Doha and Implications for South African Agriculture

Trade Policy Workshop Date: 15-16 September 2011 Venue: Braamfontein, Parktonian Hotel

Presenter: Mmatlou Kalaba

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

Outline

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

sectors.

and other • – 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 Trends

Industrial contribution

• Services sector is still the chief employer.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Contribution to Employment by Industry

7 492 2 322 1 995 8 071 2 306 1 717 8 921 2 339 1 489 8 820 2 106 1 276 2001 2005 2008 2010 Primary Manufacturing Services

Manufacturing Subsector

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

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Manufacturing Subsectors 718 301 257 265 744 324 215 245 2001 2005 Agro-Processing Metals & machinery 738 344 188 246 629 327 165 249 2008 Clothing & Textiles Others 2010

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.

Economic Growth and Unemployment Rates (1996 - 2010)

30 25 20 15 10 5 0

1996 1998 2000 2002 GDP Growth Rate (%) 2004 2006 2008 Unemployment Rate (%) 2010

6 5 4 3 2 1 (1) (2)

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)

14 12 10 8 6 4 2 0

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

30% 25% 20% 15% 10% 5% 0% Agric Employ Total Employ Agric Share

•

Concept

•

Outcome Job creation The Connection Employment

• • •

Necessary conditions Trade Value adding

• • • • • • •

Sufficient?

A mixed bag: Policy, Strategies, Incentives, Infrastructure, Competition, etc Agro Processing Black Regional Integration

9

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

General Equilibrium Model and Assumptions 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

$450 m Trade Effects: Diversion by Region $1.1 bn $516 m eFTA $3.1 bn $46m ROW $864 m

Trade Effects: Intermediate Imports

• SA imports mostly manufacturing and services inputs.

• Rest of SACU set to expand processed food activities.

Sector/region

1 Grains Crops 2 Meat and Livestock 3 Mining and Extraction 4 Processed Food 5 Textile and Clothing 6 Light Manufacturing 7 Heavy Manufacturing 8 Utilities and Construction 9 Transport and Communications 10 Other Services 11 Capital Goods

Total Botswana South Africa

0.2 -0.2 -0.3 0.1 0 2.9 2.9 -2.2 -0.4 -1.4 -4.6

-3.1 16.8 11.3 12.7 55.2 20.8 163.5 137.9 51.8 80.3 128.4 286 964.6 Rest of SACU eFTA

1.4 -0.1 -1 18.6 -12.5 8 6.5 3.2 6.2 2.9 10.1

43.4 1256.3

39.5 22.8 46.3 95.5 50 63.6 192.6 217.2 115 77 336.7

• -15

SACU Employment Effects Unskilled

– Gains in

food

proc.

– Losses in

trans. & comm

.

•

Skilled

– Gains in

construction

– Losses in

services Change in Skilled Labour (%) Change in Unskilled Labour (%)

-4 -2 0 2 4 6 -10 -5 0 5 10 15

Grains Grains Meat & L'stock Meat & L'stock Mining Mining Proc'd Food Proc'd Food Cloth. & Text Cloth. & Text 6 Light Manuf' 6 Light Manuf' 7 Heavy Manuf' 7 Heavy Manuf' 8 Util & Constr.

8 Util & Constr.

9 Trans & Comm 9 Trans & Comm 10 Other Srvcs 10 Other Srvcs Net Effect Net Effect

8

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.

Employment Agro Processing Regional Integration

• Thank You!!