This paper presents results based on a recent South African firm-level survey. It examines the export behaviour of South African manufacturing firms, it attempts to characterise the decision to export and it also considers the destination of exports. We find the following:
This note presents a first cut at analysing the tariff schedule that is applied to South African imports. The aim is to show various ways in which tariffs on South African imports can be analysed such that DTI can develop in-house capacity to undertake such analysis on an on-going basis. A cursory comparison with earlier analysis suggests that tariffs have declined over the period 1997-2001, notably for manufacturing. However, further tariff liberalisation has been slow in last couple of years. Tariff peaks still exist for a number of broad categories of commodities such as processed foods (HS 0- 2), vehicles and components thereof (HS 87), tobacco products (HS 24), rubber products (HS 40) and clothing and textiles (HS6). About 25% of the HS8 commodity lines are faced with non ad-valorem tariffs, although the value of imports involved is not more than 4% of total import in 2000. An attempt is made to convert non ad-valorem tariffs in order to check for tariff peaks. The highest ad-valorem equivalents are recorded for processed food, in various stages, and textiles. Finally, duty collection rates, which can give an indication of the efficiency of duty collection are lowest for mineral fuels, motor vehicles and components thereof. Using a couple of static methods on effective tariff rates singles out the textiles, clothing, footwear, leather, motor vehicles, and some food processing sectors as directly and indirectly highly protected. Simple correlation coefficients suggest that duty collection rates and the nominal tariff schedule are reasonable indicators of effective rates of protection at the chosen aggregation level of activities.
This document has been prepared for the Trade and Industrial Policy Secretariat (TIPS) in light of the imperative for South Africa to prepare its negotiating mandate at the discussions around the World Trade Organisation's (WTO) General Agreement on Trade in Services (GATS) that commences in the year 2000. The GATS was negotiated during the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT), and is one of the pillars of the agreement establishing the World Trade Organisation (WTO). This document contains the preliminary and independent results of an investigation into South Africa's trade in transport services . In light of the imperative to provide a sound and consistent negotiating base for the South African government the objectives of the present study were to: Identify the extent of the (potential) comparative advantage of South Africa in transport services particularly land and maritime transport services; Indicate how far the transport services sector (excluding aviation) can be liberalised (deregulated); Identify the possible impediments to the exports of transport services from South Africa. The document is structured as follows. In section two terminology is clarified and important concepts defined. In section 3 the context of liberalisation in services particularly transport services, is provided. Section 4 sets out the case for liberalisation in services and identifies the importance of transport services. In section 5 a brief overview is given of the global transport service market. Section 6 outlines the main features of transport service' s contribution to the South African economy. In section 7 the institutional and regulatory framework impacting on transport services in South Africa is discussed. In section 8 the burning issues in transport services for South Africa, namely regional integration, the 20-year strategy of the DOT (MSA) and the question of transport costs to and from South Africa is discussed. Section 9 concludes.
It is generally acknowledged that there is no sufficient, exhaustive and elaborate empirical examination of the quantitative impact of policies pertaining to import demand and economic growth in South Africa. In order to arrive at conclusive, sagacious and applicable policies on the economic growth potential of an economy, it is imperative to evaluate, empirically, whether envisaged economic growth rates and employment creation are feasible, given the socio-economic circumstances.
The fundamental question of the constraint or rather effective constraints to high economic growth rates, measured by gross domestic product, has always desired urgent attention but has been neglected. There appears to be strong reasons to believe that the South African economy, like other middle-income developing economies, is subject to a "powerful balance of payments constraint that effectively aborts the growth process before it is able to deliver rising per capita incomes" (Industrial Strategy Project, 1995 :49 ).
Furthermore, although this issue is widely recognized, there has been little systematic analysis of this important question. Many writings which, implicitly or explicitly, note the foreign exchange shortage as adversely affecting the economy's growth capacity have tended to focus and give enormous emphasis on exports and export expansion as a means to eradicate this economic dilemma. However, together with exports the demand for imports clearly determines the behavior of the trade account of the balance of payments as a whole. Consequently, this paper intends to consider one important aspect of the balance of payments constraint, namely, the import performance and import demand elasticities.
