Trade and Industry Minister Trevor Manuel is pushing hard for better access for South African exports.
Reg Rumney reports
TRADE and Industry Minister Trevor Manuel, just returned from Brussels, says he is hopeful that South Africa will get preferential treatment for exports in terms of the Lome convention.
Manuel was in Europe doing what he says is the government’s job: opening doors.
South Africa’s signing of the latest, or “Uruguay round”, of the General Agreement on Trade and Tariffs (GATT) has drawn flak from vested interests in South Africa because it commits South Africa to reducing some tariffs sharply. Manuel says South Africa got a reasonably good deal, though.
GATT is the worldwide agreement which pushes countries towards free trade by binding them to reduce the taxes they use to hinder imports. Manuel says that while there is a semblance of commitment to relative free trade in GATT and the World Trade Organisation that is supposed to replace it, there are a number of non-tariff barriers that will affect our exports into a range of markets, including the United States and Japan.
“You can’t get an apple into the Japanese market. They’ll tell us all about the Mediterranean fruit fly that was once around the apple-growing district of Ceres and which might spread to Japan. Those are the kind of issues we work through at governmental level.”
Last week in Europe, Manuel and his team made a bid to get preferential treatment for South Africa in terms of the Lome convention. “We made an appeal on the strength of South Africa being a developing country taking the full weight of GATT, with substantial industrial restructuring that will kick in only five years or more down the line, that preferential access is what we need to fulfil the needs of democracy.”
Secondly, South Africa argued access to Lome would counter harmful effects to our neighbours of “regional accumulation”. This means that neighbouring countries forced to use South African goods, such as packaging materials for fish products exported from Namibia to Europe, would lose the benefits of Lome. To stimulate regional industrial development, bypassing regional accumulation rules becomes important.
Thirdly, special development aid lines in terms of Lome might become available to South Africa.
These three benefits were focused on, to the exclusion of other facilities, such as stabilisation funds, available in terms of Lome.
The battle for support from developing countries was largely won, says Manuel, while there is still resistance to market access to Europe. There is still a fair amount of negotiation ahead.
What government can do in squeezing concessions out of the goodwill that exists towards South Africa now is short term, while GATT will have an erosive effect on long- protected and mostly inward-looking South African industry.
While the government can obtain market access for South African sectors like clothing and textiles, it cannot render industries more competitive, ruling out the kind of commandist solutions to shaping industry adopted by the “little tigers”.
On adjusting to the new competitive pressures presented by the demands of GATT, Manuel says business accepts the theory but there is a tendency to procrastinate. Some would like to take 10 years to adjust, but it makes sense to look at business now and not delay decisions. The issue is not GATT but competitiveness, and the hard business decisions needed.
“We can only deal with that on a sectoral basis,” says Manuel. And he adds, perhaps, even at the level of the firm.
Taking the Trade and Industry report on the clothing and textile industries as an example, Manuel says no agreement has been reached on all issues, such as technology upgrading, training and retraining of workers, worker productivity, product selection and market nicheing.
Key decisions were being made in the early part of the process. “It would be nice if (Mervyn) King could answer for the Textile Federation, but at best he can answer for the Frame group.” Similarly, the South African Clothing and Textile Workers’ Union lacks the capacity to monitor the programme on the shop floor.
The only instrument available to Trade and Industry has been tariffs, says Manuel. But the two most recent industry reports, the Motor Industry Task Group and the clothing and textile report, have placed emphasis on the “supply side”, such as research and development.
This is far more important than the tariff issue. Manuel believes we could compete in an era of completely free trade if we got the supply side right. The well-known human resource problems could be addressed.
The dearth of research and development remains, but there are areas of strength, such as in biotechnology and in agri-business. We have the mineral resources and the ability to add value to them, though he notes that in 1993 almost 64 percent of South African exports fell in the category of commodities or primary processed goods.
There are opportunities for “beneficiation” — the processing of goods to add value increasingly, that is in turning iron ore into first stainless steel then steel plate and then stainless steel pots and pans, with ever higher returns.
Manuel points to the upgrading of the Iscor operation at Saldanha Bay. Where iron ore was being exported, steel is now being produced. “The problem is that for the investment only 600 new permanent jobs are being created.”
The Columbus project will be the single largest installation producing stainless steel in the world, and makes South Africa the fifth-largest producer of stainless steel in the world. What South Africa lacks are the “downstream industries” where this steel is made into goods of a higher value.
“We must be far more engaged in the area of forward linkages,” says Manuel. “That must become a critical issue.” This in turn ties in with the lack of R&D, which the government is looking to encourage without turning to the ever-popular tax breaks.
Equally important is an appropriate pricing mechanism. Iscor, built up with taxpayers’ money, sells mild steel to the domestic market at the London Metal Exchange price plus one-way freight cost. “What incentive is there to manufacture? You will be priced out of the market before you start.”
Job creation and adding value and foreign exchange generating capacity are not mutually exclusive, says Manuel.
The argument has been that money for megaprojects should go into small-business creation. But within the category of small and medium-sized enterprises there is a lot of stratification and different analysis applies to each subsector. Small retailers have different needs from the service sector and from manufacturing.
Even within manufacturing, for example, small-scale textile firms are almost impossible because of the kind of capital required, Manuel points out.
The main problem for the SME sector is access to skilled people and technology. The only SMEs which have been able to use new technology are those owned by their inventors.
The other constraint is capital, and small-business people often do not have the necessary collateral to raise money. “We don’t believe you should just give money to SMEs,” says Man-uel. Instead, the government is considering a guarantee fund to provide collateral, using state resoures to ensure access to support services.
As a mark of how seriously Man-uel’s ministry is taking SME support, a discussion document has been produced and 27 workshops, which have included a range of small-business people and organisations involved in SMEs, have taken place over the past few weeks to work towards a White Paper to be placed before parliament early next year.
In March there will be a presidential conference on SMEs, with backing from the United Nations Committee on Trade and Development (Unctad). A number of countries will present “best practice” on SME development. Best practice can be distilled out of a process, however — such as that represented by the conference.
“The reason for Unctad’s backing is they feel globally a new course can be charted for SMEs and the way in which we’ve set about it might provide this new course,” says Manuel.