Government’s Intervention in International Business in South Africa

Introduction

South Africa located at the southern tip of Africa, has adopted an ambitious strategy aimed at increasing its economic growth through establishment and development of trade and investment programs together with international business partners. Of a great significance is the agreement with the European Union to establish external trade cooperation within the environment of Free Trade Area. The South Africa government is keen to implement measures that shall induce favorable international trade as a move to achieve its projected economic, social and political goals. Consequently, as a measure of mitigating the country’s trade based risks, various trade barriers to protect some selected firms and industries have been enacted to boost their international competitiveness. Such barriers protect domestic jobs as they remain protected from foreign competition. To implement these protectionism measures, South Africa is employing intervention measures such as trade tariffs, non-tariff trade barriers and investment barriers that mainly target the Foreign Domestic Investment (FDI).

This paper identifies and examines areas where the government of South Africa’s intervention to international trade and FDI is notable as it outlines the effects of such interventions.

Areas of Government Intervention in international trade and investment

The intervention of the government of South Africa to the international trade and investment is categorized in three major categories as contained in its protectionism policies. The intervention measures are therefore discussed as follows;

Health, Safety and Environment

Measures to ensures Adherence to International standards

One of the general problems facing the South Africa exporters is the variations in the requirements of the standards in the recipient countries. The difference in the standards prompts adjustments at various production stages, a move that significantly increases the production costs. The main international trading players have a tendency of adopting unique features in standard requirements for their imports a fact leaves many businesses torn between difficult options on the most cost effective standards that they should adopt. The government of South Africa has intervened in this question to ensure that its firms and industries do not make wrong decisions that could be costly and render them uncompetitive (Padayachee 104).

As a response to this challenge, the government signed a Word Trade Organizations’ international agreement on Technical Barriers to Trade, an intervention that effectively insulated business firms and industries. This move ensured that international guidelines on standards and certification did not necessarily spark misunderstanding in trade transactions. This is done by encouraging the member countries to adopt common international procedures in designing their national standards that would ensure product safety. The member countries are also bound by the code of defined acceptable practice and benefits from the reliable dispute resolution mechanism that promotes strict adherence to the agreement terms.

Sanitary Measures

The South Africa government has entered trade agreement with the international community to outline norms in food safety and health standards for both plants and animals. This intervention measures ensure that life is protected as health issues are enhanced in an environment where deliberate efforts to minimize barriers to free trade are encouraged (Tsai 33). Provisions for such measures demands for transparence and discourages its application in a way that would disguise it as a barrier or a restriction to free international trade.

Trade Bans

The South Africa government has imposed a total ban in the exportation of unprocessed logs, effectively affecting the trade flows. Though reasons based on environmental conservancy have been cited, the ban is also meant to encourage domestic value addition during the log processing, a move that protects jobs for thousands of South African residents. Sales from the logs is diverted from the cheap international exports and distributed within the domestic market.

Trade Policy Regulations

Government Subsidies

As a member of world Trade organization, South Africa is prohibited from introducing subsidies in Fish and Forest related processed trade items, however, the government has introduced subsidies in other allowable agricultural inputs and products. Subsidies are given to importers of agricultural inputs including fertilizers and certified seeds with an aim of boosting the agricultural production level to feed the population and reduce on the government expenditure on food hand outs. The government also offers production subsidies to the agricultural based companies to ensure that the agricultural products remain affordable to the common population. Agriculture is a major player in the South Africa’s international market, for these reason subsidies in this sector plays a big role in the international trade balance, by lowering export prices and rendering operators from competing countries inefficient a scenario that distorts trade.

Tariff rate quotas and Import restrictions

The South Africa government has eliminated tariff rate quotas on Soya bean and palm oil and subjected them to express import licenses. At the same time Tariff rate quotas were introduced to other categories of imported trade items including processed wool, textile commodities and all phosphate fertilizers. Import restrictions have however been maintained based on public demand and environmental conservancy efforts. Restrictions of imports to South Africa include such products as sourced from animals including skins, hides and unprocessed horns and hooves (Padayachee 95).

