Trade and Industry Monitor Volume 38
In this edition of the Monitor, we focused on five thematic areas:
- Trade Liberalisation;
- Development and Poverty Reduction;
- Industrial Policy;
- South Africa's Growth Trajectory; and
- Sector Strategies
| Attachment | Size |
|---|---|
| Trade & Industry Monitor Vol 38 2007.pdf | 5.92 MB |
Trade Liberalisation
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This paper looks at the complicated overlapping trade arrangements in Southern Africa and explores how to simplify these arrangements, unlock scarce capacity and speed up regional integration in Africa. The paper responds to questions including whether regional integration is beneficial for Africa, whether overlapping membership of Regional Economic Communities (RECs) are hampering or helping integration and what the practical reality of a customs union in SADC is. In looking for the quickest way to integrate markets in Africa, would a union between the largest REC in Africa (COMESA) and the oldest customs union in the world (SACU) be a viable option? In the context of South Africa's external trade policy and commitment to Africa the paper also explores economic and political reasons why such a union might be worth pursuing.
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The wood furniture value chain, a large and rapidly globalising sector, has the potential to play an important role in promoting growth and alleviating poverty in SSA. It is a a resource-intensive sector, providing opportunities for countries where timber grows rapidly and cheaply, and helps to facilitate productive linkages between industry and agriculture and urban and rural areas. However, the evidence presented here on the SSA industry makes for blunt reading. Most of the continent's furniture industry is inward oriented and involves the informal sector using low-grade timber to produce basic products for middle- and low income domestic consumers. Moreover, China has become a growing presence in global furniture markets, and SSA firms are unable to compete effectively with it. As a consequence, SSA furniture exports have come to be threatened by a combination of falling prices, reduced profitability and evaporating market shares.
Development and Poverty Reduction
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The paper reviews the role of small farms in development and poverty reduction in countries (or regions within a country) with persistent mass poverty. It discusses the arguments supporting the importance of agricultural development for poverty and argues that initial success in reduction of mass poverty requires prior agricultural developments. It explores in particular the role of small-scale farming and policy requirements to ensure the competitive advantage of small farms.
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This paper's main conclusion is that protectionist policies - the presence of tariffs on imported goods - are very bad news for the consumer in general, and the poor consumer in particular. First, a tariff directly increases the rand price of imported goods, much like a weaker exchange rate - following a nominal depreciation - would do. We find that the presence of tariffs on outputs or final goods, say, is not the major threat to an orderly price transmission in general, or to poverty reduction in particular. Rather, the crux of international trade in South Africa is trade in intermediate inputs, such as chemicals and steel. Therefore, the potential adverse impact on poverty via higher rand prices of imported intermediate inputs is much larger than that of more expensive foreign final goods (as the latter effect constitutes only 10% or so of the consumer price index, or CPI). So, the first policy recommendation is that more gains are to be made for the domestic consumer by lowering tariffs on intermediate goods than on final goods.
Industrial Policy
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The first half of this paper describes the weak position held by Africa in the global trade of goods and identifies key determinants of the region's industrial performance. It goes on to outline shifts in the overall structure of international trade and production, together with the challenges they pose for Africa. It analyses the reasons for low productivity rates, points to missed export opportunities and highlights the key determinants of competitiveness. The second half of the paper describes the role of trade in stimulating growth and fighting poverty. For all the potential benefits of trade, most developing countries have failed to reap significant gains from trading opportunities in rapidly expanding liberalised markets.
South Africa’s Growth Trajectory
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Using a comparative static economy-wide policy model, the authors evaluate an infrastructure investment program for its impact on the South African economy. The infrastructure investment program is loosely based on the Accelerated & Shared Growth Initiative for South Africa (ASGISA). In addition to the usual demand side injections, particular attention is paid to supply side impact of the investment program, productivity enhancement and skilled labour shortages. The national accounting consistency requirements of the modeled economy dampen the final impact of the demand injection considerably. Although productivity enhancement will have an additional positive impact this will be reduced by skilled labour shortages.
Sector Strategies
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This paper examines the impact of globalization and automotive policy on imports of automotive products since the early 1990s. A series of important policy interventions, Phase VI of the local content programme (1989) and the Motor Industry Development Programme (1995), have liberalised imports and encouraged exports. The industry is now structurally stronger and more competitive. Investment and exports have increased but vulnerabilities remain. Imports have grown rapidly and the industry has still not achieved a sufficient volume of production to realise full economies of scale. Another constraint is South Africa's location, remote from major automotive markets. After a long period of heavy protection followed by liberalisation and export support, it is now time for the sector to move towards a balanced growth path on the basis of policies which impose a more neutral incentive structure.
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Participation in international trade has become one of the most important factors in increasing the prosperity of countries. Yet for many developing countries, perhaps particularly for those in SSA, trade is viewed primarily from a defensive perspective, with a focus on the disruptive effects of imports rather than on the opportunities presented by increased access to world markets. A key reason is the existence of information market gaps that are often associated with trade facilitation and development in developing countries - information on the export performance and potential of many developing countries remains incomplete.
Trade @ a Glance
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TIPS economist Mmatlou Kalaba prepares a quarterly snapshot of South Africa's trade with particular trade blocs around the world.
