Session 6B: Taxation and Trade Quotas
South African manufacturing has experienced a slow overall decline despite adopting a range of recommended economic policies from protectionism and active state support in the period preceding political change (1994) followed by aggressive liberalisation and more free access to markets thereafter. Alongside interfering industrial policies, the decline has also been blamed on poor skills, out of date technology and constrained input access, increasing global competition, high labour costs and a range of microeconomic factors unique to the sector. Evidence for this is mixed. Extensive government support and protectionism on the one hand and aggressive economic liberalisation with a focus on supply side policies on the other have failed to stop this decline. Multiple academic and government commissioned studies have typically focused on single sectors or isolated causes rooted in the neo-liberal tradition. Remedies such as those listed above have followed in the same vein with a focus on correcting market imperfections within the micro-economy. These have failed to bring about noted change precisely because they ignore the dominant elements of the South African political economy. Policy and economic outcome has manifested a remarkable continuity despite political and economic transformation. This continuity refers to the interaction between individual sectors of the economy and of their differing degrees of influence over policy choices. Industrial policy studies have sought to categorise policy choices under narrow government- or market-led frameworks resulting in unrepresentative conclusions reflecting prevailing economic fashions more than the South African context.
Understanding the specific dynamics of manufacturing requires delving into what drives the South African economy and how specific sectors fit together with the underlying combination of economic and political priorities and changing external market conditions. This research aims to show how industrial policy reflects these economic and political priorities with particular focus on the dominant role of the mineral and energy complex (MEC) as a key driver of industrial and macroeconomic policy and economic performance. Core to this analysis is understanding the debate on post-war industrial policy and the false polarisation between the roles attributed to the state (import substitution / protectionism) versus the market (trade and financial liberalisation / supply-side measures) in directing policy. State driven policy is typically associated with the apartheid period and the market driven model with the new ANC government post 1994 whereas a closer look shows liberalisation began before the end of apartheid and elements of strong state involvement remain thereafter.
What emerges is a pattern where mismanaged import substitution, promotion of state owned enterprises, failed decentralisation and unsuccessful support to small and medium sized enterprises during the period preceding political change reflect the underlying presence of minerals energy complex. Though aggressive liberalisation and supply-side policies take over in the 1990's, this role associated with the minerals energy complex remains an and substantial (though evolving) influence over the economy. The poor manufacturing performance and alleged policy ineffectiveness reflects a broader failure to achieve structural transformation through diversification away from natural resources and a break in the dominant class structure with a mature capitalist class in control of the profits extracted mainly from minerals and energy related sectors. How is this industrial policy and economic structure reflected in the case of Textiles and Clothing?
The Textiles and Clothing (T&C) sector (as an example of manufacturing unrelated to the MEC) is used to assess the impact of this unique economic structure and dynamics within a changing global environment. The aim is to show that macroeconomic and industrial policy choices exacerbated the decline initiated by global and domestic economic changes. This is puzzling given that the T&C industry continued to receive preferential treatment through industrial policy support and exemptions or special arrangements to soften the impact of other policies (notably trade liberalisation). In addition, the low skill and labour intensive nature of T&C fits with the government's claims to prioritise employment and would reinforce the need to ensure the survival of this industry.
To summarise, explanations for the failure to arrest this decline typically fall into one of the following categories:
Though relevant in highlighting specific elements of the decline, these explanations suffer from a static and descriptive nature that is devoid of contextual understanding. What is missing is an exploration of the underlying political economy conditions that drive the South African economy and policy; how T&C fits into the overall political and economic priorities and in particular; and how these priorities have evolved over time. In conclusion, the paper proposes the following hypotheses:
This document has two objectives. First, it endeavours to capture the domestic clothing sectors major market and production trends, as well as broader dynamics. Second, these foundational elements operate as a mechanism to identify current clothing sector constraints and opportunities and hence the need for, and the importance of, policy related interventions. Given its objectives, the document comprises six sections. Section 1 provides an overview of the sectors major trends as gleaned from TIPS data, whilst Section 2 reviews the sectors structure in respect of various criteria. Section 3 explores market trends and competitiveness related issues, with Section 4 then exploring the international and government policy framework in which the industry operates. Section 5 attempts to synthesise the constraints and challenges confronting the sector, with Section 6 then considering the policy implications and opportunities arising from the analysis. These last two sections represent the core of the document insofar as they build on the findings generated out of the 2004 TIPS study (out of which this document is largely derived), and present the major strategic recommendation to have emerged out of the recently completed CSP research undertaken by B&M Analysts on behalf of the dti.
The last few years have witnessed two major shifts in global trading and industrialisation patterns. The first is the rise of China (with the South East Asian region in tow) as the dominant force reshaping the relations between developing and developed countries as well as the competitive dynamics within the developing world. One can no longer speak of a developing world as if it was not highly differentiated and contradictory. The second, of major significance only in respect of Africa, is most exemplified in the rapid rise of a clothing industry sector in selected countries (amongst which Madagascar has been prominent) in Sub-Saharan Africa, primarily through the impact of the African Growth and Opportunities Act. Whilst perhaps of insignificance on a global scale, the possibilities it has opened up for wage employment and rising income for significant numbers of workers on the continent is not to be dismissed. However, the end of the Multi-Fibre Agreement and the massive impact of China on the global dispersion of clothing production, threatens to substantially disrupt these processes. It is to this end that we undertook a study of the dynamics operative in the Madagascar clothing industry.
