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National Export Strategy:
Summary of the Research Findings
2
National Export Strategy: Executive
Summary of the Research Findings Prepared for the dti by Dr André Gouws, Ms Ann Moore, Mr Sithembiso Mtanga, Mr Jaco
Weideman and Ms Amy Trembling on behalf of TIPS
(This document has not been formally edited)
May 2013
i
Table of Contents
1 Introduction ............................................................................................................................................ 6
1.1 Retain, Expand and New (REN) Approach .......................................................................................... 7
2 The Policy Environment .......................................................................................................................... 9
2.1 National Development Plan ................................................................................................................ 9
2.2 New Growth Path .............................................................................................................................. 10
2.3 Trade and Industrial Policy................................................................................................................ 11
2.3.1 National Industrial Policy Framework ........................................................................................... 11
2.3.2 Industrial Policy Action Plans ........................................................................................................ 11
2.4 Mining and Minerals Beneficiation ................................................................................................... 12
2.5 The South African Trade Policy and Strategy Framework (SATPSF) ................................................. 12
2.5.1 Regional and Bilateral Relations ................................................................................................... 13
2.6 The Macroeconomic Policy Environment ......................................................................................... 14
2.7 The Incentive Framework ................................................................................................................. 14
2.8 Customs and Excise ........................................................................................................................... 15
2.9 Special Economic Zones .................................................................................................................... 15
2.10 Trade Development Strategy for Agriculture ................................................................................... 15
2.11 Enterprise Development ................................................................................................................... 16
2.12 The Competition Act ......................................................................................................................... 16
3 Benchmarking Best Practice ................................................................................................................. 18
3.1 Introduction ...................................................................................................................................... 18
3.2 Overview of Countries Chosen ......................................................................................................... 18
3.3 Findings ............................................................................................................................................. 21
3.4 Common Themes .............................................................................................................................. 23
4 Review of Previous Policies and Incentives .......................................................................................... 26
4.1 South Africa’s Early Trade and Trade Policies ................................................................................... 26
4.2 Trade Policy and Export Incentives: 1971 to 1990............................................................................ 27
4.3 Export Incentives and Support After 1990........................................................................................ 28
4.4 National Export Strategy of 2005/6 .................................................................................................. 28
5 Review of Current Available Programmes ............................................................................................ 31
5.1 Services and Programmes Provided by South African Government Departments .......................... 31
5.2 the dti ................................................................................................................................................ 31
5.2.1 National Exporter Development Programme ............................................................................... 31
5.3 Export Credit Insurance Corporation ................................................................................................ 32
5.4 Small Enterprise Development Agency (SEDA) ................................................................................. 32
5.5 Department of Science and Technology ........................................................................................... 33
5.5.1 Centres of Excellence .................................................................................................................... 33
5.5.2 Scientific and Technological Research and Development Tax Incentive in South Africa ............. 33
5.5.3 FabLabs ......................................................................................................................................... 34
5.6 Development Finance Institutions .................................................................................................... 34
5.6.1 Industrial Development Corporation of South Africa (IDC) .......................................................... 34
5.6.2 Small Enterprise Finance Agency (sefa) ........................................................................................ 34
5.6.3 National Empowerment Fund (NEF) ............................................................................................. 35
5.6.4 Land Bank ...................................................................................................................................... 35
ii
5.7 Provincial Government and Agencies ............................................................................................... 35
5.7.1 Western Cape ................................................................................................................................ 35
5.7.2 Limpopo ........................................................................................................................................ 36
5.7.3 Gauteng ......................................................................................................................................... 36
5.7.4 North-West ................................................................................................................................... 36
5.7.5 Mpumalanga ................................................................................................................................. 36
5.7.6 KwaZulu-Natal ............................................................................................................................... 37
5.7.7 Eastern Cape ................................................................................................................................. 37
5.7.8 Northern Cape............................................................................................................................... 37
5.7.9 Free State ...................................................................................................................................... 37
5.8 Services Provided by Non-governmental Organisations (NGOs) and Non-South African Agencies . 38
5.8.1 South African International Business Linkages Programme ......................................................... 38
5.8.2 Centre for the Promotion of Imports from Developing Countries (CBI) ....................................... 38
5.8.3 GIZ ................................................................................................................................................. 38
5.9 Private-sector Service Institutions .................................................................................................... 38
6 Survey of Exporters, Past Exporters and Potential Exporters ............................................................... 40
6.1 Current Exporters .............................................................................................................................. 40
6.1.1 Experience is important ................................................................................................................ 40
6.1.2 Export Growth Expectations ......................................................................................................... 40
6.1.3 Markets and potential markets .................................................................................................... 41
6.1.4 Drivers ........................................................................................................................................... 41
6.1.5 Benefits of exporting ..................................................................................................................... 42
6.1.6 Sources of comparative / competitive advantage ........................................................................ 42
6.1.7 Barriers .......................................................................................................................................... 44
6.2 Past Exporters ................................................................................................................................... 45
6.3 Potential Exporters ........................................................................................................................... 46
7 Export Performance – a Statistical Analysis .......................................................................................... 47
7.1 Growth in World Exports .................................................................................................................. 47
7.2 South Africa’s Export Performance ................................................................................................... 48
7.3 Destination of South Africa’s Exports ............................................................................................... 51
8 Competitiveness Diagnostics ................................................................................................................ 53
8.1 Exchange Rates ................................................................................................................................. 53
8.2 Anti-export Bias ................................................................................................................................ 55
8.3 Revealed Comparative Advantage .................................................................................................... 55
8.4 Areas of Possible Comparative Advantage ....................................................................................... 57
8.5 Export Potential ................................................................................................................................ 58
8.6 Conclusions ....................................................................................................................................... 59
8.6.1 Monitoring and evaluation ........................................................................................................... 59
8.6.2 Points for consideration ................................................................................................................ 59
Appendix 1. Benchmark-International Best Practice .......................................................................................... 4
1.1 Review of Countries ............................................................................................................................ 4
1.1.1 Purpose of Reviewing International Best Practice .............................................................................. 4
1.1.2 Choice of Countries ............................................................................................................................. 4
1.1.3 Criteria ................................................................................................................................................ 4
1.2 Constitutional Mandates .................................................................................................................... 5
iii
1.2.1 Historically Disadvantaged Groups ..................................................................................................... 5
1.2.2 Successful Exporters ........................................................................................................................... 5
1.2.3 Countries Selected .............................................................................................................................. 7
1.2.4 Extent of the Review ........................................................................................................................... 9
1.3 Philippines ......................................................................................................................................... 10
1.3.1 Introduction ...................................................................................................................................... 10
1.3.2 Strategic Export Goals ....................................................................................................................... 11
1.3.3 Vision and Mission ............................................................................................................................ 11
1.3.4 Institutional Framework ................................................................................................................... 11
8.6.3 Financing national export strategies and programmes ................................................................ 12
8.6.4 Export Development ..................................................................................................................... 12
1.3.5 Instruments Used in Export Promotion ............................................................................................ 13
1.3.6 Priority Sectors .................................................................................................................................. 14
1.3.7 Trade Information ............................................................................................................................. 14
1.3.8 Exporter Development ...................................................................................................................... 14
1.3.9 Outgoing Missions ............................................................................................................................ 15
1.3.10 Trade Shows ...................................................................................................................................... 15
1.3.11 Opportunity Matching ...................................................................................................................... 15
1.3.12 Targeting Markets ............................................................................................................................. 15
8.6.5 Closing Export Deals ...................................................................................................................... 16
8.6.6 Export Collaboration ..................................................................................................................... 16
1.3.13 Country Branding .............................................................................................................................. 16
1.3.14 Assessing Performance ..................................................................................................................... 16
1.3.15 WTO’s Trade Performance Review of the Philippines ...................................................................... 16
1.3.16 Measures Directly Affecting Exports ................................................................................................. 16
8.6.7 Export operations of state enterprises ......................................................................................... 18
1.3.17 Export Support .................................................................................................................................. 18
1.3.18 Jamaica .............................................................................................................................................. 21
1.3.19 Introduction ...................................................................................................................................... 21
1.3.20 Strategic Export Goals ....................................................................................................................... 21
1.3.21 Vision and Mission ............................................................................................................................ 22
1.3.22 Trade Information ............................................................................................................................. 23
1.3.23 Exporter Development ...................................................................................................................... 23
1.3.24 Export Collaboration ......................................................................................................................... 24
1.3.25 Country Branding .............................................................................................................................. 25
1.4 Malaysia ............................................................................................................................................ 25
1.4.1 Introduction ...................................................................................................................................... 25
1.4.2 Strategic Export Goals ....................................................................................................................... 26
1.4.3 Vision and Mission ............................................................................................................................ 26
1.4.4 Institutional Framework ................................................................................................................... 26
1.4.5 Financing National Export Strategies and Programmes ................................................................... 26
1.4.6 Priority Sectors .................................................................................................................................. 27
1.4.7 Trade Information ............................................................................................................................. 27
1.4.8 Exporter Development ...................................................................................................................... 27
1.4.9 Outgoing Missions ............................................................................................................................ 28
iv
8.6.8 Trade Shows .................................................................................................................................. 28
1.4.10 Opportunity Matching ...................................................................................................................... 29
1.4.11 Targeting Markets ............................................................................................................................. 29
1.4.12 Closing Export Deals .......................................................................................................................... 29
1.4.13 Export Collaboration ......................................................................................................................... 29
1.4.14 Country Branding .............................................................................................................................. 29
1.4.15 Assessing Performance ..................................................................................................................... 29
1.5 Uganda .............................................................................................................................................. 30
1.5.1 Introduction ...................................................................................................................................... 30
1.5.2 Strategic Export Goals ....................................................................................................................... 30
1.5.3 Vision and Mission ............................................................................................................................ 30
1.5.4 Institutional Framework ................................................................................................................... 31
1.5.5 Financing National Export Strategies and Programmes ................................................................... 31
1.5.6 Export Development ......................................................................................................................... 32
1.5.7 Product Development ....................................................................................................................... 32
1.5.8 Capacity Building ............................................................................................................................... 32
1.5.9 Market Development/Market Access ............................................................................................... 32
1.5.10 Instruments Used in Export Promotion ............................................................................................ 33
1.5.11 Priority Sectors .................................................................................................................................. 33
1.5.12 Trade Information ............................................................................................................................. 33
1.5.13 Exporter Development ...................................................................................................................... 34
1.5.14 Outgoing Missions ............................................................................................................................ 34
1.5.15 Trade Shows ...................................................................................................................................... 34
1.5.16 Opportunity Matching ...................................................................................................................... 34
1.5.17 Targeting Markets ............................................................................................................................. 34
1.5.18 Closing Export Deals .......................................................................................................................... 34
1.5.19 Export Collaboration ......................................................................................................................... 34
1.5.20 Country Branding .............................................................................................................................. 35
1.5.21 Assessing Performance ..................................................................................................................... 35
1.6 Ireland ............................................................................................................................................... 35
1.6.1 Introduction ...................................................................................................................................... 35
1.6.2 Strategic Export Goals ....................................................................................................................... 36
1.6.3 Vision and Mission ............................................................................................................................ 36
1.6.4 Institutional Framework ................................................................................................................... 36
1.6.5 Financing National Export Strategies and Programmes ................................................................... 37
1.6.6 Instruments Used in Export Promotion ............................................................................................ 37
1.6.7 Priority Sectors .................................................................................................................................. 38
1.6.8 Trade Information ............................................................................................................................. 38
1.6.9 Exporter Development ...................................................................................................................... 39
1.6.10 Outgoing Missions ............................................................................................................................ 39
8.6.9 Trade Shows .................................................................................................................................. 39
1.6.11 Opportunity Matching ...................................................................................................................... 40
1.6.12 Targeting Markets ............................................................................................................................. 40
1.6.13 Closing Export Deals .......................................................................................................................... 40
1.6.14 Export Collaboration ......................................................................................................................... 40
v
1.6.15 Country Branding .............................................................................................................................. 41
1.6.16 Assessing Performance ..................................................................................................................... 41
1.7 Canada .............................................................................................................................................. 41
1.7.1 Introduction ...................................................................................................................................... 41
1.7.2 Strategic Export Goals ....................................................................................................................... 42
1.7.3 Vision and Mission ............................................................................................................................ 42
1.7.4 Institutional Framework ................................................................................................................... 42
1.7.5 Financing National Export Strategies and Programmes ................................................................... 43
1.7.6 Export Development ......................................................................................................................... 43
1.7.7 Product Development and Capacity Building ................................................................................... 43
1.7.8 Market Access ................................................................................................................................... 44
1.7.9 Instruments Used in Export Promotion ............................................................................................ 44
1.7.10 Priority Sectors .................................................................................................................................. 44
1.7.11 Trade Information ............................................................................................................................. 44
1.7.12 Exporter Development ...................................................................................................................... 45
1.7.13 Outgoing Missions ............................................................................................................................ 46
8.6.10 Trade Shows .................................................................................................................................. 46
1.7.14 Opportunity Matching ...................................................................................................................... 46
1.7.15 Targeting Markets ............................................................................................................................. 46
1.7.16 Closing Export Deals .......................................................................................................................... 47
1.7.17 Export Collaboration ......................................................................................................................... 47
1.7.18 Country Branding .............................................................................................................................. 47
1.7.19 Assessing Performance ..................................................................................................................... 47
1.8 The United States .............................................................................................................................. 47
1.8.1 Introduction ...................................................................................................................................... 47
1.8.2 Strategic Export Goals ....................................................................................................................... 48
1.8.3 Vision and Mission ............................................................................................................................ 48
1.8.4 Institutional Framework ................................................................................................................... 48
1.8.5 Local Export Assistance ..................................................................................................................... 51
1.8.6 Financing National Export Strategies and Programmes ................................................................... 52
1.8.7 Instruments Used in Export Promotion ............................................................................................ 54
1.8.8 Priority Sectors .................................................................................................................................. 54
1.8.9 Trade Information and Exporter Development Services .................................................................. 54
1.8.10 Outgoing Missions ............................................................................................................................ 55
1.8.11 Export Collaboration ......................................................................................................................... 55
1.8.12 Assessing Performance ..................................................................................................................... 56
1.9 The United Kingdom ......................................................................................................................... 56
1.9.1 Strategic Export Goals ....................................................................................................................... 56
1.9.2 Vision and Mission ............................................................................................................................ 57
1.9.3 Institutional Framework ................................................................................................................... 58
1.9.4 Financing National Export Strategies and Programmes ................................................................... 58
1.9.5 Export Development ......................................................................................................................... 58
1.9.6 Product Development ....................................................................................................................... 58
1.9.7 Capacity Building ............................................................................................................................... 58
1.9.8 Market Access ................................................................................................................................... 58
vi
1.9.9 Instruments Used in Export Promotion ............................................................................................ 58
8.6.11 Trade Information ......................................................................................................................... 59
8.6.12 Exporter Development .................................................................................................................. 59
1.9.10 Trade Shows ...................................................................................................................................... 59
1.9.11 Opportunity Matching ...................................................................................................................... 60
1.9.12 Export Collaboration ......................................................................................................................... 60
1.9.13 Assessing Performance ..................................................................................................................... 60
1.10 Australia ............................................................................................................................................ 60
1.10.1 Introduction ...................................................................................................................................... 60
1.10.2 Strategic Export Goals ....................................................................................................................... 61
1.10.3 Vision and Mission ............................................................................................................................ 61
1.10.4 Institutional Framework ................................................................................................................... 61
1.10.5 Financial Support for Exporters ........................................................................................................ 62
1.10.6 Export Development ......................................................................................................................... 64
1.10.7 Getting Ready for Export .................................................................................................................. 64
1.10.8 International Readiness Indicator ..................................................................................................... 65
1.10.9 Capacity Building ............................................................................................................................... 65
1.10.10 Priority Sectors .......................................................................................................................... 66
1.10.11 Trade Information ..................................................................................................................... 66
1.10.12 Outgoing Missions and Trade Shows ........................................................................................ 66
1.10.13 Opportunity Matching .............................................................................................................. 66
1.10.14 Targeting Markets ..................................................................................................................... 67
1.10.15 Closing Export Deals .................................................................................................................. 67
1.10.16 Country Branding ...................................................................................................................... 67
1.10.17 Assessing Performance ............................................................................................................. 68
1.10.18 WTO’s Trade Performance Review ........................................................................................... 69
1.10.19 State Trading ............................................................................................................................. 69
1.11 Chile .................................................................................................................................................. 70
1.11.1 Introduction ...................................................................................................................................... 70
1.11.2 Strategic Export Goals ....................................................................................................................... 71
1.11.3 Vision and Mission ............................................................................................................................ 71
1.11.4 Institutional Framework ................................................................................................................... 71
1.11.5 Financing National Export Strategies and Programmes ................................................................... 72
1.11.6 Instruments Used in Export Promotion ............................................................................................ 73
1.11.7 Priority Sectors .................................................................................................................................. 73
1.11.8 Trade Information ............................................................................................................................. 73
1.11.9 Exporter Development ...................................................................................................................... 73
1.11.10 Targeting Markets ..................................................................................................................... 74
1.11.11 Closing Export Deals .................................................................................................................. 74
1.11.12 Country Branding ...................................................................................................................... 74
1.11.13 Assessing Performance ............................................................................................................. 74
1.12 BRIC Countries .................................................................................................................................. 74
1.13 Brazil .................................................................................................................................................. 75
1.13.1 Broad Trade Policy Objectives .......................................................................................................... 75
1.13.2 Overview of Trade Policies and Practices ......................................................................................... 75
vii
1.13.3 Measures Directly Affecting Imports ................................................................................................ 75
1.13.4 Measures Directly Affecting Exports ................................................................................................. 79
1.13.5 Procedures and Documentation ....................................................................................................... 79
1.13.6 Export Taxes ...................................................................................................................................... 80
1.13.7 Export Prohibitions, Restrictions, and Licensing ............................................................................... 80
1.13.8 Export Prohibitions ........................................................................................................................... 80
1.13.9 Export Quotas and Licensing ............................................................................................................. 81
1.13.10 Export Support and Related Tax Measures............................................................................... 81
1.13.11 Export Finance, Insurance, and Guarantees ............................................................................. 83
1.13.12 Export Insurance and Guarantees ............................................................................................ 84
1.13.13 Export Promotion and Marketing Assistance ........................................................................... 84
1.13.14 Incentives and Other Government Assistance.......................................................................... 85
1.14 India .................................................................................................................................................. 87
1.14.1 Overview of Recent Trends ............................................................................................................... 87
1.14.2 Measures Directly Affecting Imports ................................................................................................ 88
1.14.3 Customs Procedures ......................................................................................................................... 88
1.14.4 Tariffs ................................................................................................................................................ 90
1.14.5 Bound Tariff ...................................................................................................................................... 92
1.14.6 Other Charges Affecting Imports ...................................................................................................... 93
1.14.7 Import Prohibitions, Restrictions, and Licensing .............................................................................. 94
1.14.8 State Trading ..................................................................................................................................... 95
1.14.9 Contingency Measures...................................................................................................................... 96
1.14.10 Technical Regulations and Standards ....................................................................................... 97
1.14.11 Measures Directly Affecting Exports ......................................................................................... 98
1.14.12 Minimum Export Prices ............................................................................................................. 99
1.14.13 Export Prohibitions, Restrictions, and Licensing ....................................................................... 99
1.14.14 State Trading ........................................................................................................................... 100
1.14.15 Export Support ........................................................................................................................ 100
1.14.16 Export Promotion and Marketing Assistance ......................................................................... 104
1.14.17 Export Finance and Insurance ................................................................................................. 104
1.14.18 Other Support ......................................................................................................................... 105
1.15 China ............................................................................................................................................... 106
1.15.1 Customs Procedures, Valuation, and Rules of Origin ..................................................................... 106
1.15.2 Tariffs .............................................................................................................................................. 108
1.15.3 Import Prohibitions and Licensing .................................................................................................. 111
1.15.4 State Trading ................................................................................................................................... 112
1.15.5 Contingency Trade Measures ......................................................................................................... 112
1.15.6 Standards and Other Technical Requirements ............................................................................... 114
1.15.7 Government Procurement .............................................................................................................. 116
1.15.8 Measures Directly Affecting Exports ............................................................................................... 117
1.15.9 Export Prohibitions, Restrictions, and Licensing ............................................................................. 118
1.15.10 Measures Affecting Production and Trade ............................................................................. 120
1.15.11 Taxation and Tax Incentives .................................................................................................... 120
1.15.12 Subsidies and Other Government Assistance ......................................................................... 121
1.15.13 Industrial Policies .................................................................................................................... 123
viii
1.16 Findings and Conclusion ................................................................................................................. 124
1.16.1 Background Legislation and Institutional Framework .................................................................... 125
1.16.2 Strategic Export Goals ..................................................................................................................... 125
1.16.3 National Export Strategy and Foreign Direct Investment ............................................................... 126
1.16.4 Financing the NES and Associated Programmes ............................................................................. 126
1.16.5 Export Development ....................................................................................................................... 126
1.16.6 Capacity Building ............................................................................................................................. 126
1.16.7 Market Development/Market Access: ............................................................................................ 127
1.16.8 Priority Sectors ................................................................................................................................ 127
1.16.9 Brazil, India and China ..................................................................................................................... 127
1.16.10 Points for Consideration ......................................................................................................... 127
Appendix 2. Global trade performance per country....................................................................................... 132
Appendix 3. Removing Barriers to SME Access to International Markets ...................................................... 139
Appendix 4. A Brief Analysis of the Policy Environment ................................................................................. 143
4.1 Introduction .................................................................................................................................... 143
4.2 Policy Environment ......................................................................................................................... 143
4.2.1 National Development Plan ............................................................................................................ 143
4.2.2 The Role of Exports in the NDP ....................................................................................................... 146
4.2.3 The New Growth Path (NGP) .......................................................................................................... 148
4.2.4 The NGP and Exports ...................................................................................................................... 150
4.2.5 Trade and Industrial Policy.............................................................................................................. 152
4.2.6 National Industrial Policy Framework ............................................................................................. 152
4.2.7 Industrial Policy Action Plan (IPAP2) ............................................................................................... 154
4.2.8 Sectors ............................................................................................................................................. 154
4.2.9 A South African Trade Policy and Strategy Framework .................................................................. 155
4.2.10 Tariff Policy ..................................................................................................................................... 157
4.2.11 Multilateral Trade Relations ........................................................................................................... 158
4.2.12 Regional and Bilateral Relations ..................................................................................................... 159
4.2.13 The Southern African Customs Union (SACU) ................................................................................ 159
4.2.14 The Southern African Development Community (SADC) ................................................................ 160
4.2.15 National Customs Business Forums ................................................................................................ 160
4.2.16 Tripartite Free Trade Area (TFTA) ................................................................................................... 160
4.2.17 Africa Growth and Opportunity Act ................................................................................................ 162
4.3 Current Policy Issues Hampering or Promoting Trade .................................................................... 162
4.3.1 The Establishment of the Export Credit Insurance Corporation of South Africa Ltd (ECIC) ........... 162
4.3.2 Fiscal Policy ..................................................................................................................................... 162
4.3.3 Monetary Policy .............................................................................................................................. 163
4.3.4 Monetary Policy and Exchange Rates ............................................................................................. 164
4.3.5 Mining and Minerals Beneficiation ................................................................................................. 165
4.4 The Dti’s Incentives ......................................................................................................................... 167
4.4.1 Aquaculture Development and Enhancement Programme ( ADEP) .............................................. 167
4.4.2 Business Process Services (BPS) ...................................................................................................... 167
4.4.3 Capital Projects Feasibility Programme (CPFP) ............................................................................... 167
4.4.4 Clothing and Textile Competitiveness Improvement Programme (CTCIP) ..................................... 168
4.4.5 Critical Infrastructure Programme (CIP) ......................................................................................... 168
ix
4.4.6 People-carrier Automotive Investment Scheme (P-AIS) ................................................................. 168
4.4.7 Production Incentive (PI) ................................................................................................................ 168
4.4.8 Sector-Specific Assistance Scheme (SSAS) ...................................................................................... 168
4.4.9 SEDA Technology Programme (STP) ............................................................................................... 168
4.4.10 Support Programme for Industrial Innovation (SPII) ...................................................................... 168
4.4.11 Technology and Human Resources for Industry Programme (THRIP) ............................................ 169
4.4.12 The Manufacturing Competitiveness Enhancement Programme (MCEP) ..................................... 169
4.4.13 Tourism Support Programme (TSP) ................................................................................................ 169
4.5 Advanced Manufacturing Technology Strategy .............................................................................. 169
4.6 The Draft White Paper on South Africa’s Foreign Policy ................................................................ 170
4.7 Realignment of Economic Alliances; ............................................................................................... 171
4.8 Special Economic Zones .................................................................................................................. 172
4.9 Agriculture ...................................................................................................................................... 175
4.10 Defence Export Strategy ................................................................................................................. 175
4.11 Creative Industries .......................................................................................................................... 176
4.12 Enterprise Development ................................................................................................................. 176
4.12.1 Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises ...................... 176
4.12.2 Trade and Investment Development Programme (TIDP) for SMEs ................................................ 177
4.12.3 The Establishment of Local Trade Points ........................................................................................ 177
4.13 The Competition Act ....................................................................................................................... 178
4.14 Conclusion ....................................................................................................................................... 179
Appendix 5. Review of Previous Work Done .................................................................................................. 181
5.1 Introduction .................................................................................................................................... 181
5.2 Historic Overview ............................................................................................................................ 181
8.7 South Africa’s Early Trade and Trade Policies ................................................................................. 181
5.3 Commercial Diplomacy ................................................................................................................... 182
5.3.1 Foreign Economic Offices................................................................................................................ 183
5.4 The Years 1971 to 1990 .................................................................................................................. 184
5.5 National Export Strategies .............................................................................................................. 185
5.6 Export Incentives ............................................................................................................................ 186
5.7 The South African Foreign Trade Organisation ............................................................................... 189
5.8 Export Promotion After 1990.......................................................................................................... 190
5.8.1 General Export Incentive Scheme (GEIS) ........................................................................................ 190
5.8.2 The Formula .................................................................................................................................... 190
5.9 National Export Strategy ................................................................................................................. 194
5.10 The Draft National Export Strategy (NES) ....................................................................................... 196
5.11 Global Competitiveness .................................................................................................................. 197
5.12 Market Access ................................................................................................................................. 197
5.13 National Trade Information System ................................................................................................ 197
5.14 Exporter Development .................................................................................................................... 198
5.14.1 NEDP ............................................................................................................................................... 198
5.14.2 NEDP Vision and Mission ................................................................................................................ 199
5.14.3 Foundation for Exporter Development ........................................................................................... 199
5.14.4 Exporter’s Development Steps and NEDP Capacity Building .......................................................... 200
5.14.5 Export Villages ................................................................................................................................. 202
x
5.14.6 NEDP Business Model ..................................................................................................................... 202
5.14.7 Monitoring and Evaluation ............................................................................................................. 202
5.15 Export Mechanisms ......................................................................................................................... 203
5.15.1 Export Councils ............................................................................................................................... 203
5.16 Export Incentives and Financing ..................................................................................................... 206
5.16.1 Export Marketing Assistance .......................................................................................................... 206
5.17 Conclusion ....................................................................................................................................... 207
Appendix 6. Statistical Analysis ....................................................................................................................... 208
6.1 Introduction .................................................................................................................................... 208
6.2 The Global Economy ....................................................................................................................... 208
6.2.1 Growth in World Exports ................................................................................................................ 209
6.2.2 Global Trade Trends: Developed vs Developing Economies ........................................................... 211
6.3 Regional Export Performance ......................................................................................................... 212
6.4 World Leading Exporters and Importers of Goods Trade ............................................................... 213
6.5 Africa ............................................................................................................................................... 215
6.6 South Africa ..................................................................................................................................... 215
6.7 Structure and Patterns of South African Trade............................................................................... 216
6.7.1 Historical Overview ......................................................................................................................... 217
6.7.2 Export Growth Measures ................................................................................................................ 218
6.7.3 Key trading partners ....................................................................................................................... 222
6.7.4 Exports Per Sector ........................................................................................................................... 224
6.7.5 South Africa’s exports by sector and destination ........................................................................... 225
6.7.6 SA Exports by Province.................................................................................................................... 230
6.8 Revealed Comparative Advantage (RCA) ........................................................................................ 231
6.9 Index of Market Concentration....................................................................................................... 232
