Stimulus framework raises concerns over competitiveness of industries
Industrial Development Corporation|South Africa|Mining|Peter Draper
© Reuse this
The framework for South Africa’s response to the international economic crisis, indicated that ‘rescue packages’ will be set up to address vulnerable sectors, such as clothing, textiles and footwear, mining and the auto and capital equipment sectors, however, trade expert Peter Draper has raised concerns over the document’s potential threat to competitiveness in these industries.
South African Institute of International Affairs development through trade project head, Draper, noted that the largest part of the package put forward by the framework was subsidies, with developmental financial institutions being mandated to develop responses for favoured sectors.
The South African response framework document, constructed by business, labour, government and community representatives, was put forward to the Presidency in February, and said that the sector strategies would be established with “the urgent and focused use of a combination of trade, industrial and social policy measures”, to boost employment creation.
“While on the one hand I am sympathetic to this where trade and project financing dries up owing to the global crisis, on the other hand, I am deeply sceptical about the capacity of government (broadly defined) to identify worthy recipients and ensure taxpayer money is not wasted,” said Draper.
Importantly, he also raised concerns about the potential long-term implications, since such measures may render such companies uncompetitive.
Another concern raised by Draper, was that of possible increased State control over the economy, if the government, through the Industrial Development Corporation, took up larger equity stakes in companies, this could have implications for governance.
Draper feared that this could even further undermine South Africa’s long-term competitiveness, as well as placing a question mark over the World Trade Organisation (WTO) legality of such measures.
“The review of preferential procurement legislation should be undertaken with urgency,” stated the framework.
It further added that all the social partners, including parastatals, would encourage local procurement of supplies, services and other requirements wherever possible to maintain and increase local output and employment levels.
This, it notes, applies particularly to the large procurement programmes attached to major public and private investment projects where cooperation amongst social partners can be employed to promote local suppliers.
Draper explained that this would not be a breach of South Africa’s international commitments, or violate the country’s WTO commitments, as South Africa is not a signatory to the relevant WTO agreements.
However, “preferential procurement undoubtedly shields companies from competitive pressures, so I would favour a time limit on any such measures. As a middle income developing country with a narrow tax base and hugely escalating social expenditures, I doubt we could sustain an ambitious procurement policy for very long,” Draper stated.
The framework pointed out that “trade measures will be used to address import surges, dumping, and to address the short-term crisis of vulnerable sectors. These will include fast-tracking of investigations and recommendations by the International Trade Administration Commission (Itac), and that Itac initiates more investigations”.
“The trade-measures identified are loosely specified, so it is difficult to comment,” said Draper.
“I am not in favour of increasing tariffs – this may not violate our WTO commitments, but would reduce competitive pressures at a time when the currency is depreciating. That would not position our economy well for the inevitable upturn,” he adds.
The parties involved in drawing up the framework acknowledged the problem of customs fraud and illegal imports and “are concerned that as a result of the global economic crisis, the level of illegal imports may increase”.
They further agreed that “urgent attention be given, and additional capacity be devoted to official enforcement capacity, including the South African Revenue Service (SARS), to further improve their effectiveness and impact”.
To this end, it was agreed to strengthen risk management and invoice-analysis systems, and set up dedicated units for vulnerable sectors (commencing with the clothing sector) and support high-profile arrests and prosecutions of offenders, to combat lawlessness within the import regime.
It was not, however, made clear to what extent SARS would be involved or engaging with price controls.
“There is clearly a transfer pricing problem,” said Draper, noting the larger issue at hand, “but the right way to address this in my view, is to lower tariffs, thus reducing the incentive to engage in such practices,” he adds.
Edited by: Mariaan Webb
© Reuse this
Few would argue with the notion that unemployment, which stands at around 25% on the narrow definition as reported by Statistics South Africa, remains one of the country’s most pressing challenges. Fewer still could contest the view that South Africa’s education...
Renewable-energy projects, such as this Northern Cape solar farm, seen as key to low‐carbon energy supply.
Upfront investment costs will and should remain a critical consideration as South Africa moves to upscale and accelerate its infrastructure programmes. But one of the lead authors of the latest Intergovernmental Panel on Climate Change (IPCC) argues that the...
The barrier to efficient water service delivery in South Africa was not of a technological nature but rather related to legal and Constitutional challenges, Water Research Commission (WRC) CEO Dhesigen Naidoo said on Thursday. Opening a WRC debate under the theme...
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
This Week's Magazine
The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
MORE IN SA Phase 2 should see local content on the mainline locomotive increase from 65% to 80% by the end of 2014
The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...