The study derives the import demand function and applies the recent time-series techniques to modeling economic time-series. Prior to the empirical model, the paper describes the behavior of imports. This section examines the cyclical and trend behavior of import performance since the beginning of the 1970s. The study also briefly looks at the relationship between import of capital goods and investments in South Africa. The geographic origin of imports by regional trading blocks is also discussed. That is followed by an extensive literature survey conducted on import demand elasticities in South Africa and trade elasticities in general. The import performance and import demand functions were studied in an economic policy context and the analyses were in some cases restricted by data constraints. Import behavior patterns and empirical results of the import demand models are discussed and international comparisons are drawn.
There are a few basic points that emanate from the overall discussion. In the import performance section, it can be concluded that labour intensive commodities have the largest share in total imports; there is a very steady, insignificant decline in import penetration ratios and these have increased lately and that import of capital goods is positively correlated to investment.
The description of studies shows that the demand for imports is largely influenced by economic activity as compared to relative prices. Some of the results are shown in the appendices and discussed in text, where comparisons are made between the results of different studies and the main findings of this study. Precisely, the major finding is that, as other studies concluded, the propensity to import with respect to income is more significant than the price elasticity of demand for imports.
The import performance findings combined with time-series estimation results raise doubts to envisioned employment creation levels and economic growth rates in South Africa. This is questionable because South Africa's imports have been on an increase whilst exports have not performed well. From the time-series point of view and based on estimation results, the current economic strategies should also address the import demand question or foreign exchange and domestic economy development if the projected growth rates and employment levels are to be achieved.
The paper aimed to establish the changes that had occurred in the institutional structures governing trade policy in South Africa during the period 1990-1998. It also examined the forces that had influenced the application of tariff policy by the major tariff setting bodies by applying various theories of endogenous protection to their decisions. Using firm level data on applications made to the Board on Tariffs and Trade, the study found that when estimating a Probit model, employment considerations rather than capital invested had influenced the Board's decisions to grant protection. In addition, the Board was found to have granted protection even in the face of tariff lines having been bound under the Uruguay Round. The paper argues that this should not be interpreted as a reversal of the trade liberalisation, but rather as an attempt by the Board to cushion firms from the acceleration in the tariff rationalisation process that had occurred after the GATT offer. Finally, it is suggested that the Board's response to changes in import penetration ratios between industries that were considered organised provided prima facie evidence of the superior lobbying ability of such industries.
A major policy issue for many developing countries is to foster further integration into the world economy. This note discusses the role competition policy can play in the context of efforts to promote the restructuring the economy, focusing in particular on the relationship with industrial and trade policy and on the potential role of international agreements and cooperation (both multilateral and regional).
The paper is structured as follows. Section I defines terms and discusses the relationship between trade, competition and industrial policies. Section II provides an overview of the “basics” of competition policy, drawing some implications for “best practice” from cross - country experience. Section III discusses the role a competition authority can play in the process of economic transformation, emphasizing its potential as an instrument to promote transparency and assist policymakers and civil society in assessing the effects of government policy. Section IV discusses one particularly important dimension of the interface between trade and competition policy¾ensuring that the competitive effects of instruments of contingent protection of the type allowed by the WTO are considered by policymakers. Section V briefly reviews options for international cooperation in the area of competition policy. Section VI concludes. An appendix provides a illustration of the types of indicators that might be compiled to monitor developments in the “state of competition” in the economy, using data for Slovakia for concreteness.
There continues to be considerable concern that the expansion of trade with developing countries (hereafter South) is lowering the relative wage of unskilled labour in developed countries (hereafter North). The issue of income divergence in the North is highlighted by the experience of the U.S., where a marked decline in the relative wage was observed during the 1980's and the 1990's. The striking feature of this decline was that it occurred during the period when the U.S. was following trade liberalization policies and expanding its imports from the South. Thus a similar fear of a decline in the relative wage has been expressed in these northern countries.