6.10 Intra-Industry Trade ........................................................................................................................ 234
6.10.1 Factors Affecting South African Competitiveness .......................................................................... 235
6.10.2 Exchange Rates ............................................................................................................................... 235
6.10.3 Enabling Environment ..................................................................................................................... 240
6.10.4 Infrastructure .................................................................................................................................. 242
6.10.5 Global Value Chains in South Africa ................................................................................................ 242
6.11 Conclusion ....................................................................................................................................... 242
6.11.1 Trade Flow Analysis: Methodology and Data ................................................................................. 244
6.11.2 Trade Flow Analysis ......................................................................................................................... 244
Appendix 7. Competitiveness Diagnostics ...................................................................................................... 252
7.1 Assessment of South Africa’s Global Competitiveness ................................................................... 252
7.1.1 Trade Openness .............................................................................................................................. 253
7.1.2 Measuring Competitiveness ........................................................................................................... 255
7.1.3 Competitiveness Rankings .............................................................................................................. 258
7.2 Revealed Comparative Advantage .................................................................................................. 259
7.2.1 RCA over Time ................................................................................................................................. 261
7.2.2 Anti-export Bias .............................................................................................................................. 266
7.3 Intra-Industry Trade ........................................................................................................................ 270
7.3.1 The Grubel-Lloyd Index has Been Applied to Calculate the IIT. ...................................................... 270
7.3.2 Implications of IIT ............................................................................................................................ 271
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7.4 Value Chains .................................................................................................................................... 271
7.4.1 End Markets .................................................................................................................................... 272
7.4.2 Global Value Chains ........................................................................................................................ 273
7.4.3 South African Exporters .................................................................................................................. 273
7.4.4 Areas of Possible Comparative Advantage ..................................................................................... 276
7.4.5 Implications of the RCA and Areas of Comparative Advantage ...................................................... 281
7.5 Incentive Framework ...................................................................................................................... 281
7.5.1 the dti’s Incentives .......................................................................................................................... 281
8.7.1 Incentives role in reducing the anti-export bias ......................................................................... 283
8.7.2 The Industrial Development Corporation ................................................................................... 283
8.7.3 The Export Credit Insurance Corporation ................................................................................... 283
7.5.2 Customs and Excise ......................................................................................................................... 283
7.6 Factor Conditions ............................................................................................................................ 284
7.6.1 Incentives Alone are not Enough .................................................................................................... 285
7.6.2 Market Access ................................................................................................................................. 285
7.7 Trade Promotion Infrastructure: The Institutional Framework ...................................................... 293
7.7.1 Export Councils ............................................................................................................................... 293
7.7.2 Provincial and Metro Development Agencies ................................................................................ 293
7.7.3 Trade Point ...................................................................................................................................... 293
7.7.4 Organised Business ......................................................................................................................... 293
7.7.5 Recommendations .......................................................................................................................... 293
7.8 Trade Promotion Infrastructure: Physical ....................................................................................... 294
7.8.1 Hard Infrastructure ......................................................................................................................... 294
7.8.2 Soft Infrastructure ........................................................................................................................... 304
7.9 Conclusion ....................................................................................................................................... 306
Appendix 8. Review of Training Programmes Provided by South African Service Providers ......................... 310
8.1 Introduction .................................................................................................................................... 310
8.2 Non-universities: ............................................................................................................................. 310
8.2.1 IMM Graduate School of Marketing – Advanced Diploma in Export Management ....................... 310
8.2.2 ITRISA - Diploma in Export Management........................................................................................ 310
8.2.3 Damelin ........................................................................................................................................... 310
8.2.4 Freight Training (Pty) Ltd ................................................................................................................ 310
8.2.5 Platinum Mile Consultants (Pty) Ltd ............................................................................................... 311
8.2.6 Chamber of Commerce and Industry -Johannesburg (NafcocJCCI) ................................................ 311
8.2.7 SA Agri Academy ............................................................................................................................. 311
8.2.8 School of Shipping ........................................................................................................................... 311
8.2.9 Ann Moore Cc ................................................................................................................................. 311
8.2.10 Productivity SA ................................................................................................................................ 311
8.2.11 Export Marketing & Management Consultants .............................................................................. 311
8.2.12 Durban Chamber of Commerce (DCC) ............................................................................................ 311
8.2.13 DSD Freight Management ............................................................................................................... 312
8.2.14 SA Electro-technical Export Council (SAEEC) .................................................................................. 312
8.2.15 SA Maritime School and Transport College .................................................................................... 312
8.2.16 Institute for Quality ......................................................................................................................... 312
8.2.17 Metro Minds ................................................................................................................................... 312
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8.2.18 Tradewize International CC ............................................................................................................. 312
8.2.19 Skills Development Specialists (SDS) ............................................................................................... 313
8.2.20 Flight Safety Training SA ................................................................................................................. 313
8.7.4 Hazardous Goods Training (Hazpak) ........................................................................................... 313
8.2.21 Dangerous Goods Training and Assessing Services - Dantran ........................................................ 313
8.2.22 Y2K Customs Academy .................................................................................................................... 313
8.2.23 ECLogistics ....................................................................................................................................... 313
8.2.24 AstroTech ........................................................................................................................................ 313
8.2.25 Logtrain International ..................................................................................................................... 313
8.3 Tertiary Institutes ............................................................................................................................ 314
8.3.1 Universities with a Stronger Focus on Trade/Exporting/international Marketing/business: ........ 314
8.3.2 Universities That Have Limited Coverage - a Module or Two in a Formal Degree or Diploma: ..... 314
8.3.3 Universities That are not Offering Anything According to Their Websites: ................................... 314
8.3.4 Business Schools ............................................................................................................................. 315
8.3.5 University of South Africa (UNISA) .................................................................................................. 315
8.3.6 The Trade Law Centre (TRALAC) ..................................................................................................... 315
Appendix 9. Export Councils, Industry associations and Joint action group .................................................. 317
9.1 Export Councils ............................................................................................................................... 317
9.1.1 Automotive Industry Export Council (AIEC) .................................................................................... 317
9.1.2 Built Environment Professions Export Council (BEPEC) .................................................................. 317
9.1.3 Capital Equipment Export Council .................................................................................................. 318
9.1.4 Fresh Produce Exporters' Forum (FPEF) / Fruit South Africa .......................................................... 318
9.1.5 Farmed Abalone Export Council ..................................................................................................... 319
9.1.6 South African Boat Builders Export Council (SABBEX) .................................................................... 319
9.1.7 Cosmetic Export Council of South Africa (CECOSA) ........................................................................ 319
9.1.8 South African Electro-technical Export Council (SAEEC) ................................................................. 320
9.1.9 South African Flower Export Council (SAFEC) ................................................................................. 320
9.1.10 South African Footwear and Leather Export Council (SAFLEC) ............................................... 320
9.1.11 South African International Steel Fabricators (ISF) ................................................................. 321
9.1.12 South African Textile Industry Export Council (SATIEC) .................................................................. 321
9.1.13 South African Wire Business Council (SAWA) ................................................................................. 321
9.1.14 Wines of South Africa (WOSA) ........................................................................................................ 321
9.1.15 Steel Tube Export Council ............................................................................................................... 322
9.1.16 South African Equine Trade Council ............................................................................................... 322
9.1.17 South African Fruit and Vegetable Canners' Export Council ........................................................... 322
9.2 Industry Associations ...................................................................................................................... 323
9.2.1 South African Ostrich Business Chamber (SAOBC) ......................................................................... 323
9.2.2 Aluminium Federation of South Africa (AFSA) ................................................................................ 323
9.2.3 South African Iron and Steel Institute (SAISI) ................................................................................. 323
9.2.4 South African Stainless Steel Development Association (SASSDA) ................................................. 323
9.3 Joint Action Groups ......................................................................................................................... 323
9.3.1 Jewellery Council of South Africa .................................................................................................... 323
Appendix 10. Export Potential ........................................................................................................................ 325
10.1 Introduction .................................................................................................................................... 325
10.1.1 Gravity ............................................................................................................................................. 325
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10.1.2 Gravity: What We Hope to Achieve. ............................................................................................... 326
10.2 The Model ....................................................................................................................................... 326
10.2.1 The Total Trade Model .................................................................................................................... 326
10.2.2 The Sectoral Trade Gravity Model .................................................................................................. 327
10.3 The Products (HS6).......................................................................................................................... 328
10.4 The Results ...................................................................................................................................... 329
10.4.1 Results of the Total Trade Model .................................................................................................... 329
10.4.2 The Regression Coefficients ............................................................................................................ 329
10.4.3 Results of the Sectoral Model ......................................................................................................... 330
10.4.4 Sectors Identified by the Gravity Model ......................................................................................... 332
10.4.5 Gaps with African Markets .............................................................................................................. 332
10.4.6 Interesting Sectors .......................................................................................................................... 333
10.4.7 The Products (HS6).......................................................................................................................... 333
10.4.8 The Regressions .............................................................................................................................. 334
10.4.9 The Gaps ......................................................................................................................................... 336
10.4.10 Critical Observations ............................................................................................................... 336
10.4.11 Barriers to Trade ..................................................................................................................... 337
10.5 Decision Support Systems ............................................................................................................... 337
10.5.1 Global Economic Strategy System .................................................................................................. 337
8.7.5 The Decision Support Model ....................................................................................................... 338
10.6 Geographical Distribution of Potential Value of Export Opportunities .......................................... 340
10.7 Conclusion ....................................................................................................................................... 340
10.8 Areas of Possible Comparative Advantage ..................................................................................... 341
10.9 Integrating IPAP and Potential Trade.............................................................................................. 343
10.10 Findings and Recommendations ..................................................................................................... 344
Appendix 11. Survey of Past, Potential and Current Exporters ...................................................................... 345
11.1 Survey of existing exporters............................................................................................................ 345
11.2 Introduction .................................................................................................................................... 345
11.3 Responses to the Survey of Current Exporters ............................................................................... 346
11.3.1 Size of Respondent Companies ....................................................................................................... 347
11.3.2 Sectors Represented by Respondent’s Companies ........................................................................ 348
11.3.3 Exporters’ Experience ..................................................................................................................... 348
11.3.4 Reasons for Exporting ..................................................................................................................... 349
11.3.5 Benefits Exporters Have Enjoyed Through Exporting ..................................................................... 352
11.3.6 How Exporters are Currently Exporting .......................................................................................... 356
11.3.7 Use of the Internet in Exporting ..................................................................................................... 357
11.3.8 Comparative and Competitive Advantage ...................................................................................... 358
11.3.9 Inputs .............................................................................................................................................. 362
11.3.10 Government Grants or Export Incentives ............................................................................... 370
11.3.11 Value Chains ............................................................................................................................ 371
11.3.12 Growth .................................................................................................................................... 372
11.3.13 Product Development ............................................................................................................. 373
11.3.14 Barriers to Market Entry ......................................................................................................... 375
11.3.15 Foreign Market Information ................................................................................................... 378
11.3.16 Transport (Sea, Air, Road, Rail) ............................................................................................... 381
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Tables
Table 1: South Africa’s exporter dynamics ......................................................................................................... 8
Table 2: Export indices of benchmark countries and South Africa ................................................................... 19
Table 3: World Bank Enterprise Surveys ........................................................................................................... 19
Table 4: Doing Business 2012 report ................................................................................................................ 20
Table 5: Export support value chain ................................................................................................................. 29
Table 6: Expectations to increase exports ........................................................................................................ 41
Table 7: Growth of trade of (2007–2011) ......................................................................................................... 49
Table 8: Comparative export growth rates ....................................................................................................... 50
Table 9: Structure of Exports, 1994–2011 (Shares-%) ...................................................................................... 50
Table 10: South African export commodities by region: 2012 ......................................................................... 51
Table 11: RCA in South Africa 2007 - 2011 ....................................................................................................... 56
Table 12: International export performance indications .................................................................................... 5
Table 13: TPCC Program Budget Authority, FY 2006-FY 2012 (US$ m) ............................................................ 52
Table 14: Request for FY 2012 (millions of U.S. dollars) ................................................................................... 52
Table 15: Summary analysis of the MFN tariff, 2008 ........................................................................................ 76
Table 16: Export taxes, 2004-08 ....................................................................................................................... 80
Table 17: Rules of origin under preferential trade agreements, 2011 ............................................................. 89
Table 18: Tariff structure (per cent), 2006/07 and 2010/11 ............................................................................ 91
Table 19: Summary analysis of the tariff, 2006/07 and 2010/11 ..................................................................... 92
Table 20: Summary analysis of India's imports charges, 2010/11 .................................................................... 93
Table 21: Export taxes, 2011 ............................................................................................................................. 98
Table 22: Export cess rate, 2011 ....................................................................................................................... 99
Table 23: Incentives granted to SEZ units, 2011 ............................................................................................. 101
Table 24: Exports from SEZs, 2007 10 (US$ billion, unless otherwise specified)............................................ 101
Table 25: Incentives granted to EOUs, 2011 ................................................................................................... 102
Table 26: Exports from EOUs, 2007 10 (US$ billion, unless otherwise specified) .......................................... 103
Table 27: Products reserved for MSEs, 2011 .................................................................................................. 106
Table 28: China's tariff structure (per cent), 2007, 2009 and 2011 ................................................................ 108
Table 29: Summary analysis of China's preferential tariff, 2011 (%) .............................................................. 110
Table 30: China's anti-dumping measures by product and by country (in force as of 31 December 2010) .. 113
Table 31: Summary of the findings ................................................................................................................. 124
Table 32: Global trade performance per country ........................................................................................... 132
Table 33: Indicative scenarios - sector distribution of employment .............................................................. 148
Table 34: Total Category A export assistance (R millions) .............................................................................. 187
Table 35: Total Category B export assistance (R millions) .............................................................................. 187
Table 36: Total Category D export assistance (categories indicated by the claimants) R000 ........................ 188
Table 37: The E-factors per period.................................................................................................................. 193
Table 38: Economic growth forecasts for 2013 and 2014 .............................................................................. 208
Table 39:Growth in world trade ..................................................................................................................... 209
Table 40: World leading exporters and importers of Goods Trade, 2011 (US$ Billion) ................................. 214
Table 41: Growth of trade of key developing countries (2007-2011) ............................................................ 220
Table 42: Structure of Exports, 1994-2011 (Shares - %) ................................................................................. 221
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Table 43: Annual Average Growth Rate SA trade in Africa (1994-2011) ........................................................ 222
Table 44: RCA in South Africa’s Exports at HS4 level - .................................................................................... 232
Table 45: South Africa’ export concentration ................................................................................................. 233
Table 46: Annual % change and forecasts 1970 to 2017 ................................................................................ 244
Table 47: The WEF's 12 pillars of competitiveness ......................................................................................... 258
Table 48: Revealed Comparative Advantage in South Africa’s Exports at HS4 level - .................................... 260
Table 49 Anti-export bias and ERP .................................................................................................................. 269
Table 50 Leamer Classification of Nodes ........................................................................................................ 276
Table 51 RCA and Ranked Factor intensities, data source: UNCTAD “dataset of RFII” .................................. 284
Table 52: Exports and Duties faced by South Africa ....................................................................................... 286
Table 53: South Africa’s highest applied tariffs .............................................................................................. 289
Table 54 Ranked tariff and trade restrictiveness index (TTRI) with South Africa as exporter ........................ 289
Table 55 Ranked RPM with ZAF as exporter, source UNCTAD market access indices ................................... 290
Table 56: Public-sector infrastructure expenditure estimates by sector, 2010/11—2014/15....................... 295
Table 57: Logistics performance index ........................................................................................................... 301
Table 58: South Africa’s distance-to-frontier.................................................................................................. 302
Table 59: Trading Across Borders: Costs & Time Delays – BRICs and South Africa (2012) ............................. 302
Table 60: Logistic Performance Index ............................................................................................................. 306
Table 61: South Africa - Overall Performance ................................................................................................ 308
Table 62: Results of regression ....................................................................................................................... 329
Table 63: Countries with the highest potential .............................................................................................. 330
Table 64: Result of model ............................................................................................................................... 331
Table 65: Sectors identified by the Gravity Model ......................................................................................... 332
Table 66: Gaps with African Markets .............................................................................................................. 332
Table 67: Interesting Sectors .......................................................................................................................... 333
Table 68: The largest gaps found by the HS6 gravity model .......................................................................... 336
Table 69: Trading Across Borders: Costs & Time Delays – BRICs and South Africa (2012) ............................. 337
Table 70: Global Economic Strategy System ................................................................................................... 338
Table 71: DSM dashboard ............................................................................................................................... 340
Table 72 Leamer Classification of Nodes ........................................................................................................ 342
Table 73: Origin of responses - exporters ....................................................................................................... 346
Table of Figures
Figure 1: Growth in world exports .................................................................................................................... 47
Figure 2: South Africa’s share of world exports declining ................................................................................ 48
Figure 3: World market share decreasing ......................................................................................................... 49
Figure 4: Graph showing efficient trade promoting countries ........................................................................... 7
Figure 5: Map showing the distribution of best practice countries researched ................................................. 9
Figure 6: The quandary of growth and job creation ....................................................................................... 147
Figure 7: Export Promotion Agency Budgets and Exports per capita ............................................................. 183
Figure 8: The ITC’s gears approach to developing a national export strategy ............................................... 195
Figure 9: Draft national export strategy: export support value chain ............................................................ 196
Figure 10: Stages of exporter development ................................................................................................... 201
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Figure 11: Monitoring and evaluation ............................................................................................................ 203
Figure 12: Proposed Export Council model for South Africa .......................................................................... 205
Figure 13: World trade (as a percentage of world GDP)................................................................................. 209
Figure 14: Growth in world exports ................................................................................................................ 210
Figure 15: Growth in volume of goods trade and GDP (annual % change) .................................................... 211
Figure 16: Volume of exports of goods and services: Percent change ........................................................... 212
Figure 17: Current account balance: U.S. dollars (Billions) ............................................................................. 212
Figure 18: Goods Trade by Region - 2011 ....................................................................................................... 213
Figure 19: South Africa’ economic performance and forecast ....................................................................... 216
Figure 20: South Africa’s share of world exports declining ............................................................................ 217
Figure 21: World market share decreasing ..................................................................................................... 217
Figure 22: SA Total Imports, Exports and Trade Balance (1994-2011) ........................................................... 218
Figure 23: Exports per capita .......................................................................................................................... 219
Figure 24: Export growth ................................................................................................................................ 219
Figure 25: Quarter on Quarter Export Growth ............................................................................................... 220
Figure 26: Exports per sector .......................................................................................................................... 225
Figure 27: SA Exports by Province in 2008 and 2011 ...................................................................................... 230
Figure 28: South Africa’s REER ........................................................................................................................ 238
Figure 29:Forecast values of the REER, NEER and USD: ZAR exchange rates ................................................. 238
Figure 30: South African Terms of Trade ........................................................................................................ 239
Figure 31: Terms of Trade of goods and services (percentage change) ......................................................... 240
Figure 32: Openness index - BRICS ................................................................................................................. 254
Figure 33: South Africa’s openness ................................................................................................................. 255
Figure 34: The Global Competitiveness Index framework .............................................................................. 257
Figure 35: South Africa’s Provincial RCA: No. of Product Lines with RCA at HS2 (2011) ................................ 261
Figure 36: RCA for Platinum in semi-manufactured forms ............................................................................. 261
Figure 37: RCA for Chromium ores and concentrates .................................................................................... 261
Figure 38 Snap shot of proximity matrix ......................................................................................................... 262
Figure 39: Snap Shots of Interactive Excel Sheet 1 ......................................................................................... 262
Figure 40: Snap Shots of Interactive Excel Sheet 2 ......................................................................................... 263
Figure 41: Snap Shots of Interactive Excel Sheet 3 ......................................................................................... 263
Figure 42: Snap Shots of Interactive Excel Sheet 4 ......................................................................................... 264
Figure 43: Snap Shots of Interactive Excel Sheet5 .......................................................................................... 264
Figure 44: Snap Shots of Interactive Excel Sheet 6 ......................................................................................... 265
Figure 45: Snap Shots of Interactive Excel Sheet 7 ......................................................................................... 266
Figure 46 Anti-Export Bias trend ..................................................................................................................... 268
Figure 47: Basic value chain ............................................................................................................................ 271
Figure 48: Responses to the question: How important are value chains ....................................................... 273
Figure 49: Source: OECD Financial statistics database ................................................................................... 274
Figure 50: Exports per sector .......................................................................................................................... 275
Figure 51: South African Product Space for 2000 ........................................................................................... 276
Figure 52 How RCA has changed over time, 1994 to 2010 ............................................................................. 278
Figure 53 How RCA has changed for cereal type goods and tyres ................................................................. 278
Figure 54 Changes in RCA for motor vehicles ................................................................................................. 279
Figure 55 RCA gained in the fishing sector ..................................................................................................... 279
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Figure 56 Garment sector ............................................................................................................................... 280
Figure 57 RCA gained in metal sector ............................................................................................................. 280
Figure 58: Average of most favoured nation (MFN) tariffs: Agricultural ........................................................ 288
Figure 59: Average of MFN tariffs: Industrial ................................................................................................. 288
Figure 60: Snap shot of Interactive spreadsheet ............................................................................................ 292
Figure 61: Excel sheet snapshot, coconut oil .................................................................................................. 292
Figure 62: Ports of South Africa by corridors served ...................................................................................... 297
Figure 63: South Africa’s major road networks .............................................................................................. 299
Figure 64: National rail network ..................................................................................................................... 300
Figure 65: ITC in Africa .................................................................................................................................... 304
Figure 66: Competitiveness Landscape........................................................................................................... 309
Figure 67: DSM filters ..................................................................................................................................... 339
Figure 68: Geographical distribution of potential value of export opportunities .......................................... 340
Figure 69” South African Product Space for 2000 .......................................................................................... 342
Figure 70: Total number of full time paid employees .................................................................................... 347
Figure 71: Exporter size turnover ................................................................................................................... 347
Figure 72: Classification of exporters .............................................................................................................. 348
Figure 73: Firms experience ............................................................................................................................ 349
Figure 74: Reasons for exporting .................................................................................................................... 350
Figure 75: Reasons for exporting .................................................................................................................... 352
Figure 76: Current export channels ................................................................................................................ 357
Figure 77: Comparative and competitive advantage ...................................................................................... 358
Figure 78: Existing contacts in export market ................................................................................................ 359
Figure 79: Innovative products ....................................................................................................................... 360
Figure 80: Productivity .................................................................................................................................... 362
Figure 81: Raw materials ................................................................................................................................ 363
Figure 82: Labour cost ..................................................................................................................................... 364
Figure 83: Energy cost ..................................................................................................................................... 365
Figure 84: Cost of capital ................................................................................................................................ 366
Figure 85: Economies of scale according to the number of employees ......................................................... 367
Figure 86: Economies of scale according to sector ......................................................................................... 368
Figure 87: Proximity to markets ...................................................................................................................... 369
Figure 88: Similarity of tastes.......................................................................................................................... 370
Figure 89: Government grants ........................................................................................................................ 371
Figure 90: Value chains ................................................................................................................................... 372
Figure 91: Expectations to increase exports ................................................................................................... 373
Figure 92: Assistance needed to diversify ...................................................................................................... 374
Figure 93: Barriers to market entry ................................................................................................................ 375
Figure 94: Resources (financial) ...................................................................................................................... 376
Figure 95:Product quality control ................................................................................................................... 379
Figure 96: Packaging design ............................................................................................................................ 380
Figure 97: Transport (sea, air, road, rail) ........................................................................................................ 381
Figure 98: Freight forwarding and logistics management .............................................................................. 382
Figure 99: Product inspection ......................................................................................................................... 384
Figure 100: Product classification (for customs purposes) ............................................................................. 385
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Figure 101: Documentation acquisition and completion ............................................................................... 386
Figure 102: Marine (cargo) insurance ............................................................................................................. 387
Figure 103: Finance for production expansion ............................................................................................... 388
Figure 104: Payment processing and/or guarantees ...................................................................................... 389
Figure 105: Credit insurance ........................................................................................................................... 390
Figure 106: Foreign exchange risk management ............................................................................................ 391
Figure 107: E-commerce facilitation ............................................................................................................... 392
Figure 108: Consultancy related to customs duty refunds and drawbacks .................................................... 393
Figure 109: Consultancy related to accessing trade agreements ................................................................... 394
Figure 110: Assistance with contract formulation .......................................................................................... 395
Figure 111: Patent or trademark registration ................................................................................................. 395
Figure 112: Legal services - Dispute resolution .............................................................................................. 395
Figure 113: Assistance in establishing an offshore presence ......................................................................... 395
Figure 114: Advertising, public relations ........................................................................................................ 396
Figure 115: Identifying appropriate foreign market distribution channels .................................................... 397
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Table of Abbreviations
ABB Australian Barley Board ACOA Atlantic Canada Opportunities Agency ACPM Association of Construction Project Managers ACSA Airports Company South Africa ADEP Aquaculture Development and Enhancement Programme AEB Anti-export bias AFRMM Additional tax for the renovation of the merchant marine AFSA Aluminium Federation of South Africa AGOA Africa Growth and Opportunity Act AIEC Automotive Industry Export Council AMTS Advanced Manufacturing Technology Strategy APDP Automotive Production and Development Programme APEDA Agricultural and Processed Food Products Export Development Authority APM Administered pricing mechanism ASEAN Association of Southeast Asian Nations AsgiSA Accelerated and Shared Growth Initiative for South Africa AWB Australian Wheat Board BBBEE Broad-based Black Economic Empowerment BBEEE Based Black Economic Empowerment BEDP Bumiputera Exporters Development Programme BEE Black Economic Empowerment BEPEC Built Environment Professions Export Council BETP Bureau for Export Trade Promotion BFAR Bureau of Fisheries and Aquatic Resources BOI Board of Investments BPO Business Process Outsourcing and Offshoring BPS Business Process Services BRIC Brazil, Russia, India and China BSP Bangko Sentral ng Pilipinas BTI Board of Trade and Industry BUSA Business Unity South Africa C&E Customs and Excise CARICOM Caribbean Community CBMW Customs Bonded Manufacturing Warehouse CCA Customs Controlled Areas CCC Commodity Credit Corporation CCDI Cape Craft & Design Institute CCI Competition Commission of India CCMA Commission for Conciliation, Mediation and Arbitration CCPIT China Council for the Promotion of International Trade CEC Community enterprise centres CECOSA Cosmetic Export Council of South Africa CESA Consulting Engineers South Africa CET Common External Tariff CHAMPS Chongqing, Hefei, Anshan, Maanshan, Pingdingshan and Shenyang CHE Council on Higher Education CICS Competitiveness and Investment Climate Strategy CIM Certain Inputs to Manufacture CIP Critical Infrastructure Programme CIS Commonwealth of Independent States
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CITES Convention on International Trade in Endangered Species CKD Completely knocked-down COMESA Common Market for Eastern and Southern Africa COTII Council of Trade and Industry Institutions CPFP Capital Projects Feasibility Programme CPI Consumer price index CPSE Central public sector enterprises CQC China Quality Certification Centre CSIR Council for Scientific and Industrial Research CSME Caribbean Single Market and Economy CSP Customised sector programmes CTCIP Clothing and Textile Competitiveness Improvement Programme CTCP Clothing and Textile Competitiveness Programme DAFF Department of Agriculture Forestry and Fishing DDP Delivered duty paid DGAD Dumping and Allied Duties DGFT Directorate-General of Foreign Trade DIRCO Department International Relations and Cooperation DOA Department of Agriculture DRC Democratic Republic of the Congo DSM Decision Support Model DST Department of Science and Technology DTA Domestic tariff area EAC East African Community ECCAS Economic Community of Central African States ECDC Eastern Cape Development Corporation ECI Export credit insurance ECIC Export Credit Insurance Corporation ECOWAS Economic Community of West African States ECV Eligible contract value EDA Export Development Act EDI Electronic data interchange EEP Exporter Education Programme EFIC Export Finance and Insurance Corporation EFTA European Free Trade Association EI Enterprise Ireland EIP Enterprise Investment Programme EIU Economist Intelligence Unit EMDG Export Market Development Grant EMIA Export Marketing and Investment Assistance EOU Export-Oriented Units EPA Economic Partnership Agreement EPC Export Promotion Cabinet EPZ Export-processing zones ERP Effective rate of protection ETC Export Trading Company ETCA Export Trading Company Act ETFD Export Trade Facilitation Division FCO Foreign and Commonwealth Office FDC Free State Development Corporation FDI Foreign direct investment
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FIE Foreign-invested enterprises FPEF Fresh Produce Exporters' Forum FTA Free trade agreements GAC General Administration of Customs GATT General Agreement on Tariffs and Trade GCI Global Competitiveness Index GCS Global Commerce Strategy GDP Gross domestic product GEAR Growth, Employment and Redistribution GEDA Gauteng Economic Development Agency GEIS General Export Incentive Scheme GEP Gauteng Enterprise Propeller GESP Global Export Strategy Project GESS Global Economic Strategy System GGDA Gauteng Growth and Development Agency GIBS Gordon Institute of Business Science GLC Government-linked companies GMP Good Manufacturing Practice GNI Gross national income GNP Gross national product GOA Global Opportunities for Associations GSB Graduate School of Business GSM Graduate School of Marketing GSP Generalised System of Preferences GST General Sales Tax GSTP Global System of Trade Preferences GVA Gross Value Added GVC Global value chain GWME Government-wide Monitoring and Evaluation HDI Historically Disadvantaged Individuals HHI Herfindahl-Hirschman Index IA Import Administration IATTO International Association of Trade Training Organisations ICCI Invest Canada-Community Initiatives ICMS Interstate transportation and communication services ICT Information and Communication Technology IDA Industrial Development Agency IDC Industrial Development Corporation IDD Industrial Development Division IDZ Industrial Development Zones IEC International Electro-technical Commission IIT Intra-industry trade INES Integrated National Export Strategy INW Invest North-West IPAP Industrial Policy Action Plan IQ Institute for Quality ITA International Trade Administration ITAC International Trade Commission ITC International Trade Centre ITH Income tax holiday ITPC Investment and Trade Policy Centre
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ITU International Telecommunication Union JAG Joint action group JBOS Jamaica Business Opportunity Service JCCI Johannesburg Chamber of Commerce and Industry JIT Just In Time JTAT Jamaica Trade and Adjustment Team KAP Key action plans LDC Least developed countries LED Local Economic Development LEDA Limpopo Economic Development Agency LIBOR London Interbank Offered Rate LPG Liquefied Petroleum Gas LSCI Liner Shipping Connectivity Index MAC Market Access and Compliance MAS Manufacturing and Services MCEP Manufacturing Competitiveness Enhancement Programme MFN Most favoured nation MIDP Motor Industry Development Programme MOFCOM Ministry of Commerce MSE Micro and small enterprises MSME Micro, Small, and Medium Enterprises MTC Malaysia Trade Centre MTTI Ministry of Tourism, Trade and Industry MVPD Motor Vehicle Development NAFTA North American Free Trade Agreement NCBF National Customs Business Forums NCCD National calamity contingent duty NCEDA Northern Cape Economic Development Agency NDP National Development Programme NEDP National Exporter Development Programme NEF National Empowerment Fund NEI National Export Initiative NEIA National Export Insurance Account NERSA National Energy Regulator of South Africa NES National Export Strategy NGO Non-governmental Organisations NGP New Growth Path NIPF National Industrial Policy Framework NPC National Planning Commission NRF National Research Foundation NTIS National Trade Information System NTP National Trade Policy OIC Omnibus Investment Code OIT Office of International Trade OMB Office of Management Budget OMIS Overseas Market Introduction Service OPEC Organization of the Petroleum Exporting Countries OPIC Overseas Private Investment Corporation OSM Outward Selling Trade Missions PDS Public Distribution System PEAP Poverty Eradication Action Plan
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PEC Presidential Economic Policy Council PEFG Preshipment export finance guarantees PERG Post-shipment risk guarantee PEZA Philippine Economic Zone Authority PGM Platinum group metals PI Production Incentive PICC Presidential Infrastructure Coordinating Commission PL Prior Learning PMR Primary Market Research PPP Public Private Partnership PPSA Protea Producers of South Africa PSFU Private Sector Foundation Uganda PTA Preferential trade agreements QSL Queensland Sugar Limited R&D Research and development RCA Revealed Comparative Advantage REC Regional Economic Communities REER Real effective exchange rate REN Retain, Expand and New RFI Revealed factor intensities RIBS Rhodes Investec Business School SACU Southern African Customs Union SADC Southern African Development Community SADPA South African Development Partnership Agency SAFEC South African Flower Export Council SAFGA South Africa, SA Flower Growers Association SAFLEC South African Footwear and Leather Export Council SAFTO South African Foreign Trade Organisation SAIA South African Institute of Architects SAIBL South African International Business Linkages SAISI South African Iron and Steel Institute SANRAL South African National Roads Agency Limited SAOBC South African Ostrich Business Chamber SAQA South African Qualifications Authority SAR Special Administrative Regions SARB South African Reserve Bank SARS South African Revenue Service SASSDA South African Stainless Steel Development Association SBA Small Business Administration SBL School of Business Leadership SCCC Sub-committee on Customs cooperation SCOMET Special chemicals, organisms, materials, equipment, and technologies SDS Skills Development Specialists SEDA Small Enterprise Development Agency SEDP Small Exporter Development Programme SETA Sector Education and Training Authority SEZ Special Economic Zone SGS Société Générale de Surveillance SIC Standard Industrial Classification SMEDP Small-and Medium Enterprise Development Programme SMME Small, medium and micro enterprises
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SOE State-owned enterprises SPII Support Programme for Industrial Innovation SPS Sanitary and Phytosanitary SQAM Standards, quality assurance, accreditation and metrology SSA Sub-Saharan Africa SSAS Sector-specific assistance STE State-trading enterprises SWOT Strengths, weaknesses, opportunities and threats TAP Tradeshow Access Programme TBT Technical barriers to trade TDA Trade and Development Agency TEO Through The Enterprise Organisation TESA Team Exports South Africa TETA Transport Education and Training Authority TFTA Tripartite Free Trade Area THRIP Technology and Human Resources for Industry Programme THRIPS Technology and Human Resources for Industry Programme TIAG Trade Information and Assistance Group TIDCORP Trade and Investment Development Corporation of the Philippines TIDP Trade and Investment Development Programme TIKZN Trade and Investment KwaZulu-Natal TIL Trade and Investment Limpopo TLGP Term Loan Guarantee Programme TOC Top of the Class TPA Trade Promotion Agency TPCC Trade Promotion Coordinating Committee TPO Trade promotion organisation TPSF Trade Policy and Strategy Framework TRQ Tariff rate quotas TTRI Tariff and trade restrictiveness index UAE United Arab Emirates UEPB Uganda Export Promotion Board UGETS Uganda Export Training School UKTI UK Trade and Investment UNCTAD United Nations Conference on Trade and Development UNISA University of South Africa USB University of Stellenbosch Business VLCC Very Large Crude Carriers VTC Virtual Trade Commissioner WBS Wits Business School WCO World Customs Organisation WCY World Competitiveness Yearbook WEDP Women Exporters Development Programme WOSA Wines of South Africa WTA World Trade Analyser WTO World Trade Organization WTPF World Trade Point Federation
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1 Introduction The South African economy faces a number of structural constraints that impact on its ability to generate
growth and support employment creation in the long term. A comprehensive response by the state to
addressing unemployment and inequality has been developed, included in that policy framework is the
recognition of the importance of exports. As part of a broader approach to economic development, exports
contribute to faster growth, reduce import dependence and contribute to employment creation. However,
except for raw materials, intermediate goods and vehicles South Africa has seen limited improvement in its
exports since 1994, and its share of global trade has been declining over time.
the dti commissioned a review the current National Export Strategy (NES); manage and facilitate
stakeholder consultations and write up a revised NES and Implementation Plan. The research includes a
review of the current policy environment, an examination of international best practices, the application of
econometric analysis, as well as broad consultations with relevant stakeholders, including a survey of
exporters. A review of international practices to support exporters has also been conducted. This report
outlines the key findings from research; the second part of the project is the preparation of a National
Export Strategy document.
