Calls by the Department of Trade and Industry (DTI) to encourage local companies to apply for increases in duties on cheap imported products that threaten local manufacturers must also be balanced with an understanding of what impact this may have elsewhere on the economy.
This is according to Adam Orlin, CEO at Blue Strata, South Africa’s only integrated end-to-end import and working capital specialist, who says an increase in tariffs for any industry would require a cautious and consultative approach with all stakeholders.
The DTI said there is a significant gap between the applied rates (tariffs actually imposed on imports) and the bound rates (the maximum tariffs allowed by the World Trade Organisation) on certain product lines such as glass and tyres, with the result that strategic industries as identified in Government’s industrial policy action plan may need to be better protected.
Orlin notes that before any decision to increase tariffs on certain imported goods is taken there must be a comprehensive review and a real understanding of that industry. “There needs to be a thorough investigation into whether the local industry would have the capacity to support the demand for manufacture of a product, and should local industry not meet demand, the inflationary effect this will have on the cost of the product. The end result is that should local manufacturing capacity not be sufficient to keep up with demand, this could have a hugely detrimental effect on local businesses.”
“Furthermore, the investigation would also need to determine whether the local industry has access to the modern technology and resources that are readily available to international manufacturers to enable high volume product output at low cost production,” says Orlin.
Orlin notes that even if there are calls to increase tariffs on cheap imported goods, higher tariffs cannot be supported in all cases. “Higher tariffs will influence whether certain industries are able to continue importing particular product lines or whether they need to start manufacturing or sourcing these locally.”
“For local businesses that depend on importing product lines at a certain cost, higher tariffs could erode an already small profit margin or force them to source more expensive goods locally.”
“Higher tariffs will only be beneficial to local businesses where local manufacturing capacity can be filled without creating an inflationary effect – particularly those in key industries that may be struggling. If correctly applied, higher tariffs can provide real stimulus to the local economy; however, any move to increase tariffs must be right for local businesses and South Africa as a whole before a final decision is taken,” concludes Orlin.
This is an unedited statement issued by Blue Strata