Call for domestic trade policy to focus on export competitiveness – BLSA

South Africa’s domestic trade policy should focus on export competitiveness instead of focusing on localisation. The GNU should now, while it has the opportunity, focus on enabling South African businesses to sell their products and services to the international market instead of chasing after outdated policies such as localisation.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA) writes in her weekly newsletter that when asking the question about just what set of industrial policies the government of national unity (GNU) plans to promote, she 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.”

Mavuso points out that the African National Congress’ (ANC) lekgotla last week noted the need for an economic policy that integrates transport, energy, logistics, mineral beneficiation and industrialisation. She says 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, she says. 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.

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Damage done to exports by localisation

In addition, Mavuso points out that the World Bank 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. Therefore, 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.”

She warns the net result might well be that we damage local economic activity. The World Bank report also 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.”

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Time to draft a coherent industrialisation and trade policy for SA

Mavuso says this start must now be used to build 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 must 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, she emphasises. “In summary, the whole of government must focus 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 also 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.”