While SA cannot control global events, the government can make the correct, albeit difficult, policy choices that would lessen some of the negative effects of higher inflation in coming months (“IMF report all but warns of stagflation,” April 21). The most important of these would be to freeze the implementation of localisation master plans.
Forced localisation will increase inflation. Subsidies will be given for designated products and “champions” (likely those companies with the necessary political influence), and higher tariffs imposed on imported goods and inputs (including materials).
The results are higher prices of goods and services. If you do not address government-imposed causes of inflation, you should not be surprised when the ravages of higher inflation hit you.
Localisation will not lower transportation costs (inefficiencies across rail networks and harbours remain firmly in place), and those short-term boosts to productivity that may result will paper over the long-term brittleness of protected companies and value chains.
SA has benefited from higher commodity prices, but not nearly as much as we should have because of deep trade infrastructure problems; these will not be solved by giving the state the ability to decide which products “should” be manufactured locally. Industry, businesses, and consumers can benefit much more from basic, low-hanging reforms.
Your editorial points out that “SA has made some moves to cushion the effects of record petrol prices but these are small and unlikely to make a material difference to living standards.” Indeed, any potential benefits from these moves will be largely wiped out if the government implements policies that fundamentally increase the cost of doing business and trade.
Higher inflation means higher prices, and these will be felt most acutely by lower-to-middle-income consumers. Policy changes that ease the costs of operation and transport on businesses are therefore crucial. By resisting the urge for dead-end protectionism, SA would add momentum to the Africa Continental Free Trade Area, ensure that the movement of goods and services becomes easier, and provide under-pressure consumers with some much-needed breathing room.
Chris Hattingh, Institute of Race Relations
