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The Long and Short of it: a Brave New World Order and Dollar Reserves

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Arnab Das, global macro strategist at Invesco, explores the possibility of an international monetary system going back to the future, with the US less economically and geopolitically dominant.

Financial Cold War:

Freezing Russia’s liquid reserves Freezing around $350 billion – roughly half the Central Bank of the Russian Federation’s (CBR’s) foreign exchange reserves – may be the most severe western sanctions against Russia since its invasion of Ukraine. Is the freeze, perhaps the most extreme financial weaponization on record, proportionate to the war (itself perhaps the gravest threat to the multilateral, rules-based world order that has underpinned globalization since the Cold War)?

Globalization was already challenged by pre-war restrictions on cross-border flows of goods, services, capital, data and people, aimed at more conventional political and/or economic goals. Such measures reflect protectionist backlashes against poor policies, productivity, economic performance or inequality in key sectors or constituencies. Sometimes unilateral, aggressive and ineffectual, as in the Trump era, or misguided, divisive and self-harming, as with Brexit – such barriers reduce market access, scale, competition and arguably aggravate productivity problems. Yet the sanctions, including the reserves freeze, belong in a different category and have been cast in ideological and existential terms as specific retaliation against what is perceived to be direct violation of the rules of the game – well beyond transgressions against free and fair trade or future threats to national security. They are multilateral – every Group of 7 member and many other western countries have participated. And they have continued to ratchet up as the conflict evolves.

The dollar and three functions of a global currency

Even so, the sanctity of reserves may have been violated in ways that can never be rolled back. Can any sovereign state now be sure that official reserves, private assets or other state assets are beyond the reach of other governments? Many westerners and governments feel the international system, law, property rights and territorial integrity are under direct attack, which, they feel, cannot be allowed to stand and the aggressor should be made to pay. Freezing reserves is extreme enough – what if reserves are seized for Ukraine’s reconstruction? If other reserve-holding countries fall foul of the policy preferences of reserve-issuing countries, could their reserves also be frozen or even forfeited? Codifying parameters and conditions for reserve freezes or seizure might restore confidence in new rules.

But what if the US and its allies prefer ambiguity and uncertainty as a source of deterrence? There may even be a general division between the West and the rest of the world. US President Joe Biden argues that the war sets up a contest between democracy and autocracy – and many non-western democracies joined UN condemnation of Russia’s invasion. However, very few have joined western sanctions. Norway, Switzerland and Japan aside, most major reserve holders are emerging market (EM) central banks, the governments of which are neutral in the conflict. Many EMs continue to trade actively with Russia. It is little wonder that freezing the CBR’s reserves feels to many like another nail in the coffin of globalisation: Russia-Ukraine as a proxy war. These sanctions, aimed at financial/economic decoupling and uneven global participation, may be axes of a new Cold War with competing political/economic/financial systems and a non-aligned movement. These worries raise the question of whether the dollar reserve system is entering its final innings, along with Pax Americana itself, given the outbreak of war. However, the war is not going Russia’s way.

The hostilities may even be reinforcing the view that US diplomatic/military/intelligence commitments and capabilities are indispensable to western or even global stability and security. Equally, there is little evidence of declining US financial hegemony. Even though the US is no longer so much larger than other major economies such as China or the eurozone, if anything, the role of the US Federal Reserve in driving global monetary/financial conditions remains paramount and the dollar has gone from strength to strength. Even so, efforts are under way to diversify from the dollar. One way to assess how the dollar is holding up is to track the three key, classic domestic functions of money globally – unit of account via pricing; means of payment via trade credit/settlement; and store of value via official FX reserves. The evidence points to partial diversification on some dimensions of money, implying parallel systems rather than displacement of the dollar within the existing system as happened in the sterling-dollar transition.

1.Global unit of account

Pricing dynamics in Russia’s commodities trade suggest the dollar remains the main global unit of account. Consider Urals, the Russian crude oil benchmark, and Brent. The combination of sanctions and the public backlash against doing business with Russia led to an almost immediate segmentation in the global crude oil market.

This changed after Russia’s invasion. For the first time, the spread collapsed even as the underlying global oil price skyrocketed. The spread has been relatively stable, even as underlying oil price benchmarks have continued to be volatile. Thus, Urals now trades at a deep discount to the world price, which appears to be required for the rest of the world to buy Russian oil. The law of one price – any commodity trades globally at the same price – has been suspended by financial sanctions, trade barriers and western reluctance to ‘buy Russian’. However, the stability of the discount implies that Urals’ pricing still reflects the global dollar price of oil.

