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.