TOBY CHANCE: Signs of progress at trade department, but trouble below the surface
New ministerial team seems willing to ditch old nostrums of industrial policy
14 January 2025 - 05:00
byToby Chance
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Trade, industry & competition Parks Tau’s decision to challenge the Competition Tribunal’s rejection of Vodacom’s merger with Maziv signals progress, the writer says. File photo: JEFFREY ABRAHAMS/GALLO IMAGES
Five months ago Business Day carried an article by colleague Mlondi Mdluli and myself on our hopes and expectations for the department of trade, industry & competition, a little more than a month after our appointment as DA spokespersons on that portfolio (“There must be room to test new ideas in trade department”, August 15).
How have things progressed since then?
Several themes have emerged. The first is the apparent willingness of the new ministerial team to ditch old nostrums of industrial policy, conceived under a sequence of SACP ministers with an interventionist mindset and distrust of business and enterprise. Minister Parks Tau’s decision to challenge the Competition Tribunal’s rejection of Vodacom’s merger with Maziv signals progress.
This is an encouraging sign that the M&A policy will focus on innovation and growth, rather than preventing businesses from scaling, with all the associated benefits of increased competitiveness. The black mark in the competition space that needs urgent attention is the Competition Commission’s tardiness in approving mergers, a major disincentive to investment, in particular from international firms.
Another indicator of openness to reform, alluded to in our August article, is the department’s acceptance that the economic models for special economic zones (SEZs) and industrial parks have failed and need rethinking. The government has invested more than R11bn in the nine operational SEZs, with three more planned, attracting almost R30bn in private sector investment and creating 27,000 jobs.
While not insignificant, these numbers have not moved the dial in the ways intended to replicate the Chinese model that powered coastal manufacturing powerhouses to global dominance from the 1980s.
The dormant Musina-Makhado SEZ in Limpopo is an ill-conceived relic of smokestack industrialisation founded on coal mining, coal-fired power stations and steelmaking. An alternative development model, based on exploiting biodiversity, agroprocessing, tourism and light manufacturing, is more environmentally sensitive and geared around Limpopo’s assets and competitive advantages.
The department has a renewed focus on export growth as a strategic theme, both manufactured products and value-added services. There is an acceptance that as SA’s market is too small to create the demand to stimulate new and growing businesses, exports are the only alternative. It has become clear this approach cannot be achieved simultaneously with increased localisation and import substitution.
Many of SA’s imports are essential for export value chains and protection of local industries will lead to loss of competitiveness, innovation and ultimately jobs. Ministerial statements continue to champion localisation, but DA pushback in the cabinet, as well as opposition from the IMF, World Bank and others, could well see a change of tack by the department.
A second Trump presidency raises the prospect of global tariff wars, but SA should resist the temptation to raise a tariff wall and rather focus on building trade relations across Africa and into developed economies with greater domestic spending power. Deputy minister Andrew Whitfield has been especially vocal about the need to drive exports, and expects the US African Growth & Opportunity Act to feature strongly in near-term negotiations to safeguard this important market.
The time taken to adjudicate on tariff determinations is a major blockage to growth. As XA Global Trade Advisors CEO Donald Mackay has highlighted, 90% of SA’s tariffs have not been reviewed for 20 years (“The very complicated temporary rebate rules for onion powder”, September 26). The International Trade Administration Commission of SA is overly defensive about this and must take heed of deputy minister Zuko Godlimpi’s welcome admission in a recent portfolio committee meeting that reducing regulatory barriers to growth should be a big focus for the seventh administration.
Perennial discussions about trade and competitiveness in sectors such as raw and manufactured steel goods, poultry, textiles, scrap metal and automobiles must be settled based on sound economic principles, rather than protecting vested interests through subsidies and valuing sunk costs over future prospects.
This will involve difficult trade-offs and take time to implement, so the department will need to send out clear signals that enable businesses to begin adjusting to the new reality. The imminent closure of ArcelorMittal’s Newcastle plant and the loss of 3,500 jobs focuses attention on which parts of the steel value chain are the most value and job-creating. It’s not clear that primary steel manufacture scores highly on either count.
With 49% of the department’s spending allocated to subsidies and incentives, maximising returns is a priority. The department’s new strategy of diversification, decarbonisation and digitalisation, contained in its revised annual performance plan, suggests a rethinking of priorities that could ensure investment flows to the sectors with the highest growth rates.
In a similar vein, under former minister Ebrahim Patel the department laid great emphasis on sector master plans, which mostly involved the big players in each sector getting together with the government and unions to seek greater protection at the expense of industry-wide competitiveness.
