Abstract:
Unemployment in South Africa has averaged above 20% over the past ten years. Trade
liberalisation is linked to an increase or a decrease in trade and employment. Though, on the
one hand, the positive aspects of trade liberalisation are desirable, on the other hand, the
negative implications of an increase in imports and unemployment are concerns for policy
makers. The aim of the study was to analyse the effect of free trade agreement (FTA) on agro processing industry’s exports, imports and employment in South Africa. Firstly, the study
analyses the effect of free trade agreement on South African exports of subsectors of agro processing industry. Secondly, it analyses the effect of the free trade agreement on South
African imports of subsectors of agro-processing industry. Lastly, it assesses the implication
of trade agreements on employment in the South Africa’s subsectors of the agro-processing
industry.
The study uses panel data, with exports and imports data sourced from United Nations Statistics
Bureau, Commodity Trade Statistics (COMTRADE) and Global Trade Atlas databases. The
real gross domestic product and population data were sourced from the International Monetary
Fund and the World Bank. While the binary variables (landlocked, colony and common
language) data and the data for area and distance were sourced from the CEPII database. The
data for subsectors of the agro-processing industry was sourced from the Quantec EasyData
database.
The study used a gravity model to analyse the effect of trade agreements on subsectors of agro processing industry. The labour regression model was used to analyse the impact of trade on
agro-processing employment. The gravity and labour model’s results were juxtaposed to assess
the link between trade agreement, exports, imports and employment. The results showed that
the Southern African Development Community (SADC) (excluding Southern African Customs
Union (SACU)) trade agreement increases South African exports of woods and woods products
and rubber products by 0.65% and 0.52%, respectively. Moreover, the SADC (excluding
SACU) trade agreement increases South African textiles imports by 1.36%. The Trade,
Development and Cooperation Agreement (TDCA), on the other hand, increases South African
exports of food and beverages by 0.45%. However, in terms of imports, the TDCA increases
South African imports of wood and woods products, paper and paper products and furniture by
0.44%, 0.62% and 0.70%, respectively. The Southern African Customs Union-European Free
v
Trade Association (SACU-EFTA) agreement showed no evidence of increasing exports and
imports of the agro-processing divisions except for tobacco and rubber. The SACU-EFTA
increases South African tobacco and rubber exports by about 1.74% and 1.10%, respectively.
Lastly, it increases South African tobacco imports by 2.22%. On employment nexus, the results
show that the SADC (excluding SACU) trade agreement benefits employment in the wood and
wood products division. The employment for wood and wood products increases as its exports
increase. On the imports side, the SADC (excluding SACU) trade agreement negatively affects
employment in the textiles division. The TDCA’s exports increase employment in the wearing
apparel division. The imports encouraged by the TDCA negatively affect employment in the
furniture division. The exports influenced by the SACU-EFTA agreement positively affect
tobacco division employment.
This study recommends that South Africa, firstly, needs to go beyond traditional markets
(markets where South Africa trades under free trade agreements) and open trade negotiations
for new markets. Secondly, to boost exports-induced employment, majors to facilitate an
increase in trade with traditional markets need to be prioritise, including trade facilitations
majors that ensure effective and efficient movement of goods and services. Lastly, South Africa
needs to identify priority products that could be supported to mitigate an adversely negative
impact on employment induced by imports.