In evaluating the effectiveness of the current NES, a key measure was the extent that the stated objectives
were achieved, namely:
Growing exports in volume and value;
Diversifying export products (in particular beyond traditional commodities);
Diversifying export markets; and
Diversifying the exporter base in terms of Small- and Medium-sized Enterprises1 (SMEs) and
Historically Disadvantaged Individuals (HDI) Enterprises.
The key deliverables correspond with the three proposed stages and include a Critical Analysis, Consultation
with key stakeholders in all nine the provinces and a revised NES.
The approach used during the Critical Analysis (and which will be followed in drafting the NES) was to
determine where South Africa is as an exporting nation and where it needs to be in order to achieve the
socio-economic goals set out in policy documents. Obstacles and drivers identified during the research are
presented in this report and in greater detail in the accompanying annexures.
South Africa has extensive institutional infrastructure supporting exporters. The successful implementation
of a NES depends on how effectively and efficiently all the role players implement the various components.
Their buy-in is therefore critical and the review of the current NES was approached on a participatory basis,
involving as many as possible of the direct stakeholders in both public and private sectors; a Reference
Group was established and consultative workshops were run.
Reference Group: This Group was composed of both public and private-sector representatives. It was
compiled by the researchers in consultation with the dti and included government departments, Export
1 This does not include Micro-enterprises (which form part of the National Exporter Development Programme and are included in proposed Export Villages).
Critical Analysis for the Integrated National Export Strategy
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Councils, provincial government departments, provincial development agencies, development finance
agencies, the South African Reserve Bank (SARB).) The Group met three times and played a valuable role in
identifying critical areas of research and in reviewing the research.
Consultative Workshops: There was consultation with the provinces through Consultative Workshops in all
nine provinces. Comments, suggestions, concerns, challenges and constraints were collected during these
workshops and these will be formalised, consolidated and incorporated into the final NES.
1.1 Retain, Expand and New (REN) Approach
The 2006 NES vision statement is:
It is envisaged that by 2014, that South Africa, from a globally competitive base directed by best practice
industrial policy and sector development strategies, will be able to maintain market share in traditional
markets and substantially increase its market share in prioritised, new high-growth markets through
aggressive marketing and a larger exporter community that includes black exporters from marginalised
and depressed areas in South Africa.”
This 2006 vision follows a REN-approach, which has three main strategies:
1. Retain current exports;
2. Expand or increase the exports of current exporters; and
3. New exporters should be developed.
Increased exports of existing exporters can be achieved by exporting more of the same product to the same
foreign market, exporting new products or services, exporting to new foreign markets, or a combination
thereof.
One of the findings of the research was that South Africa has many occasional exporters. These exporters
develop a foreign market only to abandon it when trading conditions become difficult or the domestic
market proves to be too lucrative. Strategies need to be put in place to ensure that the occasional exporters
become committed exporters. Similarly, non-exporters (with potential) need to be identified and assisted
and encouraged to start exporting, preferably as committed exporters but also as occasional exporters.
Strategies need to be put in place to ensure that the new occasional exporters become committed
exporters. Once exporters have been developed (and they are either committed or even occasional
exporters) strategies need to ensure that they do not slip and abandon foreign markets.
The World Bank has developed an Exporter Dynamics Database providing measures of exporter
characteristics and dynamics across 45 countries across all geographic regions and income levels. The
Exporter Dynamics Database contains close to 100 measures covering the basic characteristics of exporters,
their distribution by size, the diversification in their products and markets, their dynamics in terms of entry,
exit and survival, and the average unit prices of the goods they trade.
The graph below shows the exporter dynamics in South Africa.
8
Table 1: South Africa’s exporter dynamics
Source: Own calculations using the World Bank’s Exporter Dynamics Database 1997–2011
There are approximately 5000 to 8000 exporters that exit each year. For example, if these could be retained,
South Africa could double the number of exporters in seven to eight years.
Key findings from the research include:
A policy framework that broadly promotes and is supportive of exports;
Poor export performance and missed opportunities to retain and expand the export base;
The lack of coordination among export stakeholders, resulting in duplication of efforts;
Lack of alignment between the programmes of the dti as well as between the dti and the other
spheres of government around the key objectives and interventions of the NES;
Inadequate dialogue between export stakeholders in order to develop a national export culture;
While the framework to support the development and competitiveness of South African exports is
present there are improvements are required, including lowering of costs, reducing time and need
for additional infrastructure.
Exporters do not have an understanding of service offerings available (from both government and private sector) to support their export efforts.
0
5000
10000
15000
20000
25000
30000
35000
40000
2002 2003 2004 2005 2006 2007 2008 2009
Nu
mb
er
of
exp
ort
ers
Number of Entrants Number of Exiters
Number of Survivors Number of Incumbents
Critical Analysis for the Integrated National Export Strategy
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2 The Policy Environment Since the end of the apartheid regime in 1994, the South African government has made considerable efforts
to tackle the high level of inequality and poverty (South Africa ranks second highest in the world on the Gini2
index of inequality of income distribution and 38% of the population vulnerable to poverty or living below
the income poverty line3). Policymakers have long sought to overcome constraints in the economy through
a comprehensive framework such as the GEAR, AsgiSA, the New Growth Path, the Industrial Policy Action
Plan and the National Development Plan: vision 2030. The National Development Programme (NDP) offers a
long-term vision for South Africa’s economic growth and, according to President Zuma’s State of the Nation
address, the activities of government departments are to be aligned to the NDP.
2.1 National Development Plan
The National Planning Commission (NPC) has been responsible for developing a long-term vision and
strategic plan for South Africa and for advising on cross-cutting issues that impact on South Africa’s long-
term development. The Commission’s Diagnostic Report set out South Africa’s achievements and
shortcomings since 1994. It identified a failure to implement policies and an absence of broad partnerships
as the main reasons for slow progress, and set out nine primary challenges: unemployment; poor quality
education for black people; infrastructure inadequacies; barriers to inclusive development; resource-
intensive economy; inadequate public health system; uneven public services; high corruption levels; and the
divided society.
The National Development Plan proposes a multidimensional framework “to bring about a virtuous cycle of
development, with progress in one area supporting advances in others.” The achievement of the objectives
of the NDP requires progress on a broad front and has a strong focus on employment, proposing to create
11 million jobs by 2030 by, inter alia, raising exports and competitiveness. Some of the broad proposals,
which are related to increasing exports include:
Diversifying South Africa’s trade towards emerging economies;
Revitalising logistics and transport links;
Promoting manufacturing in areas of competitive advantage;
Packaging regional tourism offerings; and
Lowering the costs of living and of doing business.
The NDP notes that South Africa should be “Increasing exports, focusing on those areas where South Africa
already has endowments and comparative advantage, such as mining, construction, mid-skill manufacturing,
agriculture and agro-processing, higher education, tourism and business services.” It points out that decline
in demand from traditional Western trading partners has been offset by increased demand from Asia and
higher prices for commodities. However, it is of concern that high value-added and labour-intensive exports
are slowing. It is clear that more attention needs to be given to these products while maintaining current
markets.
2 According to the World Bank, the Gini index measures the extent to which the distribution of income or consumption expenditure among individuals or households within
an economy deviates from a perfectly equal distribution. An index of 0 equals perfect equality while an index of 100 equals total inequality. South Africa’s index is 65, with
only Namibia being higher at 70. 3 http://hdrstats.undp.org/images/explanations/ZAF.pdf
10
The NDP highlights the linkages between export, trade and industrial policies; and notes that industrial
policy should also support sectors and industries that can best produce the goods and services required of
the new markets South Africa wishes to serve.
The NDP envisages that the share of exports in South African output will need to rise by 6% per annum and
the profile should be more diverse, with a growing portion of non-mineral manufactures and services. A
greater proportion of exports will need to be directed to emerging markets, which is linked to the vision of
increased trade and bilateral investment in Africa.
The NDP recognises that it is not the export volumes that are important but the type of products that are
exported; the focus should therefore be on labour-intensive manufacturing, mid-skill service exports and
process outsourcing. The focus will need to be on developing areas of competitive advantage; encouraging
South African firms to participate in regional infrastructure projects, and also in integrating regional supply
chains to promote industrialisation.
2.2 New Growth Path
The NGP prioritises the creation of jobs in South Africa through a coordinated set of actions consisting of
macroeconomic strategies, microeconomic measures and stakeholder commitments to drive employment
and economic growth. The NGP has five priority areas; these are infrastructure development; agriculture;
mining; manufacturing; the “green” economy; and tourism. The NDP also advocates partnerships for
achieving the targets identified. The NGP identifies measures to strengthen the capacity of the state and
enhance the performance of the private sector to achieve the employment and growth goals. The NGP
proposes major improvements in government, including removal of unnecessary red tape, and improving
competition in the economy and stepping up skills development. This emphasis on skills applies across the
economy and is seen as a centrepiece of the partnership with business and labour. The NGP recognises that
South Africa cannot develop as an enclave in Africa; and there are major opportunities on the African
continent. It calls for greater focus by South African business to take advantage of the opportunities in
Africa’s fast-growing economies.
Specifically in relation to exports, re-industrialisation has been identified in the NGP as being critical and it
also requires the identification and development of markets. The NGP believes that South African
businesses need be more aggressive in seeking opportunities in the fast-growing economies of China, India
and Brazil. The document notes that while trade with China has grown significantly, South Africa still largely
exports raw materials and there is a need to work towards exports of value-added products.
Measures are also required to enhance domestic and regional demand as well as extending export
promotion strategically to the rapidly growing economies of the global South. The NGP maintains that these
measures need a competitive Rand to succeed. The NGP sees regional development as an imperative for
both solidarity and sustainable growth and maintains that increased exports to the Southern African
Development Community (SADC) alone can generate almost 60 000 additional direct jobs by 2015 and
around 150 000 by 2020.
Other proposals of the NGP are export taxes on certain minerals to reduce domestic prices; and clearer
guidelines for exemptions under the Competition Act (as referred to above) to enable producers to
cooperate in situations which will benefit job creation and/or exports.
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2.3 Trade and Industrial Policy
2.3.1 National Industrial Policy Framework
In January 2007 Cabinet adopted the NIPF, which provides strategic guidelines to assist in the development
of secondary industries within the country, including the clarification of roles, responsibilities and
interactions between public and private sectors. The objective of the NIPF is to:
Implement more intensely customised sector programmes.
Develop an overarching strategy to prioritise key interventions in a range of primary and
manufacturing sectors including a drive to increase national capacity to produce capital goods.
Develop programmes to facilitate investment in sectors along the supply chain for the infrastructure
programmes, including capital goods in Information and Communication Technology (ICT), transport
and energy.
Improve competition in the economy through a number of wide-ranging activities.
The NIPF sets out the government’s approach to industrialisation and policy development and
implementation. It moves to increase the production of value-added products and services, intensification
of the South African industrialisation process moving towards a knowledge economy, the promotion of a
labour-absorbing industrialisation path focusing on incorporating previously disadvantaged and
marginalised communities while building on the country’s productive capabilities.
Rather than a ‘one-size-fits-all’ approach to industrialisation, the NIPF focuses on identifying and addressing
the cross-cutting and sector-specific constraints and opportunities prevailing in the industrial economy
through 13 strategic programmes, including among others financing; trade policy–global, regional and
Africa-oriented; skills development and education; competition policy; industrial upgrading, innovation and
technology, infrastructure, assistance for small enterprises.
2.3.2 Industrial Policy Action Plans
The NIPF is currently implemented through Industrial Policy Action Plans, which are ‘living documents’ that
are updated regularly. Industrial Policy Action Plan (IPAP) outlines a range and combination of industrial
policy interventions and instruments to address the critical challenges of the South African economy and by
implication South African exports. IPAP two identifies three sector clusters that are critical to the industrial
development of the South African economy, namely:
Cluster 1-Qualitatively new areas of focus: metals fabrication, capital and transport equipment
sectors; upstream oil and gas; ‘green’ and energy-saving industries; agro-processing, linked to food
security and food pricing imperatives; and boatbuilding.
Cluster 2-Scaled-up and broadened interventions in existing IPAP-sectors: automotive products and
components, and medium-and heavy-commercial vehicles; plastics, pharmaceuticals and chemicals;
clothing, textiles, footwear and leather; biofuels; forestry, paper, pulp and furniture; creative and
cultural industries; and business process services.
Cluster 3-Sectors with potential for the development of long-term advanced capabilities: nuclear;
advanced materials; aerospace, defence; and electro-technical and ICT.
12
Export development and growth is a key objective for these clusters.
2.4 Mining and Minerals Beneficiation
The government’s industrialisation policy calls for a paradigm shift in mineral development, strategic
investment in assets to maximise long-term growth, enhanced value of exports and opportunities for
sustainable jobs; which has seen the development of a beneficiation strategy. The policy advances
government’s developmental agenda and seeks to maximise national benefits from the country’s mineral
resources. It aims to translate South Africa’s comparative advantage inherited from its significant mineral
resources to a national competitive advantage. Ultimately, its goal is towards enhancing the value of
exports, localising imports and creating sustainable jobs.
This strategy is anchored on a range of legislations and policies such as the Minerals and Mining Policy for
South Africa (1998). It identifies several instruments that constitute an enabling environment for
beneficiation (policies, legislation, incentives etc.) and recommends a set of integrated solutions to mitigate
identified binding constraints and to leverage on existing national processes, such as the national
infrastructure programme.
The strategy outlines ten strategic mineral commodities, from which five value chains are selected; these
are:
Energy commodities (coal, uranium and thorium);
Iron and steel (iron ore, chromium and manganese);
Pigment and titanium production (titanium and vanadium);
Autocatalytic converters and diesel particulate filters (platinum); and
Jewellery fabrication (diamonds, gold and platinum).
2.5 The South African Trade Policy and Strategy Framework (SATPSF)
The South African Trade Policy and Strategy Framework (TPSF) builds on the NIPF and sets out the
contribution trade policy should make to advancing industrial development, upgrading and diversification
along a growth path that addresses structural constraints in the economy, including unemployment and
poverty. The framework sets out the key principles and approaches to South Africa’s strategy for global
integration with respect to its engagements and negotiations at multilateral, regional and bilateral levels. As
part of this approach, the dti seeks to foster African development, through regional and continental
integration and development. It also works to enhance South-South cooperation, conclude further tariff
negotiations with the EU and to extend South Africa’s preferential trade agreements with trading partners,
such as India4.
The TPSF aims to provide greater clarity on the linkages between trade and tariff policy and industrial policy.
This policy is in the context of South Africa being a member of World Trade Organization (WTO) and
adhering to the provisions of agreements signed.
4 The dti website, March 2013.
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Edwards and Lawrence (2006) point out that “South African trade policy has exerted a major influence on
the composition and aggregate growth of trade. In the apartheid period, trade protection seriously impeded
both exports and imports, and the economy depended on favourable global commodity price trends to
avoid running into an external constraint. South Africa developed a comparative advantage in capital-
intensive primary and manufactured commodities partly because of its natural resource endowments but
also because the pattern of protection was particularly detrimental to exports of non-commodity
manufactured goods.” After 1994, South Africa became a member of the World Trade Organization and the
country’s trade policy were influenced by the Trade Policy Reviews carried out by the WTO, which
recommended a dismantling of the country’s protective barriers. As a result, South Africa adopted a more
liberal trade policy and there was a reduction in import duty levels from an average for all products of 19%
to 8%.
The TPSF states: “Tariff setting in South Africa is decided primarily on a sector by sector basis, dictated by
the needs and imperatives of sector strategies. As a general guideline, tariffs on mature upstream input
industries could be reduced or removed to lower the input costs for the downstream, more labour-creating
manufacturing activities. Tariffs on downstream industries, particularly those that are strategic from an
employment or value-addition perspective, may be retained or raised to ensure long-term sustainability and
job creation in the context of domestic production capabilities/potentialities and the degree of trade and
production distortions on these products at the global level.”
This strategic approach to tariff policy places International Trade Administration Commission of South Africa
(ITAC) at the centre of determining the tariff regime; and it considers factors such as: the existence of local
production or the potential for it; trade data; demand and supply; domestic and import prices; productivity
and capacity; market share; profitability; effective rate of protection; employment; and investment.
Although, the South African tariff rates have declined remarkably since 1994, informed by the above
approach, South Africa has, since the onset of the Global Recession in 2008, introduced higher duties on 137
lines; introduced ten rebates; and reduced tariffs on nine lines.
2.5.1 Regional and Bilateral Relations
The Southern African Customs Union (SACU) is an important basis for the government’s stated strategy of
fostering African development, through regional and continental integration and development. The revised
SACU agreement, concluded in October 2002 and effective from July 2004, is the result of a lengthy
negotiation process that commenced in 1994 with the objective of increasing regional integration and
cooperation. The agreement makes provision for the development of common policies in industry, and
cooperation in agricultural policy, competition policy and anticompetitive practices. It also calls for the
development of harmonised procedures and regulations to govern all aspects of the common trade regime.
The SADC agreement among other things seeks to establish a free trade area for its 15 members. Southern
Africa is important to South Africa’s economy because the growing trade surplus with SADC countries
partially contributes to offsetting trade deficits with other regions. The bloc represents a market of 247
million people with a combined gross domestic product (GDP) of USD430 billion.
14
There is a proliferation of regional trading arrangements on the African continent, including the Economic
Community of West African States (ECOWAS), the Economic Community of Central African States (ECCAS),
the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), SADC
and, of course, SACU. The concept of establishing a Tripartite Free Trade Area (TFTA) that joins together
COMESA, the EAC, and the SADC – a bloc that would comprise 530 million people with a combined GDP of
USD5 700 billion – has gained currency and momentum since 2008. The TFTA is an important consideration
for exports and for the trade strategy, given the context of intensifying competition for access to Africa’s
resources and growing markets.
2.6 The Macroeconomic Policy Environment
The Fiscal policy has seen the authorities being careful to maintain macroeconomic stability; the implication
is the need to strike a balance between providing stimuli and maintaining fiscal sustainability. While the
approach has contributed to a stable macroeconomic environment, South African exporters have only a few
export incentives (which are also constrained by WTO agreements) and the amount is limited by budgetary
constraints (incentives are covered in more detail below).
The Monetary Policy approach has as its primary purpose achieving and maintaining price stability in the
interest of balanced and sustainable economic growth in South Africa. The flexible inflation-targeting
framework was introduced in February 2000, and since February 2009, the inflation target has been set as a
range of 3 to 6 per cent for the year-on-year. Keeping inflation expectations down has been noted by the
IMF as important; and has been of benefit to the export community. However, as the monetary policy does
not extend to maintaining exchange rates the Rand has been volatile, with implications and costs for
exporters.
2.7 The Incentive Framework
South Africa’s export incentives are based on the supply side and are especially developmental. The
developmental incentives are focused on Broad-based Black Economic Empowerment (BBBEE), Small,
medium-and micro enterprises (SMMEs), cooperatives, youth or gender. In many cases enterprises that are
not export-ready are encouraged to export before addressing competitiveness issues or technical export
skills.
In addition to the export incentives provided by dti under the Export Marketing and Investment Assistance
(EMIA) schemes, the dti provides financial support to qualifying companies in various sectors of the
economy. Financial support is offered for various economic activities, including manufacturing, business
competitiveness, export development and market access, as well as FDI. These incentives include:
Aquaculture Development and Enhancement Programme ( ADEP);
Business Process Services (BPS);
Capital Projects Feasibility Programme (CPFP);
Clothing and Textile Competitiveness Improvement Programme (CTCIP);
Critical Infrastructure Programme (CIP);
People-carrier Automotive Investment Scheme (P-AIS);
Production Incentive (PI);
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Sector-Specific Assistance Scheme (SSAS);
Small Enterprise Development Agency (SEDA) Technology Programme (STP);
Support Programme for Industrial Innovation (SPII);
Technology and Human Resources for Industry Programme (THRIP); and
The Manufacturing Competitiveness Enhancement Programme (MCEP).
2.8 Customs and Excise
The incentives offered by the Customs and Excise division of South African Revenue Service (SARS) concern
refunds, drawbacks and rebates of import duties levied on imports used in the production of goods that are
subsequently exported. These provisions are more or less in line with similar mechanisms in most other
trading countries and accord with the principle that domestic market taxes and levies should not impact on
the international prices of goods.
In the survey of exporters (covered below), businesses were asked to rate their knowledge and use of these
incentives. The feedback from the survey was that many exporters are not aware of the schemes or do not
utilise them; however those that do have noted that applying for them is onerous and they should be
streamlined.
2.9 Special Economic Zones
Special Economic Zone (SEZs) legislation will among other things provide an opportunity to increase exports
typically by attracting FDI or relocating export sectors to those SEZs close to ports by providing a range of
incentives and support systems that are often different from those that apply in the rest of the country. This
would help reduce costs and make South African exports more competitive. SEZs are used internationally
and are tools for long-term industrial and economic development by creating an enabling and sustainable
environment for foreign and domestic direct investment to thrive, and for building targeted industries,
developing regions and building industrial infrastructure.
2.10 Trade Development Strategy for Agriculture
In 2008 the Department of Agriculture Forestry and Fishing (DAFF) drafted an “Agricultural Trade
Development Strategy for South Africa.” Its purposes were: to monitor and evaluate global and local trends
in trade in order to provide an informed strategic direction; to provide a common understanding and
directives within government and its institutions and the agricultural industry on the application of trade
policy instruments; to provide broad-based direction on how trade in agricultural and food products can
contribute to the shared growth employment creation; to improve market access for new export
opportunities through agricultural trade negotiations; ensure the long-term sustainability of the production
of tradable products; and to grow the exporter base. DAFF continues to oversee the review and
implementation of the strategy. It participates in various trade negotiations including the Tripartite free
trade agreements (FTA), as well as other relevant inter-African and international agreements.
DAFF’s export-related goals include the establishment of:
Fisheries value chain network;
16
Grains value chain network;
Horticulture value chain network;
Forestry value chain network; and
Livestock value chain network.
2.11 Enterprise Development
Small, Medium-and Micro Enterprises have received ongoing support from the government has part of the
strategic imperatives to increase employment and the participation, particularly of HDIs, in the economy. As
part of the support framework to SMMEs several institutions have been established to support small
businesses at their different stages of development. Export promotion has formed part of this support and
includes the Trade and Investment Development Programme (TIDP), which was co-funded by the European
Union and the South African government until the end of the first quarter of 2004. The programme aimed to
develop the competitiveness of South African businesses in the SMME sector so that they would be able to
sell their products in international markets; it had the dual aim of building capacity in the partner institution
SEDA (formally Ntsika) so that the work would continue after the end of the EU funding. The programme
had three focus areas:
A Training Programme in International Competitiveness;
Product and Market Development for Export; and
International Partnership Development Programme; which included the establishment of local
Trade Points.
Export training programmes are still offered and international partnership development programmes are
undertaken in conjunction with Centre for the Promotion of Imports (CBI) of The Netherlands.
The idea of establishing a worldwide network of Trade Points to reduce the costs of international trade for
small-and medium-sized business entities was first mooted in 1992. These costs had been identified within
United Nations Conference on Trade and Development (UNCTAD), the initiators of the concept, as the
primary inhibiting factor in increasing the participation of SMEs in international trade. A Trade Point is
intended to be a source of trade-related information, a trade facilitation centre and a gateway to global
electronic networks. In South Africa, the establishment of Trade Points in the main centres has been the
responsibility of SEDA. There are currently four Trade Points in South Africa, in Johannesburg (hosted by the
Johannesburg Chamber of Commerce and Industry), in Durban (hosted also by the Chamber of Commerce),
Port Elizabeth and Mbombela (Nelspruit).
2.12 The Competition Act
The purpose of the Competition Act is to promote and maintain competition in South Africa. Among other
things is it prohibits collusion by market players i.e. agreements between, or concerted practice by, firms, or
a decision by an association of firms, as such practices have the effect of substantially preventing or
lessening competition in a market. Applications for exemptions can be made if the parties to the agreement
can prove that any technological, efficiency or other pro-competitive gain resulting from the agreement
outweighs that effect.
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Exporters can increase their export values through collaboration. This can happen for example through
cooperation between civil and other engineering firms in tendering for foreign projects, or through
manufacturing companies combining their production facilities in order to accept or pursue large foreign
orders (and achieving certain economies of scale through combining input purchases). As firms might extend
their collaboration from foreign markets to domestic markets, any export consortia or group would have to
apply for exemption.
18
3 Benchmarking Best Practice
3.1 Introduction
Export strategies, whether they are incorporated in the national development programmes or as separate
documents, have become critical and are integral to a country’s overall economic planning. In today’s global
village it is no longer “doing business as usual”: the competitive advantages that any firm has achieved are
becoming smaller and less durable. Companies face the choice of either becoming competitive to compete
successfully in the domestic market / expand in the international market; or maintaining their business as
usual based on the perception that they still enjoy comparative advantages or national protection. The
challenge with the latter approach is the risk of diminishing sales or profits and possible closure.
Governments have recognised these pressures and most offer support to their domestic businesses as well
as establish and maintain favourable business environments. Best practices are however imitated and
replicated, with the result that advantages that any country has (or creates) are constantly being eroded.
This review of best practices to support exports shows that there are a few principles that contribute to the
success of domestic businesses in the global marketplace. These practices include: a favourable trade
environment (a stable macro environment, sound governance institutions and encourage investment in
technologies, markets, and products and services); well-resourced business and export support institutions;
as well as support for the generation of specialised skills and innovation.
In addition the review finds that governments also address the factors required to improve the efficiencies
of the country’s export sector by:
Improving forward and backward linkages within and among local industries;
Capturing more of the value of the “local value chain” in the country;
Strengthening local value chains through the acquisition of new technology; and
Building export-oriented competencies for the value chains.
These issues highlight the practice that export support is integrated into the overall economic-planning
framework and approach to industrial development. The process therefore does not deal simply with
foreign market development and promotion but it focuses on establishing a national competitiveness
framework that also develops and strengthens the export culture.
The purpose of this part of the NES-related research was to review international practices and identify
possible areas that South Africa could learn from. A comprehensive review of the countries selected is
included in the annexure; below is a summary of the key issues.