The causal relationship between international trade and the relative wage dispersion is normally explained in terms of the (well-known) Heckcher-Ohlin-Samuelson theory (hereafter HOS) with two factors (skilled and unskilled labour). In this model, Stolper-Samuelson theorem can be used to showthat trade liberalization would lower the relative wage of unskilled labour in the skill rich North.
A number of studies, for example, Murphy and Welch (1991), Katz and Murphy (1992), Borjas, Freeman and Katz (1992), Batra (1993), Wood (1994, 1995), Sachs and Schatz (1994) and Leamer (1994, 1995, and 1996) provided empirical evidence in support of this HOS interpretation. They argued that the trade had been a contributing factor to the rising income differentials in the U.S.and other countries in the North.
The studies of Evans (1996, 1997a,b) appear to be the most analytically ambitious attempts to address, empirically, the question of the economic desirability of a southern African free trade area (FTA). Evans (1996) is apparently the only serious study available to date which gives detailed sectoral effects of the formation of a SADC FTA for each country. It thus appears to be the only available study which quantitatively addresses the critical questions currently occupying policy-makers and researchers in the region of the potential sectoral and distributional effects of the formation of the FTA. 1 Despite the criticisms levelled at this type of impact study, some quantification of the possible effects of the FTA is undoubtedly important, in order to determine whether there is likely to be a need for compensation within the union, and whether the benefits will be large enough for those who gain to compensate those adversely affected. The results of these studies, and the method by which they were derived, therefore warrant careful consideration.
This paper describes formal employment trends in the South African economy since 1970, through using both survey and time-series data. In addition, the study tries to understand the forces that have shaped these employment trends. The descriptive statistics reveal that the primary sectors have shed close to 1.5 million jobs in the period 1970-95. The marginal net employment growth that occurred was to be found primarily in the service sectors. Noticeably, net employment creation in manufacturing was 400 000 jobs over this period. These sectoral trends are matched by occupational trends, which show a significant rise in the demand for highly skilled workers at the expense of unskilled workers. The racial dimension to this is that non- African workers have gained from these labour demand trends, while African workers have lost out significantly.
Utilising an established methodology, the second component of the paper is to try and assess what factors have caused these employment trends which have disproportionately favoured skilled workers. The results of the analysis show that the key cause of the shift toward high-end workers has by and large been technological change within the individual sectors. The rising capital intensity in sectors, coupled with greater computerisation, has prompted the need for more high-end workers. Interestingly though, the results suggest that when examining lower skilled workers, the importance of technological factors remains, but diminishes. Instead, for those at the bottom end, the altering shares in national output of different sectors had a more significant role in understanding relative employment shifts.
The third and final segment of the paper attempts to estimate the impact of trade flows on labour demand, using both survey and time-series data. The results illustrate that the correlation between international trade and employment has been positive. The employment of all workers, by occupation, race and education level, grew as a result of the flows of exports and imports in the economy between 1970 and 1995. However, these gains were not skills, race and education-neutral. Specifically, employment expansion for skilled individuals, or those who had high educational qualifications or workers who were non-African, was appreciably greater than for individuals who did not fit into either of these cohorts. In short, workers at the bottom gained from international trade but gained significantly less than their counterparts at the top end. The time series evidence for manufacturing yields slightly different outcomes. The results here suggest that in the period 1970-1988, unskilled workers gained more than skilled employees did from international trade. However in the subsequent period, and particularly in the 1993-97 period, the reverse effect occurred. In these later years then, there were high job losses for those in unskilled categories, while skilled workers gained significantly.
The aim of this paper is to consider the relationship between competitiveness, international trade and financial factors in the South African economy.
The term ‘competitiveness’ is used here in two closely related, but distinctly different, senses. One of these refers to a country’s ability ‘to realise central economic policy goals, especially growth in income and employment, without running into balance of payments difficulties’ (Fagerberg, 1988:355). This may be thought of as competitiveness in the macroeconomic sense, or what we shall refer to as macro-competitiveness. Competitiveness, however, may also be defined as the ability of an economy, or sectors of it, to compete in world markets. Conventionally emphasised sources and indicators of competitiveness in this sense are movements in real exchange rates, productivity and unit labour costs, which are reflections of price-competitiveness. As distinct from these, there are various sources of the ability to compete in world markets, such as product differentiation and innovation, and (of particular interest in the context of the present study) access to finance, which may be regarded as aspects of non-price competitiveness.