2. Global means of payment

Anecdotal evidence and reports indicate that Russia is trading oil with China in renminbi, with India in rupees and with Turkey in rubles. Saudi Arabia is considering transacting with China in renminbi too. These shifts reflect the risk that Russian oil may yet be sanctioned. However, there is little evidence of a major shift in the means of payment – at least so far.

The euro has well in excess of 30% – even though key commodities such as oil and others are priced in dollars, and even though the share of the dollar in official FX reserves remains close to 60%.

3. Store of value

The dollar continues to dominate global FX reserves, with a market share of around 60% – far in excess of the US share of global payments (40%) of global GDP (now below 20%) and of most other measures such as world trade. Therefore, the dollar’s reserves share continues to punch far above the US weight in the world economy. Yet the dollar’s share of global reserves may well reflect the scale and depth of US financial markets more than the US weight in global economic activity, trade or corporate capital expenditure (capex). Sixty per cent of global FX reserves may be more commensurate with US financial dynamism and market capitalisation and may be appropriate, since central bank intervention must address both trade and financial shocks – and financial flows tend to be larger and faster-moving than trade or capex-related flows.

Will the US dollar remain a global problem?

When the US broke the Bretton Woods Treaty in 1973, the then US Treasury Secretary John Connolly infamously quipped: “The dollar is our currency, but it’s your problem,” reflecting the reality of the currency’s exceptional position in the international system. Other major economies and academics have looked for a fall in this “exorbitant privilege” for decades. The euro and, recently, the renminbi have been tipped as contenders for the dollar’s currency crown. However, it is clear the euro faces a structural problem, lacking a fully fledged fiscal union to match its monetary union. Though there have been occasional steps towards fiscal union during the eurozone sovereign debt crisis and the Covid-19 pandemic, these are neither comprehensive nor sufficient, but ad hoc responses to crises.

Further existential crises cannot be ruled out, which may or may not lead to further fiscal integration. Hardly the stuff of a global public good – an international, perceived safe reserve asset, especially when domestic perceived safe assets within the eurozone remain fragmented across member-state fiscal and financial systems, and still constitute a potential bank/sovereign ‘doom loop’. Plus, the war has highlighted once again that the eurozone and European Union rely on the US for global co‑ordination, security and even economic support – in this case through energy exports. The renminbi has become an arguably more viable alternative to the dollar than the euro, given China’s global economic heft and trade/investment relationships with many other major reserve-holding countries.

However, China retains resident capital controls, which implies that neither interest rates nor the exchange rate represent market-clearing levels. Furthermore, other major reserve holders – Japan, India, the Republic of Korea, Switzerland and Norway – may be reluctant to shift their trade/payments/reserves from dollars to renminbi, given their trade/investment/security relationships with the US. Despite all of this, many governments clearly wish to insulate their own trade, payments and economy from the potentially erratic America-first, conceivably isolationist or even multilateral western goals. Parallel systems may lie ahead instead of creeping replacement of the dollar: multiple means of payment co‑existing with a dollarised unit of account/store of value for intervention or investment. Such a mix may well suit a multi-polar new world order in which the US remains financially primus inter pares, even if not economically or geopolitically dominant. This may seem bizarre, but it’s worth recalling that such parallelism actually persisted for much of the Cold War. The western world had a dollar-dominated cross-border system. Meanwhile, the USSR operated a domestic ruble system and a separate international system of ‘clearing rubles’ to conduct trade and payments with its ‘client states’ – some of which were within its sphere of influence, while others were in the non-aligned movement. Perhaps the world will go back to the future in the international monetary system, given rising geopolitical and geo-economics tensions.

Courtesy: Central Banking Journal


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BUSINESS & ECONOMY

Lifting the Bottom Billion: Will It Work This Time?

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Imagine being part of a billion people stuck in a cycle of extreme poverty—unable to break free due to war, corruption, lack of education, and isolation from global markets. These individuals make up what economist Paul Collier famously termed the “Bottom Billion.” Despite countless international efforts to address their struggles, many remain trapped in some of the most challenging conditions on earth, particularly in sub-Saharan Africa. With new strategies and technologies emerging, the big question is: Will it work this time? In this article, we’ll dive into the latest global initiatives and the hurdles still standing in the way of lifting the Bottom Billion out of poverty once and for all.

