It may seem well and good to protect local industry, but I fear it’ll all end badly. It always does.
Our government has banned imports of cement for use in state projects. The price of PPC shares (one of the majors in the local cement industry, which is operating well below capacity) jumped nearly 10% on the back of the news. Everyone is happy. I’m not sure they should be.
It seems that anti-dumping tariff protection hasn’t been effective in providing protection for local industry players. It’s a complete problem. The natural inclination is to look after and protect our own, but the consequences could be dire for such a relatively small player (as SA is in global infrastructure development terms) that has ambitions to play on a global stage. Or don’t we?
Imagine if we insisted that only rugby teams with players below a certain weight or above a certain time for the 100m sprint were allowed to compete with the Springboks. Nobody would come here and play us, and we certainly wouldn’t even be on the (level playing field) world rankings, let alone be world champions.
There are any number of flaws in adopting protectionist policies. Economic equations that are not left to find equilibrium through market forces eventually fall over, always. Clever, discretionary capital is allocated to attractive risk-return equations — don’t expect capital to go where regulation prevails over markets. Don’t pick a fight if you’re the smallest player on the field — it just doesn’t make sense. Expect retaliation, expect to lose.
Imagine if we insisted that only rugby teams with players below a certain weight were allowed to compete with the Springboks
Sure, the opposition doesn’t play fair, so the playing field isn’t level — dumping is an obvious case in point — but two wrongs won’t make it right.
Over time, the real damage is done as local players (however competitive they may appear to be among each other) are able to charge prices only the artificially protected could get away with. Cement is a fairly central input to much of infrastructure expansion, particularly in a developing country that desperately needs it. The knock-on effect will be to increase the price of finished products in the full economic chain beyond the affordability limits of so many South Africans, further entrenching inequality.
Would it not be better in the long run to encourage foreign direct investment, invite major producers in, to invest, perhaps even alongside our local manufacturers, in a move that would take us closer to being the low-cost producers in ever-larger trading circles? We provide the raw materials, say, we provide the labour and some of the expertise, then we partner with global leading-edge technology and IP.
The alternative mixes can easily be tested and the strategy will then be obvious. Import goods that can be landed at a price cheaper than we can make them locally, then export goods where we can compete profitably on price. Think objectively about where we want to play, and where we are most likely to win, then play there.
Protectionism in SA extends well beyond physical goods. It’s probably at its most dangerous when applied to management structures, as has often been found to be the case both in the public and private sectors. The case studies are abundant, and the lessons are the same: merit beats favour, always.
There may be strategic assets or businesses that warrant special treatment, or even a little help to get going initially. Initiatives such as economic zones and tax incentives have their place in the SME markets.
But if we want to be given a seat at the table of the grown-ups of global trade, we do ourselves no favours in legislating special rules for our mature, established players that are outside a level playing field.
Protectionism is populist, and everybody does it. That doesn’t make it right, and it doesn’t really work. We’d be better advised (internally and internationally) to combine in partnership with those elements most likely to produce a competitive output and then use the revenue so generated to buy, at the best price, those products others are better at producing. That is, after all, the axiom of trade.
• Barnes is a business leader and experienced all-rounder in financial markets and corporate strategy
