SA losses of R4bn in customs limbo

SA has lost out on collecting at least R4bn in customs duties as dozens of duty applications remain overdue by as much as four years, a report by XA Global Trade Advisors has warned.

Subsequently, companies are increasingly opting out of applying for import duty increases or decreases, as the pace of inquiry and completion of cases increases five-fold since 2013.

“The use of these instruments has fallen at a time when we should see them rising,” said XA CEO Donald Mackay. “At times of economic distress, we should see the use of trade policy instruments rising, yet we find the very opposite happening.”

Import duties, which raise income for the local government, are imposed to give a market advantage to locally grown or produced goods amid President Cyril Ramaphosa’s much-touted localisation drive.

However, the data revealed in the third XA Open Cases Report on Wednesday highlights a collapse in the system, warning that the deterioration in concluding probes over the last 10 years is alarming, with the private sector snubbing the process, which is meant to offer protections to local businesses.

This comes as investigations — which should be completed in four months for an industry in distress and six months for a normal application, according to trade authority International Trade Administration Commission of SA (ITAC) — are taking an average of 25 months to complete from an average of five months in 2013.

Losing faith

The report stated there has been a precipitous drop in the number of tariff applications with ITAC, saying the number of applications in 2023 dropped to its lowest level in 10 years, but the reasons for the delays are unclear.

“We now have the lowest levels of tariff application by the private sector in a decade. Companies appear to have lost faith in the system and are opting out,” said Mackay.

XA analyst Anneke Jansen van Vuuren said the steel, textile and other manufacturing sectors were the most hit by the delays, with decisions taking up to five years to be made by the government in some instances.

According to the data, which tracks cases from 2013, there are 18 open cases, with the oldest case now open for 51 months. It highlights that the performance decline started to slip in 2019.

The report shows that nine cases were probed and completed in the second half of 2013 and that took an average of five months to complete. More recently, the trend has changed, with one investigation being completed in the first six months of 2023, which took some 36 months to wrap up. In the second half of 2022, the data reveals no investigations were finished.

The delays have resulted in R2.6bn collected in duties on products that cannot be sourced locally; if the overdue cases had been resolved within the allocated period, the government would have collected about R4bn in duties, assuming the duty increases were granted.

SA collects about R55bn a year in customs duties; these delays are equivalent to more than 7% of the country’s total customs duty collections.

Minister Ebrahim Patel of the department of trade, industry & competition (DTIC), who has been heading the ministry since mid-2019, was not available for comment.

At the heart of the matter are the reciprocal agreements that the DTIC imposes on applicants at the final phase of their applications in exchange for duty protections.

Mackay said these agreements — which squeeze applicant companies for something in return for the duty or tariff concessions, including jobs, investment, training, transformation and price controls — are cumbersome on already-struggling companies, while they have become less attractive as the period of investigations drags on.

His sentiment was backed by Mike Benfield, CEO of MacSteel SA, who labelled the reciprocal agreements as “illogical” and “not market practice”.

He said in Macsteel’s application for a 10% duty increase on cheap imports —which would see a level playing field for the group’s locally made Bright Bar products — the company was met by a string of conditions it had to commit to including no retrenchments, which were simply untenable.

“You can’t go and commit contractually to these things when it’s a very fluid market, prices change dramatically all over,” said Benfield.

Calling for considered protection against imports for local industry, he said this was a sure-fire way to allow industries to achieve scale and become more sustainable and competitive.

The head of the Gauteng-based steel manufacturer said while consumers would admittedly pay a slightly higher price for locally produced goods, the benefit of employment and GDP growth far outweighed a flurry of cheap imports.

gumedemi@businesslive.co.za