The reason South Africa should revert to greater
After a period of relative silence, discussions about the benefits and disadvantages of tariffs on international trade have now become a regular aspect. The renewed interest in the subject has been spurred by the actions taken by US President Donald Trump, the first president since the Great Depression to impose or threaten to impose more tariffs on imports.
In March of this year, the US put in place the tariffs of 25 percent on Chinese imports of $250 billion annually. Even though the planned extension of the tariffs to all Chinese items is currently in limbo, however, it is not impossible to extend the measures. US is threatening similar measures at China and the European Union.
This debate is crucial for countries trying with diversification of their economics. In South Africa’s case, to increase its capabilities in medium and high tech-based industries.
The manufacturing sector in South Africa is a significant victim of trade liberalisation measures dating in the nineties. The policies were frequently embraced to boost the economy of countries which were characterized as crippled by high input costs and a stagnant local market. It was the argument that opening markets could help to create jobs, boost levels of competitiveness and productivity, and ultimately boost output.
Our research has revealed that, in comparison to our peers and industrial stage South Africa’s industrial strategy is heavily centered around supply-side instruments. These include tax incentives for research and development as well as direct financial assistance to develop human resources or capital investment.
Our conclusion is that the policy shifts of the nineties were overly large, and the South African industrial policy must be adjusted as a method of increasing job opportunities and Gross Domestic Product (GDP). A combination approach of selective tariffs and more effective marketing to potential buyers can help restore the vital manufacturing role in the economy.
The nineties
In the 90s, South Africa was emerging from a time of intense security and isolation. This was partly self-imposed as well as the result of sanctions imposed by international organizations. The reduction in tariffs was viewed as a way to accomplish two goals. The first is to increase the global production efficiency of its base. Second, to break the hold of upstream industries like the producers of basic chemicals as well as steel iron, and paper.
In general in terms of the 90s, they could be described as a shift from an industrial policies system dependent on market protection the high level of tariffs and government procurement (collectively called demand-side assistance) to a plethora of instruments, like the tax incentive for development and research, as well as an emphasis on reducing cost of inputs for firms (known as support for supply side).
However, the promises of growth in the economy and jobs creating in the industrial industry in the wake of trade liberalization did not materialize. This reform, however, led to numerous losses, companies in vulnerable sectors shrinking and job losses.
While it increased by 50% between 1994 and 2006, manufacturing’s contribution to GDP has remained the same from 2007 despite a total growth of 26% of the country’s economy (2007 until 2018.). This means that manufacturing’s contribution to the economy fell from 21 percent from 1994, to 13.2 percent in 2018.
A number of sectors of the manufacturing industry have been weakened significantly in the manufacturing sector. In some instances, they’ve gone out of business completely. Production of the leather, clothing, textiles as well as footwear sector has decreased by 40 percent. The manufacturing of textiles is the most deteriorating in terms of economic output, which is currently lower than 60 percent of the level in 1994.