How to wield carrots and sticks for trade
Online shopping has become super efficient, even (if not especially) from international suppliers, where delivery to your doorstep from somewhere in Europe, for instance, can take as little as a couple of days.
Of course, this comes at a price: don’t be tempted by the selling price of the object of your desire until you’ve seen the duties, taxes and fees, which can add 50% or more to the base cost. Locally available imported products of comparable quality have those costs built in, but it’s quite revealing to see them laid out before you. If you’ve just got to have it and it’s not available here, you need to decide whether owning it is worth the “ouch”.
The whole issue of tariffs and taxes — ranging from import duties on luxury goods to antidumping protections — is a complex one that brings into focus factors that affect our ability to compete in global trade. Carrots and sticks are involved.
In sport, natural talent and hard work are both required to compete at the top level of the game, and so too in trade. We have plenty of natural “talent”, most obviously perhaps in mineral resources, tourist destinations, fertile soil and a great climate. Whether we can effectively use it or lose it depends primarily on two things: policy and human endeavour.
To secure a competitive trade advantage it makes sense to first strengthen our export capabilities and position ourselves as an attractive investment destination. This “outward focus — inward attraction” dynamic mainly involves variables we can manage and anticipate.
We have to build up our lowest-cost producer opportunities first — that’s the qualifier for entry into the global trade Olympics. Optimising the cost of capital compounds that natural advantage, particularly if we’re capable of attracting foreign direct investment.
Lowest-cost producer projects usually require little or no state subsidy as the present value of practically certain, resilient margin, future revenue streams (which can be contractually secured through international and local offtake agreements) allows efficient capital raising through the issue of project bespoke capital instruments.
This is even more so the case in well-run state utilities such as the Eskom of yesteryear, which had predictable future cash flows and was initially funded without taxpayers’ money — completing the virtuous circle of low input costs to already advantaged producers.
However, if there is any interference in competent executive management, or impediments to efficient operation, or the imposition of “taxes” (no matter the guise they may take), or leakages from the balanced economic equation (like mispricing and theft) then capital won’t come at all, or it will cost too much. The government should look to tax profits, not draw revenue from input costs.
Once we’ve got all of that sorted out we will be ready to “attack” global markets and focus on our “defence” strategy.
It goes without saying that we should put in place barriers to counter dumping (essentially foreign producers selling products in SA at below their production cost), and any other trade activities that could be classified as unfair, dishonest or illegal.
While such tariffs, duties, taxes and the like might stop goals being scored against us, they do not score goals, and that’s what is required to win the game. We need both defence and attack, but investing in our own capacities, resources and abilities obviously has local benefits way beyond the project itself, including employment creation and capital formation, not to mention positive momentum.
Unfortunately, the prevailing attitude seems to be protection and rescue, not growth and prosperity. We spend more time focused on the past than the future. Our challenge remains to move from popular choices to pragmatic solutions and replace incompetent incumbents with experienced experts.
We simply won’t eradicate poverty, unemployment and inequality without a competitive, growing economy to fund it.
Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.