Tag Archive | exports

DTI gives warning on investment climate

High administered prices a threat…

42X90693In an apparent warning to the economic cluster, a deputy DG at department of trade and industry (DTI), Garth Strachan, warned that South Africa was reaching “a tipping point” where administered prices, either levied or taxed by the various state departments, were so high that it was making the cost of doing business in South Africa totally impractical.

 

There was neither an attractive climate for investors because of high state administered prices, he said, nor did it make any easier DTI’s developmental programme in support of the NDP and attracting investors.

In a frank presentation to the portfolio committee on trade and industry, he qualified DTI’s position during his candid commentary with the caveat that as far as the regulation of administered prices were concerned, such as electricity, port and rail freight charges, road transport costs and water tariffs, that these were not the core competencies of DTI although they were adversely affecting DTI’s current IPAP 6.

Undermining investment climate

He noted later in his talk that in the successive implementation of various IPAPs, including the current industrial plan, DTI had found that administered prices constituted a total impediment to economic development.   In fact, now in 2014, they were providing a “serious economic shock”, as he put it, to the viability and competitiveness of the manufacturing sector.

Garth Strachan commented that the addition of carbon tax could push South Africa to the ‘tipping point’, unless the proposals were with “carefully calibrated policy interventions.”

As far as electricity was concerned, it was DTI’s view that the actual problem lay in the funding structures of local government, especially where no allowance was made for infrastructure upgrading and maintenance. Water shutdowns were also an increasing problem, he said.

He told parliamentarians that in one instance a global investor had experienced 140 electricity and water shutdowns. He did not indicate over what period.

International comparisons

He said that on electricity tariffs, whereas in 2009 when compared to China, the USA, Canada/Quebec, Abu Dhabi, Kazakhstan, India and Russia to give a fair geographic spread, South Africa had been with a group that had the lowest in prices, it now had the “gold medal” for being the highest of all and by 2020 the situation would be exacerbated unless something dramatic took place.

Strachan said that in the World Bank Report of 2013, SA port charges were amongst the highest in the world; container charges being 710% more than the global norm and automotive cargoes costing a premium of 874% more than the global norm. This detrimental fact was compounded by port and rail freight inefficiencies to local destinations.

He told parliamentarians that in DTI’s view it was extraordinary that exports were virtually subsiding raw material exports such as iron and coal.  In the case of coal, this was 50% below the global norm and iron ore approximately 10%, according to 2012 figures, these being the latest DTI could get.

This led, Strachan said, to the unfortunate situation where the country exported iron ore at a net loss to the country but imported girders, cranes and containers, for example, at possibly the highest in the world.  It was impractical to have subsidies passed on to exporters of primary products penalising importers of necessary needs, he said.

On carbon tax, he dismissed any “one size fits all” programme as contributing to the overall problem by making things worse and on climate change generally, he said that DTI was already working towards the protocols agreed by South Africa “through a range of measures to support energy efficient systems and investment in energy.”    These were part of DTI’s manufacturing enhancement programme, he noted.

He said there should be a shift in pricing “in favour of less carbon intensive sectors which are more labour intensive and value adding”. He quoted particularly steel, polymers and aluminium, which he said should be considerably below import parity levels.

Nullifying NDP objectives

Garth Strachan concluded that with manufacturers already going out of business, the issue of administered prices was probably the most important issue facing South Africa at the moment in the search to create more jobs.

Parliamentarians noted with concern what DDG Strachan had illustrated in his review. Many called for a joint portfolio meeting on the subject with public enterprises, transport and energy, despite the subject of administered prices also not being a core function of the trade and industry committee. For example, it was noted, they had no parliamentary right to influence such bodies as Transnet and Eskom, nor deal with treasury on tax and tariffs.

