South Africa: Trade Talk

Trade Talk
Business Day (Johannesburg)
COLUMN
6 August 2007
Posted to the web 6 August 2007

By Brendan Vickers
Johannesburg

HAVE you noticed how littered the economic policy landscape has recently become, with the government churning out a range of bewildering new acronyms? I need at least three hands to tally them all: AsgiSA, Jipsa, NSDS, NIPF, Capex, NSDP, AMTS ...
Sure, planning (by public-minded technocrats) was the forte of Asia's developmental states. A similar political economy model -- albeit wrapped in democracy and human rights -- apparently inspires our own policymakers.
I would certainly endorse more strategically calibrated support from the government to promote the long-term competitiveness, diversification and technological upgrading of key sectors
But as Harvard economist Dani Rodrik suggests, this implies a solid partnership with business to "discover" the cost function of our economy and "pick losers" (not winners). That kind of partnership still eludes our young democracy.
Added to that is a good dose of co-ordination capacity. Despite the government's best intentions to co-ordinate our sector strategies, capacity and institutional weaknesses are still a pressing challenge.
In particular, I wonder how strong are the institutional linkages and strategic synergies between our country's trade and industrial policies? Let me illustrate my concern with some recent examples.
Commendably, the trade and industry department is finalising its much-vaunted new industrial policy framework. Its main thrust is to build an export-orientated manufacturing economy premised on both labour and capital intensity. This policy seeks to catapult SA from its traditional dependence on raw material and resource-intensive exports to increasingly higher value-added manufacturing and knowledge-intensive exports and services.
This imperative is clearly reflected in our multilateral trade diplomacy. In the World Trade Organisation's Doha Round, SA has ably co-ordinated the Nama-11 Southern axis of countries, which demand the right to maintain tariff policy differentiation. This flexibility would give Pretoria the option of making tariff reductions in upstream sectors that are imposing import parity pricing, while defending higher tariffs on new dynamic or downstream sectors that we want to develop.
Earlier this year, Nedlac launched public consultations to determine the scope of our sensitive industrial products to be excluded from liberalisation. It remains to be seen how "SA Inc" -- generally on the defensive -- responds to this process.
More perplexing, however, is an initiative by the International Trade Administration Commission (Itac) "proactively" to review the import duties on products needed for the government's R370bn infrastructure programme.
At first glance, this is perhaps a good move. Our import bill is soaring (the deficit was 5,2% of GDP during the third quarter of last year), and the state of public infrastructure and social delivery is perilous.
Last November, the SA Institution of Civil Engineering awarded our public sector infrastructure an unsatisfactory D+ score.
But parallel to Itac's newfound alacrity, the government is nursing a more strategic vision, with plans to revive the country's capital goods sector. Capital goods have been identified as a possible fourth AsgiSA priority sector.
Reviving the capital goods sector is seen as a means to ensure greater self-sufficiency. In a world of supply and demand, SA's orders get crowded out by bigger global customers, including China and Europe.
For this reason, in the run-up to its 2007 policy conference, the African National Congress similarly toyed with the idea of "import replacement sectors".
Deputy Trade and Industry Minister Rob Davies has cautioned that we need an industrial policy response to the infrastructure investment programme. Otherwise we will be creating jobs in supplier countries, rather than at home.
Compounding this conundrum: how effectively have we engaged our partners in the Southern African Customs Union (Sacu)? Article 38.2 of the new Sacu treaty enjoins member states to develop common policies and strategies with respect to industrial development.
This is not to argue for or against liberalisation, but to raise more strategic questions of process and co-ordination: should we be paring our industrial tariffs (certainly necessary in some sectors) before we have finalised our industrial policy and sector strategies; or before Nedlac has crafted our list of sensitive products? What about Sacu? Arguably, missing from all of these constructive policy exercises is a broader vision of the strategic synergies between our industrial and trade policies.
I would think that trade policy and trade negotiations are a logical extension of industrial policy. And industrial policy is all about vision -- not simply taxes or subsidies. So let's get that vision and co- ordination right.

Brendan Vickers is senior researcher: multilateral trade at the Institute for Global Dialogue (email: brendan@igd.org.za).

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