Investment

It’s time for South Africa to rewrite the trade and investment narrative

Onyebuchi Memeh, Standard Chartered Bank’s Head of Trade for South Africa & Southern Africa

South Africa’s economy has become a fast-changing macro-environment, still reeling from the economic shock of the pandemic and extensive international travel restrictions. The exponential global movements toward zero-carbon and coal phase-out pose a significant challenge to the country’s well-documented power generation issues. However, positive initiatives, like moving up value chains, reducing trade barriers, and implementing policy reforms to facilitate incoming FDI, may help South Africa take charge of its future and drive the evolution of the country’s energy policy in light of global decarbonisation. 

The African Continental Free Trade Area (AfCFTA) presents the most significant opportunity for Africa, and South Africa, to realise its vision of a unified, connected, and thriving continent. It will contribute to the resolution of issues impacting trade growth, industrialisation, and infrastructure development – while also allowing businesses to expand their markets by exporting goods and services across the continent.

An early appraisal of the AfCFTAs progress  

AfCFTA aims to create the world’s largest free trade area – linking 54 African countries with a population of over 1.3 billion people. The Agreement provides the foundation for promoting intra-African trade by encouraging production and speeding up the expansion of industrial capacity and competitiveness. It provides Africa with the opportunity to aggressively re-integrate itself into the global supply chain, reducing its excessive trade dependency on non-African partners and strengthening its position to withstand future global shocks.

Signed on March 21st, 2018, the agreement went into effect on May 30th, 2019, with only around 41 of the 54 nations who signed the agreement having formally adopted it. And after a six-month delay owing to the COVID-19 crisis, free trade finally began on January 1, 2021 – although only nations that have ratified the agreement can trade with one another. For the agreement to be completely effective, negotiations on several issues must still be concluded.

Phase 1 discussions on trade in goods and services, as well as the settlement of disputes, are well underway, though negotiations in many sectors are still ongoing. Some discussions on Phase 2: Intellectual Property Rights, Investment and Competition Policy have already begun, and, after phase 2 is complete, phase 3 e-commerce discussions are likely to commence.

Early evaluation is good, but the pace and content could benefit from improvement. If it hasn’t previously been discussed, there may be merit in negotiating phases 2 and 3 concurrently, and prioritising phase 3 discussions on e-commerce, seeing as digitalisation is becoming a fundamental driver of Global Trade growth.

The factors influencing global trade:

Several major factors have been seen to influence global trade such as the adoption of sustainable and fair trading practices by a greater number of people, which contributes to sustainable development, improving the inclusivity of trade to increase participation, diversifying risk by investing in a variety of diverse sectors that will react differently to the same incidents, mitigating data and record losses through digitisation, and an accelerated shift towards high-growth emerging markets. For South Africa to change the investment and trade narrative, it must capitalise on a number of these factors.

How South Africa can capitalise on three of these critical trends

South Africa must increase the adoption of sustainable and fair-trade practices. It should consider a boost in manufacturing, particularly in the automotive sector, to rapidly transition to renewable energy sources in order to comply with carbon emission standards and electric vehicle requirements in export destinations. Additionally, energy companies such as Eskom must increase their reliance on renewable energy sources in order to stabilise and guarantee a sustainable supply.

South Africa is uniquely positioned to advance the continent’s digital agenda and promote the adoption of digital trade practices. South Africa should encourage the adoption of regulations (for example, on digital documents) aimed at expediting these processes and promoting commerce and economic advancement through the use of best practices.

In addition, South Africa should encourage the adoption of regulations (for example, on digital documents) aimed at expediting these processes and promoting commerce and economic advancement through the use of best practices.

A rapid shift to emerging markets with significant growth potential is necessary, as is the adoption of legislative changes in South Africa to enhance growth and attract new FDI.

South Africa’s place in the global discussion around the shift to renewable energy

A rapid, well-managed transition to renewable energy is critical for South Africa, as is a timely reaction to current global developments, such as those in the energy industry.

While conversations have begun, they must accelerate.

The auto industry, in particular, must urgently migrate to EV technology to maintain sales in export markets such as the United Kingdom and the European Union, which have implemented legislation governing the shift from internal combustion engines to hybrids to full EV technologies. Additionally, as discussed above, Eskom must transition to renewable energy.

Going forward, how will different regions approach trade with one another and, particularly, with South Africa:

The shift will be from regional economic blocs to widespread acceptance of the AfCFTA. The Pan African Payment and Settlement System (PAPSS) is expected to support the AfCFTA, better positioning South Africa to expand exports to the rest of the continent. PAPSS will dramatically reduce foreign currency liquidity requirements, and the project’s success will be determined by how successfully Africa’s central banks and monetary authorities collaborate to progress this initiative.

While much of the foundation has been laid, there is still some distance to go. South Africa must execute the required legal modifications and facilitate a swift migration to renewable energy in order to transform the South African narrative on trade and investment.

How Standard Chartered is supporting trade in this new environment

At SCB, we recently launched our Sustainable Trade Finance Solutions, sustainable deposits, and market-leading aspirations for a net zero-financed portfolio to support our clients as they make the necessary changes to their business to adopt sustainable trade practices. Our focus on improving participation in global trade is a significant part of how we can make globalisation work for more people and markets. In addition to driving a more sustainable model for global trade, we are using our partnerships with leading supply chain platforms such as Contour, SAP Ariba and Linklogis, which leverage tools like blockchain and AI, to make trade finance more widely accessible while lowering costs and increasing security.







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