Discussions

An Opportunity for South Africa to pursue new regional Policies?

An Opportunity for South Africa to pursue new regional Policies?

19 Jan 2018

Gerhard Erasmus, tralac Associate, comments on trade and industrial policy in South Africa following the election of Cyril Ramaphosa as President of the ANC

South Africa is in the midst of a political battle. At the end of 2017 the ruling party, the African National Congress (ANC), elected Cyril Ramaphosa as its new leader, after a hotly contested campaign. At the time of writing (early January 2018) all eyes are on the next move of the party leadership regarding the future of the incumbent President of the country, Jacob Zuma. His term as President of South Africa runs till April 2019, while Mr Ramaphosa is now the leader of the ANC. It is reported that the National Executive Committee (NEC) of the ANC will endeavour to recall Mr Zuma as President. However, he shows no intention of stepping down. There are reports about alternative measures such as a motion of no confidence or even impeachment. These are uncertain times.

These developments are responses to serious domestic challenges. They involve state capture, corruption, random cabinet reshuffles, and governance failure. The national economy has taken several knocks, its credit rating is down, and the national currency is under strain. Many believe the future of the ANC is at stake.

We would like to argue that more than internal party skirmishes are at stake. South Africa has to embark on a road of serious policy and governance reconstruction. One area which will then hopefully receive proper attention is Pretoria’s trade and industrialization policies. We have not seen proper national debates about these issues or how to engage South Africa’s neighbours in an inclusive dialogue. We believe this to be urgent. Neighbouring governments are very concerned about the wider implications of South Africa’s present policies. Some call it “policy capture”.

South Africa needs proper regional policies which will take account of every nation’s needs and challenges. Southern Africa is a region of mutual dependence. South Africa is the region’s major economy and Africa is an important destination for South African exports.[1] However, Pretoria pursues its regional policies almost exclusively as a springboard for advancing national policy space and domestic industrial development. In the words of the South African Minister of Trade and Industry:

We also need to be clear as a country that localization is an imperative…. The Trade Policy adopted in 2012 identified tariffs as tools of industrial development. Trade policy is subordinate to industrial policy and must be informed by the needs of industrial development…. we must utilize and defend policy space that allows us to localize and pursue transformation…. Our overriding priority is to work to promote African regional integration. More precisely it is to pursue a broadening of integration across existing regional communities within a development integration framework…. The aim of this is to promote more intra African trade and support industrialization through the creation of large regional markets that can support the development of regional value chains.”[2]

In essence, this model is one which wants the region to follow the South African path and become more attractive destinies for South African exports. South Africa’s Industrial Policy Action Plan (IPAP) underpins its approach to regional economic integration. IPAP has now basically become SADC’s industrial policy template too. It provides for the implementation of the SADC Industrial Development Implementation Matrix and the participation of South African manufacturers in mutually beneficial regional value chains.[3]

What needs to be asked is how neighbouring nations see the way forward and what their priorities are. Their development needs are unique, and their development ambitions require appropriate policy frameworks; they should not live in the shadow of SA’s national plans.

Developments in SACU merit special mentioning. SACU is, since 1910, a single customs territory.[4] No tariffs are levied on intra-SACU trade, there is a Common External Tariff (CET), and tariff revenue is shared according to an arrangement under which tariff income (on trade with third parties) is shared rather generously with the BLNS countries.[5]

The SACU Agreement of 1969 favoured South Africa’s dominance, it did not provide for common policies and common institutions, and it did not take sufficient account of the different levels of development among the five member states. The BLNS countries were strongly in favour of a new dispensation. They wanted “effective, transparent and democratic institutions which will ensure equitable trade benefits to Member States”.[6] The post-apartheid South African government agreed to negotiate a new SACU Agreement.