Between January 2002 and July 2005, the South African exchange rate has appreciated by more than 30 per cent. At the same time, there has been widespread news coverage of the decline in several manufacturing sectors, notably clothing and textiles. Over the same period, commodity prices have risen substantially. The gold price rose from an average of $310 per ounce in 2002 to an average of $436 in 2005. The platinum price rose from an average of $541 per ounce to $887 over the same period.
This has led some commentators to speculate that high commodity prices have led to the appreciation of the rand, and the subsequent lacklustre growth in output and decline in employment in the manufacturing sector, along the lines of a classic case of the 'Dutch disease', where an economy is harmed by commodity abundance. These commentators are concerned that once our manufacturing sectors are lost, we may not be able to rebuild them, and we will lose the dynamic benefits of having a manufacturing sector, which include skills accumulation and economies of agglomeration.
In this paper, we begin with a definition of what is meant by a commodity and what is meant by a manufactured good, and we describe the commodity price time series we use. We then provide an overview of the literature on the 'Dutch disease' effect, followed by an analysis of the impact of the commodity price boom on South Africa. Finally we present our conclusions, and some potential policy interventions emanating from the literature on Dutch Disease.
This report is the culmination of a study of the textile and garment industries in the member states of the Southern Africa Development Community (SADC). Based on fieldwork mostly done between October 2000 and April 2001, the project produced country reports for each of the 11 countries that are signatories to SADC Trade Protocol. The present report offers an overall view of the industries’ opportunities and constraints and proposing institutional, regulatory and policy changes to allow these industries to thrive and become robust by seizing the unique, but temporary, advantages offered in the current international juncture.
The 'new economy'Â remains an ambiguous concept which means different things to different people (see, for example, Cohen et al. 2000; OECD, 2000a, b; Shapiro and Varian, 1999). We argue that the notion of a 'new economy'Â is closely tied to the economic transformations which are powered by the development and diffusion of information and communication technologies (ICTs), the rise of knowledge-based productivity and competitiveness, and the increasing dominance of global value chains incorporating global networks of capital, production and trade. The major factors spearheading the new information economy are modern microelectronics-based information technology, deregulation, privatisation, and liberalisation of trade and investment (Dicken, 1998; Gereffi, 2001). The notion of the new economy is thus firmly anchored in the new ideological environment that resulted from the collapse of statism, the crisis of welfarism and the contradictions of the developmental state (Held et al., 1999). The new economy originated mainly in the United States, but is spreading rapidly into Europe, Japan, Asia Pacific and in selected developing countries (Schiller, 1999).
The key point that needs to be emphasised is that organisational learning, knowledge management, digital networking and information processing are critical elements for firms operating in the new economy (Tuomi, 1999). According to Castells (2000: 77), the productivity and competitiveness of firms 'fundamentally depend on their capacity to generate, process, and apply efficiently knowledge-based information'Â. Ecommerce and the global networked business model are the archetypical expressions of the new economy (Castells, 2000; Hartman, Sifonis and Kador, 2000). It is important to remember, however, that the growth and development of the new economy has been highly uneven both within and between countries. The networking logic is based on asymmetrical interdependency, and is exclusionary locking out those individuals, groups, regions, sectors and countries lacking the required knowledge intensive skills and capacities. Moreover, the new economy is not about soft landings and smooth growth, rather it is about a structural shift in the global economy heralding transformation, risk and disruption for developing economies.
In South Africa, the critical importance of e-commerce and online electronic linkages in shaping the performance of domestic enterprises in the global, networked economy has recently come under the policymaking spotlight (Department of Communication, 2000; Department of Trade and Industry, 2001; Kaplan, 2000). This is not surprising since, in the new economy, ICTs play an increasingly important role in innovation, profit margins, output performance, value-added, employment creation and investment (Baily and Lawrence, 2001; ILO, 2001; OECD, 2000a, b). The South African development challenge is indeed a formidable one: high structural unemployment (39.5%); a sluggish economic growth rate (an average of only 2.1% annually between 1996-99; well below the population growth rate); large scale brain drain with the flight of knowledge intensive skills for Australasia, North America and Europe; high levels of poverty in the black population (53% of individuals fall below the poverty line of R301.70 per adult equivalent);2 and high inequality (a Gini coefficient of 0.593) (Harsch, 2001; www.statssa.gov.za; Woolard and Leibbrandt, 1999; World Bank, 2000).3 The challenge is one of how to promote and sustain development in such an environment. The DTI (2001), for example, argues that South Africa needs to follow an ICT-enabled, knowledge-based industrial development trajectory in order to achieve steady high rates of economic growth and structural change in the domestic economic system.
This paper is concerned with informal clothing in the inner city of Johannesburg. This is done in the context of both the changing racial complexion of small enterprise development and of South Africa's economic heartland inner-city as an important incubator for emerging black manufacturers. This study builds on local research that has been carried out on various aspects of black businesses in the inner-city of Johannesburg. This study does not only confirm the importance of inner city as a hatchery for small manufacturers, it also investigates aspects that relate to sub-contracting and problems faced by clothing manufacturers. The results are presented from a survey of small black clothing manufacturers in the inner-city Johannesburg. Overall, the findings reiterates the importance of the inner-city as incubator.