Letter: Localisation is costing SA - Businesslive

6 March 2022 - The Russian invasion of Ukraine has raised the possibility that SA could benefit from an increase in commodities prices. For the last year the country has enjoyed the added fiscal room afforded by a commodities boom, and if sanctions on Russian exports increase, the price of commodities SA stands to benefit.

The Russian invasion of Ukraine has raised the possibility that SA could benefit from an increase in commodities prices. For the last year the country has enjoyed the added fiscal room afforded by a commodities boom, and if sanctions on Russian exports increase, the price of commodities SA stands to benefit.

But instead of opening harbour facilities and rail networks (including the more lucrative routes) to private sector investment and ownership, government’s trade priorities remain fixed on localisation master plans.

Exxaro stated in an earnings report that an “additional 4-million tonnes of coal was held up at its mines because of the problems at the country’s rail network — an output that could have brought in an extra R5bn in export sales”. (“Transnet dysfunction costs Exxaro R5bn in lost exports”, March 3).

Because they cannot rely on rail, Exxaro and other companies are forced to use more road transport, increasing their own operational costs, and increasing downstream costs in the economy. When they do use rail, they are forced to pay for increased security measures — again, operations are affected, and negative effects are felt across value chains.

With localisation plans — which include subsidies and other forms of support for “local champions”, as well as increased tariffs and other trade barriers on imported inputs, products, and services — companies such as Exxaro will be forced to operate in an even more expensive SA trade context. Localisation will push inflation higher, possibly pushing smaller players in manufacturing and mining completely out of business.

The eurozone is SA’s largest export market; the country’s mining and manufacturing companies can indeed benefit from events now playing out in Europe. But while government maintains state-centred trade facilities and pursues inflation-increasing localisation plans, those wins will remain mere dreams.

Chris Hattingh
Institute of Race Relations

https://www.businesslive.co.za/bd/opinion/letters/2022-03-06-letter-localisation-is-costing-sa/

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