Imports might be more affordable now, but they come at a long-term cost

Imports and exports are fundamentals of global trade and local economies, but while South Africa retains a positive trade surplus, it needs to engage in more mutually beneficial trade of raw materials and minerals versus finished goods.

There is a hidden cost in the rise of attractively priced imported finished goods that displace local production.

No country can ever be entirely self-reliant. Imports, whether of machinery, chemicals, technology, vehicles, fuels or food, will always be a reality.

In principle, a market in which locally made and imported goods compete for the consumer’s wallet is a positive – avoiding monopolies, giving consumers greater choices and increased competition that drives price affordability. In many cases, imported goods are those which are not manufactured, farmed or mined locally. These add value, for example, in the availability of consumer products and produce, in the supply of medicines, or as essential inputs for local production.

However, SA currently faces a scenario of rising imports at prices that local manufacturers can’t compete with, at the same time that local manufacturing is declining.

More affordable imports may have short-term benefits for consumers, but there is a long-term cost to employment and investment levels, as well as to incomes and overall wealth creation in the local economy when imports increasingly replace locally manufactured goods – as is currently and most prominently the case in the automotive sector, but also affecting other local manufacturing such as pharmaceuticals.

Major concern

This is a major concern in Nelson Mandela Bay, as the hub of automotive and component production, and also home to agro-processing for global markets and multinational manufacturers and exporters of pharmaceuticals, beverages, as well as the supporting networks of suppliers and logistics providers.

Job creation linked to imports is minimal and shallow, while the job creation in local manufacturing is vast and deep, with a knock-on impact into employment in extensive supply chains that generate incomes that further affect the retail and services sectors.

The short-term price benefits of imports to consumers are outweighed by the long-term threat of the erosion of local manufacturing affecting employment and incomes.

Put simply, if people aren’t working and earning, then lower prices on imported goods are irrelevant.

Equally, exports are vital in terms of generating revenue for the national fiscus and generating wide employment in manufacturing that services global markets, rather than being limited to the relatively small domestic market.

The question is how to manage an equitable balance of trade, while sustaining the local manufacturing and agricultural capacity that creates jobs and empowers local people with incomes.

Imports alone are not the reason for the erosion of SA’s manufacturing capacity and competitiveness. The rising reality of de-industrialisation is also due to broader issues such as the rising costs of doing business locally due to logistics inefficiencies, inadequate and unmaintained public infrastructure, the security of energy and water supply, spiralling electricity costs, crime and safety concerns and security costs.

Manufacturing decline

While SA is taking steps to increase import tariffs on various imports in order to protect local industry, these alone cannot fix the root causes of our manufacturing decline.

It is widely agreed that import tariffs as a protection mechanism are a blunt instrument, more likely to disadvantage consumers through having fewer choices and higher prices, than to strengthen local manufacturing productivity and employment.

Raising import tariffs is a defensive approach that may give local producers temporary relief but also raises the risk of shielding them from the realities of global competition, instead of encouraging greater efficiency and the technology adaptation needed to compete in world markets.

Rather than adopting a solely protectionist stance based on tariffs, this should be coupled with speedy trade and industrial policy reforms and ensuring effective, coordinated implementation, with a strong bias towards incentivising localisation and exports. And at the same time, focusing on improving the enabling environment.

From a business perspective, the job of the government is not to create jobs, but to create the enabling environment in which business can operate effectively, facilitating economic growth and creating sustainable employment. This means that the government must proactively focus on making the country a place where it easy to do business and where infrastructure is maintained and basic services are delivered. In conjunction with this, costs that other countries do not face need to be reduced by addressing issues relating to safety and security, logistics and high corporate taxes. Incentives can compensate for these extra costs, but ultimately these issues must be resolved.

Strategic national asset

Local manufacturing should be seen as a strategic national asset, not only an economic contributor but a strategic capability for national resilience during times of crisis, reducing the over-reliance on imports from other countries, and thus be both protected and stimulated for that reason. Another key factor is that it encourages innovation and technology advancements that benefit the country and promote the development of a more skilled workforce.

The government has two powerful levers at its disposal to enable necessary and competitive imports while protecting local production with its deep supply chains that add value to exports and employment.

One, focus on protecting local production not through the blunt instrument of import tariffs, but sharpening the tools of incentives for local content and technology investment, as well to enable special economic zones to offer genuinely globally competitive advantages, and reduce the logistical and regulatory barriers to international trade for local producers.

Two, focus preferential procurement on locally produced goods, and build in a premium for their strategic value to the economy, rather than focusing exclusively on price.

Multiplier jobs

Price is a temporary number, but the value of manufacturing operations and the multiplier jobs they create in both a specific plant and the surrounding value chain are long term. In fact, it is estimated that for every one person employed in manufacturing, at least five other jobs are created in the surrounding ecosystem. Also, for each person employed in manufacturing, another eight family and community members are supported.

It’s hard for local manufacturers to argue for their value to the local economy and employment when their own government is making purchasing decisions based entirely on price, and which do not advance local needs – the most critical of which is addressing the massive unemployment crisis the country faces.

Deploying these levers would not only protect local production and enable global competitiveness, but also potentially attract investment into local production from current suppliers of imports.

It is not about shutting out imports, but retaining the benefits of competition for consumers, while strengthening the ability of local manufacturers to compete against markets that have lower input costs and an enabling environment. DM