India plans to revive trade deal with SACU

India is putting its focus back on finalizing a trade deal with a union of five countries in southern Africa that could give a boost to exports of medicines and automobiles as demand in the west slows, India said.

The resource-rich Southern African Customs Union (SACU), a customs union between five southern African countries: Botswana, Eswatini, Lesotho, Namibia and South Africa, is one of the largest suppliers of raw or semi-finished goods. According to the Ministry of Commerce, five rounds of negotiations on a possible preferential trade agreement between India and SACU have taken place so far. The first round of talks took place in 2007 and talks stalled in 2010. However, both sides had reportedly agreed to resume talks in 2020. According to people familiar with the matter, talks between the two sides have made progress.

This comes as trade experts have pointed out that export diversification is key as 40% of India’s export orders come from just seven countries and is therefore more vulnerable to external shocks. Currently, the US and Europe account for almost a third of India’s merchandise exports and have driven exports abroad over the past decade.

“SACU is a union from developing countries and as such will not include non-trade issues such as labour, gender and the environment in the agreement. Therefore, it will be relatively easier to conclude the negotiations. We can sign a free trade agreement with them. There are many complementarities between India and South Africa. “We import coal, diamonds, gold and iron ore,” said the first person to know about the development.

“There is also growth in the pharmaceutical, iron and steel sectors. Our exports are close to US$9 billion and imports are around US$11-12 billion. The trade balance must also be corrected. About 38% of exports are automobiles. There are profits to be made. The tariffs are up to 20-25%. South Africa is number one in car exports and the largest among our three key markets of Mexico, Gulf Cooperation Council and Spain,” stated the person quoted above.

Indian exports fell for the fourth straight month. Exports of goods fell by 10.30% to US$34.98 billion in May 2023 compared with US$39 billion in May 2022, imports fell by 6.57% to US$57.1 billion in May 2023 Dollars down from $61.12 billion in the same month last year, taking the trade deficit to $22.12 billion, the highest in over five months.

Overall, exports are down as the slowdown in global demand has sharply dropped international crude oil prices and FY23 petroleum exports were mostly petroleum exports. On a sequential basis, exports of petroleum products in April recorded a sharp 23% month-on-month decline.

In particular, a World Bank report noted that growth in South Africa slowed sharply in early 2023, reflecting tightening policies and the impact of a deepening energy crisis. The country’s power utility, Eskom, is suffering from chronic unprofitability and lack of maintenance, and is struggling to meet resurgent electricity demands after the pandemic.

“Power outages have hit record levels this year, crippling the economy. Headline inflation has eased from its peak but has been above the 6 percent ceiling of the central bank’s target corridor since April 2022, prompting even more tightening of monetary policy in the first half of this year.

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