Section 2 considers the competitiveness of the South African economy in the macroeconomic sense, by examining the historical relationship between GDP growth and the ratio of the current account deficit to GDP. On this basis, it finds that there has apparently been a significant deterioration in the competitiveness of the South African economy.
The rest of the paper is in effect an attempt to shed light on this problem. The rate of growth of exports is clearly one factor pertinent to South Africa’s macro-competitiveness. One concern of the paper, thus, is with explaining trade performance in recent years. However, a long historical view is seen as indispensable for this purpose. The evolution of the growth and sectoral pattern of South Africa’s exports in the period 1911-72 is therefore described briefly in Section 3.
Section 4, the longest in the paper, discusses variations in the growth and sectoral pattern of South Africa’s trade in 1972-97, divided into two sub-periods: 1972-83, which includes the great gold-led, commodity price boom of that decade; and the period of adjustment from the onset of economic crisis in the mid-1980s, through to 1997, which is the main focus of attention. The emphasis is on changes in relative prices, in particular on real exchange rates, as the determinant of variations in the growth rate and composition of South Africa’s exports, though some consideration is also given to productivity and unit labour costs. The problem of sustaining rapid growth of exports, and hence of increasing macro-competitiveness, is seen as lying in the sectoral pattern of South Africa’s exports.
The effect of financial factors based on trade and competitiveness, one of the particular concerns of the studies in this volume, is the subject of Section 5. Matters considered there, in varying degrees of detail and in different sub-sections, are the effects of South Africa’s relatively advanced stage of financial development; the availability of credit and economic instability as factors relevant to the level of investment; differences in the severity of financial constraints between groups of firms categorised according to trade orientation and trade performance, and hence relevant to competitiveness (in both senses stated above); and the question whether the ownership of banks by South Africa’s conglomerates has skewed the allocation of credit in sub-optimal directions. Section 6 consists of concluding remarks.
In the lead-up to the next round of WTO talks, some commentators have argued that developing countries should liberalise their service industries for their own benefit and not just in response to industrial country demands. This paper critically explores this position for the case of South Africa. It finds that while the structure of the economy limits some of the traditional gains, a number of positive spillovers from the process ensure that there is an overall net benefit. It concludes by discussing a range of policy options that could be used to maximise the benefits and minimise the costs
This study undertakes a preliminary analysis of changes in manufacturing in light of the ongoing trade liberalisation measures introduced in the 1990s. The case for trade liberalisation rests on firms responding to the increased incentive to export, leading to more efficient use of resources, with increased productivity, competition and investment.
After reviewing evidence of liberalisation in other developing countries which questions the basis of these expectations, a distinction is drawn between the need for reform of the structure of protection in South Africa, and the broad liberalisation being undertaken beyond the requirements of the GATT/WTO agreement. To understand the process of liberalisation along with other changes affecting manufacturing, the links between changes in trade, production and employment are traced at the sub-sector level. This does not reveal any notable increased specialisation in areas of comparative advantage. Instead, the 14 sub-sectors recording improvements in the net export measure of revealed comparative advantage from 1991 to 1996 all had a trade deficit, while the trade performance weakened of those sub-sectors with an apparent existing comparative advantage.
The study reveals a lack of any clear relationship between liberalisation, changes in trade performance, and changes in production and employment. It further suggests that a careful analysis of sub-sector specific factors is required to interpret the process of restructuring underway in South African manufacturing. Sub-sectors with improved export performance in recent years are dominated by those concentrated around minerals and chemicals, where productive capacity has evolved through exploitation of production linkages and strong support from Government. The study also found export performance appears instead to have improved most in those sub-sectors with relatively low tariffs such that little bias existed in favour of production for the domestic market over production for export due to tariffs.
