After the Bell: Minister Parks Tau’s absolutely enormous in-tray

Minister of Trade, Industry and Competition, Ebrahim Patel at the opening session of the second Black Industrialists and Exporters Conference. 20 March 2024. (Photo: Jairus Mmutle GCIS)

By Tim Cohen

14 Jul 2024

We don’t know the reason for the increase in time it takes to decide on tariffs, but we do know that former minister Ebrahim Patel loved to interfere, bargain, gatecrash, meddle and otherwise be a gadfly. I suspect Patel’s interventionism in his own mind was constructive and useful. This is how trade unions operate, after all.

A week or so ago, the SA International Trade Administration Commission (Itac) announced that it had approved a 10% tariff on solar panels. The reason it did so was, according to the commission, to protect manufacturers, attract new investments and encourage the deepening of the input value chain.

This is all kinda funny and the reasons lie not in the things that Itac said, but what it did not say. There is, of course, a debate to explore about whether SA could — or should — try to make solar panels locally. There is also an argument to be had about whether Chinese solar panel-makers have overcapitalised and are trying to export their problems around the world by selling below cost. The fact is that solar panels are so ridiculously cheap it’s almost impossible for anyone to compete with the huge Chinese companies that now dominate the trade. So, from this perspective, there might be an argument in favour of imposing tariffs.

But let’s leave aside these questions for a moment and focus on something else. Would you believe that the first application for a tariff on solar panels was made five years ago? SA did have a number of locally owned solar panel-makers — we don’t know exactly how many — and several foreign-owned local manufacturing outfits. They are all gone now, except one.

Even if you support the idea of imposing tariffs on this sector, it is ridiculously out of date to do so now. It is absolutely a case of closing the door long after the horse has bolted. It should have happened years ago.

So, this tariff is being imposed to support one company. That company is a Durban-based group called ARTsolar. How did it survive when all the other companies that made solar panels in SA disappeared? Moneyweb interviewed the general manager of the company, Viren Gosai, who said the company was able to survive essentially because it pivoted to installation. In other words, although its main business is in manufacturing, it’s become a service organisation.

Gosai said that two years ago a solar panel cost about 25 US cents per watt, and that has almost halved to 13c per watt. “This price decrease is not sustainable. Many raw material manufacturers have been closing because it is not possible to keep supplying at these loss-making prices,” he told Moneyweb.

The solar panel issue raises a larger question: How long does it take in SA to get a tariff imposed? Fortunately, we know the answer to this question because the private sector trade advisory company XA Global Trade Advisors has done research on the issue.

According to a report produced by XA, the bottom-line figure is that before 2019, the average time between the application to Itac for a tariff and a decision was about six months. After 2019, this figure started increasing, and now the average time it takes has trebled. About 50% more tariff investigations are open now than 20 years ago, the report finds.

Minister of Trade, Industry and Competition Ebrahim Patel at the opening session of the second Black Industrialists and Exporters’ Conference, 20 March 2024. (Photo: Jairus Mmutle / GCIS)

So, what happened in 2019? Well, not to put too fine a point on it, that’s when Ebrahim Patel was appointed as Minister of Trade, Industry and Competition. Patel, a former trade unionist, was always very keen to strike deals and impose conditions associated particularly with big mergers and international investments into SA. In his former ministerial responsibility, he won big concessions, for example from Walmart when the US giant invested in Massmart. Job protection was always part of the parcel.

Patel’s modus operandi after becoming trade minister was to create sectoral “master plans”, which are notionally complex industrial and trade strategies to promote local industries and improve competitiveness. From the point of view of trade unions, the master plans protect workers’ interests. But from the point of view of the industries, the master plans are not so much industrialisation efforts as much as anything from benign information-sharing exercises to industrially harmful state interventionism.

We don’t know the reason for the increase in time it takes to decide on tariffs, but we do know that Patel loved to interfere, bargain, gatecrash, meddle and otherwise be a gadfly. I suspect Patel’s interventionism in his own mind was constructive and useful. This is how trade unions operate, after all.

But I also have no doubt that his efforts were, at the least, exasperating for business and at the most positively harmful. Some businesspeople have told me that when they asked for a tariff reduction, they would be presented with a list of demands and if they said the demands were impossible, the application would never be completed.

There is more: XA’s report finds that 93% of the tariff codes attracting duty in 2023 were last reviewed before 2003. In other words, tariffs have been imposed years ago and just forgotten. Meanwhile, the government has been earning just under R100-billion a year on these tariffs. In 2023, R89-billion was collected in import duties, paid on 3,406 tariff codes.

It’s a stark illustration of the incentives in place here. From the moment a tariff is imposed, the government has an incentive to keep it in place, whether or not it helps anyone. And, just by the way, how much do you think the government is going to earn from the 10% tariff on solar panels that may or may not help one company? XA director Donald MacKay says SA has imported R13 billion worth of solar panels in the past 12 months, so that would be R1.3-billion. That’s not income to be sneezed at.

Just one of the challenges facing new Trade and Industry Minister Parks Tau is to look at these 3,406 tariff codes and ask himself whether they are actually doing anything and then muster the courage to scrap them if they are not.

Behind this action lies not only a practical question but a philosophical one: What does free trade do? When is it helpful, and when it is not? As an outsider, my answer to this question is very simple: Default to free trade wherever possible. I know there are political issues involved; I know there are times where it’s impossible to do so.

But SA’s declining industrial base over the past decades under the auspices of not one but two staunchly left-wing ministers should teach Tau one thing at least: the gadfly system of industrial policy really doesn’t work. DM

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