Are South Africa’s protectionist policies stifling competition?

By Audrey Simango
Posted on Thursday, 25 August 2022 12:35

SATMC says higher duties on tyre imports from China would benefit the development of South Africa's automotive industry. REUTERS/Siphiwe Sibeko

Muchengeti Hwacha is lost for words. After concluding four years at the University of KwaZulu Natal Law School in South Africa, the Constitutional Court dropped a shattering ruling: foreign nationals who have lived, studied, and graduated in SA, like him, cannot be admitted as attorneys unless they are permanent residents (PR) or citizens of SA.

“This is a dangerous stance for the court,” says Hwacha, who is also the executive director of the Asylum Seeker Refugee and Migrant Coalition, who since the August 2 ruling, has been fielding calls from dismayed parents.

“Their kids in South Africa have grown up all their life wanting to be courtroom lawyers, [but] their parents are not PRs. They are asking: should we give up on our law career dreams?”

This is not confined to law. Foreign medical interns have been removed from the “critical, scarce skills” list and can no longer take up posts in South Africa. This means that 178,000 foreigners, mostly from Zimbabwe, were first given a special visa starting in 2009 to live and work legally in South Africa. 

They must now go home in December. In 2024, the South African government hopes that 2 million domestic jobs will be created following the ongoing crackdown on undocumented foreign workers. 

Wounded economy

South Africa’s economy was fatally wounded in the last decade when huge chunks of its R800bn ($50.9bn)-a-year public sector expenditure were pillaged by corrupt tender players acting in cahoots with state and ruling ANC party officials. As a result, South African youth joblessness is now the highest in the world. 

Critics say the ANC-led government fears an unprecedented defeat at the 2024 polls, so to position itself as the vanguard of national interests, the government is widening trade, immigration, and labour market protectionism, so much that sectors, including law and medicine, and goods like meat, tyres, cars and pharmaceuticals are now ring-fenced from foreign competition.

However, punitive tariffs – for instance on poultry coming from Europe, Brazil, and Poland – is a selfish ruse to protect the shareholders’ profits, says Paul Mathew, CEO, of South Africa Association of Meat Exporters and Importers.

“Protectionist policies [restrict] competition, which leads to an increase in the price of local goods,” Mathew tells The African Report.

He reveals that “the [South African] minister of trade, [Ebrahim Patel], increased import duties on bone-in chicken from 37% to 62% in March 2020, which has turned the local poultry industry into one of the top three most protected industries in our economy.”

47% of small poultry farmers in South Africa have gone out of business due to [cheap imports], and they will not come back into production

In a dramatic U-turn, on 2 August, Patel suspended anti-dumping duties, effectively removing imported poultry for 12 months, in order to dampen inflation, which rose to 7.4% from 6.5% in May.

Out of business

However, Izaak Breitinbach, CEO of the South African Poultry Association, is upset that chickens from Brazil, Poland, Denmark, Spain, and Ireland can now enter South Africa without paying additional duty.

“47% of small poultry farmers in South Africa have gone out of business due to [cheap imports], and they will not come back into production,” says Breitinbach. This comes despite the fact that South Africa has produced chicken at cheaper values than the EU for the last 13 years. 

If poultry imports are stopped, 10,000 domestic jobs could be created in South Africa, says Breitinbach.

Even so, as Matthew points out, South Africa doesn’t currently meet the strict no-hormones, brine, and antibiotics rules on poultry, limiting exports to these countries. “Trade partners, such as the EU, [are a] massive opportunity for South African chicken exports. Domestic [South African] producers [need] to get their export model right,” says Matthew.

Tyred out

In July, The Africa Report revealed that Bridgestone, Sumitomo, Goodyear, and Continental – four members of the domestic South Africa Tyre Manufacturers Conference (SATMC) – applied to the International Trade Administration Commission (ITAC), an agency of South Africa’s trade ministry, to impose additional duties of between 8% and 69% on passenger, taxi, bus and truck vehicle tires imported from China. 

In February, South Africa’s trade minister rolled out an investigation to see if Chinese tyre makers are dumping cheap tyres in the Southern African Customs Union (SACU) market, which includes South Africa, Botswana, Namibia, Lesotho, and Swaziland.

“Can domestic manufacturers satisfy all demand in South Africa without imports from China required? The short answer is no,” says Charl de Villiers, chairman of the Tyre Importers Association of South Africa. 

Low-income households already spend up to 55.25% of their wages on public transport.

Tires are the third biggest cost component of SA’s transport costing. If protectionists win the argument, the results could be devastating.

“Our interest rates are already at 7.4%, and our fuel price increased by more than 45%. Low-income households already spend up to 55.25% of their wages on public transport. We could see these numbers increasing,” says de Villiers.

Bad neighbours

Zimbabwe, South Africa’s immediate neighbour to the north, has been at odds with South Africa saying that cheaper oil, eggs, milk, sugar, and maize from the country throttles earnings for its domestic producers. In 2021, South Africa’s exports to Zimbabwe reached $2.2bn. In the other direction, Zimbabwe’s exports to SA were only $574m in 2020

The same cry about South Africa disproportionately benefiting from unbalanced trade is heard in Botswana where its president, Mokgweetsi Masisi, revealed that the country exported 31bn pula ($2.5bn) worth of goods to South Africa between 2017 and 2021, yet imported a 210bn pula ($16bn) worth of goods from South Africa in the same period. 

“We don’t want foreign truck drivers behind the wheel; foreign teachers, foreign Uber drivers,” says Dennis Juru, president of the International Cross Border Traders Association. 

“But at the same time, from 2017 to 2021, Shoprite of SA, PicknPay, MTN, and Pepkor are turning neighbouring countries into its bazaar, throttling domestic retailers. How hypocritical,” says Juru.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options