The new design included provisions on an important new SACU institution called the Tariff Board, consisting of experts drawn from all the Member States. It was given powers to administer the SACU CET, to make recommendations to the SACU Council on the level and changes of customs, anti-dumping, countervailing and safeguard duties, rebates, refunds or duty drawbacks based on the directives given to it by the Council.[7] Each Member State had to establish specialized, independent and dedicated National Bodies… which shall… receive requests for tariff changes and other related SACU issues.[8] There are also provisions on identical rebates[9], and Common Policies on Industrialization, Agriculture, Competition, and internal Unfair Trade Practices.[10] An ad hoc Tribunal would have settled “any dispute regarding the interpretation or application of this Agreement, or any dispute arising thereunder at the request of the Council.”[11]

What the 2002 SACU Agreement provided for was in fact an inclusive mechanism for industrialization and related policies on a level playing field. It was not to be.

The Tariff Board is still not in place. South Africa is on record that it does not want such a “supra-national” institution with powers to formulate and implement joint tariff and trade policies. It wants to retain that space for itself. The BLNS countries have not yet launched their own National Bodies. A South African institution, the International Trade Administration Commission (ITAC), administers the SACU CET, on the basis of Council resolutions which gave it a temporary mandate for doing so. The ad hoc Tribunal does not exist; neither does the Common Negotiating Mechanism.[12] There are no common policies on industrialization, competition, agriculture or unfair trade practices. SACU’s only new institution is the Summit. It is responsible for the “political and strategic direction and priorities of SACU”. It takes decisions on the basis of consensus.

While SACU is in many ways a well-functioning economic space for private commerce,[13] retail, transport and investment, it has lost internal momentum. For a long period, there were no meetings of its institutions. This is the inevitable consequence of the fact that, as long as Pretoria pursues its present approach of developmental integration, there is very little which SACU can contribute in its own name and through its own endeavours. It cannot generate regional industrialization polices; they have already been decided in Pretoria.

In June 2017 SACU decided on a new Work Plan. The aim is to revitalize its internal functioning and to advance regional development. Hopefully this will coincide with a new policy wind blowing in the Union Buildings; for the benefit of South Africa, in the pursuit of good governance, and the improvement of policy making in the whole of Southern Africa. Mr Ramaphosa will hopefully make regional policy rejuvenation a responsibility and priority of his new cabinet.

.


[1] The Minister of Economic Development Ebrahim Patel would regularly emphasize that “Africa brings huge benefits for SA”. BusinessReport, May 25, 2015. Almost 29% of South Africa’s merchandise exports in 2015 were sold in other African countries. South Africans and local firms are heavily involved across the continent as investors and providers of services.

[2] Minister Rob Davies’ contribution to the State of the Nation address to Parliament on 15 February 2017. http://www.polity.org.za/article/dti-rob-davies-address-by-minister-of-trade-and-industry-during-the-sona-debate-parliament-cape-town-15022017-2017-02-15

[3] JB Cronjé, South Africa’s medium-term plan for ‘developmental’ regional integration. Available at https://www.tralac.org/discussions/article/6121-south-africa-s-medium-term-plan-for-developmental-regional-integration.html.

[4] This goes back to British colonial plans for how the Union of South Africa (formed in 1910) had to assist the former protectorates of Bechuanaland, Basutoland and Swaziland. Namibia (the former South West Africa) was a then a German colony. It became part of the Union after World War One when German colonies were put under an international mandate system.

[5] Tariff revenue is shared on the basis of the value of intra SACU trade, not the destination of imported goods. South African imports generate about 90% of the tariff revenue.

[6] Article 2(b), 2002 SACU Agreement.

[7] Article 11, 2002 SACU Agreement.

[8] Article 14, 2002 SACU Agreement.

[9] Article 21, 2002 SACU Agreement.

[10] Part Eight, 2002 SACU Agreement

[11] Article 13, 2002 SACU Agreement.

[12] Provided for in article 31 of the SACU Agreement.

[13] Four of the five Member States (Botswana is the exception) are in a common Monetary Area; their currencies are pegged and freely convertible. SACU is also an Excise Union.