Think-tank: Overhaul policy, dump protectionism to stimulate SA’s economic growth

A leading development think-tank has cautioned authorities against protectionism that would stifle export-based economic growth.

The Centre for Development and Enterprise (CDE) further called for an overhaul of industrial policy to move it away from protectionism, towards a focus on maximising exports.

Economic growth requires new approach

The latest report titled Action Seven: Rethink Growth, Jobs and the DTIC, which is part of the body’s Agenda 24 series, suggested that the country required a new approach to master plans, tariff-setting and competition policy.

“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 executive director Ann Bernstein.

Protectionist policies mean that South African firms do not face competition from foreign firms, so they have less incentive to increase productivity as quickly as is being achieved in other countries. They therefore fall behind.

“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,” Bernstein said.

“Far from protecting South African manufacturing employment, localisation policies are accelerating firms’ loss of competitiveness, with a negative impact on employment.”

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The report also identified the failure of the DTIC to achieve its goals to re-industrialise the economy and makes recommendations to remedy this.

“The president and the [National Economic Development and Labour Council] partners acknowledge that existing policies have failed to deliver and that fresh thinking is needed.

“South Africa needs a new approach and the government of national unity creates an opportunity to change the country’s course for the better,” Bernstein said.

Manufacturing on a downward spiral

The manufacturing sector has been on a downward spiral. From 1960 to 2023, the sector’s contribution to GDP fell from 20% to under 13%, while employment in manufacturing declined from 1.8 million in 2001 to less than 1.6 million in 2023.

It noted that only 20% of local manufacturing firms exported at all, with the number of firms exporting manufactured goods falling from 42 000 to 36 000 between 2015 and 2022.

More than half of the industries exported less than 5% of their output and the DTIC should shoulder the blame because its efforts to promote manufacturing had largely been harmful rather than helpful.

The department’s focus on protectionism, master plans and a selective, interventionist approach to regulating firms, especially in the realms of competition policy, have been counterproductive.

“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.

The CDE report recommended, among others, that the DTIC create an environment in which firms could become more productive and more competitive.

This should include establishing an independent evaluation process for all tariff applications by firms seeking some form of protection.

It also recommended regular reviews of all tariffs and their supposed benefits, but these must have sunset clauses, which automatically compel their phase-down after a defined period.

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