MDC Alliance targets closer links with regional bodies

MDC Alliance targets closer links with regional bodies

The MDC’s bold plan to join Southern African customs and currency blocs has implications beyond Zimbabwe’s borders, write Catherine Grant Makokera and Brian Mureverwi.

If it came off, a proposal by Zimbabwe’s official opposition to join the oldest customs union in the world, one that is anchored in SA’s membership, would be far-reaching.

Even more profound would be the move to join the region’s monetary union.

The recently released “Smart” manifesto of the Movement for Democratic Change (MDC) Alliance proposes that Zimbabwe will join both the Southern African Customs Union (Sacu) and the Southern African Common Monetary Area (CMA) should the party be successful in July’s elections. These bold moves would have implications beyond the borders of Zimbabwe. They are particularly relevant this week as the Sacu heads of state meet in Gaborone.

Sacu is a little understood but critical regional structure in Southern Africa. Its members are Botswana, Lesotho, Namibia, SA and Swaziland. These five countries have been joined together in this partnership for 108 years, making the group the oldest customs union in the world.

The CMA of Southern Africa (affectionately known as the rand zone) has a similar membership base, with the exception of Botswana. Botswana retained its monetary policy sovereignty.

To appreciate the implications of the MDC Alliance proposal it is important to understand a few key points.

Sacu is a customs union that shares a common external tariff and therefore negotiates trade agreements as a bloc. For countries outside Sacu, it does not matter if they are exporting goods to Lesotho or to Botswana. The same tariff rates and other relevant duties will apply. Trade in goods among the five members of Sacu moves relatively freely with few internal barriers.

Customs duties collected at the borders from trade with non-Sacu countries are deposited into a revenue pool, administered by the South African Revenue Service.

At the heart of the Sacu arrangement is a formula that determines how the revenues jointly collected from trade will be shared among the five member countries. This includes a customs component based on tariffs charged on imports, an excise component related to the size of the economies of the members and a development component that seeks to compensate the lesser-developed members. Much can be said about this formula, but the main point is that it is complex and controversial. Sacu member states often question the fairness of the distribution of revenue. The formula is under review.

The CMA is allied to Sacu but not formally linked. It is a partial monetary union based on the rand. While Lesotho, Namibia and Swaziland all have their own local currencies, these are irrevocably pegged to the rand and are controlled through bilateral agreements with SA.

The arrangement gives access to South African financial markets for the smaller members and provides significant benefits given that SA is the major trading partner.

The MDC Alliance notes a number of these benefits of Zimbabwe joining Sacu and the CMA in its Smart manifesto.

For example, it mentions “efficient, low-cost trade with SA” for Zimbabwe plus access to “significant revenue from Sacu contributions” and “favourable trade agreements enjoyed by Sacu”.

Each of these points is worth unpacking in detail but at the outset the first thing that comes to mind is that the membership of Sacu has remained unchanged for over a century. There has also been little shift in the CMA for decades, ever since Botswana left and Namibia joined. That means no clear precedent is available for managing Zimbabwe’s accession to these institutions. The Sacu agreement does leave space for new members to join on the basis of a unanimous decision (or discretion) by the existing members. How negotiations with new members would take place would be determined by the Sacu council of ministers.

The arguments for joining the CMA are clear-cut and, based on current trade flows, it would make sense for Zimbabwe to seriously consider pegging its currency to the rand.

SA is an important trading partner and such a move is likely to lessen some of the liquidity challenges associated with paying for imports. CMA membership would require a bilateral negotiation with SA, but this is likely to be a much less complicated process than seeking membership of Sacu.

Joining Sacu would require a complete overhaul of the tariff schedule of Zimbabwe to align it to the common external tariff of Sacu, including the preferences given to others such as the EU and South American trade bloc Mercosur, under trade agreements. This could undermine existing objectives of Zimbabwe’s trade policy aimed at protecting local producers and reindustrialising some sectors. In simple terms, Zimbabwe has to align its trade policy instruments with those of Sacu, including external tariffs, rules of origin, trade remedies and others.