3.2 Overview of Countries Chosen
The table below shows the size and growth rates (including rank) of the countries selected. It shows that the
countries selected covered both large and smaller exporting economies as well as some high-performing
economies.
The value of exports per capita is shown in the table as this allows for a comparison of export performance
based on achievement rather than on the basis of the geographic and resource size of country and its total
Critical Analysis for the Integrated National Export Strategy
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export level; most of the countries initially selected have a value of exports per capita well above the world
average of USD 2 589. The exceptions are Philippines, Jamaica and Uganda. All Brazil, Russia, India and China
(BRIC) countries except Russia (with USD 3 661 per capita) have an export value per capita lower than the
world average.
Table 2: Export indices of benchmark countries and South Africa
Val
ue
exp
ort
ed
in
20
11
(U
SD
tho
usa
nd
)
Ran
k
Exp
ort
val
ue
pe
r
cap
ita
(USD
20
11
)
An
nu
al g
row
th in
valu
e b
etw
ee
n
20
07
-20
11
(%
)
Ran
k
An
nu
al g
row
th in
valu
e b
etw
ee
n
20
10
-20
11
(%
)
Ran
k
Shar
e in
wo
rld
exp
ort
s (%
)
World 17 855 727 049 2 589 5 19 100
China 1 898 388 435 1 1 406 10 31 20 65 10.6
United States of America 1 479 730 169 3 4 668 5 70 16 93 8.3
United Kingdom 472 095 631 11 7 494 0 104 16 93 2.6
Canada 450 430 008 13 12 869 0 104 17 82 2.5
India 301 483 250 19 247 18 8 37 24 1.7
Brazil 256 038 702 20 1 274 10 31 30 36 1.4
Australia 245 631 027 21 11 165 13 21 19 72 1.4
Malaysia 226 992 682 24 7 566 5 70 14 100 1.3
Ireland 129 346 449 33 25 869 0 104 9 112 0.7
South Africa 92 975 613 41 1 897 7 52 30 36 0.5
Chile 81 411 129 45 4 789 4 80 15 99 0.5
Philippines 48 042 129 56 453 -1 115 -7 121 0.3
New Zealand 37 633 151 60 9 408 7 52 22 58 0.2
Uganda 2 159 077 135 62 9 36 33 31 0
Jamaica 1 517 247 142 506 -16 212 44 13 0
Sources: ITC calculations based on UN COMTRADE statistics.
Enterprise Surveys are firm-level representations of an economy’s private sector. They cover enterprises in
some 135 countries on a range of business environment topics including access to finance, corruption,
infrastructure, crime, competition, and performance measures. Selected information is presented below for
the benchmark countries included in the surveys.
Table 3: World Bank Enterprise Surveys
Economy
Days to clear direct exports through customs
Percentage of firms exporting directly or indirectly (at least 1% of sales)
Proportion of total sales that are exported directly or indirectly (%)
Days to clear imports from customs*
Percentage of firms identifying customs and trade regulations as a major constraint
World 7.4 15.3 6.5 11.9 17.9
20
Economy
Days to clear direct exports through customs
Percentage of firms exporting directly or indirectly (at least 1% of sales)
Proportion of total sales that are exported directly or indirectly (%)
Days to clear imports from customs*
Percentage of firms identifying customs and trade regulations as a major constraint
Brazil (2009) 15.9 18.1 2.3 15.3 28.1
Chile (2010) 10.8 16 2.9 11.3 5.4
India (2006) 15.1 12.5 7.2 15.2 14.8
Ireland (2005) 2.6 33.3 13.8 3.1 6.1
Jamaica (2010) 13.1 10.7 4.6 7.5 14.9
Malaysia 2.7 60.0 35.2 4.2 14.7
Philippines 10.0 12.2 7.5 15.8 10.2
Russian Federation (2012) 5.6 12.9 3.6 18.7 16
South Africa (2007) 4.5 18.4 3.9 5.3 1.9
Uganda (2006) 3.2 10.1 3.6 7.4 9.8
Source: World Bank 2012: Enterprise Surveys (http://www.enterprisesurveys.org/)
Note that Ireland scores highly on all indices, although the percentage of firms identifying customs and
trade regulations as a major constraint is a little high. This correlates to Ireland’s place regarding ease of
trading across borders in the following table. Clearly, Irish exporters consider there to be some sort of
difficulty although it does not appear to greatly inhibit Ireland’s export performance. South Africa,
interestingly, scores well on the three indices relating to customs issues, although this was not entirely
borne out by the survey of exporters and it does not correlate to the following table regarding ease of
trading across borders.
The following gives some comparable indices for the selected countries and South Africa, according to the
World Bank Group’s Doing Business 2012 report. The first three countries are listed for interest.
Table 4: Doing Business 2012 report
Country Ease of Doing Business Rank
Starting a Business Getting Credit
Trading Across Borders
Enforcing Contracts
Singapore 1 4 12 1 12
Hong Kong5 2 6 4 2 10
New Zealand 3 1 4 25 17
United States 4 13 4 22 6
United Kingdom 7 19 1 14 21
Australia 10 2 4 44 15
Malaysia 12 54 1 11 33
Ireland 15 10 12 28 63
5 Hong Kong SAR, China
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Country Ease of Doing Business Rank
Starting a Business Getting Credit
Trading Across Borders
Enforcing Contracts
Canada 17 3 23 44 62
Chile 37 32 53 48 70
South Africa 39 53 1 115 82
Jamaica 90 21 104 106 129
China 91 151 70 68 19
Russian Federation 112 101 104 162 11
Uganda 120 144 40 159 117
Brazil 130 121 104 123 116
India 132 173 23 127 184
Philippines 138 161 129 53 111
Source: World Bank 2012: Doing Business 2012 report
Of our main benchmark countries, the United States, United Kingdom, Australia, Malaysia, Ireland and
Canada are in the world’s top 20 countries regarding overall ease of doing business.
3.3 Findings
The information below is a summary of the findings, with the details contained in Appendix 3.
Legislation: All the initial ten countries researched have legislation to support exports and have institutions
that support exports. The policy commitment and investment of resources to support exports highlights the
stature and prominence of exports; which also assists in integrating the actions of various government
departments and agencies into the national export effort. In most cases (Philippines, Malaysia, Jamaica,
Ireland, Canada, and the United Kingdom) the NES was an integral part of, or was drawn up against the
background of, a national economic development plan.
Malaysia: The Matrade Act (Matrade is the national trade promotion body) and a 5-year plan
against the Third Industrial Master Plan.
Ireland: Enterprise Ireland (established under the Industrial Development–Enterprise Ireland–Act of
1998) plans against the National Development Plan 2007–2013 and Action Plan for Jobs.
United Kingdom: Export strategy part of the Plan for Growth 2011, based on a White Paper
approach allowing for stakeholder input. United Kingdom Trade and Investment (government
department) is responsible.
Brazil: The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) was formerly a Special
Management Unit at Sebrae (Brazilian Service to Support Micro and Small Enterprises) but in 2003
was established as an autonomous social service affiliated to the Ministry of Development, Industry
and Foreign Trade.
United States: The current export drive is being driven by the President, following President
Obama’s target in 2010 “We will double our exports over the next five years.” This has led to the
President’s Export Promotion Cabinet being established, which includes key members of TPCC plus
White House advisers (the Trade Promotion Coordinating Committee (TPCC) coordinates federal
agencies).
22
India and China have various mechanisms for export development (duty drawbacks, etc., special
export or industrial zones, etc.) which are covered by individual legislation.
Export Goals: All ten countries set out specific strategic goals, which usually covered specific growth and
value targets; but they also included longer-term strategic issues such as:
Moving up the value chain and capturing higher-value processes in global supply chains (i.e.
increased beneficiation and processing locally prior to export);
Sector-specific goals, usually based on the country’s resources;
Stimulating innovation and driving competitiveness;
Developing and supporting enterprises; and
Market-specific goals, usually linked to sector goals.
NES and FDI: Some countries link export strategy to promotion of FDI: Uganda, Australia, Chile, Canada at
regional level, and the United Kingdom.
Malaysia, Philippines, Jamaica and Ireland separate the two issues. Ireland and Malaysia have been
particularly successful in attracting FDI, but there does not appear to be a strong case either way.
Financing: In all the countries researched, the NES and associated programmes are financed at varying
levels through central budgets. In federal/provincial environments, (e.g. Canada, United States, Australia)
additional funding is usually provided at regional, provincial and state level. Examples here include: Brazil
which contributes R1.6 Billion to their trade and investment promotion agency (Apex-Brazil); Atlantic
Canada Opportunities Agency with a budget of R2.2 billion; and Malaysia Trade with a budget of
R600million. Ireland has a R5 billion budget for Enterprise Ireland, which has a broader mandate than
exports.
Developing countries, such as Jamaica, Philippines and Uganda, have limited budgets and solicit additional
NES funding/assistance from international and foreign agencies, e.g. ITC and CBI.
Product Development: This is a focus in most countries (for example, United Kingdom, Uganda, Ireland,
Canada, Chile and Brazil), with the emphasis on added value, often linked to specific sector targets.
The developed countries show a strong link to innovation, for which assistance/incentives are allocated
(United Kingdom, Ireland).
Capacity building – management and production: This is a focus of both developed and developing
countries and is linked to specific targeted sectors in some cases. In developed countries, capacity building is
linked to educational institutions (US, Canada, Ireland have strong links to University programmes) to
develop management capabilities; access to funding is also provided.
Malaysia should be noted for its programmes for Bumiputera (indigenous Malays) and women, which are
drawn up in conjunction with the National SME Development Council.
Capacity building – infrastructure: Development of infrastructure to support increased exports is an
essential element of national economic development plans (medium- to long-term) of countries such as the
Philippines and Uganda, as well as Jamaica and the more developed Malaysia.
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It is not specifically mentioned in planning by developed countries such as the United Kingdom and the
United States.
Market Access: In most cases, this development aspect is approached by negotiating more FTAs but a key
element of the programme in the Philippines is to ensure that they maximise the benefits of their existing
Free Trade Agreements.
In the case of the United Kingdom, the policy is to support more FTAs between the European Union and
other countries and to promote open trade policies.
Australia and Chile have specific programmes focusing on Asia and other high-growth markets linked to
priority sectors. In the case of Australia priority sectors are food and beverages; renewable energy; mining,
building and construction, advanced manufacturing and financial services and ICT. Chile’s priority sectors
include seafood, fresh produce, processed foods, wines and beverages.
Priority Sectors: The priority sectors that the countries are targeting and the issue of country branding (this
is in the context of exports and FDI) were examined. Philippines and Jamaica have a range of products and
are promoting their individual countries as ‘brands’. Uganda is working on country image-building, with no
specific brand. Canada positions itself as an energy supplier of choice (for FDI). Chile has been using the
overall brand slogan “Chile: All Ways Surprising”. Australia is using the slogan “Australia Unlimited.”
Matrade (Malaysia) does not promote “Malaysia” as a brand.
3.4 Common Themes
The following threads running through the NES approaches by the countries researched:
Leadership: Export initiative is led from the top: President Obama in the United States, as well as the heads
of other countries (including the prime ministers of the United Kingdom and Australia), took the lead in
driving a renewed export strategy for the country.
Top-level coordination where several levels of government are involved, for example:
President’s Export Promotion Cabinet in the United States.
‘Business Canada’ (federal government grouping) web site linking all government departments and
agencies with export programmes (one-stop government contact point for companies).
Consultative: How strategy is developed: Consultative process used in Canada and United Kingdom, through
White Papers, to ensure all stakeholders ‘buy-in’. In other countries there is a public sector/private-sector
partnership.
Sector focus: All the countries have a degree – in some cases very marked – of sector focus. This can result
in a more effective use of limited resources.
Sector focus is a strategic element for Canada, Australia, Chile, Brazil, Ireland, the UK and Malaysia,
The Uganda’s matrix of sectors/needs/initiatives is also a good example.
24
Involvement of industry associations in joint programmes is evident in Ireland, Canada, Chile and
Brazil.
Targeting of sectors must be accompanied by clear implementation programmes, as it is in Jamaica
and Uganda.
SME/HDI and women focus:
SME focus is considered important by all; implementation methods are somewhat different
between developed and developing countries.
Malaysia is a good example of specific focus on HDI and Women sectors, but through National SME
Development Council; Matrade is involved only when the groups are export-ready.
In Canada, Malaysia, Brazil and Ireland, primary SME development is not undertaken by the TPOs,
but by other special bodies. The TPOs have special programmes for export-ready SMEs.
Market focus:
The developing countries researched focus on high-growth, emerging markets. This strategy
provides for more effective use of limited resources.
At the same time, traditional markets are not ignored, even by the developing countries.
The importance of the development and implementation of FTAs to a successful NES is
acknowledged.
The support of a liberal trade regime is voiced by most countries, but in some cases this is not
always the reality.
Export Development: This area encompasses many elements of competitiveness and includes:
Product development, which receives high priority in every case (including India and China), with
the emphasis on moving up the value-added curve. Innovation plays an important role and is
assisted. Global value chains are emphasised in most strategies.
Product development is linked to target sectors and covers all aspects of the product, including
packaging and branding. Product standards and international compliance are essential background
issues in this context.
Capacity building at enterprise level is important in all countries, but especially so in developing
countries. Various funding programmes have been developed for the establishment and expansion
of production units and improvements in productivity.
Generally there is a close link between the TPO and leading educational institutions to provide
suitable business development programmes. There is also usually a network of business mentors
(not be confused with consultants) who help to transfer skills from established to emerging
enterprises.
Competitiveness: Australia and the United Kingdom are outspoken on reduced protection to improve
competitiveness. With the exception of India and China, the other countries follow liberal trade policies;
Critical Analysis for the Integrated National Export Strategy
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they focus on improved competitiveness rather than import protection. The position regarding China and
India is unclear, as their trade policies are not transparent.
The Philippines and the United Kingdom have a policy to improve the general legislative environment for
exports: to remove/amend regulations that inhibit exports.
Philippines and the United Kingdom call for a stable exchange rate policy.
Exporter development:
All the TPOs provide a range of services including information, advice, training, promotional
activities (trade fairs and missions), trade leads and introductions.
All TPOs have a well-constructed, fully comprehensive web site providing fast links to all
government departments involved in exports as well as to information sources, online training, etc.
Matrade’s is especially effective.
Face-to-face counselling is extensive in Canadian TPOs, Enterprise Ireland, Matrade, UK Trade and
Investment, Austrade and JAMPRO (Jamaica). Counsellors are extensively trained and tend to
remain in their positions for lengthy periods and develop specific sector and market knowledge. This
is a critical element in the success of the programmes run in these countries.
All TPOs use telephone and email contact with exporters. Matrade uses all forms of digital
communication and has an sms warning system advising exporters of any change in product
standards in their target markets.
Cost of services:
Basic information services are free of charge.
Many of the countries also provide specific information free of charge.
Austrade and some US services charge for specialised information and research services based on a
pre-determined rate per hour.
ProChile works with industry associations on a cost-sharing basis for specific programmes.
26
4 Review of Previous Policies and Incentives6 This summary gives a short history of South Africa’s trade and the country’s trade policy. It analyses the
history of trade promotion, the tools that have been used and that are currently being used. The purpose of
this section is to determine which instruments worked best and how to improve them and to identify less
successful actions and analyse the reasons. It also examines the current policies and tries to identify areas in
which these can be improved.
This background analysis of previous work done will allow for better strategies and policies being
developed; especially when compiling the final NES.
4.1 South Africa’s Early Trade and Trade Policies
South Africa has been engaged in foreign trade for millennia. But recorded trade, as we know it today, has
been taking place since the mid-1600s when the Dutch East India Company established a provisioning
station for ships passing the Cape of Good Hope. Two centuries later the discovery of diamonds and gold
and the subsequent development of the world’s largest diamond and gold mining industries changed the
shape of the South African economy and its international trade patterns. A marked difference between
South African and other colonised countries was the development of domestic industry from the mid-1920s;
domestic industry grew as a substitute for imports and was largely driven by the growing demands of the
mining sector as well as the need to have local manufacturing capacity during the two World Wars.
Post- World War II, South Africa saw many companies in the manufacturing sector focus on the growth of
the domestic market, as that was sufficient to meet their profit ambitions and relatively few committed
themselves to export development. The focus was on import replacement at the expense of export
promotion. However, in 1957, South Africa took a significant step towards boosting exports by establishing
the Export Credit Insurance Scheme. This was an important addition to the export strategies already
employed by then-Department of Commerce to promote trade.
The South African Foreign Trade Organisation (SAFTO) was established in 1963 as a means of making
businesses more aware of their export potential and supporting their export programmes. It provided
research, training, export administration, trade fair management, and the production of export directories
and handbooks.
South Africa’s first economic development programme was compiled in 1964 and set certain export targets.
The then-Department of Commerce had the relatively simple export policy of increasing exports to the
greatest extent possible. The department developed close relationships with individual producers to
determine their export potential and to persuade them to become more export-oriented.
South Africa has had a diplomatic presence since 1910 and diplomats and commercial attaches have
performed commercial diplomacy. Research showed that diplomatic representation plays an important role
in increasing exports and that export promotion by embassies is more effective than by consulates. The role
of the Foreign Economic Offices (FER) was more clearly defined after 1970.
6 Much of the section is based on Gouws(1995)
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4.2 Trade Policy and Export Incentives: 1971 to 1990
From 1972 to 1983 export growth (exports as percentage of the GDP) was slow; from 1983 to 1990, export
growth was moderately high, especially of mining and related equipment. The later period coincided with
the real depreciation of the South African Rand, but was remarkable as this growth took place against a
background of sanctions.7
In 1971 The Board of Trade and Industry recommended that industries that could not compete without
protection should not be established. Although accepting this recommendation the government did not
reduce protection because of impending negotiations with GATT regarding various tariff bindings. Balance
of payments pressure towards the end of 1971 and thereafter caused tighter control on imports and Kleu
(1983) stated “that some monetary, semi-monetary and fiscal measures introduced with a view to short
term considerations become protracted or permanent and often have unfavourable side effects on the
development of industry in the long run.” The protectionist policies continued after 1974 due to political
issues.
In 1971, the Reynders’ Commission appointed to report on South Africa’s export trade, noted that it could
find no public document in which the export policy of the Republic was explicitly stated, while there were
many official documents on import replacement.
From the mid-1970s there were a number of export incentives available. The major one was the income tax
allowance for export marketing expenditure. This was supported by transport concessions, financing
incentives through the IDC, private-sector price concessions for steel and tin plate used in the production of
export goods and support activities by the Department of Commerce. In addition, the internationally
accepted principle that domestic market taxes should not impact on export prices was covered through a
range of import duty drawbacks and refunds.
In 1977 a Study Group was appointed to investigate the system of export incentives in South Africa. As a
result, In September 1980, the South African government introduced two new incentives (Category A and
Category B) and re-organised the total package into four categories of export incentives. Category A (input
compensation) provided for exporters to claim 50 per cent of the value of the import duty applicable to
inputs used in the production of export goods, irrespective of whether or not the inputs were actually
imported. In 1985 assistance under this category was running at R60 million a year. The Category B (value-
added compensation) provided a subsidy of 10 per cent of the value-added component of tariff-protected
manufactured goods. In 1985 assistance under this category was running at R150 million a year. Both
Categories A and B were complicated and difficult to administer.
Furthermore, Category C discretionary incentives were provided to exporters mainly to assist with
marketing costs; and Category D allowed exporters an additional deduction from taxable income of
specified export marketing costs. The Income Tax Act export marketing allowances covered a wide range of
expenditure and were open to abuse. It was not possible for SARS to accurately quantify the cost of this
incentive.
7 An analysis of South Africa’s export performance is provided below.
28
4.3 Export Incentives and Support After 1990
In 1990 Category A and B incentives were replaced by the General Export Incentive Scheme (GEIS). Later,
the Category C scheme was revised into the EMIA schemes and Category D (Section 11 bis of the Income Tax
Act) was removed.
In order to boost exports in general and manufactured goods in particular, more cost-effective financial
incentives were required. The Category A and B schemes of the 1980s were not achieving the results
necessary and Government consequently developed an incentive scheme which rewarded export
performance while encouraging the beneficiation of local raw materials. The new GEIS replaced the
Category A and B incentive schemes with effect from 1 April 1990. As with the Category A and B incentives,
GEIS payments (those above R25 000) were by promissory note and initially tax-free, but became taxable
from 1995. Payment of the incentive could be as much as two years after the date of export. The scheme
was terminated in December 1997 and overall was not effective in achieving the desired substantial shift in
South Africa’s export performance although some individual companies benefited.
The EMIA scheme, which replaced the Category C Scheme, aimed to develop export markets for South
African products and services and to recruit new FDI into the country. Regarding export development, the
EMIA benefits for individual companies included support for individual companies to participate in
exhibitions; to conduct primary market research; and to host individual companies on inward trade
missions. EMIA also provided for group benefits through national pavilions at foreign trade fairs and inward
and outward group missions.
SAFTO which had grown to support over 1500 exporters was seen, at government level, as an implementing
agency rather than an advisory body and its support was perceived to benefit only a limited number of
mainly large companies. The company was liquidated in the late 1990s; with part of the work of the agency
incorporated into the dti, part into the Export Councils and part into the IDC.
Government also established an Export Trade Advisory Committee and an Export Promotion Council whose
main roles were advocacy. A key feature of their work was to lobby for better export incentives and grants.
In the mid-1990s the dti initiated the formation of Export Councils as industry bodies to provide a platform
for the interaction between the dti and exporters and potential exporters. Their main focus was to drive the
level of South African exports and thus contribute to the economy. An export council consists of
representatives of individual companies in a particular industry and has the objective of promoting the
industry as a competitive exporter of products and services to foreign markets. Export councils are
established through an application from industry on a matching grant basis; they are required to develop a
constitution and submit a business plan. There are 19 Export Councils; three industry associations perform
the functions of Export Councils in addition to other activities, and there is one joint action group (JAG).
4.4 National Export Strategy of 2005/6
The draft NES of 2005/6 recognised the need for alignment between actions of multiple stakeholders. The
diagram below shows how the strategy conceptualised the relationship between the various elements
underpinning export competitiveness.
Critical Analysis for the Integrated National Export Strategy
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The Strategy was endorsed by the Executive Board of the dti, and it served as road map for TISA. Seven
strategic themes were identified:
Global Competitiveness;
Market Access;
Prioritising Markets;
National Trade Information System;
Exporter Development;
Export Mechanisms; and
Export Incentives and Financing.
Table 5: Export support value chain
Source: the dti
Global Competitiveness: The draft strategy noted that achieving/maintaining global competitiveness is an
underlying theme in the export strategies of successful export countries and the benchmarking research
revealed this. When the NES was initially drafted the industrial policy had not yet been drafted, but since its
inception the industrial policy and the various IPAPs have catered for this aspect.
Prioritising Markets: Prioritisation of markets is common among the benchmark countries. the dti used the
Decision Support Model (DSM) to determine priority markets. The DSM, Global Economic Strategy System
(GESS) and the Gravity Model are common strategies to identify product and market weakness and
potential. The models have been updated for this research report and covered below.
National Trade Information System (NTIS): A national comprehensive trade information system was
considered vital in the draft NES and is used by most of the benchmarked countries. In June 2000 an Export
Information Strategy was submitted to the dti8. The strategy identified 18 projects that should be
8 The document was funded by the European Union under the Department of Trade and Industry Policy Support Programme (Export Information Strategy Code: A.3.003)
and prepared by Paul Wooten of AGORA 2000 S.r.i in Rome and DRA-development cc based in Durban.
30
undertaken but little progress has been made on these projects. In the draft NES, the NTIS was to form an
important component and to serve as the information support link between domestic suppliers and
international buyers, and as a source of information for government stakeholders involved in trade
promotion. To date neither a comprehensive trade portal nor a national exporter database has been
establish, however, the private sector, Export Councils, Provinces, Metros, each setting up, but not
maintaining, a partial database.
The draft NES incorporated a strong element of exporter development, in particular targeting SMMEs (with
the strategy provided by TISA, and SEDA supporting its implementation). The strategy also looked at the
alignment of incentives offer by the dti (TEO) such as the supplier development programmes, as well as
involvement from other trade and industry institutions. It also sought to get alignment with the market
access trade negotiations to ensure that exporters were able to benefit from the trade agreements entered
into by the government. The draft NES sought to align the export promotion mechanisms so to better work
with the Export Promotion Cluster Desks, Export Councils, and Foreign Offices.
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5 Review of Current Available Programmes
5.1 Services and Programmes Provided by South African Government Departments
A number of interventions aimed at boosting export performance are undertaken by government
departments (all three spheres) and their respective agencies in South Africa. This overview identifies key
interventions with an impact on exporter development and areas of potential overlap and duplication.
Several national government departments (including the dti, the Department of International Relations and
Cooperation, the Department of Science and Technology and the Department of Agriculture) as well as SARS
are involved in international trade, either from a policy perspective or from a developmental perspective.
Some are involved in implementation or service delivery; in many cases, they establish agencies or special-
purpose vehicles to implement policy (for example SEDA).
5.2 the dti
Export strategy is the responsibility of the dti and it ties into the other work undertaken by the department.
Those functions of the department directly concerned with South Africa’s international trade relations and
the development and promotion of South African exports are:
ITED, which provides leadership on South Africa’s international trade policy.
TEO, which aims to facilitate the development of sustainable enterprises, through incentive
measures that support national priorities.
TISA. The Export Promotion and Export Development directorates fall under TISA and provide both
financial and non-financial assistance to eligible exporters.
Industrial Development Division (IDD): Policy Development division, whose responsibilities include
industrial competitiveness and customised sector programmes.
TISA and the TEO are responsible for administering the EMIA schemes. TISA also provides wide-ranging
information on export markets and opportunities; exporters are informed about the requirements for
entering foreign markets and identifying export markets for their products and services. The department
currently has economic representatives in some 29 strategically selected countries.
The dti offers a range of incentives, not all specifically for export although all would contribute to the
development of industries with export potential and / or support competiveness of firms. From the survey
conducted of exporters (findings presented below), there appears to be generally rather limited knowledge
of these incentives.
5.2.1 National Exporter Development Programme
The National Exporter Development Programme (NEDP) was launched in 2013, with the aim of increases
exports in general but especially of those products and services that add value, contribute to employment
and the green economy. NEDP offers an integrated approach to developing and educating both exporters
and potential exporters. It avoids a “one-size-fits-all” approach and caters to exporters and potential
exporters at different stages of development. It focuses on developing emerging exporters, especially black-
32
and women-owned businesses. It also targets potential exporters that produce environment-friendly
products. The NEDP does not, however, neglect the development needs of existing exporters.
The NEDP is both modular and programmatic so the customer can elect specific components or the entire
value chain of products and services. The NEDP envisages a comprehensive body of support and capacity
building through a national information network including an integrated export website and an export call
centre, different levels of training to meet specific needs, mentoring arrangements and assistance with
export promotion activities. The NEDP also caters for the concepts of export villages and consortia, both
geographic and virtual. An export village or export consortium9 is a voluntary alliance of firms or
cooperatives. The objective is to promote the exporting of goods and services of its members through joint
actions. An export village or export consortium can be seen as a formal medium- to long-term strategic
cooperation between firms that acts as a service provider specialised in facilitating access to foreign
markets. Services are provided exclusively to member firms. Since SMEs can derive the most benefits from
participating in a consortium, members are typically relatively small.
The NEDP takes a franchise approach, whereby the dti (through TISA) will lead and then work with other
national agencies as well as provincial and municipal agencies to implement specific components.10 The
principle is to use existing facilities, schemes and programmes, but to coordinate them in a way that avoids
duplication. While basic services (especially information) would be provided free of charge to eligible
enterprises, an underlying theme is that of user-pay, based on the understanding that businesses appreciate
a service more if they are required to make some financial commitment, no matter how small.
5.3 Export Credit Insurance Corporation
The government-owned Export Credit Insurance Corporation of South Africa (Pty) Ltd (ECIC) provides export
credit insurance for capital goods and services. Political and some commercial risks are covered.
Government underwriting of political risk in export transactions is common internationally. Credit insurance
is important for exporters as it reduces their risk; and financing facilities offered by banks and financial
institutions, such as IDC, are enhanced by the support from ECIC.
The cost of cover by ECIC is at market rates: ECIC has been in profit position since its inception and is one of
the South Africa’s largest tax payers.
5.4 Small Enterprise Development Agency (SEDA)
SEDA is an agency of the dti and is mandated to implement government’s small business strategy, which
includes a component of improving access to markets. SEDA has a wide geographic spread with offices in all
provinces and therefore has a significant reach across South Africa. Its services include basic advice on how
to start a business and where to get assistance; helping start-up companies in respect of financing,
managing and marketing their businesses; training support for entrepreneurs; and providing a range of
assistance to growing existing small businesses, including support with access to markets. SEDA works with a
9 Readers are encouraged to read the NEDP for a more detailed explanation. 10 Readers are encouraged to read the NEDP for a more detailed explanation.
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number of departments and agencies and it also operates more than 24 incubation centres across the
country.
SEDA’s export services include export training programmes and partnership programmes with foreign
agencies such as the Dutch CBI. SEDA oversees and supports the local Trade Point programme.
5.5 Department of Science and Technology
In the context of the demands of global economic competitiveness and sustainable development, innovative
ideas, products, institutional arrangements and processes will enable South Africa, not only to meet socio-
economic goals, but also produce goods and services for demanding export markets. The Department of
Science and Technology (DST) aims to put science and technology to work to make a sustainable impact on
growth and development. This includes focused interventions, networking, and acting as a catalyst for
positive change in terms of the productive components of the South African economy and the huge
development backlog among the poorest components of society.
The Science and Technology White Paper (1996) clarifies DST’s role in export development: “The opening up
of trade opportunities in global markets in general and the requirements of the WTO Treaty on Technical
Barriers to Trade in particular pose both opportunities and dangers to the developing economy of this
country. Identifying niche markets in which international competitiveness can be improved, increasing
technology investment and enhancing productivity become imperative. Policy choices about investing in
infrastructure, education and training, and in research and development (R&D) will all have to be located
within a framework where there is an appropriate balance between opening up the economy to global
competitiveness and nurturing local initiatives.”