Understanding the Bottom Billion Crisis

For decades, poverty reduction efforts have centered on providing aid, improving infrastructure, and addressing public health issues. However, the situation for the Bottom Billion is complex and often resistant to traditional development strategies. According to Collier, these individuals are caught in one or more of four traps: conflict, natural resource dependence, landlocked countries with bad neighbors, and poor governance. These traps create cyclical poverty that is difficult to escape.

Recent data shows that while global poverty rates have decreased—thanks to economic growth in places like China and India—the situation for the Bottom Billion remains unchanged in many regions. Sub-Saharan Africa, for instance, continues to struggle with high poverty rates, despite decades of international aid. The challenge is not just about money; it’s about addressing the root causes that keep these populations poor.

Current Global Efforts: What’s Being Done?

Several initiatives have been put in place to address the unique challenges faced by the Bottom Billion. These include:

1. Sustainable Development Goals (SDGs)

The United Nations’ Sustainable Development Goals (SDGs) aim to end poverty in all its forms by 2030. Goal 1 specifically targets the eradication of extreme poverty, focusing on providing social safety nets, access to basic services, and job creation. While the SDGs offer a comprehensive approach, progress has been uneven, particularly in conflict-affected regions where governance and infrastructure are weak.

2. International Aid and Debt Relief

Foreign aid and debt relief programs have been crucial in offering immediate assistance to impoverished nations. In 2020, the International Monetary Fund (IMF) and World Bank launched initiatives to alleviate debt for the world’s poorest countries, especially in the wake of the COVID-19 pandemic. The IMF’s Debt Service Suspension Initiative (DSSI) has temporarily freed up resources that these countries can use for critical healthcare and social services. But critics argue that aid, while necessary, often doesn’t address the systemic issues—like governance and corruption—that perpetuate poverty.

3. Microfinance and Social Entrepreneurship

Microfinance has been a popular tool for lifting people out of poverty. By providing small loans to individuals, particularly women, microfinance initiatives aim to stimulate local businesses and empower communities. Organizations like Grameen Bank and Kiva have made significant strides, but scaling these efforts to reach the Bottom Billion remains a challenge. Social entrepreneurship—businesses that focus on generating social impact rather than profit—has also emerged as a promising solution, but its effectiveness is still debated.

The Role of Technology in Poverty Alleviation

One of the most promising developments in the fight against poverty is the role of technology. In recent years, digital tools have shown the potential to bridge gaps in education, healthcare, and financial services.

1. Mobile Banking and Digital Inclusion

Mobile banking, particularly in countries like Kenya with platforms like M-Pesa, has revolutionized financial access for the poor. These platforms allow users to transfer money, save, and even access loans without needing a traditional bank account. For the Bottom Billion, many of whom live in rural or underserved areas, mobile banking provides a lifeline for economic participation. However, challenges around digital literacy and infrastructure still need to be addressed.

2. Online Education and E-Learning Platforms

Education is another area where technology can make a transformative impact. The rise of e-learning platforms offers the opportunity to bring quality education to even the most remote regions. Projects like Khan Academy and Coursera have made strides in offering free educational content to people worldwide, but scaling this in regions where internet access is scarce or expensive remains a hurdle.

3. Telemedicine and Healthcare Access

Telemedicine has the potential to bridge gaps in healthcare, particularly in areas where access to hospitals or doctors is limited. With the help of mobile technology, remote consultations and diagnostics are becoming more common in developing countries. In the context of the COVID-19 pandemic, telemedicine has become a critical tool, allowing healthcare workers to reach vulnerable populations. However, expanding this service to the Bottom Billion will require investment in both digital infrastructure and healthcare systems.

One of the biggest barriers to lifting the Bottom Billion out of poverty is poor governance. Corruption, weak institutions, and lack of transparency make it difficult for aid and development programs to reach those who need them most. Transparency International’s Corruption Perceptions Index consistently shows that the most impoverished countries are also among the most corrupt.

In countries with poor governance, even well-meaning efforts can fail. Aid money often doesn’t reach its intended recipients, infrastructure projects stall, and political instability exacerbates existing problems. Addressing governance issues is critical to making any poverty alleviation program successful.