Trade revenue would also be affected by the revenue-sharing formula, which is largely administered by SA, and therefore Zimbabwe would need to give up some of its trade revenue collection sovereignty. Without economic modelling it is hard to determine the impact of Zimbabwe’s membership on the revenue flows in Sacu under the current formula. It is unlikely that a new member would be admitted to the customs union without some reform to the formula.

The process of revising the Sacu revenue-sharing formula is fraught. The challenge of negotiating admittance of a new member might spur Sacu states to resolve their differences.

A change in membership might be just what is needed to breathe new life into the world’s oldest customs union.

It is equally hard to understand the motive of joining Sacu at a time when talks of escalating the African Continental Free Trade Area to a Continental Customs Union are under way. That said, all this hinges on the MDC Alliance winning the July 30 elections.


Ramaphosa’s softly-softly approach could be hard for democracy

Ramaphosa’s softly-softly approach could be hard for democracy

It has been more than a week since the ANC Top Six met President Jacob Zuma to ask him to step down. He defied their request, which was aimed at avoiding a messy transition, and preferred to stick to his guns. The next stage should have been a decision and an ultimatum by the ANC’s National Executive Committee (NEC), which was to receive the top-six report a few days later, if not for an inexplicable intervention by ANC president Cyril Ramaphosa. The ANC president preferred to treat Zuma with kid gloves.

It would seem Ramaphosa’s intervention has emboldened Zuma and made him determined to cling to power: he has made unreasonable demands, bought himself more time in office and arrested the country’s progress. Ramaphosa’s gesture effectively made Zuma an equal partner in determining his exit. Deal-making is transactional and is based on reciprocity. By its nature, it’s a give-and-take affair. It mattered little to Ramaphosa that he was dealing with a president who, since taking office in 2009, has broken his oath of office, dishonoured the government and facilitated the looting of the state by dubious individuals. Some have been at pains to defend Ramaphosa’s gamble as the work of a tactician and skilled negotiator, imploring us to trust him to finish the job successfully.

Let us take a look at the rationalisation of Ramaphosa’s actions. Some who are in favour of this fanciful negotiated settlement contend that managing Zuma’s exit peacefully is the only option Ramaphosa has, given the balance of power in the governing party and the imperative of healing the ANC. Therefore, according to this view, deal-making gives Ramaphosa leverage to bolster his credibility and authority in the party when Zuma has finally been cast out.

This is too simplistic a view. Ramaphosa should not have wasted time mollycoddling Zuma, but should have pushed hard to expedite political reforms in his party and in the government, working closely with ANC members who are serious about change. He should use every opportunity to decisively stamp his imprimatur as a leader and be seen to be acting boldly against corruption, which is epitomised by Zuma’s presidency. Ramaphosa did not need to enter into elaborate exit negotiations with the very same president who has dishonoured the office he occupies. What should have been communicated to Zuma is an instruction for him to resign, failing which formal institutional mechanisms through a parliamentary vote of no confidence would be unleashed.

Ramaphosa’s gamble was predicated on an ill-advised idea that charming Zuma out of office could set a tidy and smooth transition in motion. What is deeply worrying is that Ramaphosa carried out his scheme with an ambiguous mandate. It is not clear on whose behalf he acted, and what the terms of his mandate were. This has given rise to various interpretations of what could be contained in his discussions with Zuma, with strong suggestions that an exit package could include immunity from prosecution and that Zuma would be allowed to keep all the perks of a retired president.

In so doing, Ramaphosa has eroded his own political capital and created a sense of uncertainty about his commitment to independent institutions and virtues of transparency. His initiative with Zuma is akin to petting a dangerous snake or, worse, sealing a pact with the devil.

At the time of writing, the ANC NEC was to meet to consider Zuma’s future, something that should have been done a week ago. The NEC should ask Ramaphosa hard questions about where he obtained his mandate to enter into secret bargains and what were the precise terms of his back-room dealings.

Even if Zuma eventually leaves, as signs would suggest, the means employed do not justify the end at whatever cost. Unprincipled pragmatism cannot be the basis for renewing our politics. Every leader that tackles a major challenge with serious implications for the country’s future should take the nation into their confidence and strive for radical transparency.

