AfCTA EMERGES AS THE WORLD’S LARGEST FREE TRADE AREA

 

44 (forty-four)African countries recently came together to sign an historic trade agreement to establish a liberalized market for goods and services across Africa. Thus, the African Continental Free Trade Area (the “AfCFTA”) became the world’s largest free trade area since the advent of the WTO.Estimates suggest that, subject to unanimous ratification by the 55 (fifty-five)-member African Union (AU),a population of 1.2 billion with a combined GDPin excess of $2 trillion may be integrated pursuant to the deal. However, Nigeria’s opposition to the pact, threatening to remove the region’s largest economy from the scope of the agreement, may adversely affect its prospects and future benefits.

The AfCFTA is expected to remove tariffs and import quotas, thus setting up a single continental market. Other than tariffs, though,a significant obstacle to regional trade remainsthe lack of a harmonized regime of standards and licenses. The AfCFTA will accordingly aim to lower these hurdles, although it remains to be seen whether such an outcome can be achieved with this pact alone.

Trade wars and trade agreements tend to progress simultaneously, as evidenced in Africa (mentioned above) on the one hand, and the US-EU-China standoff on the other. The rise of alternative trade deals and involvement of new regions in the mainstream global economy have created multiple trading hubs. What is evident, therefore,is both large and small corporations with foreign expansion plans must formulate a clear independent policy based on cross-disciplinary, multifactorial analyses. Such analysis cannot be restricted to merely looking at the product, or gauging entry strategies, delivery, or the vagaries of a new market alone. The entities that wish to grow internationally, setting up global value chains and inter-regional footprints for optimization as well as expansions, will increasingly need to look at evolving trade pacts, including dynamics that change every day with new arrangements and shifting alliances/hostilities. In addition, companies must develop a clear understanding of the economic and political factors that inevitably influence the movement of goods and capital in any regional hub.

Intueri Consulting LLP is currently working on a detailed analysis of the African trade agreement, as well as the present India-Africa trade situation. Our comprehensive report will be published here soon.

Sources:
https://www.economist.com/news/middle-east-and-africa/21739224-nigeria-among-protectionist-holdouts-forty-four-african-countries-sign

TRUMP’S STEEL & ALUMINUM TARIFF

Background:
President Donald Trump is to impose steep tariffs on steel and aluminum. He said steel products face a 25% tariff, with 10% on aluminium goods. The value of shares in American steel manufacturers jumped significantly after the announcement.
The U.S. aluminum industry has shrunk drastically over the last 25 years, down from 23 operational smelters to five with only one of those smelters making  the high-grade stuff that the U.S. defense industry needs .

Effects On India:

  • The U.S. is the world’s largest importer of steel, significantly ahead of Germany and South Korea.
  • In 2016, the US met nearly two-thirds of its aluminium consumption from imports, and about a fourth of steel.
  • The Indian government said that India’s share of US steel imports is only 2.4%. That is true. And it is only 2% in aluminium.
  • United States of America’s imports represent 7.3% of world imports for this iron & steel, its ranking in world imports is 2.

Experts say India can be affected in two ways:

  • India may be a relatively small participant in the global export market but its exports have risen sharply in absolute terms. In April-January 2018, for instance, steel exports rose by 40.2% and India was a net exporter of steel. In aluminium, production rose between FY14 and FY17 from 1.4 million tonnes to 2.8 million tonnes, according to a Care Ratings report, but consumption rose from 1.6 million tonnes to only 1.9 million tonnes. That led to a sharp jump in exports of 57% in FY17.
  • If the US increases its output, the world is left with more metal than it anticipated. The countries exporting to the US are likely to look at other markets to sell their surplus, even at lower prices. This can lead to anti-dumping as we
    Source:Livemint.com

Analysis From The Data:

  • India’s export in Aluminium& articles have grown by 15% between 2012-2016 in United States &India’s export in iron & steel has declined by 11% between 2012-2016.
  • Share of United States in India’s export of Aluminium is 10% &Share Of United States In India’s export in Iron & Steel is 4%.
  • So we can say Aluminium Industry Of India will be more affected by Trump’s decision of implementing tariff.

Iron & Steel Industry in India

  • In FY17 (1), crude steel production in India was 72.35 MT, with the total crude steel production growing at a CAGR of 4.90 per cent over the last 5 years & reached 89.79 MT in FY16.
  • During April-January 2017, crude steel production in India grew by 7 per cent YoY & stood at 39.98 MT.
  • As of March 2017, the capacity utilization of steel producers is set to increase with strong export demand and signs of revival in domestic sales. Companies like JSW & Essar Steel have experienced a sharp increase in steel manufacturing in the last 2 months
  • Steel manufacturing output of India is expected to increase from 88.4 million tonnes (MT) in 2017 to 128.6 MT by 2021, accelerating the country’s share of global steel production from 5.4% in 2017 to 7.7% by 2021.

Market Size:

India’s crude steel output grew 5.87 per cent year-on-year to 101.227 million tonnes (MT) in CY 2017. Crude steel production during April-December 2017 grew by 4.6 per cent year-on-year to 75.498 MT.

India’s finished steel exports rose 102.1 per cent to 8.24 MT, while imports fell by 36.6 per cent to 7.42 MT in 2016-17. Finished steel exports rose 52.9 per cent in April-December 2017 to 7.606 MT, while imports increased 10.9 per cent to 6.096 MT during the same period.
Total consumption of finished steel grew by 5.2 per cent year-on-year at 64.867 MT during April-December 2017.