5.5.1 Centres of Excellence
The National Research and Development Strategy identifies the need to create 'centres and networks of
excellence' in science and technology, including in the social sciences, as a key component of the human
capital and transformation dimensions of government policy. These centres contribute to the South African
national innovation system and contribute to product development, which is an important component for
export development.
5.5.2 Scientific and Technological Research and Development Tax Incentive in South
Africa
The Taxation Laws Amendment Act 2011 introduced specific enhancements to the existing scientific and or
technological R&D tax incentive provided under Section 11D of the Income Tax Act. A company undertaking
R&D in the Republic of South Africa qualifies for up to 150% tax deduction of its operational R&D
expenditure. This incentive is available to businesses of all sizes in all sectors of the economy that are
registered in South Africa.
The incentive is aimed at encouraging businesses to undertake and invest in R&D in South Africa. The
objective is to help companies build capabilities to create new products, processes, devices and techniques,
and /or significantly improve existing ones. This incentive is part of a package of measures that the
34
government of South Africa has introduced to support R&D led innovation, industrial development and
competitiveness. This leads to exports.
5.5.3 FabLabs
One programme that DST offers is the FabLab (fabrication laboratory), which is a small-scale workshop
offering (personal) digital fabrication. It is generally equipped with an array of flexible computer controlled
tools that cover several different length scales and various materials, with the aim to make “almost
anything.” This includes technology-enabled products generally perceived as limited to mass production.
There are currently five FabLabs in South Africa, in Bloemfontein (Central University of Technology), Cape
Town (Cape Craft and Design Institute), Kimberly (Northern Cape Higher Education Institute), Potchefstroom
(North-West University), and Soshanguve (Bright Youth Council).
FabLabs will help emerging exporters develop prototypes and new products that could be marketed
globally.
5.6 Development Finance Institutions
South Africa has several development finance institutions, which operate under the purview of the dti, the
Economic Development Department and the National Treasury. Expect for the IDC these institutions do not
focus or have product that cater for finance for exporters, rather by financing the development of small-and
medium enterprises as well as providing industrial finance they enable such enterprises to grow and/or
improve and increase their chances of moving into exports. Development finance, including low interest
loans, has been recognised as key support measures to enable businesses expand their capacity and enter
new markets.
5.6.1 Industrial Development Corporation of South Africa (IDC)
Established in 1940, IDC is a national development finance institution set up to promote economic growth
and industrial development. It is owned by the South African government under the supervision of the
Economic Development Department. Its main objective is to promote and assist industrial development in
the country. It provides medium-and long-term finance to industrialists for expenditure such as the
acquisition of land, buildings, plant and machinery for the operation of new or expansion-related projects.
The IDC also provides export credit facilities in respect of capital goods and services exported from South
Africa. In recent years the IDC has embarked on financing for investment in other African countries by South
African firms with a view to supporting economic growth of the region as well as regional integration; such
finance would often see these companies form part of regional value chains.
5.6.2 Small Enterprise Finance Agency (sefa)
SEFA is a merger of samaf, Khula and IDC small business activities. sefa was launched in April 2012 as a fully-
owned subsidiary of the IDC. The vision of sefa is to be the leading catalyst for the development of
sustainable Survivalist-, Micro-, Small- and Medium-sized enterprises through the provision of finance. SEFA
provides wholesale funding to support the financing of micro business as well as small businesses by
financial intermediaries. SEFA also provide direct loans to small businesses and has entered into
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partnerships with including commercial banks, retail financial institutions, specialist funds, and chambers of
commerce to support access to finance for small businesses.
5.6.3 National Empowerment Fund (NEF)
NEF, reports to the dti, and was established to promote and support business ventures pioneered and run
by historically disadvantaged persons. It assists with the acquisition of shares or interest, directly or
indirectly, in state-owned commercial enterprises that are being restructured, or in private enterprises. NEF
finances new projects and expansions for a minimum of R250 000.
5.6.4 Land Bank
The Land Bank is a statutory body, reporting to the National Treasury, with a mandate from the government
to support the development of the agricultural sector. The Land Bank is one of few agencies that has
historically supported the agricultural co-operative sector, and provides a comprehensive range of retail and
wholesale financial products and services designed to meet the needs of commercial and developing
farmers and agriculture-related businesses.
5.7 Provincial Government and Agencies
Investment promotion, export development and small enterprise development at provincial level is the
responsibility of the Provincial Departments of Economic Development and generally implemented through
their economic development agencies. In some cases there is only one agency responsible for all economic
development activities, while in other cases specialist agencies have been established.
Most provinces are involved, even if it be nominally, with export promotion or development. The focus (and
budget) generally seems to be on export promotional activities such as trade missions and exhibitions. What
little exporter development there is, is generally undertaken by national departments especially TISA and
SEDA, often in partnership with the provinces.
5.7.1 Western Cape
Wesgro is the official investment and trade promotion agency for the Western Cape, providing services for
investors, exporters, international buyers and for funders. It has a number of export-related services
including an export-readiness checker, available online to registered clients.; foreign market information
trade Fact Sheets covering a number of international trade-related issues, information on trade agreements
and opportunities, organising outgoing trade missions on an ad hoc basis (in conjunction with TISA), and
export training programmes and workshops.
The Cape Craft & Design Institute (CCDI) was set up in 2001 to promote and grow craft as an economic
sector in the Western Cape. A Section 21 not-for-profit company, the CCDI is a joint initiative of the
provincial government of the Western Cape and the Cape Peninsula University of Technology. The CCDI has
also been adopted by the dti as a model Craft Hub, to serve as a template for the establishment of other
similar craft institutes in the other provinces of South Africa. The CCDI has three main programmes:
creativity, design and innovation, which includes a FabLab; enterprise development and training; and the
market access programme. This latter programme includes a specific export element.
36
5.7.2 Limpopo
The Limpopo Economic Development Agency (LEDA) has been established to consolidate the work of the
three agencies below, plus that of the Limpopo AgriBusiness Development Corporation.
Trade and Investment Limpopo (TIL) was established to support Limpopo companies seeking to expand
operations locally, and into the rest of Africa and into other foreign markets. It researches, packages and
markets investment opportunities, and also offers a wide range of services aimed at assisting and
supporting investors to establish in Limpopo or to trade with the province.
The Limpopo Business Support Agency (Libsa) was formed in response to focuses on exploiting
opportunities in all economic sectors for business development and promotion among existing and aspiring
entrepreneurs in the Limpopo Province.
Limpopo Economic Development Enterprise (LimDev) was established to provide development finance to
SMMEs to stimulate the growth and development of the Limpopo economy.
5.7.3 Gauteng
Gauteng has consolidated its agencies into the Gauteng Growth and Development Agency (GGDA). GGDA
came into existence on the 1st June 2012, and incorporates Gauteng Economic Development Agency (GEDA)
and Blue IQ Investment Holdings. The agency is mandated and funded by the provincial government to
design, develop and implement key strategic economic development programmes.
The Gauteng Enterprise Propeller (GEP) is a provincial government agency established in 2005 under the
auspices of the Department of Economic Development to provide non-financial support; financial support;
and coordinate stakeholders for the benefit of SMMEs in Gauteng.
5.7.4 North-West
Invest North-West (INW) is the provincial trade and investment agency of the North-West Province with a
mandate to develop the economy, focusing on FDI facilitation and promotion, export promotion and
development of sector-specific programmes in mining, manufacturing, tourism and agriculture. INW’s
strategic focus is to ensure effective and efficient facilitation of economically viable and sustainable projects
with high impact (at least 50 jobs) and high value (R10 million).
5.7.5 Mpumalanga
MEGA is the official economic development agency of the province. MEGA’s operational activities cover
trade and investment promotion, enterprise development, property management, agriculture and housing
finance. MEGA’s objective is to provide a one-stop development service to business and potential investors
alike. In terms of trade and investment promotion, it offers international trade facilitation and support,
including handling export and import enquiries, providing assistance with the EMIA schemes, providing
general foreign market and export information, and assisting participation in foreign trade fairs and
outgoing missions.
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5.7.6 KwaZulu-Natal
The KwaZulu-Natal (KZN) provincial government has recently adopted an export strategy which includes a
number of programmes. Especially relevant regarding exporter developments are strategies concerning
information, exporter interaction and exporter training. The strategy proposes that training should be
provided face-to-face but also be made available online to extend the spread of benefits to the maximum
number of learners. Integration with a website and exporter database could be highly effective in ensuring
that as many exporters as possible have access to training, learning and new skills.
Trade and Investment KwaZulu-Natal (TIKZN) is the provincial investment and trade promotion agency.
Much of its export assistance is channelled through the Durban Trade Point. In addition to this, export
training is provided and TIKZN facilitates participation by KZN enterprises in overseas trade shows, especially
those supported by the dti.
5.7.7 Eastern Cape
The provincial development agency in the Eastern Cape is the Eastern Cape Development Corporation
(ECDC), whose mission is to “Positively contribute to government’s development objectives for the Eastern
Cape Province and to overcome the constraints of poverty, unemployment, inequality, under development
and apartheid inheritance.” Export promotion is one of its targeted services and programmes and this unit is
located in the Port Elizabeth and East London offices. ECDC offers a range of export services, including
export-readiness assessment analysis; assistance with the EMIA schemes; listing export-ready products on
ECDC’s e-trade platform; participation in national and provincial international trade missions; foreign
market information; networking opportunities locally, regionally and internationally. ECDC also supports the
Export Network Forum, which meets three times a year and brings together Eastern Cape business that are
involved in, or would like to be involved in, regional and international trade.
5.7.8 Northern Cape
The Northern Cape Department of Finance, Economic Development and Tourism department’s mission is
“The creation of an enabling environment for economic development for the Northern Cape.” The functions
of the department include accelerating economic growth by facilitating export from and investment into the
Northern Cape while simultaneously promoting economic diversification and industrial expansion.
The Northern Cape Economic Development Agency (NCEDA) is a state-owned entity with the vision to be
the catalyst for the acceleration of sustainable economic growth and development in the Northern Cape.
NCEDA focuses on the following sectors: agriculture, agri-processing and value-adding; mining; mineral
beneficiation; and tourism infrastructure.
5.7.9 Free State
The Free State Development Corporation (FDC) is the official economic development, trade and investment
corporation for the Free State Province. In terms of the FDC Act, the mandate of the FDC is to establish and
develop sustainable SMMEs in the Free State Province by providing both financial and non-financial services
to them. The FDC is the first point of contact for foreign and local investors, local exporters and local
entrepreneurs. Included in its portfolio of services is providing export-ready Free State companies with
38
assistance in identifying new markets and export opportunities for their products. It works together with
SEDA to assist producers and manufacturers to develop their export capabilities.
5.8 Services Provided by Non-governmental Organisations (NGOs) and Non-South
African Agencies
5.8.1 South African International Business Linkages Programme
USAID/Southern Africa launched the South African International Business Linkages Programme (SAIBL) in
2008 aimed at linking black-owned SMEs to corporations; and supporting small businesses access into value
chains. The programme came to an end in 2012 and has work of SAIBL was handed over to the South African
Supplier Diversity Council.
5.8.2 Centre for the Promotion of Imports from Developing Countries (CBI)
The CBI is an agency of the Ministry of Foreign Affairs of The Netherlands, and funded by the Dutch
government. Its mission is to contribute to sustainable economic development in developing countries
through the expansion of exports from these countries.
CBI’s contribution consists of sustainable strengthening of the competitive capacity of SME exporters and
producers in developing countries, focusing primarily on European markets. This is achieved by offering an
integrated approach, which is applicable to companies, business support organisations and governmental
authorities. The core competencies are advice, counselling and knowledge management, covering market
knowledge; product and production improvement; quality control; export marketing and management;
market entry.
Currently the CBI partners with SEDA and on occasion with the South Africa Agri Academy, a Section 21
(non-profit) company focusing on training support for exporters and emerging exporters in the agricultural
sector. Any South African company can access CBI assistance through a simple, free, registration process.
5.8.3 GIZ
This programme by the German government covers a lot of ground and operates in many fields: economic
development and employment promotion; governance and democracy; security, reconstruction, peace
building and civil conflict transformation; food security, health and basic education; and environmental
protection, resource conservation and climate change mitigation. As part of the work in Local Economic
Development (LED) it includes certain export programmes where exporters are developed.
5.9 Private-sector Service Institutions
A vital component of South Africa’s export infrastructure is the wide range of services provided by private-
sector organisations and companies, such as banks, insurers, freight forwarders, chambers of commerce,
packing consultants, training institutions and the like. These services are critical as they provide the
necessary support for both big and small exports; they include:
Private training institutions: there are a number of private companies offering export training
programmes.
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Tertiary institutes: Most of the major universities and business schools include elements of
international business management in their curricula. However, there are not the same links
between export/SME development agencies in South Africa as are apparent in the United States,
Canada, Malaysia and Ireland.
The Trade Law Centre (TRALAC) is a not-for-profit organisation, building trade law capacity in the
southern Africa region; in governments, the private sector and civil society.
Export Councils: There are over 20 export councils that work in different sectors. They are an
important instrument for export and exporter development.
Industry associations: In some cases, these associations also fulfil the function of Export Councils.
Private-sector service institutions: These include the banks, export credit insurers, the freight
forwarding community and a number of other international trade service sectors.
Organised Business in South Africa: The South African Chamber of Business (SACCI), Chamber of
Commerce and Industry–Johannesburg (NafcocJCCI) and Cape Town Regional Chamber of
Commerce and Industry (Cape Chamber) are especially active in assisting their exporting members.
40
6 Survey of Exporters, Past Exporters and Potential Exporters An essential element of the research was consultation with stakeholders. In order to broaden the spread of
consultation a survey was undertaken of present, past and potential exporters to test, among other things,
their reasons for exporting or not exporting, the problems they face, and their experience of the various
export services available to them. The survey covered companies in most manufacturing sectors, as well as
some representation of the agricultural and mining sectors. The appendix contains the results of the survey
in great detail but the main trends are summarised here. In total 592 exporters responded. These were
made up as follows: exporters (374); past exporters (57); and potential exporters (161).
One of the more noticeable trends coming out of the survey was that aside from significance of personal
contacts in export markets the firms tended not to utilise the services of government agencies, foreign
representatives or even private sector services providers in accessing export markets.
6.1 Current Exporters
6.1.1 Experience is important
More than three-quarters of the firms that responded have been in business for more than 10 years.
Experience is an important determinant of export success. This is not surprising as it reflects international
experience. Bernard et al (2007) found that “international trade is an exceedingly rare activity: of the 5.5
million firms operating in the United States in 2000, just 4 percent were exporters. Among these exporting
firms, the top 10 percent accounted for 96 percent of total U.S. exports.”11
6.1.2 Export Growth Expectations
Exporters were generally bullish about their future exports, indicating that they expected to increase their
export revenue over the coming year. This intention was across-the-board and growth did not depend on
either the size, experience, or in which sector the exporters operated. As can be seen from the figure below,
most of the respondents were positive. From the qualitative data it can be deduced that there were
challenges that had to be overcome before exports could be increased but that exporters viewed export
growth strategically. One exporter, for example, had “a 20% growth target for the next five years” and
another stated “growth of at least 50% per year.”
11 Bernard et al (2007) also found that exporters are “more productive by roughly 11 per cent for value-added per worker and 3 per cent for total factor productivity; they
also pay higher wages by around 6 percent.” Although the dti has a mandate to grow the exporter base and to help new entrants, the reality is that productivity and
experience are critical in global marketing. The dti are in the process of commissioning research on the efficacy of EMIA. This research will enable the dti to structure a
suitable efficient programme.
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Table 6: Expectations to increase exports
From the qualitative assessment, many exporters had focused on developing their global networks and
were in the process of appointing new agents and distributors. In 3% of cases this was as a result of
participating in foreign trade missions or exhibitions.
6.1.3 Markets and potential markets
Sub‐Saharan Africa was the most important region to South African exporters, followed by Western Europe.
These regions were followed by Asia, North America, Australia, and New Zealand. Eastern Europe, the
Middle East and South America were the lowest ranked regions according to the respondents.
The top 10 (new) countries that exporters plan to enter are: 1. Kenya; 2. Angola; 3. Nigeria; 4. Tanzania; 5.
Mozambique; 6. Uganda; 7. Democratic Republic of the Congo; 8. Zambia; 9. Zimbabwe; and 10. Brazil.
With the exception of Brazil, exporters have prioritised African markets as being important. The least
popular destinations for South African exporters are: 1. Cuba; 2. Venezuela; 3. Kuwait; 4. Argentina; 5.
Taiwan Province of China; 6. Republic of Korea; 7. Mexico; 8. Chile; 9. Japan; 10. Egypt
6.1.4 Drivers
A few companies (3%) with more than 200 employees saw an undervalued currency as an advantage.
Nonetheless, others raised concerns regarding an undervalued currency in terms of inflation and other
factors which would outweigh short term gains exporters may enjoy. Experienced exporters used a strong
Rand to buy new equipment and raw materials. Volatility of the exchange rate was of great concern and
0
10
20
30
40
50
60
70
80
90
100
less than 5 6 - 10 11 -50 51 - 100 101 - 200 More than 200
Yes No Unsure
42
they indicated that the risks associated with currency fluctuation had to be managed very carefully. There
are several techniques, such as forward cover, that the exporters use to minimise foreign exchange risks,
however forward cover provided by banks does not fully address the volatility question.
Exporters considered that contacts in the export market are very important: almost half of the respondents
felt that they would not be able to export without a network of international contacts. Some firms started
exporting as a result of unsolicited enquiries (5% of respondents) and meeting with inward buying trade
missions (3% of respondents). Inward buying missions are seen as more efficient than outward selling
missions in that they give more potential exporters access to potential buyers than outward selling missions.
The Motor Industry Development Programme (MIDP) and even AGOA were also given as drivers to start
exporting.
6.1.5 Benefits of exporting
Exporters were asked; “What benefits have you enjoyed through exporting?” Many respondents indicated
that they had benefited from their exposure to foreign markets and exporting. Others respondents
indicated that they gained by developing “export quality products” or “becoming an international brand.”
Exporting contributes to reducing average costs of production. A few exporters said that exports helped
them contribute to their social responsibility by enabling them to employ more people and supply skills
development and training.
6.1.6 Sources of comparative / competitive advantage
6.1.6.1 Innovation
Current, potential and past exporters indicated that they felt they produced quality products with superior
features to imports; and they placed importance on innovation, quality and productivity as important
drivers of their export growth and development. The less experienced exporters did not recognise the
importance of innovation and relied on other factors (such as a weak currency) to ensure their
competitiveness. Firms employing 11 – 50 people relied on innovation the most and 80% of them said that it
was critical, very important or important; they also indicated that having their own R&D facilities was
important.
6.1.6.2 Productivity
The majority of all firms, irrespective of their size, considered productivity to be important in their export
activities. Economies of scale and improved efficiencies are major contributors to achieving high
productivity and mitigating against inflationary rises in costs.
6.1.6.3 Input Costs
Energy is important for all manufacturing activities. Very few exporters (13,7%) across all sectors felt the
cost of energy was not important.
The unit labour cost is an important input for all economic activities and especially manufacturing
processes. Although most respondents did consider the unit labour cost to be an obstacle, one of the
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respondents claimed that the success of their export efforts was due to a “well educated, motivated and
experienced staff.”
In capital-intensive sectors, the cost of capital is obviously more important than in labour-intensive sectors.
However, few exporters across all sectors felt the cost of capital was either critical or not at all important.
6.1.6.4 Economies of Scale vs Short Production Runs
A total of 70% of large firms indicated that economies of scale were either critical or very important.
On the flip side many South Africa firms have adapted well to supplying a small domestic market and are
efficient when producing short production runs. This implies that they are able to service niche markets very
well. Approximately 40% of all firms of all sizes felt that this attribute was either critical or very important to
their ability to compete internationally. More medium-sized firms (employing between 50 and 100
employees) and manufacturers felt that this was important aspect of the competitive advantage.
6.1.6.5 Product Diversification
Approximately two-thirds of respondents indicated different products that they would diversify into. In
most cases, the diversification was into new product lines related to their current sector. Many of the
respondents complained about the cost of developing new products or new markets. A few felt that the
government was not supporting development issues sufficiently. In many cases this sentiment is because
exporters did not know about various schemes that are available.
6.1.6.6 Incentives
Respondents did not highlight incentives as being important to their export efforts. There was also a general
lack of awareness on the incentives available or if the firms would be eligible for the incentives.
6.1.6.7 Staff Skills
Skilled staff was a prerequisite for many firms to increase their export turnover.
6.1.6.8 Distance from Markets
As South Africa is far from major markets only 15% of large firms (employing more than 200 people) and
very small companies (employing less than five people) considered the proximity to markets to be critical.
Exports to South Africa’s neighbours and SADC in general are being undertaken by small emerging
enterprises as well as the large established firms.
6.1.6.9 Export Agents and Trading Houses
Only a few exporters (mainly smaller exporters) used South African export agents or export trading houses.
Given the importance of trading houses generally across the world, it is rather surprising that so few of the
established exporters surveyed are using this channel to sell products internationally.
44
6.1.6.10 Use of the Internet as a Sales Medium
Very few exporters used the Internet to sell their products or services using e-commerce; the use of the
Internet to export was mainly the smaller companies.
6.1.7 Barriers
The survey tended to highlight problems that the exporters currently experience and not necessarily those
that less experienced exporters and potential exporters experience.
Exporters highlighted the following barriers:
Challenge of expanding in foreign markets;
Difficulty in accessing finance for export expansion;
High cost of undertaking marketing activities abroad;
High transport/transport-related costs, e.g. port dues, surcharges, etc.
High cost of labour relative to output (lack of labour productivity);
Lack of productivity in general (labour and capital productivity);
Limited financial resources/restricted access to finance;
Infrastructural/institutional bottlenecks in South Africa, e.g. port congestion, customs delays, etc.
High cost of imported inputs required for export purposes;
Shortage of available personnel skilled in imports/exports;
Lack of time to devote to a more active export drive;
Difficulty in locating individuals/entities that are qualified to offer practical advice and/or assistance;
High expense associated with obtaining practical advice and/or assistance;
Poor quality assistance from existing sources; and
Lack of a national export website (portal).
6.1.7.1 Finance
Finance was the most important hurdle that exporters have to face when developing new markets. The vast
majority of exporters saw limited finance as a significant obstacle that had to be overcome. In the
comments that were made the problems raised were access to finance; the cost of finance; and credit
insurance.
Finance was needed by exporters to expand production facilities. Although South Africa has a well
developed financial system, the experience of those surveyed was that exporting was not always seen as a
priority and not always included in the criteria that determines the cost of capital.
DFIs such as the IDC provide finance for exporters or for expansion they had limited reach among those
surveyed. DFIs have offices in all provinces, yet many exporters are unaware of the products they have that
will contribute to lower finance costs.
Working capital was also highlighted as a problem. Many of the small-and medium-sized companies
highlighted both the cost of and access to working capital. Once an exporter has received an order and
Critical Analysis for the Integrated National Export Strategy
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produced the goods and the consignment is covered by both cargo insurance and credit insurance the risk of
default by the exporter is very low. The cost of obtaining working capital does not reflect this low risk.
6.1.7.2 Tariff Barriers
Tariff barriers were highlighted as a major problem. Exporters also complained that when trade negotiations
were taking place, they were not consulted and, even if they were, negotiations did not benefit them.
Exporters complained that South Africa opens its markets to countries that want South Africa’s resources,
but continue to protect their markets from South African manufactured products.
6.1.7.3 SA Export Regulations and Procedures
Although respondents acknowledged improvements in South African Customs and Excise over the past few
years, they felt that there were areas that needed to be enhanced. In many cases delays were caused by
other departments’ regulations that were enforced by Customs and Excise. The DAFF was the most often
cited.
6.1.7.4 Lack of Information
Lack of information came across as serious weakness. A quarter of exporters did not know where to find
practical advice or assistance. Most companies indicated that they needed information and foreign market
intelligence if they were going to export new products. Together with market intelligence, respondents felt
that market research grants would contribute to their export diversification efforts.
6.1.7.5 South Africa’s Foreign Economic Representatives
Very few of the respondents were satisfied with the services of the FERs and in many cases prefer not to use
their services; the smaller exporters were however more satisfied and used the FERs. According to
respondents there needs to be a better screening of FERs prior to appointment; they need better training
and they need exposure to the South African manufacturers and exporters to understand their needs
better.
Very few of the respondents were satisfied with the services of DIRCO’s foreign missions.
6.1.7.6 Preferred Medium for Information and Assistance
Not surprisingly, the preferred method of receiving assistance is face-to-face, followed by tailored email
response. Hard copy publications are the least preferred by those surveyed.
6.2 Past Exporters
Most of the past exporters held high opinions of their product’s quality and it features. They were less
convinced when it came to their prices. One of the respondents claimed that they “have more than 90%
market share in the local market and very little competition.”
46
The past exporters have the advantage of knowing what is required of them in foreign markets. They had
sufficient knowledge of the export process and what was required from them as exporters. They also claim
to have the necessary technology and technical expertise to compete in the global markets.
The biggest challenge that past exporters seem to face is a lack of finance. Although most of the
respondents had spare capacity, superior technical expertise and some export knowledge, they lacked
financial resources to cover preshipment costs. Preshipment costs include the costs of market research,
product testing and adaptation retooling for export, etc. They also do not have the financial resources to
cover post-shipment finance. In other words they did not have the resources to wait for importers to pay
them. This can often exceed six months.
6.3 Potential Exporters
Potential exporters felt that they had products that could be exported. Respondents were asked to compare
their products to locally manufactured and imported products. They were asked to compare their features,
their quality, and their price with the competition.
Most respondents felt that their products had at least the same features as the competition. Smaller firms
tended to be more optimistic and felt that their features were a lot better or at least marginally better than
the competition. The smaller firms did, however, concede that imported products generally fared better
than domestic products.
Potential exporters also had problems with access to finance, but in most case were not aware of where to
go.
Both potential exporters and past exporters had little awareness of the various incentive schemes. Where
they did have some information, the scheme was either not applicable to them or too difficult to apply for.
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7 Export Performance – a Statistical Analysis This section reflects on the evolution of South Africa’s trade over the past two decades as well as provides a
quantitative assessment of South Africa’s trade performance, structure and patterns in recent years. South
Africa’s performance is then located in the context of the trade performance of other developing countries
broadly comparable to South Africa.
7.1 Growth in World Exports
Since the industrial revolution the world’s GDP has grown significantly. However, with a few exceptions,
world export growth has exceeded its GDP growth. World exports grew by over 9% annually over the past
15 years. This can partly be attributed to increased liberalisation since the founding of the WTO and
increased globalisation. The World Weighted Average Applied Tariff Rate fell from 34% in 1996 to 2.7% in
2010.
Figure 1: Growth in world exports
Source: IMF IFS and World Bank Statistics
Before the 2008–2009 economic crisis, international trade in goods and services, showed a steady increase,
with the OECD total increasing (on average) by between 4 and 5 percentage points for both measures
between 2004 and 2008. In 2009 however, in the midst of the crisis, the ratio for both imports and exports
in GDP fell markedly, wiping out nearly all of the increases recorded after 2004. The GDP ratio for imports in
2009 at 25.0% was only marginally higher than in 2004.
The global economy weakened significantly towards the end of 2011 and further downside risks emerged in
the first half of 2012. The growth rate of global output, which had already decelerated from 4.1 per cent in
2010 to 2.7 per cent in 2011, is expected to have slowed down even more in 2012 to below 2.5 per cent.
World GDP and Trade grew on average by 3.4% and 5.7% respectively since 1980; but trade fell by over 10%
(US$3.6 trillion) during the recent global recession. During the same period GDP dropped by 0.5%.
5 000
7 000
9 000
11 000
13 000
15 000
17 000
0
5
10
15
20
25
30
35
199619971998199920002001200220032004200520062007200820092010
W. E
xpo
rts,
US
$ D
olla
rs
Ap
p. T
arif
f R
ate
Per
cen
tag
e (%
)
World Exports, F.O.B. Weighted Average Applied Tariff Rate [World]
48
The composition of world merchandise trade has shifted in the long term, with the share of manufactured
goods rising dramatically against a decline in agricultural products and non-fuel minerals. Developed
countries’ share of world exports of manufactures has been greatly diluted. This occurred first in labour-
intensive goods and later in electronic products and capital-intensive goods.
Before the 2008-2009 crisis, developed economies exhibited worsening current account deficits whereas
emerging markets and developing economies were experiencing increased in their current account
surpluses. Developed countries have not yet recovered from the financial crisis, which has left in its wake a
highly indebted private sector and a vulnerable financial system.
The share of developing economies in world total trade rose to 47% on the export side and 42% on the
import side in 2011, the highest level ever recorded since 1948.
7.2 South Africa’s Export Performance
South Africa has a long tradition of exporting. A significant percentage of the country’s exports have been
primary products (agricultural products, precious metals and other minerals). Although South Africa’s trade
has been growing since the 1950s, its share of world trade has fallen considerably (from approximately 25%
to 0,5%), since it was unable to keep up with the rapid growth of world trade and increased globalisation
during this period.
Figure 2: South Africa’s share of world exports declining
Source: IMF IFS
This declining trend has continued in recent years. South Africa’s market share expressed as an index in
volume terms has decreased while its share expressed as an index in value terms (using nominal USD) has
increased.
Critical Analysis for the Integrated National Export Strategy
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Figure 3: World market share decreasing
Source: OECD Financial statistics database
This seems to indicate that since the early 2000s the unit value of the country’s exports is increasing. In
other words the country is getting a better price for its exports. It can be partly explained by the
“commodity super-cycle” but also because South African industries are now more fully integrated into
global value chains. This is confirmed when examining figure 9: exports per sector below, where South
Africa’s share of exports of intermediate goods has increased together with exports of raw material.
In reviewing South Africa’s trade performance it is apparent that the economy has opened up substantially.
The level of both exports and imports has grown over the past two decades. Detailed research contained in
the Appendix reveals how exports have risen steadily since 1994, underlying the progressive opening up of
the South African economy that has occurred during this period. Since 2003, the country’s demand for
imports has exceeded its exports, resulting in a widening trade deficit.
