Import cars control
Ipenned this article with the Eswatini Government Gazette Extraordinary No.174, Legal Notice No.315 of 2020, which is in line with the Import Control Order of 1976 (Order No.12 of 1976). Effective from the last day of 2022, import dealerships have to bring into the country vehicles manufactured not more than 11 years ago. Effectively the grey import car dealerships are expected to bring vehicles not older than 11 years into the country. I am today going to give my insights on the issue, discussing both the micro and macroeconomic impacts of the gazette.
Dumping
According to a recent UN report, used vehicles exported from richer countries are contributing to increased air pollution in developing nations and hindering efforts to mitigate the effects of climate change. Global statistics show that around 80 per cent of used car exports went to low and middle income countries, with more than half going to Africa. In economics this is a syndrome known as dumping. Dumping occurs when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter’s domestic market.
This is where it gets confusing to a lot of us, the assumption is that the prices are listed online and all should be able to get the car at the same price. However, that cannot be any further from the truth. This is purely because there are additional costs that owners in the country of origin would have to foot in order to own the vehicle that side. These range from emission taxes to end-of-life disposal costs making it expensive to keep the car in the global north (developed countries).
Lack of regulations on environmental controls and final disposal in the global south (developing countries) eliminate these costs making the price of owning an old car relatively cheap in the global south compared to the global north. Hence, exporting the product to developing countries ought to be discouraged as it has regressive impacts on the global climate goals. Import controls such as the measures introduced by the government are there to control the importation of these polluting machines and contain costs of disposing with the global north.
An industry in peril
One notes that the introduction of the gazette has drastically reduced the number of imported vehicles from 22 000 per year, since the enactment of the gazette in 2020, to a mere 80 vehicles per annum nowadays, putting a number of import car dealerships out of business, resulting in job losses in the same industry. We find ourselves, as a nation, contending with the question; are the environmental goals superior to livelihoods. A simple answer to this debate lies in disentangling the role of policy in an economy and the rules we use to make policy decisions. The basic role of government intervention in an economy is to drive the market to the efficient frontier. Two basic thoughts govern policy decisions; one being to drive the economy to a state where it is impossible to make an individual better off without making at least one individual worse off, implying resources are efficiently allocated and considerations of fairness do not matter in this case. This means governments should pursue policy only when it will improve the welfare of all individuals in the economy without digressing the welfare of another (Pareto Criterion). Another premise for policy making is that the gainers should be able to compensate the losers and if that occurs the policy is judged desirable (Hicks-Kaldo Compensation Principle). Given these premises, if we consider the environment as an economic agent, and looking at the impacts of climate change globally, then the policy is desirable even when using the restrictive Pareto criterion.
Neglecting the environment results in an inefficient allocation of resources as the costs to the environment are not considered in the analysis, these are known as external costs. Furthermore, the recent SACU receipts statistics show that the country will posit a 102 per cent increase in SACU receipts in 2023/24, an increase of approximately E5.95 billion, hence theoretically compensation is possible. The losers of the industry in peril can be compensated and overall the macro economy benefits. Efforts should be made to ensure that these gains are used to the benefit of all economic agents.
Micro-standard of living
The ability to own a car is one of the yardsticks used to measure the standard of living of the population. The basic way of life is that one should strive to have a car, a house with a picket fence and two and a half children. On a micro scale it appears the policy has negative impacts on the standard of living of emaSwati. However, adding environmental considerations into the thinking mitigates this point. A clean environment is also a measure of standard of living; breathing clean air has impacts on one’s quality of life and hence their standard of living. The sharp increase in the costs of imported cars is purely due to removing the subsidy which the environment was awarding to emaSwati, not that the cars were cheap.