Market Access Series 2020-21: The Republic of South Africa

This study by the Pakistan Business Council (PBC) titled “The Republic of South Africa” is part of the PBC’s Market Access Series 2020 — 21.

Africa is a non-traditional market for Pakistani exports. As part of its support for the Government of Pakistan’s efforts to increase exports, the Pakistan Business Council (PBC) has initiated a series of studies to better understand the potential for increasing exports to the African continent. This Study on the Republic of South Africa is the first in the Africa Series and is part of the PBC’s Market Access Series. South Africa has been selected as it is sizeable in the African context both in terms of population as well as GDP.

Major Recommendations for Increasing Exports to South Africa

• Anti-dumping duty on cement exports from Pakistan needs to be removed. South Africa slapped anti-dumping duties in the range of 14 to 77 percent on cement imported from Pakistan effective from December 18, 2015. This has resulted in Pakistan’s exports of ‘Portland Cement (HS-252329)’ to South Africa falling from $80.95 million in 2014 to just $4.2 million in 2019.
• Par-boiled rice should be prioritized for exports to South Africa. South Africa’s imports of rice are dominated by parboiled rice. Though Pakistan exports parboiled rice, Pakistani rice exporters need to understand the demands of the South African market and come up with a strategy to promote rice exports to South Africa.
• A Trade Agreement between Pakistan and SACU is desirable. Ministry of Commerce in Pakistan needs to negotiate better market access for the SACU trade bloc. The SACU trade bloc of which South Africa is the major economy brings five countries in Southern Africa into a customs union. Pakistan’s current and future imports of coal from South Africa, which in 2019 were worth about $1.0 billion and which are likely to increase in the coming years provides Pakistan with some negotiating leverage. Currently, Pakistan is offering lower tariffs for its major imports from South Africa while its products face high tariffs in the South African market.

• Partial subsidies for registration of pharma products in South Africa. Pharmaceutical tariff lines enjoy zero duties on imports into South Africa. Government of Pakistan should consider providing subsidies to Pakistani pharma companies to cover costs of drug registrations, certifications (bioequivalence) etc., to allow Pakistani pharma companies to compete in the South African market.
• Potential exports of electrical fans to South Africa. There exists a potential of $24.25 million for exports of electric fans (HS-841451) to South Africa. Pakistan’s Ministry of Commerce has recently revised the duty drawback rate to 4.39% from the previous 1.7% providing an incentive to export these products.
• Hedging payment risks. Obtaining Letters of Credit from South African buyers and negotiating documents drawn on South African banks is difficult. A dedicated export credit guarantee agency needs to be created in order to hedge risks in exports to markets like South Africa where credit, operational, and exchange rate risks are high.
• Time & effort needs to be invested in identifying large & reliable importers in South Africa. Trust deficit, a lack of credible banking channels, and other related issues can only be reduced if large-scale and reliable importers are identified. Office of Trade Commission of Pakistan in South Africa, as well as the expat Pakistani community in South Africa can play a vital role in this.

Major Findings of the Study

• Currently textile products are among the top exports of Pakistan to South Africa, although these face high tariffs imposed by SACU in the way of common external tariffs. Out of the 16 top export products, 10 belong to the textile sector at HS-06-digit level.
• The highest decline of 51.7 percent over 2018-2019 was witnessed in Pakistan’s exports of ‘Portland Cement (HS-252329)’. The CAGR reflects an average decline of 41.4 percent per annum in the period 2015-2019. Antidumping duties ranging between 14.0 to 77.0 percent on Pakistani cement manufacturers is the most likely explanation for the decline.
• Among the top export products, ‘Semi-milled or wholly milled rice (HS-100630)’ and ‘Instrument and appliances (HS-901890)’ are subject to zero tariffs whereas exports of ‘Paper and paperboard (HS-481159)’ are subject to a relatively low tariff of 2.0 percent.
• The highest positive CAGR (2015-19) relates to exports of ‘Denim (HS-520942)’ and ‘Men’s or boys’ ensembles of cotton (HS-620322)’ from Pakistan to South Africa i.e., 203.0 percent and 73.0 percent respectively.
• Electric Fans (HS-841451) and Tractors (HS-870192), provide both product and market diversification for Pakistan’s export basket to South Africa. South Africa is the second largest export destination among African countries for Pakistani Tractors.
• Pakistan’s imports from South Africa are dominated by ‘Bituminous Coal (HS-270112)’ with imports worth $996.0 million in 2019 and comprising 85.0 percent of total imports from South Africa. Imported coal feeds the coal-fired power plants constructed at Port-Qasim (Sindh), Sahiwal (Punjab), and Hub (Baluchistan) under CPEC as well as catering to the local demand created by the cement and brick kiln sectors.
• Pakistan’s top export items are subject to tariffs ranging between 0 to 40 percent in South Africa, however, top imports from South Africa are given access to the Pakistani market at a lower tariff range i.e. between 0 to 20 percent.
• Under the current trade scenario, there exists an export potential of at least $3.6 billion to South Africa mainly driven by sectors which include agriculture, textile, salt & cement, pharmaceutical & surgical, and engineering products.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 83) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk