Euromonitor’s latest insight on the Tobacco industry

World Tobacco

Euromonitor International‘s latest global Tobacco market research provides the latest insight on how the Tobacco industry performed in 2012 and identifies the key prospects through to 2017. The double whammy of continued global economic uncertainty and increasing tobacco control took its toll as the industry posted a year of weak growth, in which no region experienced volume increases with the solitary exception of Asia Pacific, itself bolstered by the cigarettes behemoth that is China. World cigarettes values, normally propelled by growing unit prices and consumer uptrading, also took a battering, unprecedentedly growing by the same amount as global illicit trade volumes. With the current debate surrounding the reduced risk credentials of non-combustible products such as electronic cigarettes and their classification (pharma vs tobacco), the industry finds itself at a crossroads, pursuing cigarette alternatives whilst maintaining its cash cow.

  • Worldwide, 5.8 trillion cigarettes were consumed in 2012, representing 0.19% growth on the previous year, though this was due to the effect of the world’s largest cigarettes market, China. Without China, the world witnessed a -1.7% decline in 2012 versus 2011.
  • Every region in the world, save for Asia Pacific, saw falls in cigarettes volume sales in 2012 (vs 2011), a decline expected to continue to 2017, with the sole exception of Middle East & Africa, which is expected to return to growth once political turmoil stabilises.
  • None of the BRIC markets registered cigarettes volume growth in 2012 (with the sole exception of China), a trend which will continue into 2017.
  • World cigarette value sales grew by almost the same amount in 2012 as global illicit trade volumes – at around 2.5% each. Values decreased in three regions – Western Europe, North America and Latin America – reflecting consumer down-trading.
  • Sales of premium cigarettes grew by nearly 10% globally in 2012, on the back of China’s double-digit premium growth, though this will not be sustained at the global level in the long term. For whilst China will grow its premium brands by nearly 30% over the next five years to 2017, world premium sales will register a 5% fall.
  • World RYO volumes conversely grew by 6% in 2012 (vs 2011), registering growth in all regions, particularly Eastern Europe where it saw double-digit growth. Growth will continue to 2017, albeit at a declining rate.
  • Sales of cigars and smokeless tobacco both saw volume declines of around 3% in 2012, affected by a combination of poor economic performance and declines in its major markets.

Source: Euromonitor International

India’s Trade Challenges Unique Among the BRICs

In 2013, the prospects for trade for the BRIC economies (Brazil, Russia, India and China) will diverge. While the BRIC economies have been at the forefront of emerging market growth for the past decade, weaker export demand from the developed world since 2012 is impacting the trade balances of each BRIC country, reports Euromonitor International.

The widening trade deficit for India in particular, the only BRIC member in which imports outstrip exports, is threatening the country’s growth prospects for the year. India’s trade deficit widened in 2012 to 10.3% of GDP, as high oil prices further increased the cost of the country’s imports, while export growth slowed, leading the imbalance to worsen. This is compared to 2.9% surplus in China, 9.9% surplus in Russia and a 0.9% surplus in Brazil in 2012.  Both Russia and Brazil’s exports are buoyed significantly by primary resources, such as oil and gas. Euromonitor International expects India’s trade deficit to widen to 12.3% in 2013.

GREENEARTH INDIA 3India’s situation is unique. The country has not posted an annual trade surplus since at least 1977, primarily due to two key factors. First of all the country is highly dependent on imports of energy to maintain the country’s energy consumption. For example, the country imports 75.2% of the crude oil that it consumes, as a result, in 2012, imports of mineral fuels accounted for 33.9% of the country’s import bill. The rising costs of fossil fuels after 2010, as well as the low levels of energy efficiency have exacerbated India’s trade deficit issues;

Secondly, the economy’s external sector remains comparatively small in comparison with the other BRIC economies. The Indian economy has maintained growth through rising domestic spending and a burgeoning services sector, which in 2012 made up 53.4% of the economy. As a result, India’s exports made up just 15.7% of the country’s GDP in 2012, compared to 25.3% in China and 27.2% in Russia, Brazil is the exception with exports making up just 10.8% of GDP in the year;

However, over the majority of the period studied, the trade deficit has been offset by capital accumulation in India from FDI inflows into the country. Since 2006, a rapid acceleration in imports has led to a much larger trade deficit, while the financial crisis of 2007-2008 has meant FDI flows have tightened across the world. The trade deficit is therefore, a growing burden for India, as capital is diverted from India’s economy to fund rising import costs.

Although there are challenges for India’s external sector in 2013, the economy has seen very high trade growth, the fastest of the BRIC economies. Between 2007 and 2012, exports increased by 103.6% in US$ terms, while imports increased by 123.2%. Growth will continue in 2013, with 15.2% increase in exports and a 22.2% increase in imports. The rapid growth is a result of a burgeoning middle class and the development of export industries in the country. The long term prospects for India remain bright as a result, as the growing population and continued economic development offer considerable opportunities for investment. However, the trade deficit will continue to drag on economic growth until investor confidence in India returns. Source: Euromonitor International

Boost for Intra-African, BRICS Trade

BRICS-logoSouth African companies, including foreign companies based in South Africa, stand to benefit from relaxed cross-border financial regulations and tax requirements, Finance Minister Pravin Gordhan announced in Cape Town on Wednesday.

Delivering his 2013 National Budget speech in Parliament, Gordhan said that outward investment reforms that applied as part of a new set of “gateway to Africa” reforms would also apply to companies seeking to invest in countries outside of Africa, including in the BRICS (Brazil, Russia, India and China) countries

Boost for cross-border trade

These reforms include the relaxation of cross-border financial regulations and tax requirements on companies in South Africa, as well as reforms making it easier for banks and other financial institutions in South Africa to invest and operate in other countries.

Brand South Africa welcomed these moves as being in line with South Africa’s National Development Plan (NDP), which acknowledges the global shift of economic power from West to East, while also highlighting the rise of Africa.

“This is an important step to enabling trade and supporting regional integration,” Brand South Africa CEO Miller Matola said in a statement following Wednesday’s Budget speech.

Gordhan said Africa now accounts for 18 percent of South Africa’s exports, including nearly a quarter of its manufactured exports, and that the SA Reserve Bank had approved over 1 000 large investments into 36 African countries over the last five years.

Southern Africa development projects

South Africa is also helping to fund several development projects in the wider southern African region, with the Development Bank of Southern Africa (DBSA) accelerating investment into neighbouring countries, particularly in the field of electricity generation and transmission and road transport.

Added to this, South Africa’s Industrial Development Corporation (IDC) last year funded 41 projects in 17 countries to the tune of R6.2-billion. Most of these projects were in industrial infrastructure, agro-processing and tourism.

State company Eskom was also now considering investing in several regional generation and transmission projects outside South Africa. (Comment: I would have thought Eskom would ensure the money was spent on the local South African electrical grid! After having its expected 16% tariff increase halved last week, its quite incredible that such a notion can be in the cards. The South African public are truely being kept in the dark!!!)

Gordhan said there was a proposal to pool the foreign exchange reserves of the five BRICS member countries, with the idea of using this to support one another in times of balance of payments or currency crisis. Brazil, Russia, India, China and South Africa collectively hold reserves of US$4.5-trillion.

He said work was under way to create a trade and development insurance risk pool, with the aim of setting up a sustainable and alternative insurance and reinsurance network for BRICS members. Source: SA News.gov.za

Will Nigeria Overtake South Africa as Africa’s Powerhouse?

Is Nigerian's President Goodluck Jonathan on the road to success?  - Photograph by IITA Image Library

Is Nigerian’s President Goodluck Jonathan on the road to success? – Photograph by IITA Image Library

Posted with special permission and credit to Think Africa Press. Projections that Nigeria’s economy will be more important than South Africa’s by 2020 underplay serious instabilities in Nigeria’s economy, political systems and surrounding region.

Following Nigeria’s announcement that calculations of its Gross Domestic Product (GDP) may have been underestimated over the last two decades, the country’s economy has been portrayed much more optimistically by mainstream media. The Financial Times headline ‘Nigeria: No 1 in Africa by 2014?’ in its special edition on emerging markets, Beyond Brics, is a case in point. Similarly, headlines such as ‘Nigerians optimistic about economic prospects’ or ‘Nigeria wins ratings upgrade for tight fiscal policy’ from The Guardian and Reuters, respectively, capture the media‘s changing attitude towards Africa’s most populous nation.

And Nigeria’s economic performance has not only caught the attention of the media. The traditionally cautious business community, major global players such as the International Monetary Fund (IMF), World Bank, and influential private institutions such as Goldman Sachs, have warmly embraced this favourable analysis, setting the scene for more positive depictions of Nigeria’s economy. It appears academia, too, has joined the chorus in praising Nigeria’s apparatchiks for supposedly bringing in reforms that have resulted in “unprecedented” growth.

Several commentators are now asserting that Nigeria’s economy will be more important to Africa than South Africa’s by 2020. These analyses in particular require a closer look.

South Africa vs. Nigeria

There is little doubt that the Nigerian economy, simply in terms of size, will reach the top rung by 2020, if not earlier. By some measures, it could already be seen as the biggest economy in Africa. Its massive population has seen its economy grow at speeds unimaginable not long ago. But does that mean Nigeria will automatically become a more dynamic and important regional economy than that of South Africa?

Measured analysis is less convincing, and show that such predictions focus heavily on Nigeria’s current high growth rates at the expense of serious weaknesses and instabilities in its economy, political systems and region. In comparison to South Africa, Nigeria is still confronted by numerous challenges.

First, Nigeria’s high growth rates have been driven by consistently high crude oil prices. Indeed, the story about Nigeria’s growth is predominantly about oil. The primary engine for such high oil prices on the world market has been demand from BRICS countries: Brazil, Russia, India, China and South Africa. However, since the 2008 global financial crisis, BRICS countries have been showing signs of struggling, with growth forecasts for this year cut by almost half. If oil demand continues to weaken due to their sluggish economic performance, Nigeria’s economy could prematurely plateau in a manner analogous to Japan. On the other hand, South Africa’s economy is more diversified, and as a result, its growth rate, though more measured, is likely to be steady.

Second, Nigeria has, in comparative terms, a smaller entrepreneurial community than South Africa. Dependency on oil appears to have profoundly discouraged would-be innovators and entrepreneurs from other sectors, such as the ‘smart’ industries of finance or telecommunications. With the exception of well–established conglomerates such as the Dangote Group, Nigeria also struggles with internationalising its companies. Indeed, there is a sense that Nigerian entrepreneurs have more interest in accumulation than in global expansion. The Nigerian economy needs to reach out to international markets if it wants to sustain the momentum initiated by high GDP growth rates.

South Africa, on the other hand, has shown that it has the ability to take advantage of regional and international markets, with its companies such as Nandos Restaurants, MTN Multinational and Stanbic Bank, amongst many, showing the potential to become global brands. In a manner akin to the US, South Africa has also successfully ‘exported’ its currency, with the rand being used as official currency in Zimbabwe, Botswana, Namibia, Lesotho and Swaziland, a move that has boosted trade with its neighbours.

Third, Nigeria struggles to retain skills and continues to see an outflow of its best minds to London, New York and Johannesburg. For the past 30 years, it has been a country exporting future engineers, economists and doctors. With its workforce, Nigeria will be hard pressed to keep up with the mature knowledge of South Africa, a country whose dynamic economy continues to see it attract some of the best people in Africa. South Africa’s top industries and universities are manned by highly qualified and some of the most sought after professionals in the region, including Nigerians. For the foreseeable future, human capital will remain South Africa’s comparative advantage.

Fourth, intractable corruption in Nigeria is a formidable barrier to sustained growth. Corruption is pervasive and the problem is compounded by the fact that Nigeria lacks the political will and effective institutions to address it. To be a dynamic economy, Nigeria needs to demonstrate interest in countering corruption by building the trust of its own people and investors. In contrast, South Africa has comparatively stronger institutions for tackling corruption, including an effective judiciary system, the very elements that are missing in Nigeria today.

Fifth, Nigeria lags behind South Africa in terms of infrastructure. Its infrastructural systems are not fully competitive, nor do they resemble 21st century standards, with its rail and road networks requiring serious attention. Nigeria needs to invest in infrastructure that will better connect its regions to each other and the country to the rest of the world. More of everything, from ports and bridges to airports and industrial clusters, is required for trade with its neighbours, along with extensive broadband internet connections. The same is not true of South Africa, which has the region’s most extensive infrastructural development.

Sixth, for an economy to grow sustainably, its immediate periphery must be stable and prosperous enough for trade. In West Africa, Nigeria is in the middle of a rough neighbourhood, with social unrest in the Ivory Coast and the unpredictable politics of Mali and Chad, amongst others, posing a threat to regional stability. South Africa benefits from its relatively peaceful immediate region, with the ‘Post–Apartheid Regional System’ having seen increased stability in Southern Africa over the past 15 years.

Last but not least, Nigeria is confronted by religious violence that poses an ‘existential’ threat to its state, and relentless socio-ethnic tensions. In the predominantly Muslim North, for example, the activities of groups such as militant Islamists Boko Haram threaten security and political order – public goods upon which dynamic economic activity is dependent. The former head of state, General Abdulsalami Abubakar recently expressed concern at the deteriorating security situation, admitting that insecurity was constraining Nigeria’s potential.

South Africa has its problems too

So far South Africa has been looked at as a stable entity. However, it’s important to continue this analysis from the opposite direction: the sustainability of South Africa’s stability. Indeed, the real threat to South Africa’s leadership of the Africa region is not Nigeria, but its increasingly tense social atmosphere, undermining its fragile stability. Despite the promise that its economy shows, incidents such as the Marikana massacre give a strong sense that South Africa’s post–apartheid society still faces serious problems. Concise definition of these problems, though, has appeared difficult, with even some of the most incisive voices struggling to provide convincing explanations of what is haunting the Rainbow Nation.

South Africa’s state elites and the civil and business communities need to urgently explore the causes of such a tense social atmosphere, and confront them head on. The 2000 crisis across the Limpopo River in Zimbabwe is a stern reminder that an insecure social atmosphere bodes ill. It may only be, though, when South Africa faces a crisis of ‘Zimbabwean’ proportions, which may not be impossible, that Nigeria gains that precious title of being the regional powerhouse. Otherwise, the continental economic order is likely to look the same come 2020.

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The Top 5 Largest Economies in 2020

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)Note: Purchasing Power Parity has been used as this is a method of measuring the relative purchasing power of different countries' currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards.

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)Note: Purchasing Power Parity has been used as this is a method of measuring the relative purchasing power of different countries’ currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards.

By 2020, three of the world’s five largest economies will be emerging countries, accounting for 30.4% of global GDP in PPP terms. Advanced economies are being displaced by emerging market superpowers, notably the BRIC countries, which has been accelerated by the seismic effects of the global economic downturn of 2008-2009. Euromonitor International predicts that China will become the world’s largest economy in PPP terms in 2017.

Additionally, Russia will overtake Germany as the fifth largest economy in 2016. These shifts will influence global politics, business environments and investment flows while consumer markets in developing countries will rise in importance as the middle class expands.

