Reform and Opportunity: The Changing Role and Patterns of Trade in South Africa and SADC

In this paper, we examine the changing role of trade in South Africa and SADC from different vantage points. We first review progress in liberalizing South Africa's trade regime, and conclude that, while signs of progress are clear, the levels and complexity of protection continue to pose barriers to the evolution of efficient trading patterns and a constraint to growth. We also find that trade liberalization has not led to de-industrialization of the South African economy: while import penetration has risen, exports have grown as well, so that the net impact from expanding trade is positive. But the net numbers remain small, and the limited employment creation is biased towards skilled workers, suggesting that the full potential from expanding trade has not been realized. We turn our focus next to the SADC region, and examine the fiscal implications of the proposed SADC FTA, highlighting both the administrative complexity of harmonizing tariff regimes among the diverse SADC economies, and the differential fiscal costs of the proposed arrangements for the participating economies. Finally, we look at the economic impact of alternative free trade areas (FTAs) for the region, using a multi-region simulation model. We find that these FTA initiatives are beneficial for the region, not only for participants, but even (in the case of the EU-South Africa FTA) for non-participants, since the rest of southern Africa benefits as well from the EU-South Africa agreement. But it is also clear that South Africa alone is not large enough to serve as the growth pole for the entire sub-region.