Displaying items by tag: Trade Policy

The paper first outlines the history of industrial and trade policy in the industry. It highlights the significance of the transition from import-substitution policies to export promotion policies. It then provides an analytic exposition of the welfare costs and benefits of the current export complementation programme. We find that:

• The current policy creates rents in the industry that are borne by South African motor vehicle consumers;
• These rents accrue to vehicle assemblers, vehicle importers and components manufacturers;
• The exact method of phasing down the programme will affect the size of these rents;
• Some of the "new" exports of components under the MIDP may be uneconomic in the sense that they would not cover costs in the absence of the MIDP--this hurts welfare;
• Whether or not components exports are economic, the programme encourages larger scales of production, thereby reducing costs. This last effect could be large enough to outweigh the welfare losses associated with any uneconomic exports of components.

Over the past two decades, South Africa's agricultural sector has been extensively liberalised. As a result, a closer examination of the data shows some interesting trends in international trade in food and beverage products. First, exports of processed foods and beverages have shown strong growth. Despite the large increase in exports to South Africa's traditional trading partners, largely in Europe, exports of processed goods to the SADC region have shown stronger growth. Second, imports of 'non-traditional' commodities (i.e. unprocessed goods other than rice, coffee and tea) have also grown strongly. The purpose of this paper is to provide some explanations for these trends

Economists seem to agree that the theory of comparative advantage can be extended to trade in services. Countries with relatively large endowments of skilled labour and capital and relatively few natural resources should export more services and less mining or agricultural goods than those relatively rich in land or resources.

Although some econometric work has been done on the determinants of trade in services, the results are inconclusive. This paper improves on these studies, applying similar methodologies but using better and more comprehensive data that are now available.

One important spin-off from the econometric analysis is that the models can be used to identify and quantify the most important determinants of trade in services in each sector. The resulting coefficients can also be used to predict South African trade in services.

In total, four different models are presented for each of the eight service sectors. First, a simple two-factor Heckscher-Ohlin model is tested against two different dependent variables. A further two models are developed by incorporating and testing a much wider selection of explanatory variables.

The results are encouraging and offer some empirical support to the application of comparative advantage to trade in services. They show that human capital and economic development are important determinants of competitiveness in the service industry. On the other hand, countries with abundant land or labour are less likely to specialise in services.

South Africa is not predicted to specialise in any of the eight service sectors. In all but one sector (tourism), South African service exports are predicted at less than 1% of merchandise trade. Moreover, in all eight sectors the predicted ratio of South African service trade to merchandise exports is lower than the actual trade ratios for more than half of the countries included in the sample.

This paper investigates the economic impact of globalisation on the Namibian labour market. It deals with how trade liberalisation, which is just one dimension of globalisation, impacts on the labour market, and therefore outlines possible indicators of the links between liberalisation and employment. The paper argues that the economic returns from greater openness are indisputable, but are perceived as having been unevenly distributed both between and within countries. For some groups, the rising flow of trade and capital has heightened the sense of vulnerability. Workers in industrialised countries fear being displaced by cheaper labour in developing countries. Developing countries think that the continuing globalisation, particularly of capital markets, will lead to greater volatility in their national economies, which will damage their growth performance. This is a fear that has been raised by the labour movement in Namibia and South Africa. Thus, globalisation is often associated with greater unemployment and social collapse. Without a doubt, globalisation impinges on development from several directions. Of greatest significance for national policy are: growth of trade, capital flows and financial capability, migration, information technology and the Internet, and the diffusion of technology. We argue that all parts of the world are affected by globalisation through these channels, but it is important to remember that the full force of change is felt by a relatively small number of upper and middle-income countries whereas most poor countries are left out. Most economies are only partially integrated into the global system and Namibia, as part of SACU, is no exception. Naturally, while this insulates closed economies to a degree from the risk of turbulence associated with volatile short-term capital flows it also prevents these countries from tapping the resources, energy and ideas inherent in globalisation. Africa in particular is relatively closed and thus lagging behind in terms of economic development. Using standard trade theory we theoretically and empirically (albeit with limited success) explore the effects of trade liberalisation on employment in Namibia. The paper notes that the Namibian economy specialises in capital-intensive sectors and that formal sector-wage inequality is rising, which begs the questions. Is trade the culprit? Finally, the paper advances some policy considerations; whilst at the same time acknowledging that analysing the impact of trade (globalisation) remains a difficult but important process.