1. China: Set to become world’s largest economy in 2017

A large manufacturing base, cheap labour costs, the world’s largest population and economies of scale have resulted in unprecedented economic growth in China. Although growth is slowing, the delayed recovery in advanced economies from the global economic downturn means China will overtake the USA as the world’s biggest economy in 2017, and account for 19.0% of global GDP in PPP terms by 2020. Challenges loom large, however, including rising labour costs, pollution, a potential real estate bubble and rapid ageing arising from the government’s one child policy. Euromonitor predicts that China’s working age population (aged 15-64) will decline from 2014.

2. USA: End of the American dream?

The USA will lose its position as the world’s number one economy in 2017. In 1990, the USA accounted for a quarter of global GDP in PPP terms but we forecast this to plummet to 16.0% by 2020. The country was where the global financial crisis began in 2008 and it has failed to recover to its potential while also slipping in global competitiveness rankings. Although the government avoided the “fiscal cliff” in 2012, one of the biggest challenges remains a budget deficit reduction strategy, without the ensuing political gridlock. Nevertheless, the USA retains advantages, namely as the world’s largest consumer market and a leader of technological innovation.

3. India: Demographic dividend to benefit country beyond 2020

India overtook Japan as the world’s third largest economy in PPP terms in 2011 and its demographic advantage means the country could become the world’s biggest economy in the coming decades. India has a young population where it is benefitting from its demographic dividend (when there are more people of working age and the proportion of the child population declines). Euromonitor forecasts that India will become the world’s largest population by 2025 and that its working-age population will increase by 11.6% in 2013-2020 compared to -3.1% in China. However, India lags in major indicators including educational attainment and infrastructure development.

4. Japan: Paying the price for decades of economic stagnation

Structural problems beset Japan, with decades of weak economic growth and deflation while it has totalled the highest proportion of public debt in the world at 235% of GDP in 2012. Although the country has not yet suffered a eurozone-style sovereign debt crisis, as the majority of its debt is domestically-owned, an increase of foreign debt could trigger a Japanese debt crisis. It has the oldest population globally (mean age of 44.7 in 2012) and a shrinking labour force which will add considerable strain on government finances, while a strong currency makes its exports uncompetitive. Yet Japan’s location within Asia means it can take advantage of cheaper production costs in the region and growing demand for its high-tech products from a burgeoning Asian middle class. Like the USA, it is a global technological leader, giving it a competitive edge over its emerging neighbours.

5. Russia: Overtakes Germany as fifth largest economy in 2016

Russia will become the world’s fifth largest economy in 2016 in PPP terms, driven by its energy sector, as one of the top oil and natural gas producers worldwide. It also offers potential in its rapidly expanding consumer market, which Euromonitor forecasts will be the ninth largest globally in real terms in 2020. Its accession to the World Trade Organisation in August 2012 further cements its integration into the global economy. The lack of economic diversification and modernisation remain key long-term challenges with government policy aiming to tackle this, for example, by investing in the Skolkovo Innovation Centre Project, Russia’s equivalent to Silicon Valley. Corruption, state control and bureaucracy also hamper the business environment in Russia. Like elsewhere in Eastern Europe, the Russian working-age population is in decline (-4.5% in 2013-2020) despite a short-term baby boom, which will pose a demographic challenge to sustaining non-oil economic growth. Source: Euromonitor.com

Nigeria – Maximizing Opportunities in Free Trade Zones

Lagos Free Trade Zone

Lagos Free Trade Zone

So how come FTZs, IDZs, EPZs, etc are working in other African countries and not here in South Africa? This Day Live (Nigeria) offers some of the critical success factors which delineate such zones from the normal economic operations in a country. Are we missing the boat? The extent of economic and incentive offering can vary substantially between the different economic and trade zone models – some extremely liberal while others tend to the conservative. Obviously the more liberal and free the regulations are the more stringent the ‘guarantees’ and controls need to be. However, in today’s e-commercial world, risk to revenue can more than adequately be mitigated and managed with through risk management systems. Manufacturing and logistical supply chain operations are likewise managed in automated fashion. I guess the real issue lies in governments appetite for risk and more particularly its willingness to relax tax and labour laws within such zones. Furthermore, a sound economic roadmap demonstrating backward linkages to the local economy and outward linkages to international markets must be defined. Herein lies some of the difficulties which have plagued South African attempts at such economic offerings – no specific economic (export specific) goals. Limited financial/tax incentives for investors, and poor cooperation between the various organs of state to bring about a favourable investment climate.

