South Africa’s trade policy ‘has saved various industries’: Patel

South Africa’s current trade policy saved various industries from decimation because of the apartheid government’s inward-looking approach to trade.

Trade, industry & competition minister Ebrahim Patel said recently that before democracy, South Africa’s trade policy was very inward-looking, with high tariffs. 

After 1994, the country was also faced with a new challenge when China entered the World Trade Organisation, but South Africa managed to hold on to its industries.

“The country we had in 1994 and today ... is vastly different. In 1994 China had not yet entered the global trading system. South Africa had just, under the old government before democracy, made commitments in the World Trade Organisation’s predecessor — it was called the Generalised Agreement on Tariffs and Trade — to dramatically reduce the level of trade protection and we stared a real crisis in the face,” he said.

Since 1994 South Africa has seen a dramatic increase in exports to other African countries, now at more than R500bn. Sector master plans — government-led trade initiatives in key identified sectors — had saved sectors like sugar, textiles and steel from collapse.

“In clothing, we developed a strong partnership. By 2019, this was formalised in the master plan. In 1994, the sector risked losing its productive capacity but today it stands and provides thousands of jobs in manufacturing and retail.”

South Africa’s industrial policy during democracy was informed by the need to grow the economy, empower previously disadvantaged groups, reshape an unequal economy, and prevent excess concentration in key industries, Patel said. 

The minister relayed an instance in 1993 when former president Nelson Mandela intervened to protect South Africa’s clothing and car manufacturing industries from decimation because of plans by the National Party apartheid government to reduce tariffs significantly.

Mandela was briefed by clothing sector unions in 1992 as part of the National Economic Forum. The car and clothing industries told the forum that if those proposals went through, they would spell the end of local manufacturing in these sectors.

“In December 1993 when we were finally provided with advice from our trading partners that there’s no agreement on the commitment made by the old government, we briefed Madiba. He had to leave shortly thereafter to Scandinavia to accept the Nobel Peace Prize. This showed the character of the man. He was not president of the country.

I’d say to a large degree, we are rapidly moving back to the trade policy we had before democracy, to be honest

—  Donald Mackay, XA Global International Trade Advisors CEO

“The moment he landed in Scandinavia, he phoned the White House, he spoke to [former US] president [Bill] Clinton; he made an appeal on behalf of South African clothing and South African car-making and shortly thereafter, the Americans, followed by the Europeans, agreed that South Africa could revise its offer.”

XA Global International Trade Advisors CEO Donald Mackay said while there was progress in trade policy starting from 1994, he believed South Africa’s trade policy was gradually receding to the inward-looking approach of the apartheid regime.

“I’d say to a large degree, we are rapidly moving back to the trade policy we had before democracy, to be honest. Pre-democracy, there was a massive dependence on minerals, which is a growing portion of our GDP. Manufacturing is shrinking and much of our policy space goes to protecting highly concentrated industry.”

He said the government was losing sight of the importance of getting small businesses to elevate and grow in output rather than keeping them small. He also challenged the success of the sector master plans, calling them a headwind to informal business development.

“The master plan does nothing at all for the informal sector and in fact, actively targets it by withholding support for companies who are not members of the bargaining council, so if we’ve seen 20,000 jobs created in the informal sector, it would be despite the master plan, not because of it.”

Trade and Industrial Policy Strategies researcher Saul Levin said over the past 30 years South Africa’s trade has moved from apartheid isolation to the country being enmeshed into the global trading system and particularly that of the World Trade Organisation.

“It has come with global trade commitments and signing trade agreements to improve market access. Institutions need to be reformed, such as the transformation of the former Board on Tariffs and Trade into Itac (International Trade Administration Commission).

“Lessons have also been learnt along the way such as moving away from individual bilateral trade and investment protection agreements to domestic legislation to support the investment environment. The tariff reforms undertaken just prior to democracy came with both good and bad.”