We expect leaders to be far-sighted, but not to be unhinged. The last thing South Africa needs after a decade of Zuma’s smothering incompetence and big-man tendencies is a cult leader who presents himself in sheepskin. Ramaphosa should take himself and South Africans seriously. We should be vigilant of the cult of leadership, whatever form it takes. We have been here before.

The Jackie Selebi saga is still fresh in our memories. When calls were mounting for Selebi to be fired as national police commissioner because of his association with the criminal underworld, then-president Thabo Mbeki protected him and assured the country he knew what he was doing. He even charmed the then leader of the DA, Helen Zille. Despite dishonouring his office as police commissioner, Selebi was untouchable during Mbeki’s presidency. Mbeki gave Selebi a long leash, while Vusi Pikoli, an honourable man, was hung out to dry.

We should always question leaders who project themselves as omniscient and omnipotent, even if they claim to be heaven-sent. Otherwise we will be a nation of the gullible. We’ve got to push leaders to be more transparent and accountable, even if they turn out to have been right. The point is that we should take our responsibilities as citizens seriously and redefine power relations between those we elect and ourselves. Their power is borrowed for a moment and they should learn to be accountable for their actions.

The outcome of an exit deal with Zuma may be gratifying in the short term, but this portends a danger of cult leadership in the long run. We need to place faith in our institutions – and if these are not functioning well, we should work hard to fix them.

The lesson from these developments is that politicians have little regard for institutions. They are prepared to do trade-offs that may seem good in the short term, but are terrible in the long run. We need to stay vigilant. There is no doubt that Zuma will eventually go, but on what terms? Ramaphosa will take his position as the country’s president after the parliamentary formalities, but what is his game plan for the future and what is his conception of his role as a leader in relation to institutions and society?

The events of the past week do not show him to be someone who has a full grasp of the country’s institutions. His term of office may turn out to be a tale of pursuing short-term gains, and one fixated on unprincipled, pragmatic deals that serve to sustain unity in the ANC at the expense of the country’s long-term interests. Time will tell.

This article was first published on the Daily Maverick, 13 February 2018.

Photo credit: GovernmentZA on Visualhunt / CC BY-ND

ANC Death Knell? The five stages of a party in its death throes

ANC Death Knell? The five stages of a party in its death throes

It is difficult to discern what the two contenders, Nkosazana Dlamini Zuma and Cyril Ramaphosa, stand for beyond facile statements about “Radical Economic Transformation” or “The New Deal”. This is despite the fact that the ANC is in a critical condition, and countenances an existential crisis in power. Society has also unconsciously lowered its expectations about what leaders should represent – morally and intellectually – and we seem to yearn for a messiah.

As I was reflecting recently on the state of leadership not just in the ANC, but also in the country in general, I remembered a text I was once recommended by the former editor of Business Day, Songezo Zibi. It was a title by Jim Collins, How the Mighty Fall, which examined the sources of leadership failures in organisations through five stages. It contains incisive lessons for organisations that have been in existence for many decades and, in the case of the ANC, that have passed their centenary mark.

According to Collins, organisations that are successful start off from a point of arrogance, and with a sense of invincibility. This first stage of decline starts off as high noon for an organisation, with numbers growing and, in the case of a political party, registering major victories during elections. This was indeed the case in the ANC, peaking at the 2004 elections with 70{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} electoral support.

At the time, the party seemed invincible, and the room for self-critique became narrower. Lacking capacity for self-reflection, the ANC saw itself as bigger and more important than the country, and with eternal entitlement to power. It developed a messianic complex, with some of its leaders even suggesting that the party will rule until the rapture of the world; or in the words of its president, “until Jesus comes back”.

As Collins puts it, “Stage 1 [of decline] kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place.”

In every organisation, success creates inertia that in the long run makes reforms harder to undertake. Yet this is a stage when organisations should make incremental shifts to new organisational forms, introduce new ways of thinking, make strategic changes, and retool the leadership pipeline.