So, will it work this time? The answer lies in a multifaceted approach that goes beyond just financial aid. Here are a few key elements that must be addressed for any hope of success:

  1. Improving Governance: Without addressing corruption and weak institutions, any efforts will be undermined. Initiatives that promote transparency, accountability, and democratic governance will be crucial.
  2. Inclusive Economic Growth: Economic development must reach the most marginalized groups, particularly women, rural communities, and those living in conflict zones. Programs that focus on building local economies and creating jobs will be vital.
  3. Leveraging Technology: Digital tools offer immense potential, but they must be accessible to all. Expanding internet access and digital literacy will be key in enabling the Bottom Billion to participate in the global economy.
  4. Local Solutions for Local Problems: Global strategies must be adapted to local contexts. What works in Southeast Asia may not work in sub-Saharan Africa. Engaging local communities in the decision-making process is essential for sustainable progress.

Lifting the Bottom Billion is one of the most daunting challenges of our time. While the task is immense, it is not impossible. By focusing on good governance, inclusive growth, and technological innovation, the global community has a chance to make meaningful progress in reducing extreme poverty. Will it work this time? Only if we approach the problem with a comprehensive, targeted, and sustainable strategy. The stakes are high, but the rewards—improving the lives of a billion people—are worth every effort.


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Easing Africa’s Debt Burdens: a Fresh Approach, Based on an Old Idea

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In his address to the 79th session of the UN general assembly this week, South African president Cyril Ramaphosa described debt as “a millstone around the neck of developing countries”. Three legal and economic scholars set out the African debt problem and what must happen if African countries are to get out of what Ramaphosa described as “a quicksand of debt”.

The statistics are stark: 54 governments, of which 25 are African, are spending at least 10% of their revenues on servicing their debts; 48 countries, home to 3.3 billion people, are spending more on debt service than on health or education. Among them, 23 African countries are spending more on debt service than on health or education. While the international community stands by, these countries are servicing their debts and defaulting on their development goals. The Group of 20’s current approach for dealing with the debts of low income countries is the Common Framework.

It requires the debtor to first discuss its problems with the International Monetary Fund (IMF) and obtain its assessment of how much debt relief it needs. Then it must negotiate with its official creditors – international organisations, governments and government agencies – over how much debt relief they will provide. Only then can the debtor reach an agreement – on comparable terms to the official creditors – with its commercial creditors. Unfortunately, this process has been sub-optimal.

One reason is that it works too slowly to meet the urgent needs of distressed borrowers. As a result, it condemns debtor countries to financial limbo. The resulting uncertainty is not in anyone’s interest. For example, Zambia has been working through the G20’s cumbersome process for more than three and a half years and has not yet finalised agreements with all its creditors.  The need for a new approach is overwhelmingly evident. Although the current crisis has not yet become the “systemic” threat it was in the 1980s when multiple countries defaulted on their debt, it is a “silent” sovereign debt crisis.

We propose a two-part approach that would improve the situation of sovereign debtors and their creditors. This proposal is based on the lessons we have learned from our work on the legal and economic aspects of developing country debt, particularly African debt.

First, we suggest that official creditors and the IMF create a strategic buyer of “last resort” that can purchase the bonds of debt distressed countries and refinance them on better terms.

Second, we recommend that all parties involved in sovereign debt restructurings adopt a set of principles that they can use to guide the debtor and its creditors in reaching an optimal agreement and monitoring its implementation.

The current approach fails to deal effectively and fairly with both the concerns of the creditors and all the debtor’s legal obligations and responsibilities. Our proposed solution would offer debtors debt relief that does not undermine their ability to meet their other legal obligations and responsibilities, while also accommodating private creditors’ preference for cash payments.

Our proposal is not risk-free. And buybacks are not appropriate for all debtors. Nevertheless it offers a principled and feasible approach to dealing with a silent debt crisis that threatens to undermine international efforts to address global challenges such as climate, poverty and inequality.

It uses the IMF’s existing resources to meet both the bondholders’ preferences for immediate cash and the developing countries’ need to reduce their debt burdens in a transparent and principled way. It also helps the international community avoid a widespread default on debt and development.

Bondholders are a major problem

Foreign bondholders, who are the major creditors of many developing countries, have proven to be particularly challenging in providing substantive debt relief in a timely manner. In theory, they should be more flexible than official creditors.