This paper examines the impact of trade liberalization on export performance in South Africa during the 1980s and 1990s. It employs a time series regression analysis in which export performance is assumed to be determined by external market conditions, the ability to compete in the world markets, and the extent of diversification of the commodity composition of the country's exports. The results indicate that, external market conditions were the important determinant of export performance across all sectors during the sample period. While competitiveness contributed to the increased performance of manufacturing and mining exports, diversification into new export lines faltered in all sectors, pointing to a greater sensitivity of exports to demand conditions than to supply factors.

SADC Member States have chosen regional integration as part of their strategy for global participation. While not a first best strategy, regionalism can complement more general trade and investment liberalization. Unfortunately the SADC Trade Protocol is seriously flawed. Back-loaded and confusingly differentiated tariff reduction schedules are well-known problems. Less clearly understood are the effects of complex and restrictive rules of origin.

As they are now, SADC rules of origin will hinder regional economic integration and, at best, have no impact on global competitiveness of regional producers. They will make SADC irrelevant for the most dynamic, internationally competitive manufacturers in the region. In many cases rules of origin have been designed to undo the trade creating effects of tariff liberalization.

These rules of origin should be a principal item on the agenda for the review of the Trade Protocol scheduled for 2004. Without fundamental reform, SADC is doomed to economic irrelevance

The new international financial architecture has its roots in the financial crises that shook emerging-market economies in the l990s Mexico in 1994-5, and East Asia in 1997-8. The problems there, as well as in Russia in 1998, in Brazil in 1998-9, and more recently in Turkey and Argentina, underscored the importance of strengthening the international financial architecture.

These crises generated a broad consensus that fundamental reforms were required in the international financial system.

The international community has launched a series of initiatives referred to collectively as the new international financial architecture to strengthen the operation of the global financial system. A focal point of this architecture is the prevention of crises.

Work on strengthening the international financial architecture is being undertaken on several fronts simultaneously. The major building blocks of this undertaking are transparency and accountability, international standards and codes, the strengthening of financial systems, capital account issues, sustainable exchange rate regimes, the detection and monitoring of external vulnerability, private sector involvement in forestalling and resolving crises, and IMF facilities.

This paper focuses on one of these building blocks: the strengthening of financial systems. In the search for increased international financial stability and possible measures to prevent future periods of systemic risk, concerns have grown that international financial markets themselves may be increasingly important sources of financial instability.

The implementation of the proposed Basel Accord on capital adequacy is another important initiative of the new financial architecture. By more closely aligning regulatory capital charges and banks' risk profiles, the adoption of the proposed Accord could substantially strengthen banking systems, thereby increasing the overall stability of the financial system. In the current environment of globalisation and increasing competition in the financial services industry, risks are larger in scope and scale than ever before. Keeping pace with the changes in the risk environment, as well as with the newest developments in risk-management practices, poses significant challenges to regulators and banks alike. For supervisors, the most important challenge involves developing an approach to capital regulation that works in a world of diversity and near-constant change. Financial institutions face the challenge of implementing advances in risk modelling in a coherent and systematic fashion, and of coping with conceptual difficulties regarding model specification and data limitations The new capital adequacy framework proposed by the Basel Committee is an attempt to address these challenges. However, implementing the proposed Accord creates additional challenges, especially in an emerging-market context.

This paper gives a perspective on the new financial architecture from the viewpoint of banks, and concentrates on the effect of the implementation of the Basel Accord on the South African banking system. A secondary aim of the paper is to identify the challenges posed by the implementation of the proposed capital adequacy framework to South African banks and bank supervisors and to see how prepared they are for these challenges.

