Doha and Implications for South African Agriculture

Trade Policy Workshop Date: 15-16 September 2011

Venue: Braamfontein, Parktonian HotelPresenter: Mmatlou Kalaba

Outline• Introduction• Background• Simulation• Results• Challenges• Recommendations

INTRODUCTION

Introduction• Motivation….High National priority on job creation

• 2011: a year for job creation• New Growth Path, National Planning Commission, Jobs Fund.

– Sectoral level• DAFF & Rural Development, Land Bank, IDC• High unemployment – high job losses in agriculture and other

sectors.

– Projected low economic growth does not help the situation.– What next?

• Definitions• Agro-Processing Sector – Mainly Food, Beverages and Tobacco• Subsector of Manufacturing• Regional Integration- focus is mainly on SADC

Industry Employment TrendsIndustrial contribution• Services sector is still

the chief employer.

Manufacturing Subsector

• Agro-processing is the 2nd largest of the 10 Manufacturing subsector.

2001 2005 2008 20100%

10%20%30%40%50%60%70%80%90%

100%

1,995 1,717 1,489 1,276

2,322 2,306 2,339 2,106

7,492 8,071 8,921 8,820

Contribution to Em-ployment by Industry

Primary ManufacturingServices

2001 2005 2008 20100%

10%20%30%40%50%60%70%80%90%

100%

265 245 246 249

257 215 188 165

301 324 344 327

718 744 738 629

Manufacturing Subsectors

Agro-Processing Clothing & TextilesMetals & machinery Others

Manufacturing vs Total Jobs numbers• Employment in manufacturing has been on the

downward trend since the mid-90s.

Recent Unemployment Trends• Unemployment remained higher than 20% for more a decade.• High GDP growth failed to reduce joblessness significantly.

(2)

(1)

-

1

2

3

4

5

6

0

5

10

15

20

25

30

1996 1998 2000 2002 2004 2006 2008 2010

Econ

omic

Gro

wth

(%)

Une

mpl

oym

ent (

%)

Economic Growth and Unemployment Rates (1996 - 2010)

GDP Growth Rate (%) Unemployment Rate (%)

On Farm Employment• Declining employment over the past four decades.• Represents less than 5% of total employment.• To change the trend, bold steps are required

Employment (Agric, Total and share)

0

2

4

6

8

10

12

14

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Mill

ion

0%

5%

10%

15%

20%

25%

30%

%

Agric Employ Total Employ Agric Share

The Connection

Agro-Processing

Concept• Outcome

• Job creation

• Necessary conditions• Trade• Value adding

• Sufficient?• A mixed bag:• Policy, • Strategies, • Incentives,• Infrastructure,• Competition, etc

9

LEARNING

Employment

Regional Integration

Black Box?

BACKGROUND

Why Agro-processing?• High multipliers and many linkages• The agro-value chains impact within and

outside the sector• Utilises most of the semi-and unskilled labour• The sector keeps jobs even tough economic

times• Relative global and regional competitiveness

Why Regional Trade• SADC offer more prospects than

other trade arrangements (TIPS policy paper).• Comparative advantage in the region.• Relatively high import demand.• Potential to play a role in some of the policies,

regulation and infrastructure development.• Concern over losing regional market shares to other

competitors.• Possibility of even larger markets with the enlarged

FTA.

Drivers of Agro-processing Trade• Demand factors

– Population growth rate– Urbanisation rate– Growth of middle class

(SA) and per capita income

– Change in diets.

• Supply factors– SA retailers in the region– Agric value chain– Competitiveness– Tripartite FTA (potential)– Low

manufacturing capacity.

GENERAL EQUILIBRIUM MODEL SIMULATION

The Impact of the Tripartite Free Trade Area

Explanation of the Model• Used the Global Trade Analysis Project (GTAP) model• It is a global economy-wide analysis.• Includes all sectors of the economy (services,

investment, capital goods and others).• The GTAP database has 2004 as a reference period.

• Key Assumptions

– Full liberalisation in the enlarged FTA and within FTA.– Labour closures : capped the real wage

General Equilibrium Model and Assumptions 

$450m

$46m

$516m

$1.1 bn

$3.1 bn

$864 m

ROW

eFTA

Trade Effects: Diversion by Region 

• SA imports mostly manufacturing and services inputs.• Rest of SACU set to expand processed food activities.

Sector/region Botswana South Africa Rest of SACU eFTA 1 Grains Crops 0.2 16.8 1.4 39.5 2 Meat and Livestock -0.2 11.3 -0.1 22.8 3 Mining and Extraction -0.3 12.7 -1 46.3 4 Processed Food 0.1 55.2 18.6 95.5 5 Textile and Clothing 0 20.8 -12.5 50 6 Light Manufacturing 2.9 163.5 8 63.6 7 Heavy Manufacturing 2.9 137.9 6.5 192.6 8 Utilities and Construction -2.2 51.8 3.2 217.2 9 Transport and Communications -0.4 80.3 6.2 115 10 Other Services -1.4 128.4 2.9 77 11 Capital Goods -4.6 286 10.1 336.7 Total -3.1 964.6 43.4 1256.3

Trade Effects: Intermediate Imports 

• Unskilled– Gains in food proc.– Losses in trans. &

comm.

• Skilled– Gains in construction– Losses in services

Grains

Meat & L'stock

Mining

Proc'd Food

Cloth. & Text

6 Light Manuf'

7 Heavy Manuf'

8 Util & Constr.

9 Trans & Comm

10 Other Srvcs

Net Effect

-15 -10 -5 0 5 10 15

Change in Unskilled Labour (%)

Grains

Meat & L'stock

Mining

Proc'd Food

Cloth. & Text

6 Light Manuf'

7 Heavy Manuf'

8 Util & Constr.

9 Trans & Comm

10 Other Srvcs

Net Effect

-4 -2 0 2 4 6 8

Change in Skilled Labour (%)

SACU Employment Effects 

Summary of Simulation Results • Overall Employment changes are not that impressive, but

– Food processing and construction are main beneficiaries.– SA Service sector is likely to face tougher competition.

• Exports show potential, but adjustments are needed:– Trade diversion,– Expand domestic production, or– Displace domestic allocation.

IMPLICATIONS, CHALLENGES and

CONCLUSIONS

Implications• POTENTIALLY: Additional jobs can be

created through agro-processing– Regional networks/hubs– Policies and strategies/co-ordination and

cooperation– Regional standards– National level

• REDUCE: - the cost of doing business.• Ambitious and Bold regional trade agenda.

Challenges• Agro-processing

– Labour regulations– Energy cost– Technology– Climate change– Politics

• Regional Integration– Infrastructure– NTMs – particularly RoO– Tariff alignment- Large FTA– Regional politics &

institutions– Competition

Conclusion• HOPEFULLY: ………..Not so BLACK anymore.

• Thank You!!

Employment

Regional Integration

Agro-Processing