proposed under the African continental Free Trade Area on South African agricultural trade.

Setting: A 100% tariff cut on agricultural commodities was simulated among all 54 members of the African Continental Free Trade Area.

Methods: The study adopts the SMART partial equilibrium model to simulate the potential impact of a full tariff liberalisation as proposed under the African Continental Free Trade Area on South African agricultural trade.

Results: The simulation revealed that South Africa will gain a total trade value of approximately US$199 million, and the total trade diversion from third parties will stand at US$42 million. South African agricultural commodities with the greatest export potential to the African market include sugar cane, maize, citrus fruit, cigarettes and sauces. Industries that are vulnerable to the free trade area include dairy, poultry, and vegetables. The full tariff liberalisation is projected to decrease South African’s export revenue.

Conclusion: The study recommends that South African infant industries that are vulnerable to the agreement be listed in an exclusive list and that government should enhance the competitiveness of the affected industries.