Like manna in columnist heaven, an innocent document lands. “The Siren Song of Localisation” it is it called, with the subtitle “Why localisation policy will not lead to industrialisation”.
It is sad that in 2021 such work even needed to be done. But our government is off up the garden path with wild promises of a new, shining industrial upland if only we would stop importing stuff and make it ourselves. It is a dangerous and wasteful fantasy.
The document is the work of two University of Cape Town academics: Lawrence Edwards, a professor at the school of economics there, and David Kaplan, emeritus professor (for 38 years) at the same school. It was written for the Centre for Development & Enterprise (CDE), a wonderful think-tank in Johannesburg, by Antony Altbeker, a researcher and economist.
The paper brilliantly exposes localisation as an intellectual fraud that slips a large degree of economic control to trade, industry & competition minister Ebrahim Patel, a hard-boiled trade unionist, in return for which the large companies that support him (his “partners”) are protected by stiff import tariffs.
Sadly, in the absence of any movement on President Cyril Ramaphosa’s R800bn infrastructure programme, localisation is just about the only promise the government is keeping. But it doesn’t have a hope in hell. If anything, the companies Patel protects will become even less competitive than before. Claims from Patel’s department that the master plans and import barriers he is creating are working are untested and not measurable.
Patel’s goal is the replacement of 20% of SA’s nonpetroleum imports by 2025. But the products he deems must be localised are little more than a collection of sectors where local players are uncompetitive. He works off a list of (now) 27 products, from valves to set top-boxes (already made and rotting in post office warehouses), from wheelie bins to rail rolling stock. Wherever, says the department, there is “distress caused by imports which displace local production and jobs”.
To which the authors reply that “whether or not this is a coherent basis for industrial policy is a serious question which policymakers ought to think about”. But there’s no thinking, just Patel driving hard. His officials are even declining appeals for relief from import duties paid on products that are not even made in SA at all .
But to get to his 2025 target in, say, local textiles, a declining industry close to the minister’s heart, the sector would need to grow almost 30%. This is simply impossible. Machinery and electronics output would need to increase 50%.
Worse, instead of arguing a better case for growth, big business has bought into localisation. Each of Patel’s localised sectors has a private sector “champion”; sooner or later to become just another schmuck in a suit trying to explain why his sector failed to meet its target. And even if they don’t, the paper holds, when failure is beyond denial business will be blamed, not the policy.
Textiles are a case in point. “Employment in the sector,” says the paper, “has fallen continuously since at least 2009, when tariffs on imported clothes were raised to 40% and when a dollar cost R8.30. Even if one discounts the effects of Covid-19 on employment in 2020, it is clear that neither the tariff nor the 60% depreciation of the rand has resulted in the sector’s growth.”
Pie bought in the sky, in other words, is expensive. Here is what would happen if, as is often debated, SA designates cellphones for localisation. Here is how difficult it might be for SA to step out of the global supply chains it is extremely lucky to be locked into, and out of which, inexplicably, government is trying to step.
Obviously we can’t replace oil because we don’t have our own oil wells (though government has just given Shell permission to blow up much of the Wild Coast seabed to try and find some). But how about cellphones? Surely we can make our own cellphones?
“SA has precisely the same number of cellphone factories as it has oil wells — none,” notes the paper drily. “Obviously, there is no physical impediment to locating cellphone factories in SA. But is it conceivable that cellphone factories producing competitively priced cellphones with all the technological wizardry of the imported phones South Africans obviously like, could be located in SA?
“That is much less likely, but if it did happen it would be possible if and only if (a) the vast majority of phones produced in SA were exported and (b) the vast majority of components used in the phones produced in SA were imported. SA, in other words, could not possibly reduce its dependence on imported cellphones through a strategy of localisation; it could do so if and only if it were fully integrated into global supply chains.”
And as for the notion, repeated ad nauseam by proponents of localisation, that SA has an “overpropensity” to import manufactured goods, World Bank data shows this is just not true. Mexico and Thailand import more merchandise as a percentage of GDP than we do. But they export more too. So do the Dutch. Vietnam, blessed with nothing, imports 100% of its GDP in merchandise and exports roughly the same amount too. We seem determined to remain weaklings.
• Bruce is a former editor of Business Day and the Financial Mail.
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