Master plans have been criticised by Trade & Industrial Policy Studies think-tank, as well as the Centre for Development & Enterprise, the latter advocating an approach based on monitoring value chains and setting up productivity councils to stimulate competitiveness and exports. The DA supports this approach, as it does the opening up of negotiation forums to small and medium businesses that have largely been shut out by the bigger players.
Another theme to emerge over the past months is continued corruption, maladministration and lack of strong governance in some of the entities under the department of trade, industry & competition’s watch, in particular the National Lotteries Commission and the SA Bureau of Standards.
The special investigations unit is investigating about R2bn in dodgy lottery grants, facilitated in many instances by board members and senior management. Just weeks ago the responsible minister, Parks Tau, announced a further delay in the appointment of the new lottery operator, an indication of the political minefield he has to navigate with all those shortlisted having close ANC ties. Litigation by one or more of the losing bidders is inevitable.
Since whistle-blowers revealed stunning degrees of mismanagement at the SA Bureau of Standards in August the revolving doors and continual suspensions of senior management give one no confidence the problems at this vital institution in SA’s industrial system are being resolved. The portfolio committee has summoned Tau to account for his inaction at a meeting scheduled for later this month.
Overall, we have a mixed bag of legacy issues to resolve and a new direction to be settled on. The DA in the portfolio committee will keep up the pressure on the department to ramp up its more market-friendly approach while eliminating the bad habits of past ministers and officials doing their bidding.
There are many issues not even touched on here for limited space, such as financing growth through the Industrial Development Corporation and the National Empowerment Fund, and the Broad-Based BEE Commission’s doubling down on compliance and rooting out fronting.
There are concerns the recently announced R100bn Transformation Fund will miss the mark in seeking out innovative and high-growth firms to finance and instead use the discredited broad-based BEE scorecard as the main determinant of investment.
The challenges of intergenerational poverty and inequality are too complex for broad-based BEE to address on its own. The ANC seems to believe that broad-based BEE and race-based employment equity can resolve racial earnings inequality, unemployment, workplace inclusion and other socioeconomic issues — matters far broader than what broad-based BEE and employment equity can effectively tackle.
The DA is working on a new more all-encompassing scorecard based on achieving the UN-adopted sustainable development goals, as outlined in our economic justice policy, instead of the current narrow focus on race-based transformation.
The department of trade, industry & competition sits at the heart of SA’s economic policy and regulatory landscape. Its success or failure will be a lodestone of the country’s ability to turn the corner and reap the rewards offered by the builders in the government of national unity.
• Chance is DA spokesperson on trade, industry & competition.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
TOBY CHANCE: Signs of progress at trade department, but trouble below the surface
New ministerial team seems willing to ditch old nostrums of industrial policy
Five months ago Business Day carried an article by colleague Mlondi Mdluli and myself on our hopes and expectations for the department of trade, industry & competition, a little more than a month after our appointment as DA spokespersons on that portfolio (“There must be room to test new ideas in trade department”, August 15).
How have things progressed since then?
Several themes have emerged. The first is the apparent willingness of the new ministerial team to ditch old nostrums of industrial policy, conceived under a sequence of SACP ministers with an interventionist mindset and distrust of business and enterprise. Minister Parks Tau’s decision to challenge the Competition Tribunal’s rejection of Vodacom’s merger with Maziv signals progress.
This is an encouraging sign that the M&A policy will focus on innovation and growth, rather than preventing businesses from scaling, with all the associated benefits of increased competitiveness. The black mark in the competition space that needs urgent attention is the Competition Commission’s tardiness in approving mergers, a major disincentive to investment, in particular from international firms.
Another indicator of openness to reform, alluded to in our August article, is the department’s acceptance that the economic models for special economic zones (SEZs) and industrial parks have failed and need rethinking. The government has invested more than R11bn in the nine operational SEZs, with three more planned, attracting almost R30bn in private sector investment and creating 27,000 jobs.
MICHAEL AVERY: Tau tosses a lifeline to sanity over Vodacom-Maziv merger
While not insignificant, these numbers have not moved the dial in the ways intended to replicate the Chinese model that powered coastal manufacturing powerhouses to global dominance from the 1980s.
The dormant Musina-Makhado SEZ in Limpopo is an ill-conceived relic of smokestack industrialisation founded on coal mining, coal-fired power stations and steelmaking. An alternative development model, based on exploiting biodiversity, agroprocessing, tourism and light manufacturing, is more environmentally sensitive and geared around Limpopo’s assets and competitive advantages.
The department has a renewed focus on export growth as a strategic theme, both manufactured products and value-added services. There is an acceptance that as SA’s market is too small to create the demand to stimulate new and growing businesses, exports are the only alternative. It has become clear this approach cannot be achieved simultaneously with increased localisation and import substitution.