On the basis of a net export measure which takes imports into account, many of the sub-sectors with apparent improvements in competitiveness have actually been associated with contraction. In five of the 14 sub-sectors with improved net export ratios,
both employment and real output have contracted, employment has fallen in a further three, while in printing and publishing there has been an increase in employment but a fall in production. In contrast there is evidence of the continuing importance of the domestic market. In the six sub-sectors with net employment growth from 1990 to 1996, five have negative net export measures, four of which have worsened over the period. There are also signs in many sub-sectors of increased intra-industry trade which must be understood in the context of imperfect competition and product differentiation. In addition, manufacturing exports appear to be strongly differentiated by geographical region, with the majority of sub-sectors that recorded significantly improved export performance having southern African countries as the first or second largest markets.
These factors affecting restructuring in manufacturing sub-sectors are further illustrated by more detailed discussion of the changes in the two sub-sectors which have been most heavily affected by tariff reductions, clothing and motor vehicles.
The analysis points to the need to re-examine selective protection within the scope of WTO limits, and for the co-ordination of trade and industry measures, taking into account demand as well as supply-side factors.
This study projects the impact of the proposed free trade area (FTA) between South Africa and the European Union on the bilateral trade flows between the two. The South African and European respective proposals, as formulated in 1996, served as a basis. The results are evaluated both at an aggregate level, to gauge its impact on the balance of payments and on Government revenue, and at a sectoral level to assess its implications for specific industries. Additionally, a simulation of the impact of the agreement on South Africa's trade with other commercial partners is discussed. The simulation was conducted utilising a static, partial equilibrium methodology, 'SMART', jointly developed by UNCTAD and the World Bank and widely utilised by negotiators of both bilateral and multilateral trade agreements.
Our results show that the impact of the proposed free trade area agreement on bilateral trade flows is likely to be uneven, with a relatively large effect on SA's imports from the EU and a comparatively smaller effect on its exports towards this market. The size of this projected imbalance will depend on the exact terms of the agreement, which are currently under negotiation. Depending on the scenario used, our projections show an increase in South African imports from the EU between 2.3% and 12.3% of 1996 SA imports from EU. By contrast, the estimated increase in SA exports to the EU will approximate between 1.3% and 1.4% of 1996 SA exports to the EU (see Table "Summary Results " below).
As South Africa commits itself to entering a free-trade agreement with the SADC community a number of important issues arise. These range from the likely economic impact of a FTA on member countries, the legal political and regulatory problems and others. This paper represents the first attempt to explain these various facets of the FTA.
This paper reviews several studies of the determinants of exports in South Africa in the light of the policy directions, which have emphasised the importance of an export led growth path for the economy. Major trading partners and the composition of trade are examined as are the role of the real exchange rate, capital intensity, research and development, export incentives and the vent for surplus theories of export behaviour.
A regional meeting to launch the work programme of CAPAS Phase III was held at Helderfontein Estate in Johannesburg on 27-29 November 1997. The meeting was organised jointly by the Trade and Industrial Policy Secretariat (TIPS) and the Department of Trade and Industry (DTI) of South Africa with support from the United Nations Conference on Trade and Development (UNCTAD) and other UN organizations, which are sponsors of the CAPAS project. The meeting was part of the larger CAPAS programme which is financed by the Carnegie Corporation of New York, the International Development Research Council (IDRC) of Canada, the French Government and cost-sharing contributions from the ITU. The CAPAS programme was launched in 1992 and provides technical assistance that focuses on building national policy-making capacity in Africa in the area of services. This includes providing the tools needed to strengthen the relationship and coherence between national policies and regional and international trade policies in services - in particular the requirements of the General Agreement on Trade in Services (GATS). Nine sub-Saharan African countries participate in CAPAS III: Burkina Faso, Cameroon, Ivory Coast, Lesotho, Madagascar, Mali, Namibia, South Africa and Zambia. They were each represented at the meeting by the national co-ordinator of the country’s Inter-institutional Working Group (IWG) and the leader of the National Research Team (NRT). In addition, a selected group of public and private sector decision makers and researchers from South Africa were invited to participate in the first day of the meeting.