In the period following apartheid, as South Africa quickly adopted a more open economic stance, there was
a great surge in export growth. It is apparent that a robust increase in exports was recorded between 1994
and 2002, when growth in world exports was also healthy. Following this period, the annual growth rate for
exports from 2002 to 2006 remained high at just over 9% whereas imports grew relatively faster at 14.5%.
This trade performance led to a widening trade deficit from R3.5 billion in 2002 to R81.5 billion in 2006 even
though the real effective exchange rate increased in the same period. From 2007 to 2011, imports grew by
only 3% and exports rose by just under 7% owing to the slowing down of the global economy during the
crisis of 2008.
While South African exports have grown since 1994, it is apparent that the growth rate is not rapid enough.
A comparison of the South African growth rate with that of some key developing countries shows that South
Africa’s export growth performance is still not as robust as these countries.
Table 7: Growth of trade of (2007–2011)
60
65
70
75
80
85
90
95
100
105
Ind
ex 1
994=
100
Value Volume
50
Table 8: Comparative export growth rates
Total Exports (US$ Million) Annual Growth Rate 2007–2011 (%)
Share in World Exports (%)
USA 1 479 730 5 8.3
Australia 245 631 13 1.4
Malaysia 226 992 5 1.3
Rwanda 417 23 0
Jamaica 1 517 -16 0
Mauritius 2 255 -2 0
Chile 81 411 4 0.5
Brazil 256 038 10 1.4
China 1 898 388 10 10.6
India 301 483 18 1.7
South Africa 92 975 7 0.5
Source: ITC Trademap Database (2012)
South Africa has grown its exports, albeit it at a less than desirable rate, and has also managed to diversify
its export base somewhat. The following graph shows that while South Africa’s export basket remains
predominantly composed of mining and basic processed goods as was the case in 1994, today exports of
advanced manufactures account for 17.3% of total exports compared to 7% in 1994. Exports of agricultural
goods have however decreased since 1994.
Table 9: Structure of Exports, 1994–2011 (Shares-%)
Broad Classification12 Share of South Africa’s Exports (%)
1994 2000 2006 2011
Agriculture and Forestry 7.8 5.9 4.8 5.4
Mining 57.3 45.6 42.9 50.8
Basic Processing 27.9 32.2 31.9 26.5
Advanced Manufacturing 7.0 16.3 20.4 17.3
Source: Quantec International Trade Database and own calculations
12 The aggregation is based on 23 section data, which in itself is an aggregation of HS 2 data. The classification was arranged as follows: Sections I, II, II, VIII and IX were
amalgamated into agriculture and forestry. Mining consists of Sections V and XIV. Basic processing includes Sections IV, VI, VII, X, XI, XII, XIII and XV. Sections XVI,
XVII, XVIII, XX, XXI and XXIII were considered as part of advanced manufacturing. Other unclassified goods (SectionXXII) was added to the mining category because it
formerly included platinum, a major mining product although this is now included under Section XIV. Note that Section XIX covers arms and ammunition and statistics
are not published.
Critical Analysis for the Integrated National Export Strategy
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Figure 7: South African exports per broad sector
Source: OECD (2013)
The above graph shows that export values of raw materials and intermediate goods have risen since 1992 at
a faster rate than export values of consumer and capital goods. The sharp drop in all sectors in 2009
followed the global economic and financial crisis.
7.3 Destination of South Africa’s Exports
The table below shows the regional destination of South Africa’s export (a detailed analysis is also included
in the CD ROM). It not only shows destinations, but also the actual products, growth rates and potential
opportunities.
Table 10: South African export commodities by region: 2012
Commodity Section
Africa % of total
section exports
Europe % of total section exports
Americas % of total section exports
Asia % of total section exports
Oceania % of total section exports
I Animals, animal products 35 33 5 23 5
II Vegetable products 16 42 15 26 1
III Fats and oils 92 4 0 3 0
IV Prepared foods, beverages 44 28 8 17 3
V Mineral products 7 17 5 68 0
VI Chemicals 32 14 18 34 2
VII Plastics and rubber 60 15 12 12 2
Viii Hides and skins 4 42 11 43 1
IX Wood and articles 27 15 1 51 6
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
UD
S M
illio
ns
Intermediate goods Raw materials Consumer goods Capital goods
52
Commodity Section
Africa % of total
section exports
Europe % of total section exports
Americas % of total section exports
Asia % of total section exports
Oceania % of total section exports
X Pulp and paper 31 18 3 47 1
XI Wool, textiles and clothing 28 25 5 39 3
XII Footwear etc 65 11 11 11 3
XIII Stone, plaster, etc 52 26 9 11 1
XIV Precious stones & metals 0 25 8 22 0
XV Base metals 20 20 16 43 1
XVI Machinery and parts 46 30 12 9 2
XVII Transport equipment 27 29 31 10 4
XVIII Electronic equipment 53 25 10 8 4
XX Miscellaneous manufactures 46 46 4 3 1
XXI Works of art 3 63 28 4 2
Total exports 18 23 12 35 1
Source: SARS Customs & Excise statistics
In broad terms, regions such as Africa, Europe (especially the EU, and the United Kingdom in particular) and
North America are important regional markets for South Africa’s high value added. For example, based on
South Africa’s own 2012 trade statistics, between 45% and 50% of exports of machinery, electronic goods
and miscellaneous manufactures are sold to markets on the African continent (excluding the other SACU
countries). Europe takes about 25% to 30% of these manufactures, while the United States takes about 30%
of transport equipment exports. These are established trends in South Africa’s export flows.
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8 Competitiveness Diagnostics The 2008 /09 global economic and financial crisis has caused countries around the globe to rethink ways to
re-ignite economic growth. Historically, export-led growth and more recently participation in global value
chains have been seen as the most likely pathways to do so. A policy to support export-led growth and
participation in global value chains are essentially about findings ways to increase the ability to sell South
African goods and services to global markets. This ability to export is what has often been understood as
“export competitiveness.”
South Africa has focused on the industrial policy, especially through the IPAPs in trying to answer concerns
about whether the traditional export-led growth strategies are providing the right answer. This section uses
various diagnostic techniques to identify areas of competitiveness and areas that inhibit competitiveness.
8.1 Exchange Rates
In recent years there have been debates about the impact of the real exchange rate on trade flows. On the
one hand, there are views that a strong exchange rate tends to reduce the level of trade in a country by
negatively affecting exports. Some economists favour intervention in exchange rate markets: they argue
that without a weaker currency, efforts to increase South African exports will not work because domestic
producers cannot compete abroad and competition from cheap imports increases. This view has been
supported by economists, including Joseph Stiglitz, who argues that South Africa needs a more managed
exchange rate in order to solve the high unemployment problems (Bloomberg, 7 May 2012). He advocates
using a portfolio of instruments, such as stepping up the accumulation of foreign reserves to counteract an
appreciating currency.
The argument is that a weaker exchange rate has the potential to stimulate exports (either increase
volumes, make them more profitable or lower the prices), increase tourism, reduce imports, improve the
trade balance, diversify exports, re-orientate the economy towards tradable sectors, and enhance the
employment of unskilled labour.
On the other hand, those who are against intervention in the exchange rate argue that South Africa does
not have adequate foreign exchange reserves to weaken the currency. These analysts propose that exports
should be driven by increased productivity levels and seeking ‘competitive devaluations’ will compromise
structural reforms in industries (Draper, 2010).
The depreciation of the currency is seen as bringing short term benefits but is unlikely to enhance exports if
there are supply constraints relating to infrastructure, input supplies and production capacity. Therefore,
additional policies targeting these supply constraints would have to accompany the currency depreciation to
increase exports (Edwards & Garlick, 2008). It has been argued that using protectionist industrial policy
ignores the exchange rate response. A protectionist tariff policy increases the demand for domestic goods in
the initial stages and lowers imports13. This results in a trade surplus, which causes the exchange rate to
appreciate, which will in turn inhibits exports.
13 Protectionist policies also result in a general increase in inflation.
54
Even in the short term, though depreciating the currency may increase exports and positively affect the
current account, a stronger Rand is also argued to benefit the economy: a stronger Rand helps lower the
inflation rate and reduces the cost of imported components of the infrastructure programmes. South
African export industries are dependent on imported input components, such as the automotive industry.
Capital and intermediate inputs are major components of the nation’s import basket, and are generally
priced at world prices. If the exchange rate is depreciated to encourage exports, the input costs will
increase, which makes currency depreciation unattractive as a policy tool to those against it. Therefore, the
negative aspect of a depreciated exchange rate is that it leads to higher inflation due to increased domestic
currency prices of imported final/intermediate goods and/or higher wage inflation (Schaling, 2007).
Kganyago (2010)14 pointed out that not too much credit should be given to the exchange rate in
determining economic outcomes, as other factors such as interest rates, long-run productivity development
and demographic changes carry more economic importance. Over the longer term, the real exchange rate
has to depreciate to support competitiveness of the economy. This should be done through moderation of
the nominal exchange rate, lower inflation and stronger productivity increases in sectors exposed to
international competition.
The volatility of the exchange rate is affected by global factors, including commodity prices and capital
inflows. There are arguments that it is not possible to enforce policy that weakens the exchange rate
because the global market forces affecting it are too strong. Rising commodity prices and capital inflows
lead to an appreciation of the exchange rate. In the recent years, due to the global conditions, capital
inflows into emerging economies such as South Africa have been increasing, affecting the exchange rate.
The exchange rate is also argued to not be a critical driver of exports. Schaling (2007)15 found that South
African exports (for the period 1994-2006) were driven by international economic conditions rather than by
the exchange rate (the elasticity of foreign economic activity is greater than the elasticity with respect to
real effective exchange rate (REER)). There is no robust statistical evidence that net exports are boosted by a
weaker REER. Other researchers found that South African exporters of manufactured goods are generally
price takers in the international market (Edwards and Willcox, 2005; Alves and Edwards, 2006).
In early 2012 the Rand strengthened to between R7,40:US$1 and R7,60:US$1, This was partly due to large
interest-rate differential with developed countries. The Rand encountered volatility in response to renewed
global uncertainty and a shift away from riskier emerging-market assets. After sliding to R8,71:US$1 in June
2012 - a three-year low - the Rand strengthened to around R8,25:US$1. After recovering towards the end of
December, crippling strike action, further sovereign risk downgrades and the possibility of mine closures,
took the Rand to levels weaker than R9:US$1 during January 2013. Volatility is seen by exporters as more
significant than the rate as it makes it difficult for exporters to plan; and especially for small- and medium-
sized exporters to invest in production capacity, with risk adverse manufacturers staying away from export
markets.
14 National Treasury “Promoting Dialogue on Trade Reforms in South Africa”, Lesetja Kganyago (2010) 15 Schaling (2007) “Reducing Exchange Rate Volatility and Supporting Competitiveness”
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Figure 8: South Africa’s REER
Source: SARB
8.2 Anti-export Bias
An anti-export bias is when a country has a policy environment or measures that result in disincentives to
export. The logic to this approach is based on the argument that increased levels of tariffs inhibit firms from
being competitive as their input costs may be raised resulting in the increase in prices of the final product;
or because the increased tariff gives firms greater levels of protection and they are therefore less inclined to
improve their competitiveness. Quantitative import restrictions protect the local market, increasing profits
and allowing firms to remain focused on the domestic market, as exports markets are far more competitive
and goods have to be sold at world prices.
South Africa has moved towards trade liberalisation since 1994, which has seen the removal or reduction of
many tariffs and quantitative restrictions. A challenge however of the South African economy is that with
the lowering of tariffs not all industry players were able to compete effectively due to high cost structures in
the economy, resulting in firms going out of business and job losses.
Following the global economic downturn there has however been an increase in protection in recent years
in order to protect industries at risk.
8.3 Revealed Comparative Advantage
According to the theory of possible comparative advantage, if a country has a comparative advantage in one
good, then the country could possibly have a comparative advantage in other goods with similar factor
conditions (this concept is also known as proximity). Many economists, including Heckscher, Ohlin, and
Krugman, have given alternative explanations for the causes of comparative advantage. Clearly,
70
80
90
100
110
120
130
140
150
1601
97
0/0
1/3
1
19
71
/08
/31
19
73
/03
/31
19
74
/10
/31
19
76
/05
/31
19
77
/12
/31
19
79
/07
/31
19
81
/02
/28
19
82
/09
/30
19
84
/04
/30
19
85
/11
/30
19
87
/06
/30
19
89
/01
/31
19
90
/08
/31
19
92
/03
/31
19
93
/10
/31
19
95
/05
/31
19
96
/12
/31
19
98
/07
/31
20
00
/02
/29
20
01
/09
/30
20
03
/04
/30
20
04
/11
/30
20
06
/06
/30
20
08
/01
/31
20
09
/08
/31
20
11
/03
/31
20
12
/10
/31
Ind
ex 2
005=
100
56
comparative advantage is not static and can change over time. Policies need to be formulated to guide
comparative advantage into areas that will contribute the most to South Africa’s economic objective.
The Revealed Comparative Advantage (RCA) is an index used in international economics for calculating the
relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced
by trade flows. A comparative advantage is ‘revealed’ in a particular commodity group if its share in the
country’s export basket is larger than the share of that commodity’s world trade in total world trade; in
other words, if the commodity is more important to South Africa’s exports than to world exports.
Comparative advantage will vary with each country. Historically16, the terms of trade moved against
commodities and primary goods, hence the general desire to trade in the more advanced manufactured
goods.
South Africa’s comparative advantage generally is in resources. A comprehensive analysis is included on the
accompanying CD ROM that contains the results for South Africa, the provinces and the metros. The table
below reflects the products with highest comparative advantage in2011.
Table 11: RCA in South Africa 2007 - 2011
RSA RSA RSA RSA RSA
Year All products 2007 2008 2009 2010 2011
711039 Rhodium in semi-manufactured forms 0,989 0,945 0,99 0,989 0,988
261790 Ores and concentrates nes 0,982 0,676 0,987 0,986 0,986
711019 Platinum in semi-manufactured forms 0,98 0,908 0,982 0,984 0,983
261590 Niobium, tantalum and vanadium ores and concentrates 0,971 0,933 0,986 0,983 0,981
261000 Chromium ores and concentrates 0,982 0,904 0,98 0,98 0,979
710590 Dust of precious, semi-precious stones except diamonds 0,871 0,622 0,84 0,979 0,976
293991 Vegetable alkaloids, natural or reproduced by synthesis, and their salts, ethers, esters and other
0,983 0,902 0,975 0,973 0,975
261400 Titanium ores and concentrates 0,983 0,917 0,986 0,98 0,975
750610 Plates, sheet, strip and foil, nickel, not alloyed 0,977 0,892 0,964 0,979 0,974
720211 Ferro-manganese, >2% carbon 0,977 0,879 0,976 0,978 0,974
720241 Ferro-chromium, >4% carbon 0,986 0,936 0,982 0,982 0,974
320120 Wattle tanning extract 0,987 0,877 0,976 0,977 0,974
711031 Rhodium unwrought or in powder form 0,97 0,847 0,978 0,974 0,973
080260 Macadamia nuts 0,896 0,759 0,96 0,962 0,973
250850 Andalusite, kyanite and sillimanite 0,976 0,872 0,979 0,977 0,972
270120 Coal briquettes, ovoids, similar made solid fuels 0,905 0,734 -0,136 0,954 0,972
711049 Iridium, osmium and ruthenium, semi-manufactured 0,976 0,761 0,967 0,972 0,97
Source: Authors own calculations
At a provincial level, the number of product lines with an RCA indicates the export diversification of the
province. The Western Cape had the largest number of product lines with an RCA in 2011: of the 97 product
lines at chapter level of the international Harmonised System (HS2), the Western Cape had 64 lines with an
16 This has been the conventional view in the past, but it is far from clear that it applies in future with, on the one hand, the commoditisation of many manufactures and, on
the other, the emergence of services as ‘higher value’ items into which resources might move.
Critical Analysis for the Integrated National Export Strategy
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RCA. The province of KwaZulu-Natal was in second place with 39 product lines with an RCA, while Gauteng
was third with 27 product lines.
Figure 9: South Africa’s Provincial RCA: No. of Product Lines with RCA at HS2 (2011)
Source: Quantec International Trade Database and own calculations
8.4 Areas of Possible Comparative Advantage
Although comparative advantage is the result of a number of contributing factors, the RCA gives an
indication in which products a country has a comparative advantage. Using this information, and identifying
the contributing factors, potential comparative advantage can be determined. “Product Space” techniques
were used to identify possible areas (unexploited areas) of comparative advantage for South Africa.
The Product Space is a network that formalises the idea of proximity between products traded in the global
economy. Using this proximity and RCAs of products it is possible to create a Product Space Map which
expresses the network visually as a series of related nodes: the size of a product node is proportional to its
share in world exports and the colour of the node identifies the class of product. Products from similar
groups lie close together to form clusters, often using similar factor conditions. The Product Space can also
be used to explain the network of relatedness between products, taking into account the similarities in
inputs. From this growth and diversification opportunities can be discussed and determined.
South Africa’s current Product Space was analysed by using Hidalgo et al. (2007) to examine how the
Product Space changed over the period 2000 to 2011. The 2000 Product Space Map showed that South
Africa’s exports included many unsophisticated goods that were not very well connected. Hausmann and
Klinger (2006, 2007) found that by the mid-2000s the Product Space of South Africa was highly
heterogeneous, meaning there were dense parts of the Product Space with highly inter-connected products
as well as very sparse parts. They concluded that a “product’s proximity to existing areas of comparative
advantage is one of the most significant determinants of whether a country will develop an advantage in
that product over time.”
0 10 20 30 40 50 60 70
WP
EC
NC
FS
LP
GP
KZN
NW
MP
Product Lines
Pro
vin
ce
58
As the global economy moves towards being greener, policymakers are interested in knowing which green
sectors offer the greatest diversification and potential for growth in their economies. The Product Space,
pioneered by Hidalgo and Hausmann, can be used to identify these sectors and products a country is in the
best position to possibly export. When countries successfully diversify their product mix of exports, they
tend to add products that are closely related to the products in which they currently have a RCA.
The complete analysis of over 5 500 products has been done and has been included on the accompanying
CD ROM. Products that are “close” to products already exhibiting a comparative advantage are areas that
can be targeted for export promotion or investment including FDI. Sectors such as automobiles and
electrical equipment are sectors of possible areas of comparative advantage; however, any large amount of
exports in these sectors is often offset by the large amount of imports received in these very same goods.
For example, vehicles (other than railway) exports to the rest of the world stand at 7.67%, however imports
in the very same sector are 9.08%.
8.5 Export Potential
Until recently, the export development policies in South Africa have been based on historical export
performance trends however by using economic models it is possible to identify new export opportunities in
unexploited markets; and opportunities for new products in existing markets.
It is important to prioritise export promotion activities in a manner that will yield a high return on
investment of the scarce resources, while increasing the success rate of South African exporters. There is
potential to achieve that objective through the use of a suite of potential tools by both policy makers and
exporters.
There are many countries in the world, each with its own unique characteristics. Investing resources and
time in each market is impossible and priority markets must be identified effectively and efficiently. Market
selection methods, of which a vast number exist, are critical tools in an exporter’s decision making and the
government’s policy, planning and budgeting processes. It is important to determine the international
market selection methods best-suited to the identification of potential export opportunities for South
Africa. It will also show how to determine realistic export opportunities (market-product combinations).
There are various techniques that can be used to do this; and the dti has acquired three models for this
purpose (two Decision Support Models (GESS and the DSM) and a Gravity Model). In the mid-1990s Cassim
and Kuyper developed a DSM based on weightings, while the School of Economics of the North-West
University developed a model which uses consecutive filters through which realistic export opportunities
are identified and less interesting market opportunities are filtered out. The University of Pretoria
developed a Gravity Model. The ITC has also provided a number of tools including the web-based Interactive
TradeMap® which is itself a decision support tool to assess national and product-specific trade performance,
to reveal comparative and competitive advantage, and to identify market diversification potential. The ITC
has developed TradeSim®, an econometric model with the specific objective of estimating bilateral trade
potential between developing and transition economies, and any of their partner countries. The model
further differentiates the potential by major industrial sectors.
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The largest gap identified using the Gravity Model is with Brazil, a fellow BRICS member. Russia and India
are also both in the top 5. A further interesting point to note is how many African countries appear,
including Nigeria, Algona, Tunisia, Cameroon, Sudan.
8.6 Conclusions
8.6.1 Monitoring and evaluation
Measuring performance is critically important for management as tool, not only to measure progress, but
also to take corrective action when necessary. Without measuring tools in place, it is difficult to identify
what problems there are and when they are occurring. Strong monitoring and evaluation systems are
therefore required to promote coordination and prevent fragmentation. In terms of the Government-wide
Monitoring and Evaluation Framework (GWME) framework, there are five sets of indicators that are looked
at: Input, process, output, outcomes and impact.
To support a coherent monitoring system, a trade or export performance index would be valuable. Since the
number of indicators can be high and relatively complicated, indices are commonly used by management to
streamline analysis. An index is simply a composite of various indicators. A composite ranking is based on
five criteria, namely:
The value of net exports;
Per capita exports;
The world market share;
The diversification of products; and
The diversification of markets.
8.6.2 Points for consideration
The final phase of the project will see the development of the strategy document, which will draw on the
research conducted and engagements of this phase of the project. There are a number of findings and
lessons that can be drawn out of the research.
1. There is a comprehensive policy approach to supporting growth, employment and equity in South
Africa; with exports having been recognised as a priority area. Leadership came through strongly as
a feature of international best practice and the strong policy framework provides a good starting
point to implement the export strategy.
2. The NIPF recognises that a critical component of a successful industrial policy is export orientation,
integration into global value chains and competitiveness. It is therefore necessary that there is
alignment between the industrial policy framework and the export strategy. This requires alignment
of sectors, incentives and agencies of government to ensure better coordination and use of scarce
resources. South Africa still has comparative advantage in the minerals sector and the products that
are manufactured in the five value chains identified in the minerals policy should be targeted for
trade promotion and SMEs in these sectors should identified for further development. An example
of linkages between IPAP and the export programme would be ensuring that local procurement
includes backward and forward linkages and is tied to export performance.
60
3. South Africa has lost a lot of ground in the export sector, particularly in the exports of manufactured
value-added products (outside of vehicles). There is a need to strengthen the institutional support
provided to exporters; growth the opportunities of existing exporters by identifying new markets
and opportunities; and encourage new exporters.
4. Exports can be further supported through incentives; and while the WTO rules and macroeconomic
policies do not support massive incentives, international experiences shows there are sound
incentives and support measures that are be implemented to encourage exports. Lessons from
South Africa’s previous experience of export incentives can be drawn on, for example, aspects of
GEIS that provided currency and inflation protection could be considered.
5. Increasing duties that will negatively impact on exports, as they are inputs into a value chain, should
be implemented with caution. ITAC takes such issues into consideration in their analysis of tariff
measures. A further consideration is that countervailing duties should be applied in cases where
there is dumping rather than simply increasing the tariff across-the-board. While there are
mechanisms whereby exporters can claim refunds, rebates or drawbacks on import duty paid on
imported inputs into export products (this applies universally in virtually all countries), the
procedures are seen as cumbersome and onerous.
6. The survey of exporters found that most exporters were either unaware of the incentives offered by
the Department of Trade and Industry, found them too difficult to access, or simply not relevant for
their operations. More attention should be given to marketing the incentives and making the
application process easier. Further exporters were not accessing the support provided by other
government agencies, private sector companies or even utilising the internet fully in their export
drive, rather they prefer to rely on personal contacts that they have built up in their export markets.
If an approach of expanding exports is to be pursued then it would be necessary to address how
exporters are assisted, given that most of them stated that they prefer one to one interactions for
their support - the implication is that the agencies of provincial and local government who are closer
to the exporters in their area can improve and extend their support.
7. The support to exporters also extends to the role that FERs and DIRCO officials play in assisting
exporters, as they are not being viewed by the exporters as a resource that they can utilise in the
countries they export to. A possible way forward is to look at the training received by these officials
and develop standard operating procedures to ensure that the exporters are provided with the
services that they need and will utilise. FERs and DIRCO officials can also play an important role to
identify and remove non-tariff barriers; or provide support so that these barriers do not hamper
market access and how exporters can deal with these barriers effectively.
8. There was a gap left by the closing of SAFTO to act as a quasi-private sector support organisation
that provides services to exports as well as assists with brokering and closing deals for exporters.
Any initiative of this nature would need to include the export villages being established under the
NEDP to ensure that small businesses and cooperatives are also supported to access the export
market.
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9. Trust and personal relationships came through as an imperative when doing business across
borders. Even with modern communication technology, which undoubtedly has made international
trade easier, personal contact is necessary. Face-to-face negotiations, together with social
interaction, strengthen commercial links. There is a clear need to assist new exporters with entry
into foreign markets and assist with building the links with export partners; as well as strengthen
support to established exporters that have the ability to grow their exports.
10. The role of Export Councils needs to be considered. There is a proliferation in the number of these
entities but the benefits they bring and their use by exporters needs further interrogation. There is
an opportunity to align them with IPAP-sectors and utilise them better, with improved funding,
collaboration with the TISA sector desks and monitoring of their performance.
11. The Competition Act has been recognised as placing a constraint on the joint action required by
exporters in developing foreign markets. Work will need to be undertaken with the Competition
Authorities to support export consortia, while ensuring that they do not result in collusion for the
domestic market.
12. The information gap remains high, is a concern for exporters and needs to be addressed. There is a
need to have a comprehensive database of potential exporters, provide them with trade leads and
engage with them in bringing inward buying missions.
13. SEDA is the main SME support agency of government and has an important role to play in assisting
the SMEs they work with to enter the export market. International experience shows that SME
support agencies typically also provide SME export support. This role in exporter development
would need to be clearly assigned to SEDA and align with the work TISA.
14. The issues related to currency volatility are complex but it is a significant barrier and cost for
exporters. There is a need to engage with the SARB and credit insurers to find creative instruments
to mitigate this barrier.
15. A survey to identify which specific regulations are hampering South Africa’s exports and engage with
DAFF in particular to ensure the impact of the regulations is minimised and that exporters have the
necessary information to comply.
16. Research on the impact of the high electricity prices on exporters should be undertaken.
17. There is a relationship between innovation and being a successful exporter; there are already
numerous programmes provided by the DST and the dti to support innovation, however there is
room to extend this support and to also look for other support measures (e.g. tax incentives).
18. Finance for exporters and potential exporters was identified as a stumbling block, and there is a
need to improve the understanding and support that all DFIs play in supporting exporters both big
and small.
19. Opportunities and growth in exports in the rest of Africa as well as the development of regional
value chains are significant and are where there are significant trade gaps. These opportunities need
62
to be further explored and exporters assisted with entry into these markets. In particular smaller
and medium-sized firm should be encouraged to export to our neighbours.
Bibliography
Bernard, A. B., J. B. Jensen, S. J. Redding, and P. K. Schott. 2007. “Firms in International Trade”. National
Bureau of Economic Research. http://www.nber.org/papers/w13054.
Department of Arts, Culture, Science and Technology. 1996. White Paper on Science & Technology.
http://www.dst.gov.za/images/pdfs/Science_Technology_White_Paper.pdf.
Joffe, Avril, David Kaplan, Raphael Kaplinsky, and David Lewis. 1995. Improving Manufacturing Performance
in South Africa: The Report of the Industrial Strategy Project. Uct Press.
http://books.google.co.za/books?hl=en&lr=&id=tYfl5yromUQC&oi=fnd&pg=PR3&dq=%22south+africa%22+
%22capital+intensity%22&ots=A6d_9xrkU_&sig=HiE7pTtTvqIRJ8rLba8YPi_BnB8.
Njoroge, Issac. 2010. Implementing a National Export Strategy. London: Commonwealth Secretariat.
Page 4 of 481
Appendix 1. Benchmark-International Best Practice
1.1 Review of Countries
Although traditional trade promotion services remain relevant, they are no longer sufficient to
promote exports and competitiveness. These services include:
Trade information;
Missions;
Exhibitions;
Generic publicity (including country branding); and
Commercial representation abroad.
However these service no longer guarantee export success. Any national export strategies confining
themselves to these operational programmes are unlikely to meet current challenges.
1.1.1 Purpose of Reviewing International Best Practice
The purpose of the review was therefore to investigate to what extent traditional trade promotion
programmes are being followed and what new tools have been developed that will be relevant for
South Africa. Many countries have a rich history of trading and have developed a suite policies and
programmes that contribute to a conducive environment that enables enterprises to thrive. The
purpose of this part of the research was to find areas where South Africa could learn from and then
adopt or adapt and then develop appropriate policies.
1.1.2 Choice of Countries
A best practice is a method or technique that has consistently shown results superior to those
achieved with other means, and that is used to develop a benchmark. In addition, a "best" practice
can evolve to become better as improvements are discovered. The research not only looked at a
wide range of countries national export strategies and policy, but also the results that were
achieved.
1.1.3 Criteria
With over a large number of possible countries to research it was important that a careful selection
be made, through web searches, literature reviews and contacts with specialists in the field. The
countries for research were chosen after considerable research. Academic literature was consulted
(Cellich and Borgeon (2013), International Trade Centre UNCTAD/WTO (2011); Faroque and
Takahashi (2012)) as were recognised experts including the Geneva-based International Trade
Centre.
It was also important that a balance be struck between developed and emerging economies as well
as countries that were generally deemed to be successful. Emerging countries, including the BRIC-
grouping were included. In some cases it was difficult to get documentation on strategies and
programmes, especially in English.
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1.2 Constitutional Mandates
The Constitution makes it clear that there are spheres and not tiers of government.
Intergovernmental Relations in South African context concern the interaction of the different
spheres of government. The Constitution of the Republic of South Africa, Act, No.108 of 1996,
Section 41 (2) declares that government is comprised of National, Provincial and Local spheres of
government that are distinctive, interdependent and interrelated.
Federal and Confederal models therefore had to be included to ensure that the NES was indeed
“national” and included all sub-national government departments. It was hoped that the USA,
Canada, and Australia would shed light on how to address this issue.