Although a review of annual reports of South African banks suggests a relatively sophisticated approach to credit risk management and the use of internal credit risk ratings, it is likely that the rating systems of South African banks do not meet all the requirements set out by the Basel Committee for the internal ratings-based approach to setting regulatory capital requirements. Recent problems at Saambou and Unifer also point to potential shortcomings in the credit risk management processes of certain South African banks.

Against the background of South Africa's sophisticated and efficient financial markets and yet its vulnerability as an emerging market∩┐╜ï∩┐╜¿∩┐╜½∩┐╜Ã∩┐╜┬é∩┐╜ï∩┐╜¿∩┐╜½∩┐╜Â∩┐╜  an overview is given of the structure of the South African banking sector. This includes quantitative indicators of financial system soundness, like various indicators of credit risk and capital adequacy. An overview is given of the risk management practices of South African banks, as well as of the supervisory approach of the South African Reserve Bank. All of this is compared to international best practice policy guidelines.

The paper discusses the current developments concerning the environment and trade, as well as its implications for South Africa. This is followed by a brief outline of the threats and opportunities that are created for the economy by this renewed emphasis on sustainable development

The paper will examine the structural characteristics of the SADC economies and its lop-sidedness in terms of size and patterns of production, consumption and trade. This basic problem of the transformation of the economies in the sub-region will constitute an important part of my analysis of the determinants of exports from SADC. Though the picture of the economic performance of a few of the Southern African economies appears to be improving, the region's economies are still characterised by poor manufacturing capabilities, declining market share in international markets and a sluggish economic growth.

The paper will also provide a comprehensive overview of the multifaceted issues that act as deterrent to growing trade in the SADC region. In doing this, the paper examines the factors influencing the performance of SADC economies. The paper argues that until policy makers constantly address the issues ranging from the macro-economic factors such as price stability, foreign exchange regimes and gross capital formation, first at the domestic level, efforts at trade liberalisation at the regional and international level though not meaningless, will not deliver growth in trade from the region.

It is the intention of the present paper to drive home a message that for trade to develop and grow at the regional level, the policy makers have to start the game at the national level, focusing on those macro-economic strategies that enhance stability such as retention of skilled labour, infrastructure, monetary policies and constantly fine tuning these policy instruments to be in line with trade policies espoused at the regional level. The determinants of exports growth from SADC will ultimately be influenced by the structural changes taking place in these economies and the supply-side constraints bedevilling the individual economies of the region

South Africa is a major sea trading nation with a relatively open economy that accounts for approximately six per cent of real world seatrade. This performance places South Africa within the top 12 international maritime trading nations. The literature reviewed clearly shows the importance of maritime transport costs and their ability to significantly impede international trade. South Africa's atypical increasing transport cost rate on imports is identified, along with some of the potential determinants. South African shipping policy is shown to be one of the most liberal maritime policy regimes in the world. Regulatory intervention is all but absent, although maritime fiscal policy is less favourable as the international policy environment has evolved to a point where South African shipowners and operators now compete internationally on an inequitable fiscal basis. South African ports policy is investigated with the focus on the changing tariff environment. In addition, some of the benefits and costs of the new tariff structure on cargo owners and ports are revealed.

Developments in the automotive industry have received considerable positive publicity over the last few years. Firstly, and most importantly, this is a consequence of rapid export expansion, initially of components, but latterly also of vehicles. Recently, for example, Toyota announced a R3.5 billion investment programme partly to provide for the export of Corollas to Australia. In April, Ford announced that they had invested R1 billion in their Eastern Cape engine plant and would be massively expanding production as the sole world supplier of the 1.3 litre RoCam engine.

A second positive development is that the automotive sector has been the recipient of considerable foreign investment including substantial fixed investment in assembly plants and component production. This has been at a time of weak market demand, falling import duties and the abolition of local content requirements. Thirdly, productivity has improved rapidly and there is substantial evidence of improvement in a range of benchmarks such as quality and operational shopfloor efficiency (Barnes and Kaplinsky, 2001). In June, for instance, the Pretoria BMW plant received the highest quality rating of any plant in the BMW group. Fourthly, employment has remained relatively stable under difficult circumstances. Relative to the rest of the manufacturing sector, the automotive industry's share of sales, value added and investment have all increased over the period 1993-2001. On the whole it appears that the industry has weathered import liberalisation rather well.

