Brexit, US-China trade tensions risks for SADC

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Magreth Nunuhe

Windhoek – Implications of rising tensions and a possible collapse of China/US trade negotiations and a UK no-deal withdrawal from the European Union (EU) has the potential to undermine business and investment confidence for the Southern African Development Community (SADC) economies.

This was the view expressed by Bank of Namibia (BoN) Deputy-Governor Ebson Uanguta, who added that the deadlock between China and the USA – the world’s two largest economies – could risk global economic growth and SADC will not be spared.

The Donald Trump administration has been pressuring China to alter its trade policies to favour the US, while China has been enforcing its own tariffs, leading to tensions between the two economic giants.

There has also been growing anxiety over UK’s exit from the EU, dubbed Brexit, with trading partners anxious over the consequences of Britain’s exit from the European Union.

While speaking at the Bank of Namibia’s Monetary Policy announcement, Uanguta stressed that the UK is not a small economy and if it were to walk out of the EU, there would be key risks involved for the southern African region.

Namibia’s Ambassador to the EU, Dr Kaire Mbuende, expressed fears that the UK could give priority to large markets such as the US, Japan and China, leaving African markets at the bottom of the priority list should it exit the EU.

British Prime Minister Theresa May, whose deal was rejected by an overwhelming 432 votes to 202 votes in January this year, survived a no-confidence vote as British MPs are split on the impact of a no-deal Brexit.

May’s Brexit deal, also known as the Withdrawal Agreement, aimed to work out a settlement, which would allow the UK to exit the EU seamlessly.

This includes a transition over a limited period of between March 29 (2019) to December 2020 to preserve stability with their trade partners during free trade negotiations and political and security agreements. 

During that period, the UK would have no negotiating rights in matters of the EU, but would still continue to contribute to the EU budget, while the transition period could also be extended.

The Britons voted on 23 June 2016 to leave the EU, following 2015 Conservative election victory, which activated a manifesto pledging to hold an in/out referendum on Britain's membership of the EU by the end of 2017.

Among advantages of the UK leaving the EU is immediate cost-saving, as the country would no longer have to contribute to the EU budget and it would be free to establish its own trade agreements.

If there is no-deal agreement, predictions are that the UK would automatically fall back on World Trade Organization (WTO) trade terms, which would have dire consequences.

Those terms could automatically apply to UK trade with the EU and other countries with which the EU has free-trade deals, which could see an increase in tariffs, while the movement of people will be affected as they may need visas out of Britain.

The average EU tariff is about 2.6% for non-agricultural products, while under WTO rules goods could be taxed at 10% up to 35 every time they cross the UK-EU border.

Africa’s trade with the EU has grown by 36% while EU’s investment stocks represent 40% of foreign direct investment in Africa and the continent receives on average 22 billion euro in EU Official Development, according to the European Union statistics. 

While this may be the case, the future of the economic partnership agreement (EPA) between SADC countries and the EU came under scrutiny amid criticism of trade imbalances, friction and failure to create sustainable development in the Southern African region when the joint council of economic partners met in Cape Town in February this year.

Other critics have also found fault with the EPA for seemingly prioritising international markets at the expense of regional integration efforts.

The EPA was provisionally implemented in October 2016, but came into effect in February 2018, following years of negotiations since the 2000s, and protests from a discontented civil society that felt excluded from such negotiations.

Critics also hold that the EPA disadvantages countries that are at different levels of development, which could disturb the flow of their production, waste government resources and increase poverty.

The EPA is a reciprocal trade agreement under the umbrella of the Cotonou Agreement, under which all parties commit to trade liberalisation.

The EU signed the SADC EPA with Botswana, Lesotho, Mozambique, Namibia, South Africa and eSwatini in 2016, giving those countries free access to the EU market without any duty or quotas, whereas the EU gets preferential access to those countries for agricultural products including wheat, barley, cheese and pork, as well as trademark protection.

Mozambique joined in February 2018, while the other six members of SADC, namely the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe are also negotiating EPAs with the EU as part of other regional groups.

SADC is EU’s largest trading partner, with South Africa accounting for the largest part of EU imports from and EU exports to the region.

Diamonds from South Africa, Botswana, Lesotho and Namibia constitute the largest dominant share of exports to the EU, while beef from Botswana, fish from Namibia, sugar from Swaziland, oil from Angola and aluminium from Mozambique also account for large scale exports.

South Africa's exports to the EU range from fruits to platinum and manufactured goods to wine.

SADC countries and the European Union (EU) expressed the need for raising investment, increased manufacturing capacity, sustainable employment and diversified exports to enable the full implementation of the EPA.

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