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, including those in East Asia.
“SA ... has scope to modernise or develop trade agreements with [Organisation for Economic Co-operation and 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 World Bank’s suggestion on trade openness has the potential to conjure up memories of the mid-1990s. At the time, SA embarked on an aggressive tariff liberalisation programme that opened the floodgates to cheaper Chinese textile imports, which in turn obliterated the once highly protected sector.
Still, the World Bank said that by seeking new partnerships beyond its borders, SA could unlock global markets, diversify its exports and enhance competitiveness.
SA’s exports have historically been concentrated in minerals, metals and gold but there was a shift between the early 1990s and mid-2000s, with manufacturing goods gaining a larger share of exports. But this trend reversed during the commodity boom. Even as commodity prices cooled, growth in manufactured exports lagged behind other sectors except for automotive products.
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Climate change concerns
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, conducted by a team of World Bank staff led by senior economists Jakob Engel and Bénédicte Baduel, finds that SA has opportunities to export environmentally friendly products, and strategic support can bolster their competitiveness in global markets.
The research shows that between 2016 and 2020 exports of furnaces and ovens, used to destroy solid and hazardous waste, increased almost 70%, wind-powered generator sets jumped more than 40% and catalytic incinerators, designed to destroy pollution by heating polluted air and oxidising organic components, rose 41%.
“Though the export volume of these products is small, the CAGR [compound annual growth rate] signals growing foreign demand for SA products. In this context, measures to support exporting firms that have opportunities to be carbon competitive are likely to support overseas market access,” the report says.
The World Bank report also says that SA’s tariff regime for environmentally friendly products is among the lowest competing in the EU market, creating incentives for green trade.
World Bank researchers acknowledge the dangers of cutting trade barriers and facilitating the exchange of goods across borders to sectors vulnerable to trade openness. But they also put forward ways to balance import substitution with trade openness.
“It will be important to ensure that social safety nets and labour market policies are supporting labour mobility into dynamic sectors and that education systems equip the future labour force with the skills required by sectors with high export potential,” the World Bank says.