1.2.1 Historically Disadvantaged Groups
Given South Africa’s legacy of apartheid, there are particular groups that require special
interventions. Malaysia included the development of Bumiputera (Indigenous Malays) and women in
their National Export Strategy and special export programmes were developed.
It was hoped that Malaysian experience would shed light on how to address this issue.
1.2.2 Successful Exporters
Trade performance was another criteria that was used to determine which countries to review. The
table below shows the countries that were identified and their values (and rankings where
applicable) with respect to:
Value exported in 2011 (USD thousand)
Trade balance in 2011 (USD thousand)
Annual growth in value between 2007-2011 (%)
Annual growth in value between 2010-2011 (%)
Share in world exports (%)
The table below shows the size and growth rates (including rank) of the countries selected. It shows
that a selection of both large and smaller exporters as well as a selection of high performing
economies were identified and researched.
Table 12: International export performance indications
Val
ue
exp
ort
ed in
20
11
(U
SD
tho
usa
nd
)
Ran
k
An
nu
al g
row
th in
val
ue
bet
wee
n 2
00
7-2
01
1 (
%)
Ran
k
An
nu
al g
row
th in
val
ue
bet
wee
n 2
01
0-2
01
1 (
%)
Ran
k
Shar
e in
wo
rld
exp
ort
s (%
)
Ran
k
World 17 855 727 049 5 19 100
China 1 898 388 435 1 10 31 20 65 10.6 30
6
Val
ue
exp
ort
ed in
20
11
(U
SD
tho
usa
nd
)
Ran
k
An
nu
al g
row
th in
val
ue
bet
wee
n 2
00
7-2
01
1 (
%)
Ran
k
An
nu
al g
row
th in
val
ue
bet
wee
n 2
01
0-2
01
1 (
%)
Ran
k
Shar
e in
wo
rld
exp
ort
s (%
)
Ran
k
United States of America 1 479 730 169 3 5 70 16 93 8.3 32
United Kingdom 472 095 631 11 0 104 16 93 2.6 39
Canada 450 430 008 13 0 104 17 82 2.5 39
India 301 483 250 19 18 8 37 24 1.7 46
Brazil 256 038 702 20 10 31 30 36 1.4 46
Australia 245 631 027 21 13 21 19 72 1.4 46
Malaysia 226 992 682 24 5 70 14 100 1.3 46
Ireland 129 346 449 33 0 104 9 112 0.7 59
South Africa 92 975 613 41 7 52 30 36 0.5 66
Chile 81 411 129 45 4 80 15 99 0.5 66
Philippines 48 042 129 56 -1 115 -7 121 0.3 66
New Zealand 37 633 151 60 7 52 22 58 0.2 66
Uganda 2 159 077 135 9 36 33 31 0 93
Jamaica 1 517 247 142 -16 212 44 13 0 93
Sources : ITC calculations based on UN COMTRADE statistics.
Information collected during the NEDP-project is included and is a useful appendix to augment the
additional work undertaken during this project, even though it focuses on exporter development.
The researchers examined the exporter development programmes of five countries17, namely:
Brazil
Canada
Ireland
Malaysia
New Zealand
These countries, with the exception of Canada, were therefore not initially included, although the UK
and the USA were later added.
17 The following countries were not studied in such depth, but rather attention was focussed on
individual programmes that seemed to be relevant for South Africa:
The USA
The UK
Peru
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8.6.2.1 A brief literature review
Export Promotion Agencies Revisited (Lederman et al. 2009) is a useful reference. The authors note
that the number of national export promotion agencies has tripled over the past two decades and,
although more countries made them part of their export strategy, studies criticised their efficacy in
developing countries. The authors used a Lowess smoother and mapped export promotion agency
budgets and exports per capita. Their results are shown below:
Figure 4: Graph showing efficient trade promoting countries
Source: Lederman et al (2009)
Countries on or above the line seem to be more efficient and therefore it can be assumed that they
are doing something right.
The published a very useful paper on “Removing barriers to SME access to international markets”.
The paper reviewed both internal and external barriers and also gave a table of some interventions
that have been used to address these problems. Exporter development and capacity building issues
generally featured as important.
1.2.3 Countries Selected
Initially, the following countries were selected for benchmarking (the main reasons for selection is
included as well):
Philippines: It has a comprehensive strategy, backed up by the Export Development Act.
8
Jamaica: The NES is integrated into Vision 2030 Jamaica, the economic development plan.
Malaysia: It has a comprehensive strategy, and links development of Bumiputera
(Indigenous Malays) and women to special export programmes.
Uganda: The NES has been revised with assistance from the WTO and International Trade
Centre (ITC); there is a strong target sector matrix.
Canada: At federal level there is the Global Commerce Strategy with linkages to regions and
provinces; a consultative White Paper approach is used regarding changes to foreign trade
policies changes.
Ireland: This is held to be one of the world’s most successful small countries in export
development and promotion.
After further consultation the following countries were added:
United States: The target was set by President Obama; with many federal and state
programmes there is a strong need for coordination.
United Kingdom: Targets have been set by the Cabinet and are implementation and progress
is reported on to Parliament every six months; a highly consultative White Paper has been
followed for export issues.
Australia: This is a resource-based economy with a downstream manufacturing sector; there
is a strong focus on Asia; the principle of ‘user-pay’ is applied to customised services
provided by Austrade officials.
Chile: This is also a resource-based economy with a manufacturing sector and also a strong
focus on Asia.
BRIC18 countries were also included19.
18 The BRIC countries formed a political organisation among themselves, that later expanded to include South Africa, becoming the BRICS. 19 Certain aspects of the trade policy of Brazil, India and China were interrogated. Because of time constraints and language barriers the Trade Policy Review
(TPR) reports compiled by the World Trade Organization were used as references.
Critical Analysis for the Integrated National Export Strategy
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Figure 5: Map showing the distribution of best practice countries researched
Source: own compilation
The map above shows a good distribution across the globe and especially including both developed
and developing countries.20
1.2.4 Extent of the Review
The main purpose of the review was to identify practices that would contribute to the South Africa
NES. Therefore not all aspects are reported. The focus is on relevant issues. In most cases these
included: The country’s strategic goals, the institutional framework, the budgetary and financial
aspects, export development as well as exporter development. Where the monitoring and
evaluation framework could be obtained, it was included in the report.
Where the information allowed, the following aspects were inter alia reviewed for each of the
markets:
1. Background Legislation and Institutional Framework
2. Strategic Export Goals
3. National Export Strategy and Foreign Direct Investment
4. Financing the NES and Associated Programmes
5. Export Development
6. Capacity Building
20Countries in a lighter shade have been researched but not reported on. In many cases, especially in Africa, the ITC assisted in the preparation of the respective
NESs. Any reporting would therefore have resulted in duplication of finding and would not have served any purpose.
10
Capacity building – management and production
Capacity building – infrastructure
7. Market Development/Market Access:
8. Priority Sectors
9. Other relevant findings
Where relevant, certain aspects of the country under review were highlighted and briefly discussed.
These were highlighted in gold and labelled “For consideration”. These included (but not limited to):
Leadership
Consultative
Focused
Sector focus
Market focus
Export development
Competitiveness
Exporter development
Cost of services
1.3 Philippines
1.3.1 Introduction
The Philippine National Export Strategy is covered by the country’s Export Development Act of 1994,
which sets out the whole framework for export development and planning. The Act established the
Export Development Council to formulate policies and any necessary legislative action to ensure the
effective and efficient implementation of export development plans, strategies and programmes.
The Act requires a three-year rolling plan (Philippine Export Development Plan – PEDP) to be
developed by the dti as part of the country’s medium-term Philippine Development Plan and
approved by the President. The PEDP is required to define, in consultation with the private sector,
the country’s annual and medium-term export thrusts, strategies, programmes and projects. It is
implemented jointly by the government and the export and other concerned sectors.
The Export Development Act also calls for a macroeconomic policy framework that supports export
development and specifically itemises monetary and foreign exchange policy; fiscal and credit policy;
agricultural policy; trade, tariff and customs policies; technical support policy; infrastructural
development; labour and industrial relations; simplification of red tape; the repeal of provisions of
existing laws that are seen as being detrimental to the export sector.
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For consideration:
Similar legislation in South Africa to give weight and substance to the National Export Strategy. The process for
introducing such legislation to the South African Parliament is suggested under the United Kingdom section of the
review, where the White Paper approach is described. In Malaysia, the official export promotion organisation, Matrade,
was established by an Act, which detailed its structure, composition, powers and functions.
1.3.2 Strategic Export Goals
Strategic export goals are set out in the three-year rolling PEDP. For 2011-2013, the strategies are:
To grow exports of merchandise and services by 40% in the next three years (2011-2013) and double
the prior-period average in 2016.
By 2016, total Philippine exports will exceed US$ 120 billion.
The core product strategies are:
Move up the value chain.
Capture higher-value processes in the global supply chain.
Develop product linkages for natural, organic and certification-enabled products.
The core market strategies are:
Maximise benefits of Free Trade Agreements.
Target high-growth emerging markets.
Attract the migration of supply chain nodes to the Philippines.
The key export promotion strategy is integrating tourism, services and merchandise trade not only
to maximise returns on promotional spending but also to achieve market share growth and the
capacity to sustain it. Furthermore, export promotions shall focus on precision (quality) rather than
profusion (quantity).
1.3.3 Vision and Mission
The Philippines Export Development Council aims to ensure that Philippines shall be a globally
competitive exporting nation.
1.3.4 Institutional Framework
The Export Development Council is a government and private sector partnership, created with the
purpose of developing and overseeing the implementation of the PEDP and coordinating the
formulation and implementation of policy reforms to support the Plan.
Implementation of most aspects of the plan is the responsibility of the dti through the Bureau for
Export Trade Promotion (BETP). The Centre for International Trade Expositions and
Missions (CITEM) is the export marketing authority of the dti.
12
8.6.3 Financing national export strategies and programmes
At this stage the Export Promotion Fund is funded by the office of the President and currently runs
at Php 100 million (approx. R16 million) a year.
The Philippines actively and successfully solicits funding for export promotion activities from
agencies such as Centre for the Promotion of Imports from developing countries (CBI) of The
Netherlands.
8.6.4 Export Development
8.6.4.1 Product Development
The Export Development Act provides for technical support policies to improve the quality of export
products especially those policies relating to technology transfer, R&D, technical training and the
like. To this end, the Departments of Science and Technology and of Agriculture work with
universities and colleges. The overall aim is to drive Philippine manufacturing higher up the value
chain and to increase Philippine participation in higher-value global supply chains. BETP, though its
Product Research and Strategy Group, conducts research on new product development and
adaptation opportunities in the export markets and identifies the domestic supply base for such
products.
For consideration:
TISA must work closer with the Industrial Development Division of the dti; other relevant departments (such as DST
and DAC), the Council for Scientific and Industrial Research (CSIR) and the universities to assist South African
exporters move up the value chain and to participation in higher-value global supply chains.
8.6.4.2 Capacity Building
Capacity building partly overlaps with product development policies. In the PEDP, specific capacity-
building strategies are set out for each major sector: these cover:
The development of internationally competitive product and packaging standards
Improved certification for HACCP, ISO 2200 and Good Manufacturing Practice (GMP) compliance
Government support and incentives for standards compliance and capital expenditure for increased
or new production capacity
Access to low-interest, long-term financing for SMMEs to develop as exporters.
8.6.4.3 Market Development/Market Access
The strategy for improving market access involves maximising gains from free trade agreements and
engaging the US and EU according to mutually acceptable channels. In order to maximise gains from
trade agreements the PEDP calls for information campaigns covering as many business sectors as
possible and for mechanisms to motivate the private sector to utilise trade agreements in their
business.
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1.3.5 Instruments Used in Export Promotion
BETP provides frontline assistance, information, and specialised consultancy services to the general
public and to all exporters - both potential and established. It seeks to enable Philippine exporters to
compete with world-class products and services in the international market. The Bureau:
Formulates and monitors programs, plans, and projects pertinent to the development,
promotion, and expansion of foreign trade in the Philippines.
Formulates country and product export strategies.
Prepares situation reports on all export production.
Prepares and updates country and regional market profiles and maintains an integrated
information system on all aspects of the products and commodities relevant to export
marketing.
Plans, supervises, coordinates, and monitors the implementation of both private and official
incoming and outgoing missions, and reviews the results of such.
Promotes and coordinates international subcontracting arrangement between and among foreign
and Philippine investors whereby production operations and facilities may be located in the
Philippines.
Formulates and monitors the implementation of policies and guidelines for the registration and
certification of bona fide exporters eligible for the various export incentive programs of the
Philippines.
Reviews and identifies appropriate measures to minimise or deregulate export-import procedures
and other foreign trade laws necessary to stimulate the international marketing of Philippine
products.
For consideration:
TISA must establish a research unit that can report on developments that will affect exporters. These should include
the identification of the fast-growing markets and fast-growing products. It should also work on refining the Trade
Performance Index reported elsewhere in this report.
For consideration:
TISA should manage and make available all country and sector export strategies and annual export plans. These
should be integrated with the provincial export strategies and annual export plans.
For consideration:
TISA should promote and coordinates international subcontracting arrangement between and among foreign and
South African investors especially where production operations and facilities may be located in the South Africa.
For consideration:
14
TISA should set up a dedicated unit that reviews and identifies appropriate measures to minimise or deregulate export-
import procedures and other foreign trade laws necessary to stimulate the international marketing of South African
products.
1.3.6 Priority Sectors
The PEDP 2011-2013 identifies key export sectors controlling eighty seven (87%) of current business
to drive export growth. These are:
Information technology and business process outsourcing and other services.
Electronics.
Agribusiness products (food, coconut and other resource-based products).
Minerals.
Shipbuilding.
Motor vehicle parts.
Garments and textiles and wearables (fashion accessories, shoes, bags, jewellery).
Homestyle products (furniture, furnishings, decors).
For consideration:
TISA should link products to the IPAP-sectors and identify export products (with export target values) that can be
prioritised.
1.3.7 Trade Information
Trade information is available through the International Trade Resource Centre, which holds a
comprehensive collection of printed and electronic materials such as books and journals on
international trade with emphasis on product and market information.
For consideration:
TISA should establish an “International Trade Resource Centre” that holds a comprehensive collection of printed and
electronic materials such as books and journals on international trade with emphasis on product and market
information. Similar proposals are contained in the South African NEDP.
1.3.8 Exporter Development
The Trade Information and Assistance Group (TIAG), through the Export Trade Facilitation Division
(ETFD), serves as the customer/exporter relations personnel of the BETP for all export trade-related
inquiries. It provides real, immediate, and substantial assistance to existing and potential exporters.
The Communications Division provides creative and technical assistance for the preparation of
promotional materials in print or electronic format. The division also provides an Exporters Manual
and Handy Guide to Export.
Philippine Trade Training Centre (PTTC) – a DTI Bureau – designs and develops training curricula and
corresponding instructional materials and conducts training programs for SMMEs, business support
organisations, and the government sector. It provides post-training advisory and counselling
services; customised in-company training programmes and services; a venue for SMMEs and large
Critical Analysis for the Integrated National Export Strategy
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enterprises to promote their products by marketing, renting out, and maintaining exhibition
facilities; and events management support.
For consideration: In South Africa, The SEDA has developed two levels of export training; courses are
made available through some SEDA branches. Furthermore, the private sector also offers certain
export training courses. However, generally, in South Africa there is a shortage of experienced
international trade trainers (and of export counsellors and consultants) and no immediate plans to
correct this.
1.3.9 Outgoing Missions
Exporters wanting to visit a particular target market either for exploratory purpose or direct sales
promotion may join BETP or CITEM business missions. The Market Officers and the Product Officers
specialise in organising business missions for dispatch to specific markets.
1.3.10 Trade Shows
CITEM’s programmes are geared towards small-and medium-scale manufacturers who need
marketing and promotional assistance to make them product- and market-ready. It creates business
platforms and opportunities for Philippine export companies through:
Highly selected overseas trade fairs and missions
Signature Events in Manila
1.3.11 Opportunity Matching
The Business Matching Centre of the BETP enables foreign buyers and local exporters to make
contact. The centre receives enquiries regularly and directly from international importers and the
Philippine Foreign Trade Posts abroad. These inquiries are made available to legitimate local
exporters for free.
1.3.12 Targeting Markets
The PEDP targets the following regions:
Emerging markets with high economic growth for finished goods exports such as China, India
and Association of Southeast Asian Nations (ASEAN), which have growing and large
consumer segments with high disposable incomes for direct exports. It is believed that
during this emerging stage consumers develop product and brand loyalty through trial
usage.
Brazil and Russia for Philippine finished goods through distribution channels in strategic
locations including those in the Middle East and EU.
Other big emerging markets like South Africa and Turkey and in “pre-emerging” markets,
specifically those high-growth areas and cities in China as identified by the Economist
Intelligence Unit (EIU): Chongqing, Hefei, Anshan, Maanshan, Pingdingshan and Shenyang
(CHAMPS).
16
For consideration
TISA has both sector- and market priorities. These should be revisited every year. Provinces, sector councils, DIRCO
and the FERs need to agree on priority sectors and markets and set appropriate (SMART) targets, together with the
necessary actions that are required to achieve these targets.
8.6.5 Closing Export Deals
The BETP stimulates contact between exporters and potential buyers but does not close deals for
exporters.
8.6.6 Export Collaboration
There is collaboration at the planning and implementation stages of the PEDP between government
departments and the private sector. This is written into the Export Development Act.
For Consideration:
Structures should be created in South Africa that will facilitate collaboration between the three spheres of government,
its agencies and the private sector, especially exporters and potential exporters.
1.3.13 Country Branding
The PEDP calls for the Philippines to be branded and for a campaign to achieve this. A key feature in
the branding process is to include a brand device (or sub-label) from a government export-standards
agency certifying product integrity and performance.
1.3.14 Assessing Performance
The rolling three-year PEDP contains a review of the Philippines export performance.
1.3.15 WTO’s Trade Performance Review of the Philippines
The WTO recently completed a Trade Performance Review of the Philippines. The section referring
to export trade policies and practices is reproduced below.
1.3.16 Measures Directly Affecting Exports
Registration and documentation
Registration and documentation requirements for exporters are similar to those for importers
(section (1)(i) above).21 Regulated exports require export clearance (section (iv)(a) below);
certificates of origin are required for exports under preferential arrangements; and other permits
and licences may be required for exports that are regulated or prohibited.
Export taxes
21 Exporters are not required to be registered with the BOC but with other accrediting offices such as Philexport and DTI.
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Only plantation (non-native) logs are subject to an export tax (20% of f.o.b.).22 The authorities
indicate that the export tax on non-native logs is imposed to ensure an adequate, stable, and
sustainable supply of domestic timber. However, export taxes are distorting and implicitly subsidise
downstream processors by providing logs at below world prices, thereby encouraging domestic
value added, which may be an inefficient use of resources if this is reliant on the subsidy. The
authorities indicate that revenue from the export tax is minimal.
Minimum export prices
Minimum export prices continue to apply for rice and corn; according to the authorities, they are
generally based on world prices. Minimum export prices could have similar economic effects to
export taxes.
Export prohibitions, restrictions, and licensing
(a) Export prohibitions and restrictions
Prohibited and regulated exports include endangered wildlife species and live animals (Table AIII.6).
Textiles and clothing are no longer regulated following the removal of export quotas in 2005. The
authorities indicate that exports of naturally growing timber are also banned for environmental
reasons. Exports are prohibited or regulated on grounds of national interest, security, and public
health, and to fulfil the requirements of international agreements and conventions (e.g. Convention
on International Trade in Endangered Species (CITES)). Regulated exports require prior export
clearance from the relevant government agencies.
Exports of rice, corn, and sugar remain restricted. In order to ensure food security and price stability,
these commodities may be exported only if there is a surplus, according to the authorities. Fish
exports are also regulated on grounds of domestic food security. Exports, when allowed, require a
permit issued by the Department of Agriculture (DOA). Permits are granted on a per-shipment basis.
A sanitary certificate must also be issued on a per-shipment basis. In addition, only fish products that
have been processed in fish-processing establishments certified by the Bureau of Fisheries and
Aquatic Resources (BFAR) as compliant with the Sanitation Standard Operating Procedures and
Hazard Analysis and Critical Control Point system, may be exported.
(b) Export quotas
The President may, when recommended by NEDA, impose an export quota on any good, taking into
account factors such as the domestic demand, the world price, and the preferential treatment
granted to Philippine exports by foreign governments.23
Exports of sugar are subject to bilateral restraints, for example, the Philippines is allocated a sugar
export quota by the United States.
For consideration:
22 The regulatory agency is the DENR, and implementation is by the Department of Finance. Under Section I of Executive Order No. 26 of 1986. 23 Philippine Tariff Commission (2001), Volume I - Section 515. However, according to the authorities, Section 515 does not apply.
18
The NGP has made recommendations regarding export quotas. These should be implemented after a thorough
investigation of the impact on both exports and the competitiveness of the sectors that use the particular product as
an input.
8.6.7 Export operations of state enterprises
Rice and corn exports remain controlled by the NFA. The private sector is allowed to export rice and
corn only for market testing and research purposes.
1.3.17 Export Support
(a) Export subsidies and assistance
According to the authorities, no export subsidies were provided during the period under review.
Under Executive Order No. 554 of 2006, fees and charges were eliminated on export clearances,
inspections, permits, certificates and other documentation requirements, except those imposed by
specific laws or arrangements.24 It is still being implemented with the aim of improving
competitiveness.
In response to the global economic crisis of late 2007, in 2008, the Philippine Government allotted a
portion of its Economic Stimulus Fund to fund training assistance for laid-off workers and provided
financial assistance to exporters and SMEs. The Fund was eliminated on 31 December 2010.25
(b) Duty and tax concessions
The Motor Vehicle Development Programme (MVPD), under Executive Order No. 156 of 2002,
provided, inter alia, for the removal by 30 June 2003 of export-balancing and local-content
requirements.26
In June 2010, under Executive Order No. 877-A, the MVDP was revised, inter alia, to promote
domestic automobile production, spur exports, and make the Philippines a regional hub for auto
parts and components. Some of the key features of the new MVPD are: (i) favours local completely
knocked-down (CKD) auto parts and components against imports27; (ii) tightens the rules on imports
of used engines, which in the past were freely importable; (iii) continues the prohibition on imports
of used motor vehicles; (iv) takes advantage of regional trade agreements28; (v) creates the Motor
Vehicle Industry Council29; and (vi) establishes an industry fund to promote R&D and upgrading of
equipment and facilities. The new MVPD will enter into force after adoption of the implementing
rules and regulations.
24 Excluded from the scope of Executive Order No. 554 are, for example, export fees and charges resulting from import quotas (e.g. sugar) in other countries;
items banned for exports; exports of logs, copper, and coffee; and those covered by international agreements to which the Philippines is a signatory. 25 Business support organizations, local government units, and industry associations were the main channels of this part of the Fund. 26 The MVPD under Executive Order No. 156 is explained in WTO (2005), pp 89-90. 27 Various incentives are provided to encourage local assembly, such as low tariffs on components. A 1% tariff applies to CKD kits imported by MVPD-registered
participants, excluding CKDs of alternative fuel vehicles, which are duty-free. In addition, vehicle imports are subject to 12% VAT, and progressive excise
taxes based on the vehicle price. 28 Japan and ASEAN nations benefit from duty-free tariffs on CKDs. 29 The Council consists of nine government representatives and four industry representatives.
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The Export Development Act (EDA) still provides for corporate tax credits for annual increases in
export revenues.30 Nonetheless, according to the authorities, it has never been implemented due to
administrative and budgetary constraints. Currently, an amendment to the EDA is being considered.
Under the Omnibus Investment Code (OIC), which is administered by the Board of Investments
(BOI), tax incentives are available to producers of non-traditional exports and for activities that
support exporters.
For consideration
South Africa has similar programmes stimulating the local automotive sector. Care should be taken that the support
provided through any subsidies contributes to improved productivity and competitiveness. Any support programmes
that are simply provided to match the grants of other countries will lead to a “race to the bottom” with no real long-term
benefits to the South African economy and employment prospects.
Drawbacks
Duties paid on imported materials used to manufacture or process exports may be fully refunded
following exportation. Exports must take place within one year of importing the materials, and the
BOI must certify upon importation that locally produced competitive substitutes were unavailable.31
Customs Bonded Manufacturing Warehouse (CBMW) Scheme and bonded smelting warehouses
The CBMW Scheme allows for the tax-free and duty-free importation of raw materials used to
manufacture goods exported within one year.32 The importer must post a re-export bond equivalent
to the assessed taxes and duties. A similar scheme exists for ores and crude metals, which, if used to
manufacture exports, may be imported into a bonded smelting warehouse free of duty.33
Export-processing zones (EPZs)
The Philippine Economic Zone Authority (PEZA) has jurisdiction over all economic zones proclaimed
under its mandate. Enterprises need to be exporters of manufactured products or of IT-enabled
services, and must physically locate their activity inside PEZA economic zones. 100% foreign
ownership is allowed. Incentives include: income tax holiday (ITH) or exemption from corporate
income tax for four years, renewable for a maximum of eight years; after the ITH period, payment of
the special 5% tax on gross income, in lieu of all national and local taxes; exemption from duties and
taxes on imported capital equipment, spare parts, supplies, and raw materials; domestic sales
allowance of up to 30% of total sales; exemption from export taxes, wharfage dues, imposts, and
fees; zero VAT rate on local purchases, including telecommunications, electricity, and water;
exemption from payment of local government fees (e.g. Mayor's permit, business permit, health
certificate fee, sanitary inspection fee, and garbage fee); simplified import and export procedures;
employment of foreign nationals; and special visas for foreign investors and immediate family
members.
30 The tax credit is 2.5% for a 5% increase in annual export revenue, 5% for a 10% increase, 7.5% for a 15% increase, and 10% for increases above 15%.
Enterprises earning at least 50% of their normal operating revenue from exports are entitled to incentives from the Board of Investments and the Philippine
Economic Zone Authority. 31 Philippine Tariff Commission (2001), Volume I - Section 106. 32 Philippine Tariff Commission (2003), Volume II - Section 2002. 33 Philippine Tariff Commission (2003), Volume II - Section 2005.
20
Export performance requirements
Tax incentives provided by the BOI under the OIC to non-traditional exporters are contingent on
export performance. The export performance requirement is higher for foreign-owned enterprises
(70% of production) than for Philippine-owned companies (50%). According to the EDA, enterprises
generating at least 50% of normal operating revenue from exports are entitled to incentives under
the EDA.
For consideration
The dti together with National Treasury should investigate these incentives and ensure that they are compliant with
WTO regulations. If they are, similar tax incentives should be introduced for South African exporters.
Export finance, insurance, and guarantees
The Trade and Investment Development Corporation of the Philippines (TIDCORP, also known as the
Philippine Export-Import Credit Agency, or PhilEXIM), is the government export credit agency
attached to the Department of Finance, and under the supervision of the Bangko Sentral ng Pilipinas
(BSP) (central bank). It aims to stimulate exports of goods and services by facilitating access to credit,
especially for SMEs, and to boost employment. TIDCORP provides exporters with loans, guarantees,
insurance, and technical cooperation, and preshipment export finance guarantees (PEFG) to SMEs.34
This has improved access to credit by providing an alternative to the traditional collateral required
by banks. The Corporation also provides a post-shipment risk guarantee (PERG) in case exporters are
not paid. TIDCORP's Term Loan Guarantee Programme (TLGP) covers medium- and short-term loans
extended to SMEs for the acquisition of fixed assets and/or for use as working capital. Guarantee
and credit facilities are also available to large exporters (assets above PHP 100 million).35 TIDCORP
also offers export credit insurance (ECI) to Philippine-based exporters. This is designed to allow
exporters to provide credit to buyers by insuring them against non-payment by foreign customers
due to commercial and political risks.
For consideration
TISA, SEFA, ECIC and the IDC should undertake an investigation to ensure that South African exporters are able to
access similar export finance, insurance, and guarantees.
Export promotion and marketing assistance
The CITEM, an export promotion agency under the dti, promotes the Philippines' products and
services worldwide through trade fairs and missions and other export promotion programmes and
activities held locally and abroad.36
The BETP, also an export promotion agency under the dti, provides various assistance and services to
the local exporting community. It renders frontline advisory services, conducts market information
sessions, undertakes profiling of selected key exports industries, and extends support to regional
offices pertinent to trade matters. In doing so, it is the lead agency for export-related business
34 This guarantee covers 90% of loans taken by SMEs to finance pre-shipment working capital. 35 For example, TIDCORP's General Facility Programme (GFP) guarantees up to 100% of their loans to finance exports, manufacturing, and services rendered
to promote exports and import-substitution industries. 36 Other marketing assistance provided include the Catalog-Online, an exclusive virtual showroom of Philippine export products and services, and CITEM Trade
Opportunities Programme (CTOP), which is a trade referral system for foreign buyers and Philippine exporters.
Critical Analysis for the Integrated National Export Strategy
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matching sessions, which could either be in the form of servicing trade inquiries or conducting trade
missions. Backed by an online database, most of its research work is geared towards crafting special
studies, country trade regulations reports, and other export development and promotion projects.
For consideration
TISA should approach the BETP through the FER to find out more about the assistance to ensure that it
1.3.18 Jamaica
1.3.19 Introduction
Vision 2030 Jamaica, the country’s first long-term National Development Plan was tabled in the
Jamaican Parliament in 2009. The ambitious plan, which aims to put Jamaica in a position to achieve
developed country status by 2030, is based on a comprehensive vision: “Jamaica, the place of choice
to live, work, raise families, and do business”.
The Plan is structured in four national goals, the third of which is that Jamaica’s economy is
prosperous. This goal in turn has six national outcomes, one of which is “an enabling business
environment”. Two national strategies linked to this outcome are:
Strengthen investment promotion and trade facilitation, for which initial priorities are to market and
promote Jamaica as an investment destination and to strengthen the capacity of investment and
trade institutions, such as the Jamaican Promotions Corporation (JAMPRO) and the Jamaican Trade
and Adjustment Team, which is an inter-ministerial body.
Use trade and foreign relations to create an enabling external environment for economic growth, for
which priorities are to implement the Economic Partnership Agreement (EPA) with the EU and the
Caribbean Community (CARICOM), develop relationships within the WTO, refine trade policy,
generally strengthen bilateral trade relations and ensure the creation of the Caribbean Single Market
and Economy (CSME).