Free Trade Zones (FTZs) are at the crux of the growth attributed to emerging markets. All the BRIC nations have used the FTZs as a buffer to economic meltdown particularly in the wake of the most recent financial and economic crises. The “great recession” of 2007 – 2009 saw the BRIC nations growing at the rates of 7% to 13%. Consequently, the importance of FTZs as well as maximizing opportunities therein cannot be over-emphasized. The literature defining FTZs vary, but they all have the following characteristics in common:

  • A clearly delimited and enclosed area of a national customs territory, often at an advantageous geographical location, with an infrastructure suited to the conduct of trade and industrial operations and subject to the principle of customs and fiscal segregation.
  • A clearly delineated industrial estate, which constitutes a free trade enclave in the customs and trade regime of a country, and where foreign manufacturing firms, mainly producing for export, benefit from a certain number of fiscal and financial incentives.
  • Industrial zones with special incentives set up to attract foreign investors, in which imported materials undergo some degree of processing before being re-exported.
  • Fulfilling their roles in having a positive effect on the host economy, regulators look at FTZs from a nationalist perspective. Inevitably, they seek the following benefits:
    • Creating jobs and income: one of the foremost reasons for the establishment of FTZs is the creation of employment.
    • Generating foreign exchange earnings and attracting foreign direct investment (FDI): measures designed to influence the size, location, or industry of a FDI investment project by affecting its relative cost or by altering the risks attached to it through inducements that are not available to comparable domestic investors are incentives to promoting FDI. Implicit in this statement lies the definition of FTZ. Other traits that are recognizable when discussing FDI’s include specially negotiated fiscal derogations, grants and soft loans, free land, job training, employment and infrastructure subsidies, product enhancement, R&D support and ad hoc exceptions and derogations from regulations. In addition to FDI, by promoting non-traditional exports, increased export earnings tend to have a positive impact on the exchange rate.
    • Transfer of technology: trans-national corporations (TNCs) are a dominant source of innovation and direct investment by them is a major mode of international technology transfer, possibly contributing to local innovative activities in host countries. It is a government’s primary obligation to its citizenry to provide attractive technology, innovative capacities and mastering, upgrading, and diffusing them throughout the domestic economy. Nevertheless, through national policies, international treaty making, market-friendly approaches, a host country gravitates from providing an enabling environment to stronger pro-innovation regimes that perpetually encourage technology transfer.

FTZs can be both publicly (i.e. government) and or privately owned and managed. Governments own the more traditional older zones, which tend to focus more on policy goals that are primarily socio-economic. They emphasize industry diversification, attracting FDI, job creation and the like. Privately-owned FTZs have the advantage of eliminating government bureaucracy, are more flexible, and are better prepared to deal with technological changes. The global trend towards privatization has made privately-run zones more popular and a number are highly successful. The role of government in the case of privately-run zones is to provide a competitive legal framework with attractive incentive packages that meet the World Trade Organization (WTO) requirements.

FTZ Operations in Nigeria

FTZs were established in 1991 in order to diversify Nigeria’s export activity that had been dominated by the hydrocarbon sector. By 2011, there were nine operational zones; ten under construction; and three in the planning stages. The governing legislation includes the Nigeria Export Processing Zones Act (NEPZA) and the Oil and Gas Export Free Zone Act (OGEFZA). Zones may be managed by public or private entities or a combination of both under supervision of the Authority. For the full article go to – This Day Live

Is South Africa being screwed by China?

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