In recent days there’s been mutterings amongst several business commentators concerning the state of the South African manufacturing sector and its inability to compete in the local economy in the face of ‘so-called’ cheap imports. For once I heard some common sense instead of the usual WTO/economist waffle which normally just confuses people instead of shedding light on the inherent problems. What the Business Times article below suggests is that our prevailing job plight is self-induced and should not be blamed entirely on rogue elements alone. Under valuation and mis-declaration have and always will pose a challenge to any country. The blame has been placed on Customs not doing its job; yet, the problem appears to lie at the feet of policy makers who have made foolish decisions for which the country as whole now pays the price. 

The trouble began soon after 1994, when then Trade and Industry Minister, anxious to prove to the then rich and powerful, and sceptical, West what lovers of democracy and free markets they were, removed tariff protection on cheap imports against a considerable body of expert advice. And 12 years before we needed to, because the World Trade Organisation‘s predecessor, GATT, had given South Africa 12 years to modernise its manufacturing, improve its skills and prepare itself before lowering import tariffs.

At the time, Trade and Industry Minister and the government thought South Africa did not need a grace period. Leslie Boyd, then head of the Anglo-American industrial division, warned of the devastating consequences but to no avail. “They thought if they took the crutches away we’d become a free market economy and we’d be competitive,” says Stewart Jennings, chairman of the Manufacturing Circle which represents thousands of manufacturers in SA. “It was the most ridiculous thing you could ever imagine. Those of us in business know there is no free market in the world. Every country protects itself. We don’t. Here’s an economy without skills that just throws open the tariffs. We’re the country that’s whiter than white in terms of the WTO. Everybody else just abuses us.”

Business consultant Moeletsi Mbeki opines “[government] is too ideologically orientated, it operates from ideology rather than from practical expertise. This motivates our relationship with China. The Chinese can do no wrong.”

One of the worst mistakes they made, he believes, was to sign an agreement that gave the Chinese market economy status which it did not and does not deserve. The talk was that SA agreed to do this as compensation for imposing a three-year quota on Chinese textile imports. The effect on SA’s manufacturing sector has been devastating. “As a consequence of that agreement it is virtually impossible for us to get countervailing duties into China through ITAC [the International Trade Administration Commission which used to fall under the Department of Trade and Industry but is now under Ebrahim Patel‘s Department of Economic Development],” says Stewart Jennings. “We’ve battled to get dumping duties or safeguards against China. Most of the applications that have gone to ITAC have been kicked into touch.”

First, China starts with a currency that is 30% undervalued. It manipulates it, so any goods it exports to SA are 30% cheaper than they should be. On top of that there are all sorts of incentives for Chinese exporters. And then, as Jennings says, attempts by local manufacturers to defend themselves by applying for countervailing duties more often than not go nowhere.

Iraj Abedian of Pan African Investment and Research says the short answer to the question is yes, we are being screwed. “Not because the Chinese have been smart but because we’ve been snoozing and naïve.”

SA was so flattered to be asked to join the BRIC (Brazil, Russia, India, China) club of developing economies that it did not drive a hard enough bargain. “We were romanticising our relationship with China and celebrating the fact that China was inviting us to join BRIC. We took it as a form of political honeymoon without recognising its effect on manufacturing, without assessing our counter-strategy for safeguarding national interests in the form of jobs and tax revenue.” China needed SA to join BRIC at least as much as SA itself wanted to join, but SA failed to capitalise on this.

Executive director of the Manufacturing Circle, Coenraad Bezuidenhout, who has observed the effect at close quarters, thinks part of it is that “our guys find the prospect of dealing with China daunting. They feel we need China as a market for our raw materials more than China needs us.” He thinks this attitude reflects a worrying lack of professionalism on the part of those who are paid to battle for SA’s interests. “We should be leveraging our position with regard to our minerals and our access to African markets far more than we do when we deal with China.”  Source: Business Times