World Bank wants SA policy rethink

The World Bank has called for a sweeping overhaul of SA’s trade policy, urging the country to consider forging new trade agreements with advanced and emerging economies, says a Business Day report. ‘SA ... has scope to modernise or develop trade agreements with Organisation for Economic Co-operation & Development countries and other emerging economies,’ the World Bank says in a report, Unlocking SA’s potential: leveraging trade for inclusive growth and resilience. However, SA ‘has taken a cautious approach in terms of its economic diplomacy, based on its perspectives of the suitability of such trade agreements for addressing its developmental policy needs’. The proposal that SA emphasise exports as the cornerstone of industry policy contrasts sharply with existing policy, which focuses primarily on a bigger role of local companies in shaping economic development, or so-called localisation. The report says SA’s export profile intersects with climate change concerns, necessitating strategic adjustments to remain competitive in a world that is putting together policies such as the pioneering EU carbon tax, the carbon border adjustment mechanism, which would punish products that have a high carbon footprint. The study finds that SA has opportunities to export environmentally friendly products, and strategic support can bolster their competitiveness in global markets.

The report says the government’s move to drive industrialisation through localisation could put the brakes on foreign investment and reduce the competitiveness of SA’s exports. The Business Day report says localisation – seen by critics as a form of protectionism – is a pillar of the government’s plan to revive distressed local sectors such as sugar, poultry and steel. The policy was central to former Trade, Industry & Competition Minister Ebrahim Patel’s plans to increase trade with the continent. The department, now under Minister Parks Tau, continues to promote localisation in state procurement and targeted sectors of the economy to create early stage demand. This is in line with the Public Procurement Act, signed into law by President Cyril Ramaphosa in July. The Act requires all state departments and public entities to use a preferential framework in procuring goods. It provides for bids to apply a designated minimum threshold for locally produced goods or goods with local content in designated sectors of the economy. In its recommendations on overhauling SA’s trade and industrial policy, the World Bank report advises SA’s policymakers to ease local content requirements, saying: ‘In the case of tariffs, the increased cost of imports makes domestic production more expensive, which reduces it directly, and GDP declines. The increased cost of domestic production reduces the competitiveness of exports, which reduces these as well.’

Meanwhile, Middle Eastern firms have increasingly been seeking investments in Africa, jockeying for influence with established players like China and France. Moneyweb reports that ACWA Power, a Riyadh-based company, has signed a memorandum of understanding to invest $10bn in SA’s renewables industry over the next decade, while DP World, the Dubai-based logistics company operates nine ports on the continent. The Saudi group, a distributer of heavy equipment machinery in the Middle Eastern nation, started buying shares of Barloworld four years ago. One of its units, Zahid Tractor and Heavy Machinery Co, owns 18.9% of the local company. Barloworld is the official Caterpillar dealer in several African countries including Zambia, the DRC, Malawi, Angola and SA.