Nicola Mawson
Economic analysts are calling for an end to import tariffs as well as a more competitive environment to free up industry so it can contribute more to economic growth under the Government of National Unity (GNU).
This comes as South Africa in June notified the World Trade Organisation (WTO) of its intention to impose a 9% duty on hot-rolled steel products to protect the local industry from a surge in imports.
Domestic steel producers are in support of safeguard measures such as import duties as as legally applicable trade remedies used to level the playing field and to protect against cheap imports dumped by Asian countries.
However, Donald MacKay, founder and CEO of XA Global Trade Advisors, said the current industrial policy was outdated and negatively affecting economic activity.
“I've noticed before there’s an obsessive focus on import replacement. And this is an industrial policy approach that’s being discredited,” he said.
MacKay was speaking during a session on Rethink Industrial Policy to Increase Exports hosted by the Centre for Development and Enterprise (CDE) yesterday.
He said when companies require products that can only be imported and request that duties be reviewed, the process took far longer than the six months it should.
“Just recently, there was an investigation into solar panels that took 63 months to conclude. It's very hard to see how anyone benefits from a process taking over five years reach a conclusion,” MacKay said.
“There’s an enormous opportunity here because duties are not reviewed. So, 93% of all duties, which are currently in place, have been in place for more than 20 years without a review.
“There are billions of rand being paid in duties on products that nobody even knows if they are being produced locally. And this certainly should present an opportunity to put some money back into the pockets of consumers, or at least take a conscious decision to keep the duty based on data.”
CDE executive director Ann Bernstein said, “South Africa needs a new approach, and the GNU creates an opportunity to change the country’s course for the better”.
Bernstein stated that the CDE’s new report in its AGENDA 2024 series showed how the Department of Trade, Industry and Competition (the dtic) has failed to achieve its goals to re-industrialise the economy.
Among the findings in the report are that, between 1960 and 2023, the manufacturing sector’s contribution to gross domestic product (GDP) fell from 20% to less than 13%. At the same time, jobs in manufacturing declined from 1.8 million in 2001 to less than 1.6 million in 2023.
Moreover, the report found that only 20% of South Africa’s manufacturing firms exported at all, with the number of firms exporting manufactured goods falling from 42 000 to 36 000 between 2015 and 2022. Of these, more than half export less than 5% of their output.
While the CDE recognised that some reasons for this poor performance were outside the dtic’s control, such as the quality and availability of infrastructure, increased competition from imports and what it said were “ill-conceived empowerment polices,” it said the dtic’s efforts to promote manufacturing have “largely been harmful rather than helpful”.
“Policy choices are not premised on maximising export growth, but on trying to replace imports with local production – an approach that has led South Africa down an increasingly protectionist path,” said Bernstein.
The CDE said the dtic’s focus on protectionism, Master Plans, and a selective, interventionist approach to regulating firms, especially in the realms of competition policy, have been counterproductive.
Such policies have overwhelmingly taken the form of import-replacement, known colloquially as “localisation,” the CDE added.
“The problem with localisation policies is that they undermine the likelihood of South African firms becoming sufficiently competitive to expand their share of the world’s demand for goods,” said Bernstein.
“South Africa should not be following a Trumpian, beggar-thy-neighbour path of protectionism, which will be the death knell for our economy in an ever-globalising world,” said Bernstein.
“Far from protecting South African manufacturing employment, localisation policies are accelerating firms’ loss of competitiveness, with a negative impact on employment.”
BUSINESS REPORT