Quantity Restrictions

South Africa has removed most of its restrictive measures on quantities of trade items and allowed free trade for such items. The licensing procedure therefore is applied in the same manner to all imported items. Items whose quantity restriction measures have been removed, for example live poultry and processed tobacco, still need close monitoring for record related purposes and are subjected to guaranteed permits with no quantitative and value restriction.

Local content requirements, Legislation and Labeling

South African government encourages producers to attain specified levels of local contents in their inputs by removing duties on such equivalent raw materials that shall be used for processing purposes. The government has been gradually revising its legislations and standards to conform to international practices with a goal of being fully complied by the year 2015. The labeling procedures provides that labels be clearly written in English and contain the details of the manufacturer, the trade mark and the ingredients or parts of the trade item (Padayachee 77).

State Trading and Anti dumping measures

State trading has significantly been reduced in South Africa except for the security related supplies. In case of commodities requiring state trading, the Ministry of commerce for South Africa prepares a list of such commodities and vets trading partners through competitive biding. The government has established anti-dumping duties to protect the domestic firms and industries from dumping practices by foreign trade partners especially China.

Administrative disincentives to export

South African authorities have devised measures to ensure that customs requirements are not unnecessarily over burdening to international traders. This is after observing that such burden some procedures are usually expensive results in time wastage as the goods are cleared at the boarder. The authorities have developed standard valuation techniques for the common goods to end tug of war that has always existed between the custom authorities and importers. These techniques are as provided by the world trade organization that ensures that the payment of duties is based on a neutral and uniform system that does not abuse the traders (Henson, et al 96).

Effects of the Interventions

Signaling

The government intervention to international trade and intervention is received by a reciprocating signal of its commitment to trade liberalization and competitive engagements. (Shister 37). This consequently builds the confidence of investors who then directs more of their time and money in the South African based international trade. This eventually establishes irreversible growth in both domestic and international trade. Though the exact signaling effect is hard to compute, its general effect forms the basis in which the other systems respond to the government’s intervention measures.

Export oriented Investment

The government supported, European Union tariff reduction measures, is definitely creating a new room for export oriented investment in the country. This is through improved levels of competitiveness of the items from South Africa to European Union markets. As a result this encourages foreign direct investment towards those areas that are seen to benefit from the upcoming business opportunities.

Increased competition

The initial response of the South African markets would be varied. First, the reduced tariff may harm potential players in the traditional markets looking for opportunities in foreign direct investment through exposing of local businesses to stiffer competition from foreign imports. In the other hand the reduced tariffs may play part to improve the competitive environment in South Africa as a desired destination for foreign direct investment through reduction in the costs of imports.

Conclusion

In general terms South Africa’s government protectionism leading to its intervention in international business and investment is seen as to have yield positive results. The business environment in South Africa is relatively good compared to most of the developing economies and serves as an example for the rest of the other African developing economies. The national trade norms of South Africa have grown well to resonate with most of the international major players hence giving it an edge in the international market. Following the various levels of government intervention, South Africa fairs relatively well on the basis of the requirement and procedures of starting a business. However South Africa still lags behind in the labor market through its rigidity in employment and security. The government must as well address this issue so as to maintain harmonious coexistence between provision of conducive and flexible environment to invest and provision of enough and reliable security for workers.

Finally, South Africa through appropriate intervention in international trade and investment has a future in maintaining its leadership role in Africa. This can be achieved through exemplary upholding of international standard norms of trade and positive designing and implementation of protectionist policies that would ensure generation of more revenue to the government, guarantee safety and welfare of its nationals, and above all build a platform where such interventions will assist to achieve its socio-economic goals and push forward the broad interests of the domestic firms and industries (Padayachee 54).

Works cited

Henson, Jim, and Wilson, John. The WTO and Technical Barriers to Trade. Northampton: Edward Elgar Publishing Limited, 2006.

Padayachee, Vishnu. Foreign Capital and Economic Development in South Africa: Recent Trends and Post apartheid Prospects, World Development, Vol. 23, No. 2, 1995.

Shister, Neil. Managing the Global Cold Chain. World Trade, Vol 17.9: 2004.

Tsai, Pei. Foreign Direct Investment and Income Inequality: Further Evidence, World Development, Vol. 23, No. 3, 1995.