SA Must Beware New Global Trade Curbs

There are many concerns for the business community in South Africa, but one which is less evident than, say, the political manoeuvres around the Finance Minister is the growing tsunami of global protectionism.

More than once recently, there have been multilateral meetings at which Trump’s US administration has blocked a declaration against protectionism, and both protectionist sentiments around both Brexit and the French elections have shown that this is not just a US threat.

One of the strangest outcomes of America’s AGOA trade concessions to Africa is the difference it makes to a German car manufacturer, BMW.   The detail may have changed since I last researched it, but I am pretty sure that at least for a time BMW was the biggest SA recipient of AGOA benefits.   It has been able to assemble cars in SA, and then to get them into the US market at far lower cost tariffs if they were sent from Europe.  Thanks to AGOA.

The SA government has poured the largest slice of its investment incentive cake into the willing hands of global auto giants.    They get SA benefits to produce the vehicles and then minimal tariffs when they ship them off to the US.

However, AGOA is a unilateral trade concession, at the mercy of the US administration.   And the danger is that Trump will show Africa little mercy.  Ask the Syrians whether or not he is a nice person.

Global trade rules are policed by the World Trade Organisation (WTO), the successor to GATT.  For decades there have been efforts to agree on a new WTO trade round, which would provide additional benefits to SA and other emerging markets.   Most observers believe that Trump’s ‘America First’ philosophy will scupper the current trade round and may ultimately neuter the WTO itself.

Listening to a few recent speeches by SA’s Trade and Industry Minister Rob Davies I have noted his warnings that there is turmoil ahead in world trade, which may be why SA officials are so keen to ensure there is still post-Brexit access to both the UK and the EU.

But what of those investment incentives to which I have been referring, worth tens of billions of rand a year?    Is there much point in encouraging export-focused investment in SA if trade barriers are rising around the world.   If we are to return to a siege economy, and that model did not work too well under apartheid, should we not instead be investing again in siege industries?

Just this week, our beloved President was in the Free State, opening another Special Economic Zone (SEZ) – an area where export-oriented firms can enjoy all sorts of incentives, including a lower tax rate.   Not much point in setting up more SEZs, as the government is doing, unless the export markets remain open and receptive.

It will take much thought and wisdom to chart the way forward, but the first vital step is to raise awareness of the shifts in global trade policy.  It is going to get a lot more scary.

Tweet of the Day

Make your own bacon by tricking a pig into running headlong through a harp.

Frank Whitehouse

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