The Role of Local Government in Promoting Trade

Trade and industrial policies are generally viewed from the vantage point of national government. Hence the emphasis on the type of trade regime that should be pursued (tariffs, subsidies, etc), the state of the current account, the exchange rate and geo-political factors (globalisation, power blocs and regional associations). While the overwhelming importance of these factors should not be underestimated there is some questioning about shifting the emphasis slightly to include the role that local governments can (and do) play in promoting trade.

This paper will look at how local governments either promote or retard trade through the policies they adopt, especially with regard to tariffs for water and electricity consumption but also the provision of infrastructure such as roads and serviced sites. Using the case study of Drakenstein Municipality in the Western Cape and a large textile company, the paper will examine the possible factors that have contributed to the decline of an industry and resulting job losses. While acknowledging the devastating impact that imports from China has had on textiles in general, the paper will probe the policy options that were available to the municipality to counteract the fierce competition from the Far East. Was the appreciation of the Rand the only possible explanation for the drop in demand for locally manufactured garments or were their other contributing factors?