Developing countries have been paying bondholders a premium to compensate them for providing financing to borrowers that are perceived to be risky. As a result, bondholders have already received larger payouts than official creditors. Therefore, they should be better placed than official creditors to assist the debtor in the restructuring processes. However, despite having received  large returns from defaulted bonds, bondholders have remained obstinate in debt restructurings. Our proposal seeks to overcome this hurdle in a way that is fair to debtors, creditors and their respective stakeholders.

How it would work

First, the official creditors and the IMF should create and fund a strategic buyer “of last resort” who can purchase distressed (and expensive) debt at a discount from bondholders. The buyer, now the creditor of the country in distress, can repackage the debt and sell it to the debtor country on more manageable terms. The net result is that the bondholders receive cash for their bonds, while the debtor country benefits from substantial debt relief. In addition, the debtor and its remaining official creditors benefit from a simplified debt restructuring process.

This concept has precedent. In 1989, as part of the Highly Indebted Poor Countries Initiative, the international community’s effort to deal with the then existing debt burdens of poor countries, the World Bank Group established the Debt Reduction Facility, which helped eligible governments repurchase their external commercial debts at deep discounts. It completed 25 transactions which helped erase approximately US$10.3 billion in debt principal and over US$3.5 billion in interest arrears.

Some individual countries have also bought back their own debt. In 2009, Ecuador repurchased 93% of its defaulted debt at a deep discount. This enabled the government to reduce its debt stock by 27% and promote economic growth in subsequent years. Unfortunately, the countries currently in debt distress lack sufficient foreign reserves to pursue such a strategy. Hence, they need to find a “friendly” buyer of last resort.

The IMF is well positioned to play this role. It has the mandate to support countries during financial crises. It also has the resources to fund such a facility. It can use a mix of its own resources, including its gold reserves, and donor funding, such as a portion of the US$100 billion in Special Drawing Rights (SDR), the IMF’s own reserve currency, which rich economies committed to reallocate for development purposes. Such a facility, for example, would have enabled Kenya to refinance its debts at the SDR interest rate, currently at 3.75% per year, rather than at the 10.375% rate it paid in the financial markets.

It is noteworthy that the 47 low-income countries identified as in need of debt relief have just US$60 billion in outstanding debts owed to bondholders. Our proposed buyer of last resort would help reduce the burden of these countries to manageable levels. Second, we propose that both debtors and creditors should commit to the following set of shared principles, based on internationally accepted norms and standards for debt restructurings.

Guiding principles

1. Guiding norms: Sovereign debt restructurings should be guided by six norms: credibility, responsibility, good faith, optimality, inclusiveness and effectiveness.

Optimality means that the negotiating parties should aim to achieve an outcome that, considering the circumstances in which the parties are negotiating and their respective rights, obligations and responsibilities, offers each of them the best possible mix of economic, financial, environmental, social, human rights and governance benefits.

2. Transparency: All parties should have access to the information that they need to make informed decisions.

3. Due diligence: The sovereign debtor and its creditors should each undertake appropriate due diligence before concluding a sovereign debt restructuring process.

4. Optimal outcome assessment: The parties should publicly disclose why they expect their restructuring agreement to result in an optimal outcome.

5. Monitoring: There should be credible mechanisms for monitoring the implementation of the restructuring agreement.

6. Inter-creditor comparability: All creditors should make a comparable contribution to the restructuring of debt.

7. Fair burden sharing: The burden of the restructuring should be fairly allocated between the negotiating parties.

8. Maintaining market access: The process should be designed to facilitate future market access for the borrower at affordable rates.

The G20’s current efforts to address the silent debt crisis are failing. They are contributing to the likely failure of low income countries in Africa and the rest of the global south to offer all their residents the possibility of leading lives of dignity and opportunity.

Danny Bradlow is Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of Pretoria

Kevin P. Gallagher is Professor of Global Development Policy and Director, Global Development Policy Center, Boston University

Marina Zucker-Marques is a Senior Academic Researcher, Boston University Global Development Policy Center, Boston University

Courtesy: The Conversation


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South African Agriculture Needs to Crack the Chinese Market. How to Boost Exports

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China, the world’s second largest nation by economy and population, is a big buyer of food from the rest of the world. This makes it a potential market for countries that are agricultural producers, like South Africa. But as agricultural economist Wandile Sihlobo says, South Africa has lagged behind its competitors in the Chinese market. To increase its share, the country’s policymakers must up their game

South Africa’s agricultural sector has more than doubled in value and volume terms since 1994. This success has been linked to international trade. Exports now account for roughly half (in value terms) of the annual agricultural production. Other drivers have been improvements in productivity through crop and animal genetics.