The above developments have been strongly influenced by the Motor Industry Development Programme (MIDP). As a result, the MIDP is frequently cited as a successful example of trade and industrial policy and even as an example for other sectors to follow. But rapid export growth does not, in itself, signify success as exports have been strongly supported by sector specific policy measures. The objective of this paper is to probe these developments in greater depth by examining the process of international integration under the MIDP in some detail, focusing on the export experience and its effects at the sub-sector and firm level. The paper also attempts to draw some conclusions as to the broader implications for trade and industrial policy.

In the early 1990s, about two-thirds of South Africans were without electricity, relying on dirtier and less convenient fuel such as coal. As a result, urban air is severely degraded, with health guidelines for concentration of particulate materials being exceeded. Eskom dominates the electricity market of sub-Saharan Africa generates about 95% of South Africa's electricity. Electricity generation has been showing an upward trend in South Africa, with an increase of approximately 40% between 1990 and 2000. More than 85% of the coal produced in the country is used to generate electricity. Energy prices in the country do not reflect the impact of pollution and other externalities, and hence undermine investment decisions that could favour less polluting technologies. The study will investigate factors determining the demand of energy in the electricity sub-sector and evaluate the main environmental issues associated with electricity production in the country. The research will also investigate possible long run shifts in production technology.

Based on Edwards' (1989) intertemporal general equilibrium model of a small open economy, this study attempts to estimate the degree of real exchange rate misalignment and its impact on the international trade competitiveness of the South African economy for the period 1985:1-2000:4. For this purpose, a one-step Engle-Granger approach and five years moving average technique have been employed to estimate the exchange rate misalignment, while impulse response analysis and variance decomposition techniques of cointegrated VAR (vector auto regression) have been established to assess the impact of the misalignment on trade competitiveness. The study reveals that the real exchange rate had been consistently overvalued during the period 1988:3-1998:2 but undervalued during periods 1998:3-2000:4. For most of the periods during 1985:1-1988:2 the rand had been undervalued. Moreover, the study discloses that the exchange rate misalignment debilitates South Africa's international trade competitiveness accounting for 20 percent of the variation in competitiveness.

This paper contributes to the debate over the effect of trade on the demand for labour in the manufacturing sector in South Africa. Previous work in the area has decomposed employment to find the likely contribution of trade effects, has investigated the correlation between employment and trade, and has used fixed effects panel data models. This paper develops the earlier work, by estimating a labour demand equation using dynamic panel data method of Arellano and Bond (1991). This leads to results that are consistent with the findings of decomposition analysis that trade has had a positive effect on employment 1972-93, but that there has been a negative effect since 1993, the period of trade liberalisation. There is no evidence that the effects of trade are distributed unevenly between skills, when proxied by racial groups. Overall, the results show the importance of trying to model the dynamics of the processes at work and suggest that further work at the level of the company as well as the industry is likely to be important.

This paper uses two firm level surveys, the National Enterprise (NE) survey and the World Bank and Greater Johannesburg Metropolitan Council (GJMC) co-ordinated survey, to explore the implications of globalisation on employment in South Africa. We use the firm surveys to analyse the impact of trade liberalisation on the level and skill structure of employment. In the latter case we extend existing research in this area by focussing on the relationship between trade and choice of technology. We also analyse the impact of increased export orientation and foreign direct investment on employment. The results indicate substantial heterogeneity in the response of firms to trade liberalisation. On average large firms negatively affected by trade liberalisation reduced employment. No such relationship was found amongst small firms. Overall, however, the decline in employment due to trade liberalisation is likely to be small. Export competitiveness has improved through trade liberalisation, but this has not led to increased employment. Evidence of the impact of technological change on the skill structure of employment is also found. Increased use of computers, foreign investment and the importation of raw material inputs raise the skill intensity of production.