 

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Reserve Bank briefs SA Parliament

Export or die, Marcus tells Parliament…

gillmarcusIn what she described as “a difficult international environment with the real possibility of outwards flows of capital”, Gill Marcus, bank governor of the Reserve Bank of SA, said lifting exports remained a key necessity to avoid the “turmoil in the financial markets”

Brian Kahn, adviser to the Reserve Bank, said that “South Africa’s continued fiscal deficits added to the need to reverse the trends which were developing in export side of SA’s financial affairs”  and with continued “tapering” in US domestic policy with no intention of the US, it seems, to provide its own stimulus, Reserve Bank could not see any raising of SA interest rates until 2015/6.

Exports had fallen by 7.6%, he showed, which measured against the SA deficit of around R19bn, South Africa was keenly attempting to build up its gold and foreign exchange reserve holdings, a recommendation which had come directly from the International Monetary Fund and which had been a monetary policy at the bank for some time at the Bank.

Emergent market possibilities

Marcus said that whilst growth in emerging markets was slowing, South Africa had look a lot more positive than most but with Brent crude oil process in the Middle East looking so volatile, the position for South Africa was rocky, tempered perhaps by some growth in domestic production but this was countered by a slowdown in domestic consumption.    Growth was needed at 5% to be of any recovery value but whilst the SA quarterly figure was 3%, the country was still looking at an annual growth of only 2% rising to 3.6% in the next two years.

Petrol prices particularly were “exerting inflationary pressure” and monetary policy at the bank had to be figured around the “fragile growth numbers and the upside risks of inflation”. Inflation patterns were slightly unusual in the last quarter, Kahn noted, but were expected to flatten out and remain in the 3-6% range.

Back to the jobs problem

Of extreme concern to SA Reserve Bank, Kahn said, was the slow employment growth figures, not even having reach pre-2008 figures. It was not an easy decision to make to decide on such issues as cutting imports by decree, since mostly this was being incurred by the current infrastructure build programme, so there was, he said, “only one route and this was to increase exports”.

Mining strikes and car strikes were not assisting in this process, was the comment from opposition MPs.
Refer to articles in this category
http://parlyreportsa.co.za//?s=gill+marcus
http://parlyreportsa.co.za//cabinetpresidential/treasury-calls-for-twin-peak-system-with-two-financial-bills-2/
http://parlyreportsa.co.za//cabinetpresidential/banks-amendment-bill-sets-up-faster-interventions/

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Get SADC Free Trade Agreement right first, Davies warns

Minister of trade and industry, Dr Rob Davies, told media and conference delegates in Cape Town, that South Africa had to focus first on consolidate on Southern African sub-Sahara free trade agreements before it tried to capitalize on the boom it might be experiencing in other areas of Africa.

Giving this warning, minister Davies told delegates that South Africa had experienced a “growth spurt” which he said had been driven by a boom in the export of mineral commodities; an increase in the number infrastructure investments, coupled with further investment on existing projects. He said there had been improved economic governance in African countries generally.

In an upbeat address, the normally taciturn Davies told the sixth Africa Economic Forum in Cape Town this week that in this context South Africa had seemingly in part weathered the international economic crisis.

“We have realised for a long time that the African continent is inextricably linked to our own destiny”, he said and this boom, which may not last, “will have to be turned into commodities-driven growth with a serious effort to create value-added products”.

Davies said that an initial tool to promote further regional trade was the Southern African Development Community (SADC) Free Trade Agreement (FTA), which would be fully implemented during the current year, allowing for over 90% duty-free trade between SADC countries. Building on the Free Trade Agreement (FTA) with the East African Community could be built on in time and ultimately extended to the entire African continent, he said.

Davies went on to say that beneficiation of commodities, promoting agro-processing, and pharmaceutical production in a market place of extreme demand were obvious opportunities but he emphasised that the first priority lay nearer at home.

He noted that initially South Africa had to consolidate the SADC FTA before SA moved more extensively into the rest of the continent.

Posted in Cabinet,Presidential, Finance, economic, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments


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