Exports are largely to the rest of the African continent. In 2023 these accounted for 38% of South Africa’s agricultural exports. The EU is another important market for South Africa’s agricultural sector, accounting for a 19% share in 2023. In recent years, Asia and the Far East, in particular China, have been identified by the agriculture sector and policymakers as the key growth frontiers.

Asia and the Middle East accounted for a quarter of South Africa’s agricultural exports in 2023. But huge pockets of opportunity remain, in terms of products and countries. China is the biggest opportunity, largely because of its population and economic size. China, the world’s second largest economy after the US, must feed 1.4 billion people. To do this, China is a huge importer, resulting in an agricultural trade deficit with the rest of the world of about US$117 billion. This suggests there’s a gap for countries with good agricultural offerings.

South Africa has lagged behind its competitors in gaining from this growth in Chinese imports. It stands at number 32 in the list of countries that supply China with food. South Africa’s agricultural exports to China accounted for a mere 0.4% of Chinese imports in 2023.

China’s size warrants more attention than it typically receives from South African policymakers. The South African agricultural sector – I am the chief economist of the Agricultural Business Chamber of South Africa – has been calling for greater effort on increasing South African exports to China.

Exhibit 1: China’s agricultural trade

Source: Trade Map and Agbiz Research

China’s top agricultural imports include oilseeds, meat, grains, fruits and nuts, cotton, beverages and spirits, sugar, wool, and vegetables. South Africa is already an exporter to various countries in the world of these products and is producing surpluses for some. This means there is room to expand to China, especially as South Africa’s agricultural production continues to increase and with more volume expected in the coming years.

It therefore makes sense for South Africa to focus more on widening export markets to China. This means arguing for a broad reduction in import tariffs that China currently levies on some of the agricultural products from South Africa. Removing phytosanitary constraints in various products is also key.

There is room for more ambitious export efforts. Three government departments must lead the conversation – Trade, Industry and Competition; Agriculture; and International Relations and Cooperation.

What’s holding South Africa back

South Africa has strong political ties with China, bilaterally and through the umbrella group known as Brics and the Forum for China-Africa Cooperation. But these forums are primarily political, not trade blocs.

What South Africa doesn’t have is preferential market access to China’s food markets. This hobbles South African farmers who compete for the Chinese market with Australian and Chilean producers. Australia and Chile have secured trade agreements that give them competitive advantage.

The lack of an agreement that secures better access for South African producers means that they face substantial trade barriers. The main ones are:

What China buys

China’s key agricultural imports include soybeans, cotton, malt, beef, palm oil, wool, wine, fruits, nuts, pork and barley. South Africa is among the top ten global agricultural exporters in most fruits, and a significant producer of wine.

South Africa’s current major exports to China are wool, citrus, nuts, sugar, wine, maize, soybeans, beef and grapes. With the exception of wool, South Africa’s market share of these products remains negligible. South Africa expects an increase in various fruits and nuts production in the coming years from trees that have already been planted.

The wine industry also continues to see decent volumes of production. The same is true for the red meat industry, which is on a path to grow and to expand its export markets. The producers of all these products could benefit from wider access to China.

What’s to be done

South Africa stands as an anomaly among the top global agricultural exporters with limited market access to China for various products. If China is to be an area of focus for export-led growth in agriculture, a new way of engaging will be essential to soften the current trade barriers.

Firstly, a strategic approach to the Chinese agricultural markets needs to be adopted. This would entail dedicated teams from both South African and Chinese departments of agriculture that would deal with details of trade barriers.

Secondly, South Africa should use the Brics platform – of which China is also a member – to call for deepening of agricultural trade among the Brics members. This would help add momentum to the bilateral engagements of South Africa and China.

Thirdly, South Africa should encourage foreign direct investment – in particular Chinese investors – in agriculture for new production in areas which have large tracts of underutilised land. These include the Eastern Cape, KwaZulu-Natal and Limpopo provinces.

Having Chinese nationals as partners in agricultural development could help boost trade and business ties between the two countries.

Lastly, China provides a good base for the demand for higher-value agricultural products, which South Africa intends to focus on in its development agenda.

Wandile Sihlobo is a Senior Fellow, Department of Agricultural Economics, Stellenbosch University


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