South Africa’s trade and industry minister wrapped up his tour of the Gulf States late September, successfully securing free trade agreements with both the UAE and Kuwait.
The 23-member delegation led by Mandisi Mpahlwa, which included finance experts, IT professionals, construction company representatives, hotel and hospitality experts, oil company representatives and horse breeders, had visited the two Gulf countries – and also Yemen – with the aim of addressing a growing trade imbalance.
By bringing representatives of the private sectors of all the countries concerned together, Mphalwa presented industry leaders from South Africa and the Gulf states with an opportunity to strengthen ties.
South Africa aims to increase exports to the Gulf region while making it easier for companies based in the Gulf to invest in South Africa.
South Africa imports substantial quantities of petroleum products, aluminium and steel from the Middle East, while exporting mainly fruit, fabrics and ready-made clothes in return. But the balance of trade is heavily skewed in favour of the Middle East – South Africa currently runs a trade deficit with the region of more than $3.2bn.
“We want to address the trade imbalance that exists between us and the Middle East, and we also want to draw investment from that region into the South Africa economy,” said Sihle Shange, a director responsible for North Africa and the Middle East at the South African Department of Trade and Industry (DTI).
The country hopes to channel some of the region’s substantial reserves of petrodollars into South African industries like tourism and textiles. South Africa is also trying to promote itself as a favourable outsourcing location for foreign companies.
“There is a tendency to look to China for investment, but there are also a lot of investment opportunities in South Africa,” said Mpahlwa.
Many analysts believe that the investment protection agreement contained within the free trade deals, as well as agreements on the avoidance of dual taxation, could strengthen ties between the financial hubs of Bahrain and Johannesburg.
Meanwhile, South African officials have welcomed news that Gulf Air is to resume direct flights from Bahrain to South Africa. The airline announced last month that a non-stop service from Bahrain to Johannesburg would commence on December 2.
From the point of view of the Gulf states, overall, South Africa continues to be a prime market. With the economy running a trade surplus, exporting $42bn to the world while importing only $39bn of goods and services, the country’s economy remains strong, with growth at around 3.5% annually.
The trade agreements with the Gulf states could also open a potential market for South African health care and transportation equipment. The country is also looking to open opportunities for South African arms manufacturers in the lucrative Middle East market.
At the same time, there has been considerable interest shown by Gulf investors in the South African tourism industry. Undoubtedly one of South Africa’s most important sectors, tourism has significant growth potential – particularly at the top end of the market. Middle East investors have shown interest in South African Casinos, hotels and luxury resorts. Preparations for the FIFA World Cup in 2010, which will bring the construction of new stadiums, increased hotel capacity and improved road and transport networks, has proved an added incentive for investors.
Meanwhile, Kuwait based IFA Hotels and Resorts, a wholly owned subsidiary of Kuwait’s International Financial Advisors (IFA), has recently revealed plans to list two of its current South African assets on the Johannesburg Stock Exchange (JSE).
The company plans to execute a reverse takeover of JSE-listed Moribo Leisure Limited by housing the two subsidiaries in Moribo. Under the plan, Moribo will change its name to IFA Hotels and Resorts Limited.
Jassim M al-Bahar, chairman and managing Director of IFA, said in a September 11 press release that “South Africa is a model for developing nations in terms of political and economic progress, as evidenced over the last 10 years. We have a clear commitment to further investments in South Africa.”
By reducing tariffs and non-tariff barriers to trade, since 1994 South Africa has become an increasingly open market. The most significant free trade agreement signed to date was with the EU. The Trade, Development, and Co-operation Agreement (TDCA) aims to eradicate most barriers with the trading bloc over a 12-year period. At the same time, South Africa is continuing to negotiate with the US over plans make the Africa Growth and Opportunity Act (AGOA) a permanent arrangement – the act is due to expire in 2014.
The free trade deal with the Kuwait and the UAE therefore represents a significant step forward for South Africa on the road to even wider economic liberalisation.
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