This paper examines the response of South African manufacturing production to changes in prices and exchange rates. A restricted profit function is used to model the behaviour of the manufacturing sector, as well as a number of manufacturing sub-sectors, and of the agricultural and coal mining sectors. Labour and intermediate imports are treated as variable inputs into the productions process. Capital is treated as a fixed input. Outputs of the production process are goods for the domestic market and exports. Using estimates derived from the restricted profit function, both price and exchange rate elasticities are calculated.

There are a number of key findings:

• For the manufacturing sector as a whole, prices do determine output supply and input demand. This is the case for most manufacturing sub-sectors and agricultural production.
• Manufacturing export supply is very inelastic with respect to export prices, as well as domestic prices and import prices and wages. This means that price changes have a very small impact on the amount of exports supplied.
• Changes in the price of intermediate imports or the price of domestic goods have a larger impact on the quantity of exports supplied than do changes in the price of exports.
• Like export supply, domestic output supply is also very inelastic.
• In most sectors exports and domestic output are compliments. This suggests that an increase in domestic price increases export supply and vice versa.
• Both domestic supply and exports respond negatively to an exchange rate devaluation. We suggest that this is the result of the increase in the price of intermediate imports caused by a devaluation. The magnitude of this reaction has decreased since 1994.
• A 25% devaluation in the nominal effective exchange rate of the Rand (a devaluation similar to that experienced at the end of 2001) causes a 2 percent decrease in total manufactured exports and a 5 percent contraction in domestic supply. However, a number of sectors benefit from this depreciation. The electrical, radio and TV and transport sectors expand exports by between 4 and 5 percent in response to this devaluation. Domestic supply falls in all these sectors.

The results of our estimations suggest three areas particularly relevant for policies designed to increase export supply and labour demand (and consequently decrease unemployment):

• Firstly, domestic prices (the price the producer receives in the domestic market) are one of the most important determinants of both export supply and labour demand. Policies which increase these prices will boost exports and the demand for labour. Policies which aim to increase firm efficiency, stimulate domestic demand, or decrease taxes should do this.
• Secondly, the price of intermediate imports has the largest effect on the quantity of exports produced. A decrease in this price through a reduction in tariffs would increase the quantity of exports and domestic goods produced. It would also increase labour demand.

The South African architectural, construction and engineering services industries have notable competitive advantages, particularly in providing basic infrastructure and particularly on the African continent. However, the sector has been in decline for over two decades, threatening the survival of those advantages. Exporters face many hurdles, ranging from corruption in Africa and the Middle East to protracted licensing and visa procedures in the industrialized nations. Based on interviews with industry associations and South African companies in this sector, specific export hurdles are highlighted. Not all export hurdles are relevant to the GATS negotiations, or even the WTO, as some export barriers are linked to domestic policy issues or regulation, demonstrating the extent to which the trade strategy of a sector and its domestic policy are inextricably linked.

South Africa's trade liberalization of the architectural, construction and engineering service industries is highly advanced and therefore only modest scope exists for further offers of market access. Despite this openness, there has been little foreign entry into the domestic market, mainly due to the weakness of the Rand and the lack of familiarity of foreign competitors with local conditions and labour practices. This situation is likely to change when the imminent revival of demand in these industries is confronted with the contraction of local capacity that has resulted from two decades of falling output.

To assist the South African policy makers and GATS negotiators, the GATS commitments made by actual and potential target markets for South African construction and engineering exports are scrutinized, leading to suggestions for requests for further market access. Obstacles to the presence of natural persons prove to be most commonly employed limitation on market access. The lack of international standards for accreditation of academic achievements and professional qualifications appears to be the greatest formal stumbling block in the export of engineering services. Construction services also suffer from a lack of transparency in building regulations in target markets and the proliferation of country-specific standards. As it is unclear to what extent the current obstacles are dampening or even preventing exports, it is not possible to quantify the impact that lifting formal barriers will have on South Africa's exports. Lastly, some areas for further research are highlighted.

