CHRIS HATTINGH: Not in SA’s favour to pull up the drawbridge

Should US president-elect Donald Trump’s new administration succeed in implementing a raft of higher tariffs on imports, and generally place the US on a more protectionist trade and economic footing, developing economies such as SA will need to weather higher prices, more restricted and hobbled global trade flows, and the effects of a stronger dollar.

However, regardless of how successful Trump and his cabinet are in pushing the US in a more protectionist direction, SA — and specifically the government of national unity (GNU) — have it within their capacity and discretion to make the decisions and implement the reforms that could position the country to benefit from shifting global trade and investment flows — regardless of what occurs in the US.

The implementation of Trump’s policy priorities could well take a different tack from his election campaign rhetoric. Regardless, the GNU has the space to continue prudently bringing down the debt burden (thereby giving the fiscus breathing room should Trump’s policies spur dollar strength, resulting in the US Federal Reserve keeping interest rates higher for longer), and speeding up reforms that propel investment in the country’s ports and railways (thereby enabling manufacturers and exporters to take advantage of shifting trade flows in a global trade environment typified by more tension and various barriers).

Should the US pursue a more punitive footing on trade matters under Trump’s second administration, those countries with high debt burdens and lower sovereign credit ratings will be saddled with more difficult-to-shift debt burdens.

In addition, those countries with policies in place that inhibit growth and job creation and raise uncertainty around investments (as is the case with National Health Insurance, expropriation without compensation, more prescriptive public procurement and prescribed assets) will be more brittle and more exposed to harsh global winds. 

Reforms in the energy, logistics, policing and labour market spaces will allow SA companies to become more competitive. Tariffs and subsidies that are implemented as part of the various sector master plans should be as targeted, timed and tight as possible, with the aim that recipients of subsidies can know and plan for when said measures will be removed. Whether those companies become truly competitive and succeed over the long term then rests with them.

SA’s industrial policy is not going away — but it can and must be radically shaken up. The country is especially exposed to imported inflation; over the next four to five years developments in the US and elsewhere could well spur higher prices and inflation. Aspects of the industrial policy that only protect vested interests and inhibit the growth of organic domestic and regional value chains will only leave the country continually exposed to imported inflation.

The US is one of the few countries in the world that can handle radical trade shifts and shocks better than others and is relatively insulated from these. SA, on the other hand, is very exposed. To better navigate and set up buffers against such shocks (and benefit when such shifts occur), the country’s basic trade infrastructure such as ports, railway networks, border post operations, and the licensing/documentation space, need to be reformed to function as optimally as possible.

The GNU parties have within their control and choice the ability to speed up and implement the kinds of pro-growth and pro-job creation legislative and policy reforms that SA needs. Whether the country gets its own house in order does not hinge on the Trump administration. The reforms that were implemented by the sixth administration, while helping on the market sentiment front, need to be bolstered and “made real” by deep reforms to network industries, where there is real competition in energy and logistics, as well as in labour markets.

These kinds of reform, while no doubt politically difficult, would place SA on a different path from what it has trod since 2007/08, and place it among other more upwardly moving emerging markets. Should the world become a more protectionist place, those countries that are more open to investment and facilitate the establishment and growth of businesses will be better placed to weather, and take advantage of, changing global trade currents.

In a more uncertain, more competitive global trade space, SA will not be able to cope, never mind compete, if its industries, manufacturers and exporters fail to become more competitive. Strong industrial policy, with tariffs and subsidies and other forms of support, can only carry them so far. And they cannot ever become more globally competitive if the basics aren’t taken care of.

The country stands to benefit from initiatives such as the African Continental Free Trade Area (AfCFTA), but it will limit its own room to benefit, and indeed undermine the potential of the agreement itself, if the GNU fails to pluck the low-hanging fruit of comprehensive trade and investment reform.

• Hattingh is executive director of the Centre for Risk Analysis.