DONALD MACKAY: It’s the productivity (or lack of it), stupid

We think the problem is imports, so the solution must be to stop them. We think migrants are stealing our jobs, so we deport them. The real problem in both cases is that we are not competitive, and very little is being done far too late to deal with this. Productivity matters, and you cannot fix it by making rules. Productivity improves when the electricity stays on and the workforce is, um, working.

Some months ago, Peter Bruce suggested we formulate an export master plan to replace all other master plans (“Government’s job should be to turn SA into a giant exporter”, February 16). Deng Xiaoping said, “Black cat or white cat, if it can catch mice, it’s a good cat.” In the export game, you can either catch the mouse or you cannot. There is no duty protection to hide behind. If your workforce is uneducated, you do not get to catch certain export mice, and that is all there is to it.

Want to catch that export mouse? Then focus on education like you mean it, not as sheltered employment for unionised teachers who refuse to be tested on the material they are teaching. And do not forget adult education. It is unconscionable to lose two generations of people who have already been failed by the system. 

The GDP calculation adds domestic sales and exports and then subtracts imports. The localisation logic says if you reduce imports you will increase GDP. While this may get you a pass mark in your economics 101 test, it misses a lot of nuance. Imports happen for a reason, and when trade, industry & competition minister Ebrahim Patel says he is concerned that SA imports too much, this does not tell us why.

Imports are a way of buying someone else’s functioning electricity system, better education, productive labour and working infrastructure. For as long as these issues remain unresolved in SA we are faced with a stark decision. Either import, or live with even higher inflation. If you want to export, you had better produce your inputs competitively or be able to import them from someone who can.

Localisation broadly takes two forms: designation, which is all about the government procuring goods and services from local producers, and the private sector being made to buy local. On paper this sounds good, but we have had designation as part of our legislation since 2008, and it clearly is not working. Twenty-eight sectors have been designated, from wheelie bins to cement, with no hard data yet produced on why they were selected or how we would measure the success of the policy. It is not helpful to throw up stats such as “450 jobs saved on XYZ project” (a micromeasure), when the overall unemployment rate (a macromeasure) keeps moving up.

Designation is an opaque process. No-one knows how one sector is selected over another. There is no public participation in the process, so it is anyone’s guess how the administrators make a decision, and when they have decided they refuse to publish reasons. This is a process open to abuse, and is likely to attract court challenges should it actually be implemented with enthusiasm.

When the government decided to designate wheelie bins — an odd item to be placed on this list — what was it thinking? Were we facing a flood of imported bins? Was the government not buying locally? We have no idea, because there is no separate tariff code for wheelie bins so we have no idea how many were and are being imported, and thus have no idea if it even makes sense.

How much of a premium is acceptable on locally supplied goods? You may be thinking there will not be a premium, but this is to completely misunderstand how competition works. If you remove a significant competitor, the remaining suppliers in the market have room to push up prices. If imports are not a significant competitor, why designate the product? If a municipality then needs to pay 20% more to purchase a transformer, where does the extra budget come from, and what happens to the services it will no longer deliver? The government is not making transfer payments to compensate for the increased price.

It has been decided that exporting scrap metal is bad, and manufacturing stuff from scrap metal locally is good. If there are not enough people making stuff from scrap metal (there are not) then the government wants more people to approach the Industrial Development Corporation (IDC), get funding and start manufacturing. This, of course, assumes a plethora of entrepreneurs whose only reason for not starting these factories is that they did not know the IDC would fund them. The lack of electricity, an educated, productive workforce and having to give up 30% of their business to the local mafia is not seen as a problem.

We see the African Continental Free Trade Area as our economic saviour, despite no sign of preferential trade actually happening soon at scale, though the test shipments of tea from Kenya to Ghana are promising. But we completely neglect the Southern African Development Community (Sadc) region, where we have had a fully (dis)functioning agreement since 2008. How will we get our product into Nigeria when we cannot get Malawi to allow us preferential access to its market when the agreement was signed and implemented more than a decade ago?

Former trade & industry minister Rob Davies started this problem when he was happy for Robert Mugabe to block a number of SA exports. In August 2016 Davies said: “We need to be convinced there will not be a permanent damage to the Sadc trade protocol for us to proceed with regional integration and regional trade agreements.” Of course, this was never dealt with and now other Sadc countries are doing the same thing. This is not how agreements work, and it is not how you grow exports. Given the anaemic growth of our economy, exports are more important than ever before, while being less attainable despite the weak rand.

While the Reserve Bank pushes up interest rates to curb Russian-induced inflation, we push up the price of tyres so local tyre manufacturers can push up their prices. Two of the four applicants in the antidumping application do not even manufacture truck and bus tyres locally, yet they too are pushing for higher duties against China. How do we expect to be export competitive if we load up every leg of every value chain with taxes and inefficiencies and then still expect people to buy from us? More expensive tyres/fuel/insert other input, means more expensive exports, which mean we export less. That’s how it works.

Here is the export masterplan: educate like you mean it, allow immigration of skilled people, maintain infrastructure, keep the lights on, take decisions and then get out of the way, keep people safe, stop stealing shit.

• MacKay is CEO of XA Global Trade Advisors