Evaluation of South Africa’s Trade Policies (Grade 12 NSC Matric Economics): Revision Notes

Evaluation of South Africa's Trade Policies

South Africa's trade policies have evolved significantly over the decades, shifting from protectionist measures to more liberalised trade approaches. Understanding this evolution helps us see how the country has adapted to global economic changes and regional integration opportunities.

Export promotion and import substitution

South Africa's approach to international trade has changed dramatically since the 1970s, moving through several distinct phases that reflect both domestic priorities and global economic pressures.

Export promotion policies

South Africa's export promotion strategy developed through several key periods, each responding to different economic challenges:

1970s initiatives During this decade, the government introduced various support measures for exporters. These included cash grants to help businesses expand into international markets, tax concessions on export turnover and profits, and special rail freight concessions. The main goal was to reduce costs for manufacturers who had the potential to sell their products overseas.

1980s policy shifts The approach became more sophisticated in the 1980s. The government removed some import quotas and replaced them with tariffs, making the trade system more transparent. Export subsidies were introduced to make South African goods more competitive internationally. Additionally, the approval system changed - instead of maintaining a list of imports that needed approval, the government created a list of imports that didn't need approval, simplifying the process.

1985 debt crisis response A major turning point came in 1985 when US banks refused to roll over South Africa's import guarantees. This forced the country to declare a debt standstill and unilaterally restructure its foreign loan payments. The rand depreciated substantially, and the government introduced a 10% surcharge on imports.

1990s export orientation The General Export Incentive Scheme (GEIS) was introduced in the 1990s to encourage the production of value-added exports. This marked the first time that export-orientated industrialisation became the official policy stance, representing a significant shift from inward-looking policies.

Import substitution development

Import substitution became a cornerstone of South Africa's economic development strategy, particularly during periods of international isolation.

Early tariff protection (1910-1925) The foundations were laid in 1910 when the Cullinan Commission investigated establishing a domestic manufacturing industry. The Customs Tariff Act of 1914 introduced tariffs that protected local manufacturing industries. By 1925, a new act was implemented and the 'South Africa first campaign' was launched, establishing an official inward-looking policy that prioritised domestic production over imports.

Second World War impact The war period proved crucial for industrial development. Iscor (now Arcelor Mittal) was established as a strategic industry in 1928, positioning South Africa to take advantage of wartime opportunities. The Second World War stimulated manufacturing and industrial development because South Africa was isolated from many imports and had to produce many products domestically.

Export readiness phase After the Second World War, policymakers accepted that import substitution was the best strategy to enhance economic growth. Sasol was established in 1955 to produce oil from coal, demonstrating the commitment to self-sufficiency. From the mid-1960s, import substitution reached maturity as manufacturing increasingly focused on intermediate and capital production, with domestic demand providing the main stimulus. However, large markets were essential for these goods, which necessitated exports. This readiness for export promotion showed that import substitution had been successful.

Protection and free trade agreements

South Africa's trade policy extends beyond bilateral relationships to include significant regional integration initiatives that have shaped the country's economic development.

Southern African Customs Union (SACU)

The Customs Union Agreement of 1910 established the Southern African Customs Union, making it one of the world's oldest customs unions. SACU's current members include South Africa, Lesotho, Namibia, Botswana and Swaziland. This arrangement eliminates tariffs between member countries and establishes a common external tariff for trade with non-members.

Regional monetary arrangements

The Common Monetary Area (CMA), consisting of South Africa, Lesotho and Swaziland, was later replaced by the Multilateral Monetary Area (MMA) in 1992, with Namibia joining the arrangement. These monetary unions facilitate trade by providing exchange rate stability between member countries.

Broader African integration

South Africa has signed various protocols with the African Union and Southern African Countries, including agreements with the Southern Africa Development Community (SADC) and the Africa Free Trade Zone (AFTZ). Since 1994, the country has made significant progress in strengthening bilateral ties with main trading partners and establishing free trade areas with the EU, Asian Free Trade Area (AFTA), and various Asian countries in different combinations, including BRICS partnerships.

Trade liberalisation

The post-apartheid era marked a fundamental shift towards trade liberalisation, aligning South Africa with global free trade trends.

WTO membership and commitments

South Africa's economic policy bias towards exports as a major stimulus for economic growth was strengthened after 1994. The country reached an agreement with GATT (which became the WTO) regarding trade liberalisation requirements starting in January 1995.

Tariff reduction achievements

The liberalisation process involved significant restructuring of the tariff system. More than 100 tariff categories were consolidated into just six categories, simplifying the system and making it more transparent. The results were dramatic - South Africa's average tariff declined from 11.7% in 1994 to 5% in 2011, representing a substantial reduction in trade barriers and greater openness to international competition.

This tariff reduction reflects South Africa's commitment to free trade principles while maintaining some protection for sensitive industries. The policy represents a balance between opening markets to international competition and protecting domestic industries during the transition period.