The major objective of this study is to evaluate the role of exchange rate policy in determining trade flows with respect to Southern African economies. The study provides a structural analysis to the empirical strength of the influence of exchange rate movements on trade flows for small low-income countries on the basis of the prevalence of export demand pessimism, import demand pessimism and export supply pessimism. Through an empirical estimation of real exchange rate and output elasticities of import and exports of eight SADC economies, namely Zimbabwe, Zambia, Botswana, Malawi, Lesotho, Swaziland, South Africa, Mauritius, the main findings of the study indicate that exchange rate policy has not played an active role as a trade facilitation tool in regional economies. Moreover, the tendency of the pervasive effects of distorted macroeconomic and structural macroeconomic fundamentals is reflected in some inconsistent results as well as the statistical insignificance of some of the elasticities.

Overall, the analysis shows that output elasticities are generally large and well-determined. By contrast, the real exchange rate elasticities are less-well determined and generally quite low. Hence although there is considerable evidence that the real exchange rates do affect trade volumes in the expected directions, the results are in most cases quite pessimistic as regards the size and effectiveness of the underlying elasticities. Thus the main conclusions of the study point towards the general overview that trade and exchange rate policy implementation in regional economies is highly constrained by the underlying structural features of the economies which make import substitution difficult while exhibiting inelastic export response both on the demand and supply side.

High degrees of import compression, excessive dependence on a few traditional export products while importing manufactured goods and machinery that are critical inputs in the production process has perpetuated the low responsiveness of imports and exports to changes in the real exchange rates in SADC economies. Thus in light of the findings, sustained exchange rate policy implementation which hinges on extensive institutional and technological capacity as well as maintaining comprehensive coherent macroeconomic packages remains a critical factor in ensuring that exchange rate policy performs its central role as a trade facilitation tool.

SADC Member States have chosen regional integration as part of their strategy for global participation. While not a first best strategy, regionalism can complement more general trade and investment liberalization. Unfortunately the SADC Trade Protocol is seriously flawed. Back-loaded and confusingly differentiated tariff reduction schedules are well-known problems. Less clearly understood are the effects of complex and restrictive rules of origin.

As they are now, SADC rules of origin will hinder regional economic integration and, at best, have no impact on global competitiveness of regional producers. They will make SADC irrelevant for the most dynamic, internationally competitive manufacturers in the region. In many cases rules of origin have been designed to undo the trade creating effects of tariff liberalization.

These rules of origin should be a principal item on the agenda for the review of the Trade Protocol scheduled for 2004. Without fundamental reform, SADC is doomed to economic irrelevance

The paper reports on the construction and testing of a Standard International Food Policy Research Institute (IFPRI) computable general equilibrium model for South Africa. A 1998 social accounting matrix (SAM) for South Africa is compiled using national accounts information and recently released supply-use tables. By updating to a recent year, and by distinguishing between producers and commodities, this SAM is an improvement on the existing SAM databases for South Africa.

Furthermore, this SAM is made consistent with the requirements of IFPRI's standard comparative static computable general equilibrium (CGE) model. This model is then used to simulate the economy- wide impact of a range of hypothetical policy levers, including: increased government spending; the elimination of tariff barriers; and an improvement in total factor productivity. Results indicate that assumptions made regarding the mechanisms of macroeconomic adjustment are important in determining the expected impacts of these policies. Firstly, despite mixed results concerning changes in household income distribution, the impact of expansionary fiscal policy appears to be growth enhancing, with the Keynesian style adjustment mechanism producing the most positive results.

Secondly, a complete abolition of import tariffs also appears to generate increases in gross domestic product, with negative and positive consequences for aggregate manufacturing and services respectively.
Finally, an increase in total factor productivity is growth enhancing, with the most positive results derived under neoclassical assumptions of the macroeconomic adjustment mechanisms. These simulations are meant to demonstrate the usefulness for economy-wide policy modelling and the paper concludes by highlighting areas of policy analysis that might benefit from more detailed applications with this framework.