Opinionista Michael Fridjhon 3 November 2015

Dear DTI, wine exports are bigger than you’d think, more endangered than you know

There are rumours that renewal of the SA-EU trade deal renewal is not a done deal. There is, also, the equally disquieting news that South Africa's benefits under the United States’ African Growth and Opportunity Act (AGOA) is under threat because of the small matter of the proposed expropriation of American property, should the Private Security Industry Regulations Amendment Bill become law. When viewed together, these could be a serious concern.

The news of the recent signing of the Trans-Pacific Partnership (TPP) trade deal should send a shiver of consternation through a number of the world’s wine producing regions. While the agreement still has to be ratified in each of the signatory countries, there appears little to scupper it at this late stage. The TPP envisages the creation of a free trade zone between signatories, which include Australia, Canada, Chile, Japan, New Zealand, Singapore and the United States. The trade deal aims to remove 98% of all tariffs on products like beef, seafood and wine. It is hardly surprising, then, that Australian Prime Minister, Malcolm Turnbull, described the deal as “a gigantic foundation stone for our future prosperity.”

What this means is that access for Australian, Chilean, and New Zealand wine to the US and Japan, both important markets, will become progressively easier, and significantly cheaper than it would be for competitor nations whose governments might not have had the foresight to secure a similar deal for their countries’ agricultural sectors. And since most of the big volumes of business worldwide operate under the aegis of bilateral or multilateral trade treaties, either you are in one, and at least enjoy the prospect of a thriving international economic existence, or you’re out, and must depend desperately on your own middle classes to buy what you produce, because it is over-priced almost everywhere else.

The SA-EU trade agreement has made a major contribution to the SA economy, and to the wine industry in particular. It is true that Port and Sherry producers are still wondering what happened to the payment that the EU was supposed to have made to them, in compensation for the decision to prohibit the use of the terms “port” and “sherry” on all such products of South African origin. There is a story doing the rounds that 15m – 20m Euros vanished together, with and at the same time as the R300m – R400m that used to belong to the Wine Industry Trust. Opportunistic theft, even on this grand scale, should not be used to denigrate a deal which has facilitated the export of billions of litres of wine to the EU, together with the creation of marketing funds for the generic promotion of SA wines in Europe.

There are rumours that renewal of the SA-EU trade deal renewal is not a done deal. There is, also, the equally disquieting news that South Africa’s benefits under the United States’ African Growth and Opportunity Act (AGOA) is under threat because of the small matter of the proposed expropriation of American property, should the Private Security Industry Regulations Amendment Bill become law. When viewed together, these could be a serious concern.

Deals like this do not benefit only the sectors affected by the reduction in tariffs. We know that for every person directly employed by the Cape wine industry, a further 10 people find employment in South Africa. Most are in the hospitality, packaging, logistics and training sectors, and they all contribute to the country’s Gross Domestic Product (GDP). In fact, the SA wine industry contribution to GDP is now about 25% of the mining sector.

You would think, under these circumstances, that more would be done to facilitate its growth, especially where it yields foreign currency earnings from exports and wine tourism, as well as a tax-take significantly larger than the farming sector’s basic income. On the export front, the more we sell as bottled product, the more revenue and the greater the levels of employment. This is because packaged wine tends to be more prestigious, it carries brand, and sometimes origin as part of its unique selling proposition. It generally, also, sells for more than the more anonymous bulk wine, and getting it to a port involves significantly more workers. To enhance the mix of packaged versus bulk wine, there has to be greater recognition of Brand SA in the consumer wine markets of the world. If you’re a no-name wine country, the world only wants your no-name wine. To achieve this level of recognition takes meaningful international investment. Trade agreements, especially those where the excise benefit is transformed into generic marketing funds, rather than a discount which can be eroded by buyers for supermarkets, and the multiples are a vital component in the mix.

In fairness, the Department of Trade and Industry seems to be focused on tying up the loose ends of the EU trade deal. On its part, the wine industry has created a WineBiz desk in Pretoria to facilitate communication. If the current EU trade discussions are successful, the quantity of Cape wine which will enjoy duty-free status into Europe will be roughly double the volume permitted in the previous agreement.

The DTI is South Africa’s interface in the world of trade treaties. It should be free to operate unhampered as it goes about the business of optimising existing deals, renewing them when the time comes, and seeking out new ones whenever the opportunity arises. It should not have to double-guess other arms of government, and it shouldn’t have to invest valuable time and effort making sure that other legislation does not undermine its working environment. This includes notifying legislators (and if necessary voicing opposition) if a bill which is destined to come before parliament contains clauses which could contaminate the relationships it should be fostering. Perhaps that is what happened when the Private Security Industry Regulations Amendment Bill was still being drafted. But because the ANC’s commitment to transparency is much the same as its commitment to ending corruption, we will never know.

The assumption that the ANC is the natural government of South Africa, and that it will stay in power until the Second Coming, a view on the permanency of political power last expressed by Mr Hitler who thought his was a 1000 year reich, is probably what makes state functionaries mis-read their self-interest. If Comrade Blade had considered that the students might get restive about the state’s failure to make an effort to reduce the cost of tertiary education, he might have been more willing to fight for the money. Now, because he chose patronage over performance, he’s becoming collateral damage.

The business of the DTI is trade and industry. The sooner its minister and his permanent staff realise that they cannot do their job properly, through the turgid doctrinaire policy guidelines drafted by politicians driven by sectoral self-interest, the better their chances of self-preservation when the time comes. The DTI should be out there wheeling and dealing, creating business opportunities, generating wealth. Anything which stands in the way of this objective will, in the end, lead to their ousting.

It is not too late for Rob Davies to give up his attachment to the economic theories of the far left. If he were to take the lead in abandoning ideologies which have contributed to South Africa’s abysmal growth rates it might send a useful message to his colleagues. It would certainly give the economy a boost. It is not simply a choice of whether or not to fiddle while the city burns, or even about having the fire tenders primed and prepared. It’s about avoiding the combustion in the first place. DM

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