We need to re-evaluate the value chain and venture into unexplored territory, writes Thebe Mabanga.
Johannesburg - A state of the Nation address that will be remembered for drama and histrionics may just turn out to be – if properly implemented – the catalyst for South Africa’s export performance, a boost for the gas industry and maybe, just maybe, it might make farming fashionable again.
One of the important features of President Jacob Zuma’s speech was that it continued, even if unintentionally, the narrative of export-led growth that was started by Finance Minister Nhlanhla Nene in his medium-term budget policy statement (MTBPS) last October.
Export-led growth is the one driver of economic growth of most successful economies, from South America to South-East Asia, that has never been successfully tested in South Africa.
South Korea is light years ahead with its exports of Samsung and Hyundai, commodities which, a mere decade ago, were considered inferior products to global competitors. Countries like Vietnam, with rice exports, are also case studies of export-led growth.
South Africa’s approach to deciding on its exports has been simply to pick areas in which it has a competitive advantage, mostly natural rather than cultivated, and to hope that the exchange rate proves favourable – then hope the world purchases whatever it is that we are selling.
Yet an export-led growth strategy means the country adds value to the goods it already has a comparative advantage in before exporting. South Africa then has to decide what goods it currently doesn’t export that it wishes to start exporting, then single-mindedly develop the value chain to make from source to port, that makes exporting that good a reality.
The economic nine-point plan outlined by the president contains at least three areas that are geared towards export growth: agriculture and agro-processing, mineral beneficiation, the industrial policy action plan (which includes manufacture of capital goods and active pharmaceutical ingredients).
Zuma correctly identified the extension of the Africa Growth and Opportunity Act as a source of opportunity for exporting to the US, alongside last year’s finalisation of an Economic Partnership Agreement (EPA) with the EU.
But South Africa’s ambition needs to extend far beyond these vistas. Export growth must be geared towards the rest of the continent, Brics countries and the rest of emerging markets.
South Africa’s limitations in the global export market start back in 1992 at the Uruguay round of the General Agreement on Trade and Tariffs (Gatt), the forerunner of the World Trade Organisation (WTO).
A clever apartheid trade technocrat had South Africa inexplicably classified as a developing nation.
This has placed constraints on South Africa’s ability to impose tariffs, and the level to which they can be set for various goods and industries. The story of how, in a bid to gain acceptance to its new international friends post-1994, South Africa was quick to shed tariffs on textiles to the detriment of that industry is well documented.
But South Africa is constrained in more ways than we readily appreciate, unable, for instance, to protect its steel industry, when countries such as the US can.
I have yet to receive a satisfactory explanation as to how this happened or why it hasn’t been changed since. I believe that economic diplomacy must be used to correct this anomaly.
Infrastructure spending did not seem to feature prominently in the speech. But that is because there are no new mega projects to announce, but rather, updates on existing ones. Infrastructure spending and the lowering of logistics costs, from road and rail to port, remain crucial components to boosting exports, and progress on identified projects has to be accelerated.
The revelation that the export of apples can bring in R500 million over three years, shows that selling apples is lucrative, but it also marks out agriculture and value-adding agro-processing as a key source of growth for South Africa and the rest of the continent.
The creation of Agri Parks at a cost of R2 billion, and the availability of one million productive hectares is good news, of course, but the parks need immediate access, in order to ensure they do not remain struggling co-operatives located in poor municipalities.
The plan to beneficiate South Africa’s minerals dates back to when Phumzile Mlambo-Ngcuka was the minerals and energy minister, yet it hasn’t got off the ground.
And it will take more than an instruction from the president to make it happen.
South Africa’s problem in beneficiation is said to be its power, skills and capital constraints. But all three of these can be overcome through being imported. The real problem is that beneficiation entails the unpleasant task of stealing someone’s livelihood. A smelter has to close down in another part of the globe, with the accompanying loss of jobs or other benefits.
That is the vested interest that prevents South Africa from beneficiating successfully. Diplomacy will not solve this problem.
Manufacturing is arguably the greatest source of opportunity for export growth, so the manufacture of capital equipment, spurred by the country’s infrastructure spending programme, has to be the ultimate aim.
Alongside these initiatives has to be a Reserve Bank that’s ready to tap into the Brics Contingency Reserve agreement, in order to maintain an exchange rate that makes the country’s exports attractive. Leaving the exchange rate to markets may see the country miss out on some opportunities.
Thus, amid all the noise, the president may have outlined a path of economic management that may be key to addressing South Africa’s growth and unemployment challenges. Pursuing that path requires careful co-ordination, but also political will, drive and ambition.
* Thebe Mabanga is a business journalist and analyst.
** The views expressed here are not necessarily those of Independent Media.
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