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Durban harbour. Picture: 123RF/ANDRIY MIGYELYEV
Durban harbour. Picture: 123RF/ANDRIY MIGYELYEV

Recent comments by Transnet board chair Popo Molefe serve to highlight the negative effects of the government’s localisation policies, and should add weight to the argument that these protectionist ideas should be abandoned as quickly as possible (“Localisation will push up prices and hamper recovery, warns Transnet”, December 9).

If the government is truly serious about addressing the numerous state-imposed barriers to growth, localisation as an ideological and policy framework should be left by the side of the road. Molefe has said that “in its application, local content requirements have now included compelling state-owned companies to procure through (local) middle persons (who buy goods outside the country) and then put their own mark-up. So even before you acquire equipment you have already lost a significant percentage of your budget”.

When the government imposes pre-built-in costs in the manufacturing of goods, provision of services, and movement of goods across borders (as is the case now with localisation), those costs need to be factored into the operations of all the various businesses involved, and are then eventually passed on to consumers. Fewer countries’ consumers are under more pressure than SA’s, with an over-46% unemployment rate and growing inflation (also a result of government policies).

Further, the more that one mixes state power with the economy, the more one indirectly encourages corrupt behaviour, as individuals will try to use the associated power and regulations to benefit themselves and those they deem “deserving”.

Localisation costs are a form of non-tariff trade barrier (NTBs), along with phenomena such as port inefficiencies and corruption-caused costs at border posts. The more NTBs in place, the more the flow of goods and services — trade as a whole — are discouraged. Goods that consumers could have acquired for less (and thus would have had more to spend on other parts of their lives and in the economy) won’t be allowed to enter the country because of localisation requirements.

The government can much more effectively “stimulate” economic activity by addressing the consistent theft of railway equipment, and allowing private-sector investment and upgrading of the country’s poorly performing ports. By enforcing localisation and thereby increasing the operating costs that Transnet and private sector transporters (shipping and trucking) have to bear, the government will punish citizens and small-to-medium businesses, and undermine the potential transformative power of trade at which the Africa Continental Free Trade Area aims.

Chris Hattingh
Deputy director, Free Market Foundation

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