Patel's protectionism will hurt the South African economy

The strategic plan released today by the Minister of Economic Development, Ebrahim Patel, is a clear signal that the minister has no grip on economic policy and would rather rely on Apartheid-style protectionism as a means to allay underlying problems such as labour market rigidities and failing parastatals (see report). It seems as if Minister Patel can only think in terms of import tariffs; this was the focus of the so-called Economic Rescue package last year, which failed dismally to address the root of the problem, which was credit constraints to business. Patel seems obliged to follow the protectionist line preached by Cosatu. Also, this is in contradiction with the commitment voiced at the Budget speech by the Minister of Finance, Pravin Gordhan, that the economy needs to open up to foreign markets.

There is no virtue to increasing the level of trade protection; it only serves to protect those businesses which would otherwise be forced to be more competitive. Increasing the tariffs on imports will only accomplish the following:

• Increase the price of consumer products - which disproportionately effects the poor;
• Increase the cost of doing business for small to large companies;
• Increase the level of unemployment due to businesses closing down; and
• Limit the scope for long term sustainable economic growth.

All of these effects culminate to weaken the South African economy - not make it more internationally competitive. It is completely ridiculous to think that South Africa can jumpstart its competitiveness by increasing the cost of imports. The cost of doing business for local producers is ultimately what drives the level of competition; rigid labour legislation, failing infrastructure, higher electricity costs and now higher import tariffs will only mean that more businesses will have to close down - resulting in even higher unemployment levels.

It is unacceptable that the entire country is held ransom by a minority interest group like Cosatu, and their protectionist leanings. This is exactly what the Apartheid government did back in the late 1980s in order to attempt to stall inevitable economic collapse. Minister Patel seems to think that his pseudo Apartheid trade regime will result in other outcomes, while history has clearly shown that the increased tariffs led to massive losses in the economy and the subsequent increase in unemployment.

The DA will oppose this strategic plan because the broader costs to society far outweigh the short term sliver of benefits to a narrow interest group. The ANC government needs to accept that the figureheads of its so-called developmental state, the parastatals, requires urgent attention by way of privatisation, and that labour market rigidities needs to be solved in order to make it easier to employ job-seekers. Until this is done, efforts to step up protectionism are at best attempts at distraction, and at worst interventions that would achieve the direct opposite of the sustainable, job-creating economic growth we need. Clearly, the so-called interventionist developmental state of the ANC is not going to work, least of all because of the stupendous capacity vacuum in the public service that is supposed to understand the needs of the economy.

Statement issued by Dr. Pierre Rabie, MP, Democratic Alliance shadow minister of economic development, March 3 2010

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