South Africa will push for greater exports and trade liberalisation in the coming years, Finance Minister Trevor Manuel told Parliament on Tuesday in his medium-term budget policy speech. In particular, the textiles and clothing and motor vehicle sector tariffs have come under attack.
“To grow rapidly, and to sustain that growth, we must increase exports, for they are the source, over time, of the revenue that must pay for our imports,” Manuel said. Although a boom in commodity prices had helped the economy, “further and more aggressive steps were needed” to diversify trade capacity.
“Our approach needs to ensure that competition is fostered through tariff simplification and reform, and that incentives for investment and for research and development are appropriately targeted and effectively administered,” he said.
Relatively few South African companies have penetrated international markets. While export performance is strong in base metals, minerals, automobiles and some chemicals, it is inconsistent and weak in other manufactured exports, the treasury says.
This reduces the profitability of exports relative to domestic sales. High protection rates are still found in textiles, leather, footwear, clothing, motor vehicles, parts and accessories and in food processing, it said in the medium-term budget policy statement accompanying Manuel’s speech.
“The Motor Industry Development Programme, to take one example of South African industrial policy, has been successful in promoting exports, stabilising employment and increasing investment in related component industries. However, it has also been costly,” the statement says.
Some net economic gains could be achieved through tariff reduction and simplification that would promote innovation. “In some sectors, such as textiles and clothing, tariffs remain high enough to maintain producer profitability even with competition. The tariffs maintain profitability of domestic firms and boost profitability of foreign exporters at the expense of South African consumers — but there has been little new investment, while wages have stagnated and employment levels have not increased,” the statement says.
Sound and affordable industrial policy interventions are crucial. The treasury is in favour of depreciation allowances to encourage investment, particularly for mining, manufacturing and small businesses. “These allowances have contributed to higher real investment in manufacturing, which has increased at an annual average of 11,4% since 2004, and 8,7% in the first six months of 2007.”
The treasury focused on the need for trade liberalisation and economic productivity increases. “Trade reform increases productivity by encouraging businesses to become more efficient. Higher productivity growth improves the competitiveness of import-competing firms and exporters. Investment in trade-related infrastructure such as transport and telecommunications and in effective skills development programmes help make the boost in economic growth more inclusive,” the statement says.