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Jun 22, 2012

Upstream firms seek trade protection, but downstream firms dither

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Education|Standard & Poor|South Africa
education-company|standard-poor|south-africa
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I recently read an article which dealt with South Africa’s widening current account deficit, our worrying levels of unemployment and how the clever chaps at Standard & Poor’s (S&P’s) believe that both of these matters represent “key challenges” facing South Africa.

Nothing new, but maybe this is just another confirmation that our most basic challenges are not going to disappear soon, and certainly not without significant intervention.

Broadly speaking, a growing current account deficit simply means that we are importing more than we are exporting and this difference can’t keep growing indefinitely. This difference is largely funded at present through foreign direct investment and foreign investment in our stock market. Without question, this is not a sustainable situation, especially when the whole world appears to be in a growing crisis and we may soon find that capital inflows start drying up.

Addressing unemployment and correcting the current account deficit boils down to the key focus of developing and protecting local industry. The long-term fix is to create an environment where our manufacturers are more competitive and can sell our manufactured goods locally (replacing imports) and abroad (growing exports).

Addressing skills shortages is the topic of discussion at many forums and the importance of addressing enormous structural concerns in our education system is known. What is clear is that the solution will be a long-term one. A more immediate intervention is required to deal with existing unemployment levels.

Getting beyond this realisation is proving to be easier said than done. Government has gone to great lengths to outline policies and initiatives to assist, but our skills situation and growing input costs are not addressed over night.

Focused interventions to become globally competitive and part of global supply chains, like the support provided for the automotive sector, require medium to long-term programmes.

The only other logical alternative is to slow imports entering the market, which can be done by increasing the duties on imported goods. This is now happening at a rate not seen for at least 20 years. Strangely enough, we are not seeing the number of antidumping applica- tions that we antici- pated for 2012, but there is still time and we may see the activity pick up later this year.

Against this backdrop, we are seeing government taking a more interventionist stance in the trade arena and begin- ning to increase levels of protectionism through increased import duties in support of local industry and, in a broader sense, discouraging increasing levels of imports where practically possible.

It would appear that companies that are producing locally are now in the best position vis-à-vis duty protection that they will be for a very long time and certain industries are taking advantage of the protective stance taken by government. Yet, many industries are still not exploring this avenue and are merely struggling along, probably largely out of ignorance.

It’s quite ironic actually that the industries that are pushing hard for duty increases are the very big, often primary, industries. Duty increases this far upstream actually push up prices all the way downstream and then make the downstream industries even less competi- tive.

The industries that are further downstream seem to struggle to coordinate their efforts and, as a result, find it very difficult to effectively apply for the very protection government appears to be eager to provide. The opportunity is simply passing them by.

Edited by: Creamer Media Reporter
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