The second stage of decline, according to Collins, is the undisciplined pursuit of more scale, more growth, and more acclaim. In the context of the ANC’s decline, this stage expresses itself in the rise of unethical behaviour among its cadres who lust for more power and more access to state resources for personal enrichment. Doing more is no longer driven by a revolutionary morality to create value for society, but about enriching oneself and the inner circle. This undisciplined pursuit of corrupt ends is reflected in a question once posed by the Chinese artist and intellectual Liu Xiaobo: “How do vanguards who are supposed to be well-disciplined and deployable become corrupt?”

Perversion of ethics in the party is rife, and signals a party that has lost its historical mission and is headed for the sunset. As Collins puts it, stage two of decline is marked by a tendency “to use the organisation as a vehicle to increase your own personal success – more wealth, more fame, more power, at the expense of its long-term success…” This gravitation to an undisciplined path leads directly to stage three.

The third stage of decline becomes visible when cracks within the party are widening, with those in power starting to blame external forces, agent provocateurs, or external environment that, presumably, are hell-bent on destroying the party. At this stage, paranoia clouds judgment. As Jim Collins put it, in failing organisations “those in power start to blame external factors for setbacks rather than accept responsibility”. The ANC has already been through this blame game, at times ratcheting up rhetoric about interference from Western and CIA agents who want to stage regime change in South Africa.

This external focus deflects from deep-seated challenges within the party and institutional decay in government. During this stage of decline, as Collins put it, leaders tend to amplify the positive and discount the negative. There was a time when the ruling party was obsessed with “South Africa’s good story”, and they tried to enlist the unsuspecting among business leaders through the CEO Initiative to trumpet this lie.

This stage is immediately followed by stage four of decline – grasping for salvation. As signs of decline become amply evident, and use of gimmicks no longer works as a device to deflect from internal problems, a search for new saviours gathers pace. Everyone, at this stage, scrambles around for an instant solution, a magic bullet of some sort.

It is during this time that leaders with a messianic complex emerge to take advantage of the vacuum. The proliferation of contenders for ANC president at the beginning of 2017, about eight in total, was an opportunistic response to this yearning for saviours.

Another factor of stage four of organisational decline is the pronouncement of big plans and high rhetoric, but with no action on the implementation front. According to Collins: “The language of ‘revolution’ and ‘radical’ change characterises the new era: New Programmes! New Cultures! New Strategies!” Radical economic transformation is, in this mould of stage four, a vacuous slogan meant to obfuscate rather than communicate a coherent programme to govern the country.

The final stage is capitulation to irrelevance or death. This is the stage where the party’s ship is sinking, with all possibilities for salvation disappearing rapidly. Losing a major province or failing to muster majority votes to govern nationally would be the visible culmination of stage five of decline. Once the party loses its grip on power, it may struggle to claw back and would head permanently to the sunset.

The early signs of stage five are marked when the party’s internal differences become rife. This is the current state of affairs in the ANC, with cadres taking each other to court, and political assassinations and other rogue behaviour becoming a norm in the party. Neither of the two candidates vying for ANC leadership will be able to rescue this terminally ill and morally decadent party. While Ramaphosa could be a palliative, Dlamini Zuma will certainly be catastrophic. Stage five of decline has set in, and there are no saviours who will perform a miracle on the dying patient.

This article was originally published by Daily Maverick, on 14 December 2017.

Photo by Paul Saad on Visual hunt / CC BY-NC-ND

What to expect from the 11th WTO Ministerial Conference in Buenos Aires?

What to expect from the 11th WTO Ministerial Conference in Buenos Aires?

|Blog by: Andreas FreytagPhilipp Lamprecht and Matthias Bauer

Buenos Aires is going to host this year’s Ministerial Conference of the World Trade Organization (WTO). Commencing next Sunday, the 11th Ministerial does not come with a lot of fuss. The WTO has, at best, played only a minor role in international negotiations of further trade and investment liberalization in recent years. At any rate expectations for this year’s ministerial are modest.

Recent years have largely witnessed bilateral or regional negotiations. No signs emerged for big multilateral pushes towards further tariff elimination rounds, let alone the tackling of non-tariff trade barriers or regulatory cooperation in services and modern manufacturing industries.

We are likely to see a continuation of bilateral endeavors, particularly between most already industrialized countries and some emerging market powerhouses. Developing countries had and still have a say at WTO level, but have been given little consideration in the past and are likely to continue to play at the sidelines in the future.

