By Prof. Busisiwe Mavuso
Just what set of industrial policies is the government of national unity going to promote? I was struck by a World Bank study of South Africa’s international trade performance, which found it has been lagging the growth of the wider economy. Since 2010, our share of global exports has been on a steady decline. Trade is dominated by large firms with minerals and agricultural products, while manufactured goods have disappointed, particularly outside of the automotive sector. Our services exports have also been relatively weak, with growth lagging far behind other middle-income countries.
The ANC’s lekgotla last week noted the need for an economic policy that integrates transport, energy, logistics mineral beneficiation and industrialisation. To that list should be added international relations, particularly trade agreements and facilitation. With that must come industrial policies that build the international competitiveness of our export industries, including enabling small businesses, which could be exporting much more, particularly to neighbouring countries, and particularly in services exports.
Part of the problem with our export performance is the collapse of our logistics system. The weak performance of ports and rail compounds the problem of being far away from main markets in both the East and West, making logistics very expensive.
But the World Bank also highlights that industrial policy focused on localisation has damaged our export performance and increased costs to consumers. The use of forced local content requirements, tax incentives and tariffs, import licences and local ownership procurement rules can contribute to making industries less innovative and competitive over time. Tariffs, for example, increase the cost to domestic consumers of important components in supply chains that ultimately render the finished goods less competitive in international markets. So, by forcing localisation into supply chains we are actively damaging our ability to compete in international markets, and therefore constraining the growth of industries that are competitive to protect industries that are not. The net result might well be that we damage local economic activity. The World Bank report calls for a full review of our localisation strategy.
The GNU has the opportunity now to turn this legacy around and refocus on enabling South African business to sell into international markets. The new minister in the Department of Trade, Industry and Competition, Parks Tau, was quick off the mark to engage with stakeholders across business. He also impressed many in embarking on a trip to the United States, one of our key markets particularly for manufactured goods, to help restore South Africa’s relationship, arguing with US lawmakers for continued beneficiary status under the African Growth and Opportunity Act (Agoa). This was a good signal that the minister is keen to protect and promote our trade relations with the rest of the world.
This start needs to now build into a coherent industrialisation and trade policy for the GNU. Such a policy must aim to coordinate the actions of government, for example ensuring our border posts, ports and railways have the capacity to efficiently facilitate improved trade flows. It needs to align with our global diplomatic efforts to gain beneficial trading relationships with other countries, and then facilitate South African companies to access those markets.
Domestic trade policy should focus on export competitiveness, not trying to protect local producers from foreign competition. In short, the whole of government needs to be focused on enabling our companies to send goods and services to the rest of the world. A strong partnership with business will be important as we build that competitiveness. As I wrote last month, BLSA has already tabled several ideas to the DTIC minister at his request on how we could improve competitiveness. We are similarly willing to engage with his other cabinet colleagues. There needs to be a whole-of-government approach, forged through a coherent policy platform shared by the GNU.
I hope you have all had a brilliant Women’s Day long weekend. This month is a celebration of the incredible contributions women across the nation have made, from the struggle against apartheid to improving our economy and its ability to realise the potential of women to contribute. I was privileged to join several events last week dedicated to highlighting women’s views and their roles, including the Bloomberg News She Said event. I addressed a panel of women experts on our water infrastructure investment needs and the role the private sector can play through public-private partnerships.
