Fix these issues to make business in South Africa better

Improving South Africa’s trade barrier score will require correct policy choices and avoiding protectionism, says the Free Market Foundation.

The group referred to the Property Rights Alliance’s latest Trade Barrier Index (TBI), published this week, which ranks South Africa 44th internationally based on the number of trade barriers it has in place.

The ranking identifies the most direct and indirect trade barriers imposed by 90 countries affecting 84% of the world’s people and 95% of global GDP. The use of trade barriers reflects how ‘free’ a market is, with a high use pointing to a more closed marketplace.

This includes things like high tariffs and other regulatory restrictions that stifle competition.

The average TBI score in 2021 is 4.01 on a 10-point scale, with 10 indicating a high use of trade barriers – i.e. a more closed market. This represents a 0.5% increase from the 2019 edition, indicating a general uptick in the use of trade barriers.

Though the median score remains low, it highlights the fact that heavy use of trade barriers are generally an exception rather than a norm to be tolerated, it said.

Changes needed

South Africa received a score of 3.87, behind only Mauritius in the African regional ranking. However, this is still a drop of two places after the country placed 42nd in the 2019 ranking.

Free Market Foundation deputy director Chris Hattingh said that South Africa’s ports and rail infrastructure are a cause of concern and need to be drastically improved, referring to South Africa’s poor performance on the World Bank’s Container Port Performance Index.

“Out of 351 facilities, the index ranked Cape Town at 347th; Port Elizabeth at 348th; Durban at 349th; and Ngqura at 315th,” he said.

But port improvements alone are insufficient, Hattingh said. “Such improvements must take place within the context of labour market reforms, electricity generation and distribution liberalisation, and the protection of property rights.”

He warned that the Department of Trade and Industry’s localisation master plans would not improve South Africa’s ranking on the TBI.

“Tinkering with supply and demand, and providing subsidies to some companies – as the localisation master plans intend – will not bring about the growth and robust, integrated supply chain growth that the country and the wider sub-Saharan African region needs heading out of Covid-19.”

Only by conscientiously adopting the Africa Continental Free Trade Area and improving its ranking on the TBI can South Africa acquire the necessary goods, services, and skills from abroad that it needs to be a competitive economy, he said.

“We need to implement pro-growth and job creation trade reforms – such as lowering tariffs and eliminating corruption at ports of entry – and resist the temptation of protectionist, anti-poor policies such as government-enforced localisation,” Hattingh said.

“The data of the TBI show a clear relationship between the freedom to trade and other coherent and complementary policy choices that lead to greater levels of freedom and prosperity.”

The TBI explains that reducing trade barriers allows ideas to be exchanged freely and reduces the power of the well-connected to lobby for restrictions that benefit them at the expense of the other market players.

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Fix these issues to make business in South Africa better