Nevertheless, 2017 already delivered some success stories for the WTO. The trade facilitation agreement (TFA), sealed in Bali in 2013, entered into force in February 2017. Two-thirds of the WTO’s member countries already ratified it. In addition to the TFA, changes in the rules on intellectual property (the TRIPS agreement) took effect in January 2017, aiming to facilitate trade in licensed products for developing countries.

In this respect, WTO Director-General Roberto Azevêdo can indeed open the Buenos Aires Ministerial with some tailwind. At the same time, however, a number of political difficulties prevail for the key negotiation issues of this year’s summit; specifically, policy proposals to facilitate agricultural trade and to increase food security for developing countries. For example, at the recent Marrakech meeting, the European Union (EU) issued a joint statement together with members of the Cairns group of agricultural exporters highlighting the need for a new discipline on trade distorting domestic support. However, to date conflicting interests on this priority issue still divide the governments of WTO member states.

In Europe, Eurochambers and some national business associations have launched an initiative to discuss small and medium-sized enterprises (SMEs). Access to foreign markets requires compliance with complex foreign regulations and standards, which requires highly specialized administrative staff and contacts to (occasionally restive) customs and regulatory bodies. Very often SMEs do not have these resources putting them at a systematic comparative disadvantage to larger firms including multinational corporations (MNCs). Having in mind that trade barriers and regulatory heterogeneity constitute a subsidy of big business, regulations, transparency and greater alignment of standards are at the heart of the initiative. Given that SMEs, after all, account for high levels of employment in all WTO member countries, this initiative is absolutely justified, and we consider it likely that the SME initiative becomes a success story.

Noting that we will not necessarily see big breakthroughs and more promising results than those of the past two conferences (Bali 2013 and Nairobi 2015), WTO Director Azevêdo is actually expecting some significant advances in the talks about agriculture.

One reason for our somewhat pessimistic projection lies in the critical attitudes of the current US administration to international trade in general and the WTO in particular. Talking of ‘bad deals’ and the need for ‘Buy America’ policies, US President Trump has repeatedly expressed his antipathy to the WTO. Of course, this is nonsense from an economics point of view, but – even in the Western hemisphere of the 21st century –, it still comes with significant political weight. Stubbornness of the US on proposals to further dismantle trade-distorting measures – even on a small scale – is likely to prevent any substantial coordinated and codified progress.

In that regard, it is particularly worrisome that other major WTO players such as the EU and China are largely self-absorbed with internal and regional political affairs. Apart from some formal lip service paid to the WTO, the administrations of the two parties are highly unlikely to pull the thick strings to further liberalize trade at a multilateral level, let alone the willingness to facilitate a revitalization of the Doha Round (to commemorate: launched in 2001).

In that sense, however, the EU could at least thoroughly reconsider the extent to which it continues to rely on US approval for new trade policy initiatives. In his recent speech, Germany’s Foreign Minister Gabriel openly pointed out that the EU could only rely to a limited extent on the US on global policy issues.

For the EU (but also China), the obvious trade policy conclusion would be to take the multilateral initiative to a new level. It would imply taking courageous steps in agricultural trade – particularly in light of the recent EU-Africa summit that took place just a week ago.

For the EU, a genuine and honest commitment to a global multilateral liberalization of markets for food and agricultural commodities would require making honest, ambitious, detailed and codified proposals for market opening and the elimination of national subsidies.

Such a commitment could come as a unilateral initiative, in the sense that developing countries themselves do not have to open the markets further in the next five years or so, with phase-out schedules applied over a period of 10-20 years afterwards. Admittedly, this is far from efficient in light of substantial public financial resources transferred to farmers and agricultural companies. It would also come with lower economic benefits over time, knowing that productivity increases in agriculture are driven mainly by import competition. However, even if such an initiative could find consensus, it is unlikely to pop-up two days before the start of the Ministerial.

To sum up: the governments of some WTO Member States (primarily the US) do not want to take an initiative, while EU governments probably cannot take the lead because of its internal political struggles around the reorganization of core European institutions.

