Just two decades ago, globalisation seemed unstoppable. China’s entry into the World Trade Organisation in 2001 was the final piece in the global free trade puzzle, and a period of unprecedented prosperity loomed, supported by a commodities boom. But history had other ideas.
Economic and political turbulence since the 2008 global financial crisis led experts to reconsider old orthodoxies. And recent supply shocks and persistently high inflation are causing economists, business leaders and policymakers to rethink the terms of global trade.
A middle-income economy such as South Africa's needs to be cautious about how it navigates this period of uncertainty. In the face of unprecedented global trade conditions, we need to take active steps to become more resilient. That means protecting local industry while securing the most favourable terms of trade possible with key markets. It’s a difficult balancing act, but one we can’t afford to ignore.
On one level, businesses are reconceiving their supply chains due to basic practical needs. Acute supply shortages during the Covid lockdown period prompted many manufacturers and retailers to rethink their inventory strategies.
To become more resilient in the face of potential shortages, these businesses are increasing inventory or diversifying their suppliers, even at the cost of some efficiency. In many cases, companies are looking to secure local suppliers of critical inputs to provide a buffer against global shortages. More managers are recognising economic resilience depends on local supply resilience.
More profound, however, is the geopolitical element. World leaders are reconsidering the strategic risks and rewards of globalisation. As diplomatic tensions between great powers heighten, there is increasing talk of “friend-shoring” — moving supply chains away from geopolitical adversaries towards production in allied states.
In a global economy accustomed to the tight interconnection of production in China and consumption in developed Western markets, this shift would mark a sea change. The consequences could be severe, especially for developing countries.
In a recent article, Financial Times chief economics commentator Martin Wolf cautioned that — perhaps ironically — the push for deglobalisation could slow global economic growth, make supply chains less elastic and increase inflation.
Developing countries are at particular risk. International Monetary Fund economists warn that friend-shoring will fragment foreign direct investment — with poorer countries being most negatively affected.
In this context, where financing for development and expansion risks becoming scarce, we can’t leave the fate of critical local sectors to chance. We need a strategy for the long-term growth and sustainability of the vital industry.
As part of the drive towards renewables, major export markets, including the EU, are phasing in carbon border taxes on imports. In practice, these are effective tariffs on imports that pose a challenge to South African exporters, considering how heavily dependent our value chains are on fossil fuels.
South Africa needs a pragmatic response to these challenges. We lack the economic heft to wage a trade war, but we can take measures to protect local industry and work to ensure we keep our rightful place at the trade table.
The automotive industry is the single largest manufacturing sector of the economy with a 17% slice of the pie, contributing between 4% and 6% of GDP. The sector is also critical to local employment as it employs more than 30,000 people directly, and exports R200bn-plus worth of products.
South Africa stands in a precarious position. Deglobalisation threatens foreign investment, while protectionist policies by major economies will put local businesses at a disadvantage on the global stage.
Our responses must be flexible and pragmatic, adjusting to changing global conditions. We can start with targeted support for local industries subject to unfair trading conditions. For example, dumped cement imports are putting the local cement manufacturing sector at risk. This poses a threat to jobs and has knock-on effects for smaller businesses.
The cement industry has raised concerns that as many as 35,000 direct and indirect jobs are threatened by dumped imports. Local manufacturing is a reliable source of quality cement in a world in which the security of global supply is under threat.
According to Iraj Abedian's landmark research report, Revitalising SA’s Manufacturing Sector, investing in this sector has a positive multiplier effect of 1.3 times — a 10% increase in investment has a 13% benefit to the economy. In more practical terms, a 10% increase in investment would lead to 73,000 new jobs.
As Reserve Bank research shows, capacity utilisation fell dramatically during the 2008 global financial crisis and has remained at this lower level. As the Bank indicates, the resulting depressed investment into industrial output has had a devastating effect on employment, with “approximately 150,000 jobs lost between 2008 and 2016”.
We can see this mechanism at work in the cement industry. The local sector has the capacity to produce 20-million tons of quality cement to meet our growing infrastructure needs and support local construction and engineering. However, due to dumped imports, South Africa is only producing 13-million tons.
If we fail to support local industry, we risk shedding thousands more jobs and losing access to a vital source of quality inputs.
In the longer term, strong multilateral agreements will become more important as the global economy transforms. Ultimately, this is the responsibility of the South African government.
However, the private sector, labour and all stakeholders should pay keen attention to such developments and ensure South African society has a say in how the country navigates its role in a fast-evolving world system.
* Matabane is CEO of the Black Business Council
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.