Last Friday Ebrahim Patel, the minister of trade, industry and competition, gazetted proposals to allow local companies to collude in the interests of the “localisation” strategy he is following to re-industrialise SA. Good heavens!
In doing so, Patel, the Great Cartel Slayer of the 2010 World Cup construction firms, tacitly concedes that collusion may have positive outcomes. Economic historians like Glasgow University’s Jeffrey Fear could have told him that a long time ago.
In a 2006 paper Fear writes that “cartels positively contributed to technological innovation by stabilising volatile markets, permitting firms to invest in R&D. In the 1920s, radio and telephone manufacturers formed associations to limit excess capacity, encourage large-scale productions, pool research costs, set standard prices and design interchangeable product standards.
“Despite such collusion,” writes Fear, “British telephone density and automation accelerated greatly up through the war. However, with the advent of antitrust laws and competitive pricing in the 1950s, which hindered industry co-ordination but prompted mergers and squeezed profit margins through price competition, the industry lost the incentive to expand capacity, enhance product quality, and fund crucial innovations that moved telephony into the electronic age.”
Patel now twists in all directions to try to sculpt the new economy President Cyril Ramaphosa promises will rise Phoenix-like from the ashes of the pandemic and the catastrophic misrule of imprisoned former president Jacob Zuma. But it is lipstick on a pig.
Localisation moves Patel from the side of the consumer to the side of the producer. New rules allowing collusion join a raft of other punitive measures designed to reignite manufacturing in SA. He has brought the export of scrap metal to a virtual halt and extended a pricing system to allow local scrap melters (steel mini-mills and foundries) to buy it at a steep discount to export prices.
He has raised tariff barriers on a variety of steel and aluminium products, placed draconian rebate rules on textiles and clothing and, through a series of “masterplans” whipped big business into supporting ambitious product and job creation targets in return for the protections he offers them.
SA’s trading partners have expressed concern as foreign companies invested here find their supply lines threatened, but, as Patel says in the government gazette, “in achieving the objective of localisation industry collaboration may be required”. Collaboration, now a criminal offence, “may involve” identifying localisation opportunities, setting procurement targets and demand forecasting.
The gazetted proposals show Patel at full stretch as he tries to describe a situation where a firm can have an idea for localising a product but only discuss it with others through “facilitators” and that no pricing is to be shared. It is a nonsense. The price of the product might not be shared between firms by these “facilitators” but the prices of the inputs would have to be.
It won’t end well. The ANC has been talking about localisation for 20 years and with each new initiative unemployment gets worse. Ramaphosa has had a goodish reformist run thus far — he’s done the revenue service and the prosecutions service, stood firm on public sector pay, is privatising SAA (though there’s a story that’s gone suspiciously quiet) and is now planning to open big ports to the private sector (if he can find anyone ready to risk their capital in joint projects with this government).
But at least two things will stop him getting much further. First, any business done with this government is business done with the ANC, an incoherent, deceitful and greedy partner. Second, Patel’s localisation policies are in all likelihood already destroying more jobs than they are creating.
He is localising by way of protecting big business and big unions. Smaller businesses in the 42 product groups he plans to localise are bleeding jobs as import prices of their raw materials balloon.
Our answer lies in setting stretch targets for exports, not localisation. We are too small an internal market for almost anything but food. And any exports. Then a drive to persuade our export customers to set up shop in SA, an unforgiving vaccination effort to make SA a safe tourist destination again and an immigration programme of more than a million skilled people from anywhere and with any skill.
Governments can’t create skills. Only experience does. You don’t need an education to re-wind an alternator or weld marine plate. You just need to watch someone doing it for five years and then have them watch you for the next five.
The whole ANC approach to its “new economy” is based on the fatal presumption (or hope) that Donald Trump and the pandemic would drive the world apart. The pandemic, wrote new finance minister Enoch Godongwana in 2020, “has legitimised a greater and more active role of the state in guiding the economy”. Same old rubbish.
Worse, Godongwana declares “globally, protectionism and populism are on the rise ... multilateralism, global consensus and solidarity appear to be on the retreat as countries are focusing first and foremost on what works for them”.
The fact though is that global trade is exploding as we raise our drawbridge. We thought we were going to be slipstreaming a new world order. Wrong! Official Chinese data show bilateral trade between it and the US surging. China’s exports to and imports from the US reached $46.9bn and $14.3bn this past June respectively. These are record levels.
What is Ramaphosa thinking?
• Bruce is a former editor of Business Day and the Financial Mail.
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