The governments of some emerging markets, such as India or China, could take the lead. They should be able to see and communicate a huge national interest of their countries in multilateral trade liberalization. The notion, however, that their governments could drive OECD members forward with courageous initiatives is as attractive as it is unrealistic.

The WTO is therefore very likely to continue to take only very, very small steps after Buenos Aires. The most promising way out of its numerous blockades would be a fundamental procedural reorientation of the WTO, namely the departure from the rule that each member country must ratify and recognize all constituent parts of the agreements (single undertaking).

It is time for governments to think about putting together minimum packages, with voluntary accession to some pillars of the agreements. Following the mechanisms of competitive liberalization, it is much more likely to arrive at much better outcomes for many rather than no outcomes for all. We cannot expect these considerations to rank high on next week’s agenda for negotiations, but the reorganization of the WTO might become the topic to go for at the 12th WTO Ministerial in 2018.

Photo by World Trade Organization on VisualHunt / CC BY-SA

What can the private sector do to bring down corruption?

What can the private sector do to bring down corruption?

Corruption is a far-reaching problem in all corners of the world. It even occurs in countries that, according to Transparency International, are largely free of corruption. While it is the exception in Scandinavia and other OECD countries, it is commonplace in many developing countries. South Africa’s problems with “state capture” are a case in point.

Researchers distinguish between two types of corruption:

  • Petty corruption refers to the daily, very small-scale, bribery of officials, police officers or customs officers; for example, to gain a foreign visa faster, avoid a speeding ticket or accelerate the importation of a consignment. This form of corruption seems comparably easy to combat. One option is to increase the wages of potential bribe takers; another option is to threaten potential bribe takers with harsh punishment.
  • On the other hand, Grand corruption refers to the behaviour of the elites in a country. It involves large sums paid, for example, by a foreign company to members of the government or their dummy companies or partners in order to obtain government contracts, to privatize or to obtain a license to mine raw materials. This form of corruption is much more dangerous than its small-scale counterpart as it affects the decision makers of a society. If they do not want to fight against corruption, corruption will endure. This has a cascading effect, for as long as there is grand corruption, small-scale corruption cannot be prevented.

Almost all empirical studies show that corruption reduces the wealth of a society; confidence within society shrinks, investment decreases, and economic growth slows. Normally, corruption acts like sand in the gears of an economy. These problems appear to be afflicting South Africa now. However, there are isolated examples where corruption acts like a lubricant. This phenomenon occurs whenever governance is so bad that administrative processes without corruption don’t work at all. Nevertheless, such a country as a whole would be better off with a more ethical government and less corruption.

In individual economic terms, corruption can even have a positive effect. This is especially true for foreign companies that want to export or invest in the affected country. It may be worthwhile for them to bribe individual members of the government directly or indirectly. The damage to the population is to the benefit of the foreign company. In some countries, it even seems that without corruption business is impossible. Sadly, this seems to have become the case in South Africa, as a succession of foreign companies has been caught up in the Gupta-gate saga.

The OECD countries therefore decided to ban their national businesses from engaging in corrupt behaviour abroad. That sounds obvious – but was not always so. A few years ago, corruption payments abroad could be officially declared as deductible expenses in many countries. This is no longer tolerated. Instead, grand corruption is prosecuted. In the United States, authorities are tracking companies (traded on American stock exchanges) that commit grand corruption in third countries.

More recently the German company, SAP, whose subsidiary in South Africa was shaken by a grand corruption case, learned what it is like to be taken to task by the Americans . According to the press, employees of this branch paid a commission, or a bribe, to CAD House to obtain a lucrative commission from the state-owned transportation company, Transnet, and other South African state-owned enterprises. CAD House is linked to the Gupta family, known in South Africa for numerous corruption cases and their proximity to President Jacob Zuma.

This case can have significant consequences for SAP in the US as it faces penalties and so-called “balance sheet monitoring”, in which the company will be strictly controlled by the Ministry of Justice and, in the event of further transgression, can be excluded from the American market.

This poses a (moral) dilemma for foreign companies that want to be active in South Africa, but also in other corruption prone countries. The fundamental problem is that corruption is difficult to avoid, and companies must either operate in a grey area or forego business.

