african integration and trade incentives: a compelling proposition for south african manufacturers

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  • Slide 1
  • 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.
  • Slide 9
  • South African - Tools/ Incentives to promote Trade Import and export levies/Incentives Preferential Trade Agreements Regional Bilateral Continental Manufacturing Incentives MCEP (RSA) APDP (RSA automotive industry) Etc Industrial Finance Low interest rate schemes (E.g IDC growE scheme) Export and Import finance schemes Export Finance insurance (E.g ECIC)
  • Slide 10
  • 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
  • Slide 13
  • 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.