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South Africa's Trade Policy

Country background paper for CUTS-CITEE's Trade, Development and Poverty (TDP) project

Barbara Kalima-Phiri

Southern African Regional Poverty Network (SARPN)

23 September 2005

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Origin's of South Africa's Economic Policy

South Africa's democratic transition was considered one of the 'miracles' of the twentieth century. In the epoch that highlighted the horrors of the Balkans war, the Rwandan genocide and the Israeli-Palestine conflict, the seemingly intractable crisis between the apartheid state and the liberation struggle ended in a political settlement which refuted the claims of history. While post-apartheid South Africa was celebrated as a model for conflicted societies seeking peace, the challenges that the newly elected democratic regime faced were immense.

At the core of it were the debilitating crises that underpinned the economy following two decades of steadily worsening difficulties that manifested themselves more potently after the 1973 oil shocks: feeble GDP growth rate, low rates of investment, spiraling inflation, and chronic balance of payment difficulties. Although the external shocks of the 1970s heightened South Africa's economic stagnation, internally the policies of the apartheid regime also contributed to the crippling of the economy. Part of this related to how the apartheid system was modeled, namely it thrived on a system of cheap low skilled labour. The attendant impact this had on skills development and labour relations in South Africa led to a skewed path of development between the minority and majority of South Africans bound by race, class and gender.

Moreover, the imposition of sanctions effectively froze South African corporates from trading with the world, while global Multi National Corporations (MNCs) were barred from trading with South Africa and foreign direct investment came to almost a halt due to sanctions and the unstable nature of the state.

Despite the structural malaise of the economy, the post-apartheid regime also had to correct the distortions that the apartheid policy created within the economy, particularly the issues of exclusion from the formal, 'first' economy, the education and skills deficit of the majority of the population, the racially biased distribution of wealth, services and infrastructure and worsening poverty amongst the majority of its black population.

In so doing the democratic regime had to be mindful of the changing nature of the international economic policy setting, i.e. the ascendance of the neo-liberal economic paradigm. The government had to find common ground between what the majority of the electorate expected, namely their effective reintegration into the mainstream economy, and South Africa's renewed and successful participation in the global economy through competitiveness, value added production, reduction in tariff barriers and a shift from import substitution to an export based growth path.

In 1982, the National Party (NP) government accepted a loan from the International Monetary Fund (IMF) with conditions in line with neo-liberal orthodoxy (Marais 1998:105). By 1985 the NP introduced duty-free import provisions for the clothing industry and import volumes of clothing started to grow (Sellars 2000:492; Altman 1993:89). In 1989 the NP government's Structural Adjustment Programme (SAP) increased exposure to international competition and boosted import penetration to over 40 per cent of the local market between 1989 and 1991. Worn clothes constituted a substantial part of these imports, increasing by more than 64 per cent between 1989 and 1990 (Altman, 1993:vi, 15, 95, 115).

This phase from 1982 marked the shift to trade liberalization and such developmental challenges compelled the democratic regime to design key objectives and strategies for revitalizing the economy. If the twin challenges of the domestic developmental concerns were to be reconciled with the commitments of the global economy, then the most logical approach was to frame a policy perspective that incorporated both these elements.

This paper attempts to provide a concise and holistic overview of post-apartheid South Africa's competing imperatives in designing its economic policy in which its trade and industrial strategy features prominently. It shows how South Africa's Trade Policy was developed in order to address the twin challenges of reversing the skills deficit found amongst the majority of its people and its economy's reintegration in the global economic system based on a competitive advantage.

It also highlights South Africa's attempts to move towards a trade strategy that aimed at effectively reducing the distortions created by the apartheid regime in tackling the scourge of underdevelopment and poverty that was prevalent in the daily lives of the majority of people.

Overall and above, the idea is to able to understand how democratic South Africa's growth and economic development pattern has been influenced by the type of industrial policy it has adopted in the past.

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