Many of SA’s imports are essential for export value chains and protection of local industries will lead to loss of competitiveness, innovation and ultimately jobs. Ministerial statements continue to champion localisation, but DA pushback in the cabinet, as well as opposition from the IMF, World Bank and others, could well see a change of tack by the department.
A second Trump presidency raises the prospect of global tariff wars, but SA should resist the temptation to raise a tariff wall and rather focus on building trade relations across Africa and into developed economies with greater domestic spending power. Deputy minister Andrew Whitfield has been especially vocal about the need to drive exports, and expects the US African Growth & Opportunity Act to feature strongly in near-term negotiations to safeguard this important market.
The time taken to adjudicate on tariff determinations is a major blockage to growth. As XA Global Trade Advisors CEO Donald Mackay has highlighted, 90% of SA’s tariffs have not been reviewed for 20 years (“The very complicated temporary rebate rules for onion powder”, September 26). The International Trade Administration Commission of SA is overly defensive about this and must take heed of deputy minister Zuko Godlimpi’s welcome admission in a recent portfolio committee meeting that reducing regulatory barriers to growth should be a big focus for the seventh administration.
Perennial discussions about trade and competitiveness in sectors such as raw and manufactured steel goods, poultry, textiles, scrap metal and automobiles must be settled based on sound economic principles, rather than protecting vested interests through subsidies and valuing sunk costs over future prospects.
This will involve difficult trade-offs and take time to implement, so the department will need to send out clear signals that enable businesses to begin adjusting to the new reality. The imminent closure of ArcelorMittal’s Newcastle plant and the loss of 3,500 jobs focuses attention on which parts of the steel value chain are the most value and job-creating. It’s not clear that primary steel manufacture scores highly on either count.
With 49% of the department’s spending allocated to subsidies and incentives, maximising returns is a priority. The department’s new strategy of diversification, decarbonisation and digitalisation, contained in its revised annual performance plan, suggests a rethinking of priorities that could ensure investment flows to the sectors with the highest growth rates.
In a similar vein, under former minister Ebrahim Patel the department laid great emphasis on sector master plans, which mostly involved the big players in each sector getting together with the government and unions to seek greater protection at the expense of industry-wide competitiveness.
Master plans have been criticised by Trade & Industrial Policy Studies think-tank, as well as the Centre for Development & Enterprise, the latter advocating an approach based on monitoring value chains and setting up productivity councils to stimulate competitiveness and exports. The DA supports this approach, as it does the opening up of negotiation forums to small and medium businesses that have largely been shut out by the bigger players.
Another theme to emerge over the past months is continued corruption, maladministration and lack of strong governance in some of the entities under the department of trade, industry & competition’s watch, in particular the National Lotteries Commission and the SA Bureau of Standards.
The special investigations unit is investigating about R2bn in dodgy lottery grants, facilitated in many instances by board members and senior management. Just weeks ago the responsible minister, Parks Tau, announced a further delay in the appointment of the new lottery operator, an indication of the political minefield he has to navigate with all those shortlisted having close ANC ties. Litigation by one or more of the losing bidders is inevitable.
Since whistle-blowers revealed stunning degrees of mismanagement at the SA Bureau of Standards in August the revolving doors and continual suspensions of senior management give one no confidence the problems at this vital institution in SA’s industrial system are being resolved. The portfolio committee has summoned Tau to account for his inaction at a meeting scheduled for later this month.
Overall, we have a mixed bag of legacy issues to resolve and a new direction to be settled on. The DA in the portfolio committee will keep up the pressure on the department to ramp up its more market-friendly approach while eliminating the bad habits of past ministers and officials doing their bidding.
There are many issues not even touched on here for limited space, such as financing growth through the Industrial Development Corporation and the National Empowerment Fund, and the Broad-Based BEE Commission’s doubling down on compliance and rooting out fronting.
There are concerns the recently announced R100bn Transformation Fund will miss the mark in seeking out innovative and high-growth firms to finance and instead use the discredited broad-based BEE scorecard as the main determinant of investment.
NEWS ANALYSIS: All eyes on Parks Tau’s next move on national lottery
The challenges of intergenerational poverty and inequality are too complex for broad-based BEE to address on its own. The ANC seems to believe that broad-based BEE and race-based employment equity can resolve racial earnings inequality, unemployment, workplace inclusion and other socioeconomic issues — matters far broader than what broad-based BEE and employment equity can effectively tackle.
The DA is working on a new more all-encompassing scorecard based on achieving the UN-adopted sustainable development goals, as outlined in our economic justice policy, instead of the current narrow focus on race-based transformation.
The department of trade, industry & competition sits at the heart of SA’s economic policy and regulatory landscape. Its success or failure will be a lodestone of the country’s ability to turn the corner and reap the rewards offered by the builders in the government of national unity.
• Chance is DA spokesperson on trade, industry & competition.
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