In addition, there is a prisoner’s dilemma for governments in OECD countries. Too rigorous tracking of their own businesses reduces export earnings and thus the number of jobs at home and tax revenues. Against this background, German companies complain that the German government interprets the rules of corruption too strictly, compared to other OECD countries.

It cannot be completely ruled out that the United States, in the case of SAP, is motivated by other factors, such as the desire to obstruct a competitor of American software companies.

What could be a solution to this dilemma? SAP responded with an interesting answer. In addition to the usual labour law measures against the employees in question, SAP decided that it will not pay the entire sales commissions of public sector contracts in countries that score less than 50 out of a possible 100 points in the Transparency International Ranking.

This is a strong signal that could lead to sales shortfalls on the one hand, but can also make governments more active against corruption on the other hand. This gives practical meaning to weak CPI scores. It would be desirable for other companies to follow suit.

Although the problem of grand corruption cannot be solved this way, it is a step in the right direction. Especially when it comes to products or services with high demand and high appreciation by the actual users, a certain pressure can be built up. Even the publication of an index puts pressure on corrupt governments. As with the case of SAP the direct application by large multinational companies can only increase this pressure.

The original article was published in German on WiWo-online, November 3, 2017

Image: By amadeusm (Created by amadeusm) [Public domain], via Wikimedia Commons
Time to support exporters

Time to support exporters

Exports have to come to the country’s rescue, in the face of persistent slow economic growth and government’s small room to manoeuvre on the domestic front.

When Finance Minister Malusi Gigaba presents his first budget speech this week, he will have to reckon with managing debt and tax levels. He has little in his armoury in the Medium-Term Budget Policy Statement (MTBPS) to spur the economy, set to grow at only half a percent this year, or boost business confidence, at its weakest in 30 years according to the South African Chamber of Commerce and Industry’s index in August 2017.

Earlier this year the Industrial Development Corporation (IDC) advised that “the South African economy will most likely have to rely on exports for a positive performance”. Signs of an export boost are encouraging. Demand in the markets of our key trading partners is looking up.

For example, the European Union (EU) – our biggest trading partner as a region – is expected to achieve ‘above-potential’ growth levels this year and in coming years on the back of much stronger performance in the first part of 2017. The IDC predicts that economic activity will continue to expand in the US, Eurozone and China at least over the shorter term. A relatively competitive exchange rate helps.

Firms which can take advantage of global market opportunities will be in a stronger position to weather the challenges in the domestic market in South Africa. These firms can continue to employ people and contribute to the broader economy through linkages with other firms, payment of taxes and consumption of infrastructure services at ports etc. Exporters engaged with developed country markets have been shown to have high levels of productivity, produce high-quality products, employ highly skilled workers and pay high wages. South Africa needs to encourage these kinds of firms to contribute during grey days for the economy as a whole.

One way to provide such encouragement that does not put a further strain on limited government resources is to negotiate favourable market access conditions for South African exporters with key trading partners. The government did this when it signed a comprehensive free trade agreement with the EU in 2016. The Southern African Development Community (SADC) Economic Partnership Agreement (EPA) with the EU entered into force just over one year ago and there are already signs of increased exports from South Africa to Europe for an expanding range of products.

The IDC confirmed that there is strong existing trade in motor vehicles and machinery between EU countries and South Africa. Possible export development opportunities exist across a much wider range of industries, including in agriculture, electrical equipment, processed fish, jewellery and footwear.

More could be done to take advantage of the SADC-EU EPA and to ensure that trade with Europe continues to make a positive contribution to the South African economy. Raising awareness of the opportunities and providing information to potential exporters is an important first step. Ensuring access to the necessary testing facilities and quality assurance infrastructure is another area where the government can work closely with the private sector to maximise exports. Assistance with access to trade finance and supporting participation in marketing activities also requires a new momentum and emphasis.

Gigaba faces the pull of many competing forces, and it will be interesting to see if the MTBPS spares any thought for the exporting community. These firms continue to provide employment and some relief in difficult times.

This article was originally published by Business Report, on 23 October 2017, and is available here.

Photo credit: Renate Dodell via VisualHunt /  CC BY-ND