Vision 2030 Jamaica is comprehensive and detailed although it does not incorporate numerical
dimensions to intermediate targets and outcomes. More than a year ago, doubts were being
expressed in certain quarters as to whether Jamaica would achieve the set goals, or even come close
to doing so. The problem is perceived to be a lack of buy-in at different levels of society and
government resulting in a failure to implement the necessary actions.
For consideration: To avoid the trap that Jamaica may fall into, a consultative process such as the
Green Paper/White Paper route (see Philippines and UK) might be followed. Furthermore, setting
specific numerical and time-lined targets that can be measured can help to ensure overall objectives
are achieved.
1.3.20 Strategic Export Goals
The Government of Jamaica’s trade policy is underscored by the drive to improve the
competitiveness of Jamaican firms and increase market penetration globally. Specifics of these goals
do not appear to be documented.
22
According to JAMPRO’s website, the National Export Strategy represents a unified initiative which
seeks to maximise the export sector’s direct contribution to economic and social development.
Expectations include improved export performance and a bolstered, vibrant business and trade
environment. The strategy is jointly spearheaded by JAMPRO and the Jamaica Exporters’
Association, and is being developed under the leadership of the Ministry of Industry, Investment and
Commerce.
SME 2020 Master Plan:
GDP: 41% (2010: 32%);
Employment: 62% (2010: 59%);
Exports: 25% (2010: 19%).
1.3.21 Vision and Mission
JAMPRO states its vision and mission as:
Vision: "To achieve sustained economic development through trade and investment, enabling an
improved quality of life for all Jamaicans."
Mission: "To facilitate and promote investment and trade by fostering creativity and innovation to
build existing or potential competitive advantage for the economic benefit of our country, while
ensuring the well-being of our staff."
Institutional Framework
JAMPRO - Jamaica’s investment and export promotion agency - was established to stimulate,
facilitate, and promote the development of trade and industry, and export and investment activities
in all sectors of the island’s economy. It operates under the direction of the Ministry of Industry,
Investment and Commerce.
Financing national export strategies and programmes
JAMPRO received government grants of J$357 million (approx. R35 million) in its 2011 financial year.
This amount covered all activities and no split between export and foreign direct investment (FDI)
promotion is given. This amount relates to total Jamaican exports of J$146 billion.
Instruments used in export promotion
JAMPRO uses a number of instruments:
Trade information services
Exporter development programmes
Foreign market events, such as participation in trade shows and specific Jamaica events to
promote Brand Jamaica
Outgoing and incoming trade missions.
Priority sectors
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The agency focuses on a number of targeted sectors which include the creative industries (film,
music and entertainment), manufacturing, tourism, agri-business, ICT, mining, and professional
services. Specific sectors are:
Fresh / Processed foods
Beverages
Nutraceuticals (primarily nutraceutical ingredients, and spa and aromatherapy products)
Minerals (excluding bauxite, which is already a well-established major export)
Art and Craft
Service Sectors
For consideration
Jamaica has carefully chosen priority sectors where they have a comparative advantage or at least a potential
comparative advantage. TISA has both sector- and market priorities. These should be revisited every year and
adapted when required by changing environment. Provinces, sector councils, DIRCO and the FERs need to agree on
priority sectors and markets and set appropriate (SMART) targets, together with the necessary actions that are
required to achieve these targets. Sector strategies should be drafted and sent to all appropriate role players. Efforts
should be made to ensure that all producers of the target products are identified and that their views are incorporated
into the Sector strategies.
1.3.22 Trade Information
JAMPRO provides trade and related information in several ways:
Business Information Points are both virtual and physical offices specifically set up island-
wide to give micro, small-and medium enterprises access to a range of standardised and
value-added business information.
Document Centres: The Business Library and the WTO Reference Centre facilitate research
on product and market information for export market penetration.
JAMPRO’s information officers share information on a wide range of trade-related issues.
The officers respond to enquiries from exporters via phone calls, face-to-face visits, email,
posted mail, and fax queries. Thorough interviews of potential clients are usually initiated at
this first point of contact.
1.3.23 Exporter Development
JAMPRO provides a range of specialised business development services to exporters and export-
ready companies to improve their export capability and overall competitiveness. These include:
Conducting company diagnostics/needs assessments of export-oriented firms and guiding
the development and implementation of enterprise upgrading plans
Providing support in the development of technical documents and proposals such as
Business Plans, Export Development Plans, Loan Applications and Grant Proposals
Identifying sources of funding and providing assistance in accessing developmental
programmes
24
Delivering individualised hand holding support and advise in the design and implementation
of proper management and financial systems, standards and procedures
Affording access to a range of specially designed capacity-building training for example on
packaging and labelling, negotiating export sales contracts and access to overseas markets.
Outgoing missions
JAMPRO facilitates outgoing trade missions, working with Jamaica’s foreign diplomatic offices.
Trade shows
JAMPRO organises company participation in foreign trade exhibitions and at specific Jamaica events,
usually organised by the diplomatic representatives in major centres.
Opportunity matching
The Cluster and Linkages Department of JAMPRO researches and packages opportunities to facilitate
the development of linkages, and matches buyers and suppliers, with the aim of forging business
contracts.
The Jamaica Business Opportunity Service (JBOS) is available to the business community for
registering the business capabilities of firms; listing buyers of goods and services; highlighting
business opportunities; and performing business/partner matching, linking suppliers with buyers.
Targeting markets
JAMPRO states that it targets new market areas for its promotional activities, regarding both exports
and FDI. Specifics are not given, but promotional events in recent years have been in the Far East as
well as Europe.
Closing export deals
While JAMPRO may have an active role in closing FDI deals, it appears that it helps exporters by
providing training on negotiation and deal closure.
For consideration
TISA should research and package opportunities to facilitate the development of linkages, and to match buyers and
suppliers, with the aim of forging business contracts in the same way in which JAMPRO’s Cluster and Linkages
Department does.
1.3.24 Export Collaboration
A Jamaica Trade and Adjustment Team (JTAT) is the mechanism for coordination and consultation on
international trade policies and to facilitate cooperation between the public and private sectors.
JTAT links the trade-related Ministries, Departments and Agencies, including JAMPRO, and
representatives of the Private Sector Organisation, Jamaica Manufacturers’ Association, Jamaica
Chamber of Commerce, the Jamaica Exporters Association, trade unions, civil society groups and
representatives of educational institutions.
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For consideration
Collaboration is very important and TISA needs to establish a framework to ensure better coordination and consultation
occurs on export development and export promotion programmes in South Africa.
1.3.25 Country Branding
Building Brand Jamaica is a priority of the Vision 2030 Jamaica national development plan. Operating
under the direction of the Ministry of Industry, Investment and Commerce, JAMPRO's continuous
mission is to promote Brand Jamaica, attract and land jobs and wealth-creating investments to
Jamaica and secure lucrative markets for quality Brand Jamaican products. The brand is thus
promoted actively in the context of both exports and FDI.
Assessing performance
JAMPRO’s Annual Report gives specific information about activities. In the 2010-2011 financial year:
Export sales facilitated J$4.18 billion, 10% above target (total exports J$707 billion)
Client interactions 13 000, by all contact methods Trade leads generated 200+ Linkage contracts with local suppliers J$508 million-worth, nearly 60% above target,
facilitated between local suppliers and a third party (investor, manufacturer or exporter)
Other detailed information is given, sometimes with the comparative figure for the previous year
and sometimes also with a comparison against target.
1.4 Malaysia
1.4.1 Introduction
Overall, Malaysia has developed under a series of Industrial Master Plans, each of which has set
certain goals and outcomes. These have generally been achieved as is evidenced by the strong
growth and development of the country. A fundamental success factor appears to be the buy-in to
the national plan by all government ministries and agencies, resulting in a high degree of
coordination of activities.
An example is the linkage between the SME Master Plan 2012-2020, drawn up by the National SME
Development Council, and specific programmes of the Malaysian External Trade Development
Corporation (Matrade) that are aimed at the SME sector.
For consideration: The development of SMEs and specifically the integration of the Bumiputera
(roughly translated as indigenous Malay) and women into the national economy is overseen by the
National SME Development Council with implementation through a number of relevant government
departments and agencies to avoid duplication of actions and waste of resources. Matrade has two
programmes tailored for these groups, but participants are required to have export potential.
26
1.4.2 Strategic Export Goals
The Third Industrial Master Plan (IMP3) sets the target for exports to increase to RM1.4 trillion in
2020 (from RM694 billion in 2011). The first strategic thrust of the IMP3 is to enhance Malaysia’s
position as a major trading nation by:
Intensifying exports of targeted growth areas, including both resource-based and non-
resource-based industries and services;
Developing and promoting Malaysian brands;
Enhancing exports through compliance with international standards; and
Nurturing domestic companies, including government-linked companies (GLCs) and SMEs, to
become globally competitive.
Matrade, the government’s official trade promotion agency, was established by ACT 490 of 1992,
which sets out in some detail the functions of the institution. Matrade has developed a five-year
strategic plan for 2011-2015 incorporating some 20 initiatives that cut across various areas of the
organisation, ranging from exporter development and export promotion, ICT, human capital
development and processes improvements.
1.4.3 Vision and Mission
Matrade’s overall vision is “Positioning Malaysia as a Globally Competitive Trading Nation”, while the
agency’s mission is “Promoting Malaysia's Enterprises to the World”.
1.4.4 Institutional Framework
Matrade has:
Head Office in Kuala Lumpur, with more than 200 staff.
Five local offices in Malaysia.
40 international offices in major commercial cities, usually attached to the Malaysian High
Commission or embassy.
Matrade has links to several government ministries, especially those of Agriculture and Agro-
based Industry, of Finance, of International Trade and Industry, and of Science, Technology
and Innovation, as well as to statutory bodies.
For consideration
A TPO needs to function more as a private organisation and be in a position to make decisions more rapidly. Matrade
has a great deal of independence and operates largely as a stand-alone exporter development and export promotion
organisation. It does provide the full menu of services required but in some instances (product standards and finance
for example) it refers companies to other institutions. TISA needs to ensure that it has the necessary mandate and
delegations to operate more effectively.
1.4.5 Financing National Export Strategies and Programmes
Matrade’s income for the 2010 financial year was RM280 million for all activities (R637 million).
Instruments used in export promotion
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Matrade operates largely as a stand-alone exporter development and export promotion
organisation, although in some instances (product standards and finance for example) it refers
companies to other institutions.
It provides face-to-face, telephonic, fax and email information and advice through its Information
Centre at head office in Kuala Lumpur and through its regional offices.
It obtains information on foreign markets and business opportunities through its international
network of offices.
It has developed electronic communication methods to a high degree, and provides many services
through electronic channels.
It places a strong emphasis on promotional tools, such as exhibitions, missions, electronic directories
and networking sessions to bring Malaysian exporters into contact with foreign buyers.
For consideration
In today’s world communication is critically important and TISA needs to develop and adopt all electronic
communication methods. Video Conferencing should be deployed to ensure that exporters, sector councils, FERs and
provinces can all interact with TISA regularly. Video Conferences should be scheduled for regular interaction.
1.4.6 Priority Sectors
Matrade’s business units specialise in product sectors: electrical, electronic and ICT products; health
and environmental products and services; processed food, biotech and Halaal; professional and
business services; life style products; transport, logistics and machinery; defence; and packaging.
1.4.7 Trade Information
Matrade provides trade and market information through:
Business Information Centre.
A wide range of publications, including a number of business and export guides, directories
of Malaysian exporters and products, magazines and newsletters, and market and product
reports.
Export Alert! Serviceis an automated email notification service that warns a company when
foreign regulations applying to a specific product are changing.
1.4.8 Exporter Development
Exporter Development services include:
Basic Exporter's Training Programme.
SME’s Export Initiatives, as referred to earlier.
Enhancing exporters’ knowledge through more advanced training programmes. In this
programme, Matrade collaborates with other Government agencies, the private sector,
financial institutions and foreign embassies.
28
Matrade provides working space for up to three months within its overseas offices as a
temporary marketing facility.
Export Assistance: The Malaysian government provides a range of assistance programmes
such as tax incentives, financial assistance in the form of grants, loans and insurance as well
as institutional support.
New Exporter Development: Two three-year programmes are included under this category,
the Bumiputera Exporters Development Programme (BEDP) and the Women Exporters
Development Programme (WEDP). These are linked to the SME Master Plan 2012-2020.
1.4.9 Outgoing Missions
Matrade places emphasis on promotional activities. Its annual programme includes trade and
investment missions, general and specialised marketing missions, trade promotion visits by
Matrade’s foreign trade commissioners and various joint promotional activities with organisations
such as Jetro, Asian Trade Promotion Forum, ASEAN-Japan Centre and ASEAN-Korea Centre.
For consideration
South Africa (including sub-national government) should use bilateral agreements and twinning agreements to ensure
that trade missions are effective. TISA should employ specialist companies based in the target market to assist with
trade missions.
8.6.8 Trade Shows
Matrade arranges participation in a number of foreign trade fairs each year. In addition, it has set up
the Malaysia Trade Centre (MTC) in Dubai. The trade centre provides an opportunity for Malaysian
exporters to showcase and promote their products and services to United Arab Emirates and the
surrounding region. Importers from the region can also familiarise themselves with Malaysian
products and services and develop business contacts. Its facilities include:
Floor space for a permanent exhibition, special events and individual company promotions,
product launches and demonstrations;
A resource library that offers up-to-date information on Malaysian products and services;
Audio-visual facilities;
Conference and seminar rooms;
A business centre.
For Malaysian exporters, it offers:
Low rental exhibition space to display and promote Malaysian products and services;
Venue for individual Malaysian companies to organise their own promotional events;
Trade matching services including business meetings arrangements with buyers;
Visual merchandising services for enhancement of display;
Dissemination of trade leads and business enquiries to exhibitors;
Business centre facilities.
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1.4.10 Opportunity Matching
Incoming buyer visits are supported and often initiated by Matrade. In addition, Matrade arranges
several hundred business-to-business meetings for Malaysian companies participating in foreign
visits by leading Malaysian Government Ministers.
1.4.11 Targeting Markets
Judging by the number of representative offices Matrade maintains globally, emphasis is still placed
on Asian markets; however, there are Matrade offices in Australia, in several European countries
and in North and South America. In Africa, Matrade has offices in Cairo, Johannesburg and Nairobi.
1.4.12 Closing Export Deals
As with most EPAs, Matrade facilitates export contacts and supports and assists Malaysian
companies in export negotiations; however, closing export deals appears to be left to individual
companies, even in the case of SMEs.
1.4.13 Export Collaboration
Matrade operates largely as a stand-alone exporter development and export promotion
organisation, although in some instances (product standards and finance for example) it refers
companies to other institutions. It collaborates with a number of other government departments
and agencies.
1.4.14 Country Branding
The branding of Malaysia itself is not a priority. However, Matrade promotes individual Malaysian
brands and provides training programmes in branding as an important element of global marketing.
1.4.15 Assessing Performance
Matrade reports very specifically on its performance in its Annual Report. For example, in its 2010
financial year, Matrade arranged:
International trade fairs 30 Sales recorded at trade fairs Actual: RM214 million; potential RM16.63 billion Promotion booths at foreign events 34 Trade and investment missions 7 Sales recorded as a result of trade missions
Actual: RM3.5 million; potential: RM147.99 million
Specialised marketing missions 34, yielding potential sales of RM2.83 billion Incoming buyer missions 57
Details of all activities are itemised, with comparisons against the previous year. However,
performance against targets is not indicated. As indicated above, Matrade now links its performance
to increased export values by its registered companies.
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1.5 Uganda
1.5.1 Introduction
Uganda’s National Export Strategy 2008-2012 was designed to fit into existing National
policy/planning frameworks, specifically identified national priorities contained in the Poverty
Eradication Action Plan (PEAP) and the National Trade Policy (NTP). The NES was the result of a
strong partnership between the Government of Uganda, The Commonwealth Secretariat and The
ITC who worked together over a five-month period to produce the NES. The Commonwealth
Secretariat provided financial and technical support to the process.
Additional technical support came from ITC. The Uganda Government supported a strong network of
national human resource teams from both the public and private sectors which, through a
consultative process, assessed national export needs and proposed comprehensive strategies to
respond to these needs.
1.5.2 Strategic Export Goals
The NES focuses on how to revamp, develop and sustain export growth over the medium term
(2008-2012). The NES sets strategies/measures to sustain growth and also to improve the quality of
the country’s exports. NES targets over the medium term are:
At least US$ 5 billion per year in revenue from the export of goods and services.
More than 16 % contribution to GDP, this being the minimum set by the Poverty Eradication
Action Plan for the medium term.
A per capita export ratio of US$ 200 by 2012.
1.5.3 Vision and Mission
The specific objectives of the NES are stated as:
To increase the contribution of exports to the country’s economic and social transformation
by focusing on wealth creation, prosperity for all, employment generation, gender equality
and regional development, among others.
To enhance the competitiveness of Uganda’s exports through developing supply-side
capabilities, improving the quality of the business operating environment, reducing the cost
of doing business and enhancing demand-side conditions such as market access, in-market
support and branding.
To provide effective trade support services (market information, trade finance, and
competence development, trade promotion, quality management) to enable export
enterprises to operate better in international markets.
To enhance coherence of export support policies, improve inter-institutional coordination
and strengthen the capacity of export support institutions to effectively provide adequate
services to the export sector.
The vision of Uganda Export Promotion Board (UEPB, see following) is: “To brand Uganda on
the world market as a supplier of reliable and quality export products with a view to earning
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substantial foreign exchange to enable the country achieve and sustain its growth and
development goals.” The mission of UEPB is “To facilitate the development, diversification,
promotion and coordination of all export-related activities that lead to export growth on a
sustainable basis”.
1.5.4 Institutional Framework
The management structure leverages on the synergies between existing structures especially within
those already established under the Competitiveness and Investment Climate Strategy (CICS). The
Presidential Economic Policy Council (PEC) provides overall political oversight. The oversight for
implementation is provided by the political leadership of the Ministry of Tourism, Trade and Industry
(MTTI).
The CICS Steering Committee supported by the CICS Secretariat and the NES Secretariat at the UEPB,
see below) and MTTI provide coordination oversight and streamline NES in the national budget
process. This committee is involved in making key technical decisions relating to NES
implementation, monitoring and evaluation. The Private Sector Foundation Uganda (PSFU) and the
National Planning Authority are part of the NES Secretariat. The PSFU in particular brings the voice
and requirements of the private sector at the Secretariat level. The structure provides for a place
and role of district agencies in implementing the NES.
UEPB is a Trade Promotion Organisation operating under MTTI. It was established by Parliamentary
Statute No. 2 of 1996 with a mission to brand Uganda on the world market as a reliable supplier of
quality export products. Its key functions are export policy initiation and advocacy, market R&D,
trade information generation and dissemination, export skills development and trade promotion
services. UEPB led the strategy formulation process and was the Secretariat for the NES national
working teams.
For consideration
The President’s Economic Policy Council, which provides overall political oversight, could be compared to South
Africa’s NPC. The oversight for implementation is provided by the political leadership of the Ministry of Tourism, Trade
and Industry. This could be compared to the South African dti.
1.5.5 Financing National Export Strategies and Programmes
To enable proper planning for strategy implementation and monitoring, the NES Secretariat (UEPB)
requires annual resources amounting about US$ 1 million to finance adequate staff size and
institutional retooling for effective strategy management and improved linkages with supply-side
centres.
The NES states that where responsibility for financing specific initiatives falls squarely on
Government, best practice dictates that resources for such an initiative be provided to implementing
agencies through the annual budgetary appropriations. Lead agencies will in such cases be
responsible for preparing resource estimates and have them submitted and reviewed through the
annual budget processes.
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Where responsibility for specific initiatives falls squarely on the private sector, lead private sector
agencies work with the NES Secretariat to cost the initiatives and mobilise private sector support.
In both cases, the government negotiates special instruments including grants and loans to finance
strategic aspects of the Strategy. In all these cases, the Steering Committee, supported by the CICS
and the NES Secretariats originates costed projects and seeks their approval for financing before
they are presented to donors for support.
For consideration
Could a similar public sector/private sector sharing of promotional costs be used in South Africa? If not, why not? If it
could, how could it be implemented?
1.5.6 Export Development
The NES approaches export development as follows:
Supply-side constraints and opportunities (Border-In)
The quality of the business operating environment (Border)
Demand-side constraints and opportunities (Border-Out)
Development initiatives (Development)
1.5.7 Product Development
The NES contains specific details for each sector covering, where necessary, measures to stimulate
increased production and marketability of the sector products, including adding value to these
products.
For consideration: The detailed sector planning is worth noting, especially the inclusion of the lead
institute/agency and the others required to take action.
1.5.8 Capacity Building
The NES recognises that Uganda needs capacity building at infrastructural level, in technology
acquisition and adaptation. Compliance with international standards, especially regarding food
products, which is one of the targeted sectors, is included as a necessary developmental field. The
NES provides a matrix for each targeted sector setting out objectives, measures to be implemented
to improve/increase capacity, the time frame and the responsible authority. At an implementation
level, the UEPB provides hands-on technical advice in production and product adaptation
A widespread scarcity of knowledge and skills in managing export development and marketing is a
critical factor. The NES therefore sets out measures to provide training and education to improve
this situation.
1.5.9 Market Development/Market Access
Uganda enjoys several market preferences in developed countries (through Generalised System of
Preferences (GSP), AGOA, the Cotonou Agreement and the like) and the NES defines strategies for
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effectively exploiting these markets to achieve adequate entry and presence. Uganda is also a
member of the Common Market for Eastern and Southern Africa (COMESA) and the EAC.
Other bilateral preferences exist for Uganda, the notable and most recent of them being China
where more than 400 product lines qualify to enter the vast Chinese market duty free.
1.5.10 Instruments Used in Export Promotion
The UEPB provides the following services:
Market and Product Development
Trade Promotion and Public Relations
Management Information Service
1.5.11 Priority Sectors
Uganda used the following criteria for selecting priority sectors.
Possess, or have the potential to possess significant competitive advantages.
Possess, or have the potential to possess high value addition.
Already contribute significantly to employment, regional development, poverty reduction,
gender equity, etc.
Have a high-potential developmental impact.
Experience high growth in international demand.
Have potential to mainstream gender and vulnerable groups into export trade.
A total of 20 product sectors were subjected to these criteria using a weighted index. From this list,
the final 12 Sectors that offer the best opportunity for Uganda were arrived at. The first priorities
were coffee, fish, tea, cotton and textiles, flowers and services and a strengths, weaknesses,
opportunities, and threats (swot) analysis was conducted for each sector and a strategic
management framework or matrix was developed for each sector. To drive further export
diversification, six other sectors were evaluated; these are fruits and vegetables, dairy, cereals and
pulses, natural ingredients, commercial crafts and manufactures with added-value.
For consideration
The strengths, weaknesses, opportunities and threats (SWOT) analysis for each sector was the foundation for the
detailed sector planning.
1.5.12 Trade Information
To determine the information needs of the Ugandan companies, and in particular exporters and
potential exporters, a business information needs and analysis survey was undertaken, using the
methodology outlined in the ITC’s guide in “How to Conduct a Business Information Review”. The
survey covered both large and small companies. and not only covered the needs and perceived
needs of exporters and potential exporters but also the difficulties in obtaining information as well
as rating the quality of information that was currently available.
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The UEPB is the central government provider of trade-related information but there is a good
working network between the UEPB, tertiary education institutions, and other public and private
sector institutions. Emphasis is placed on providing sector-specific information, such as up-to-date
price information on various products and commodities. Basic information is provided free of
charge, but some information is charged for.
For consideration
An information needs analysis survey of South African companies was undertaken for the formulation of the NEDP
and a further survey of perceived export barriers and drivers has been undertaken relative to the formulation of an
NES.
1.5.13 Exporter Development
A range of training programmes is provided through UEPB covering techniques for handling export
crops, export marketing foreign trade practice and standards and quality requirements and costing
and pricing. A Uganda Export Training School (UGETS) is in the pipeline.
1.5.14 Outgoing Missions
The UEPB organises in-bound and outbound trade missions.
1.5.15 Trade Shows
The UEPB organises participation in relevant local, regional and international trade fairs and
exhibitions.
1.5.16 Opportunity Matching
The UEPB organises contact promotion programmes and buyer-seller meetings.
1.5.17 Targeting Markets
The NES targets Uganda’s existing major markets, as well as some newer markets. Existing markets
are the EU, COMESA, the United States and other countries extending the GSP, namely, Australia,
Belarus, Bulgaria, Canada, Japan, New Zealand and Norway. Newer markets regarded as becoming
important are those in the Middle East, as well as China.
1.5.18 Closing Export Deals
The UEPB provides counselling and support to local exporters and foreign buyers interested in
exploring or transacting business; it does not close export details.
1.5.19 Export Collaboration
In the agricultural sector especially, the NES calls for the development of co-operative structures to
provide more power to small-scale farmers in negotiating sales and sets out some specific targets in
this area. Cooperation between SMEs in other sectors is also encouraged.
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1.5.20 Country Branding
The UEPB is tasked with carrying out country image-building campaigns and delivering presentations
at local and international export promotion workshops, seminars and conferences.
1.5.21 Assessing Performance
Annual review of progress is done before the national budget preparation process starts. This review
is organised by the Steering Committee, supported by the CICS and the NES Secretariats. Monitoring
and assessment of progress on specific initiatives uses a set of tools and mechanisms designed by
the NES Secretariat and approved by the Steering Committee.
1.6 Ireland
1.6.1 Introduction
The main driver of Ireland’s economic policy is the need to create quality and sustainable jobs while
achieving economic growth. The key elements in Ireland’s economic policy have therefore been and
are still:
Establishing the country as an international hub for multinational companies, especially
those in labour-intensive, high-tech sectors and financial services.
Encouraging the growth of export industries across all sectors, but especially high value-
added sectors.
The twin strategies to achieve these goals are therefore to attract FDI and provide an array
of export services.
These strategies are handled by two separate organisations: the Industrial Development
Agency (IDA) is focused on bringing in FDI, while export development and promotion is the
responsibility of Enterprise Ireland.
The importance of FDI to Ireland’s export performance is demonstrated by the fact that two-
thirds of Ireland’s total exports are achieved by the multinationals based in Ireland.
Ireland was particularly hard hit by the global economic downturn and unemployment again became
a major concern. In February 2012, the government launched the first annual Action Plan for Jobs,
part of a process to “make Ireland the best small country in the world in which to do business and to
increase the number of people at work in Ireland by 100,000 – from 1.8 million to 1.9 million – by
2016”. The specific aims of the Action Plan for Jobs are:
To get Ireland back to a top five ranking in international competitiveness
To build world-class clusters in key sectors of opportunity
To build an indigenous engine of growth that drives up the export market share of Irish
companies
To get the number of people at work in the Irish economy back to two million by 2020.
These aims of the Action Plan for Jobs have been carried through to both IDA’s and Enterprise
Ireland’s planning.
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1.6.2 Strategic Export Goals
Enterprise Ireland prioritises specific sectors, namely:
Food and beverages
Industrial, clean-tech and life science
Software and internationally traded services.
Against the background of the Action Plan for Jobs, Enterprise Ireland states in its Annual Report for
2011 that its focus in 2012 and beyond will be on promoting start-ups; growing exports; stimulating
innovation; helping drive competitiveness; supporting access to finance; and fostering leadership
and management capability.
1.6.3 Vision and Mission
The mission of Enterprise Ireland is: “to accelerate the development of world-class Irish companies
to achieve strong positions in global markets resulting in increased national and regional prosperity.”
Firms are supported in adopting advanced technologies, developing management and skills and
investing in capital, machinery, and automation, thereby increasing competitiveness and enhancing
export-readiness and growth prospects.
1.6.4 Institutional Framework
Enterprise Ireland is the Irish government’s trade agency in charge of the development and
internationalisation of Irish enterprises and whose prime purpose is to increase exports and export-
led employment.
Lederman et al (2010) found that the Irish EPA (together with those of The Netherlands and Hong
Kong) stands out as the most efficient in terms of export promotion.
Enterprise Ireland works closely with the Bilateral Trade Promotion Unit in the Irish Department of
Enterprise, Trade and Employment and the Department of Foreign Affairs. In the promotion of food
products it collaborates with the Department of Agriculture and Food. Environmental products are
one of the new sectors with potential that the agency is targeting. The service offering in each case
is comprehensive.
The availability of business space is a fundamental infrastructural requirement for enterprises in any
location to establish new companies and grow existing ones. Community enterprise centres (CECs)
provide the space and supportive environment for budding entrepreneurs and serve to help the
development of entrepreneurship locally in urban and rural locations. CECs are a tangible and visible
contribution to regional development. Enterprise Ireland provides funding and support for CECs to
help local communities to establish sustainable businesses.
In September 2011, the Minister for Foreign Affairs and Trade launched the inaugural meeting of the
new Export Trade Council. The Council includes the Minister for Jobs, Enterprise and Innovation, the
Minister for Transport, Tourism and Sport, the Minister of State for Trade and Development, as well
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as the heads of the IDA, Enterprise Ireland, Bord Bia, Tourism Ireland, Culture Ireland and Science
Foundation Ireland. The private sector, including the Irish Business and Employers’ Confederation
and the Irish Exporters’ Association, is also represented on the Council.
For consideration
TISA should consider establishing a Trade Promotion Agency (TPA) similar to Enterprise Ireland.
For consideration
TISA should consider establishing an Export Trade Council similar to the Irish model.
1.6.5 Financing National Export Strategies and Programmes
Enterprise Ireland is funded by the government; total funds in 2011 were €336 million
(approximately R3.7 billion). These were allocated across core activities:
€197 million for enterprise development, including finance for capability and capacity, equity
and venture capital investment and technology and scientific infrastructure.
€84 million for net operating costs, including client services and overseas and regional office
networks, science and innovation support and corporate services support.
€53 million administered on behalf of other agencies, including temporary employment
subsidy scheme, dairy investment fund, beef and sheep meat investment fund, business
innovation centres, Crafts Council of Ireland, county and city enterprise boards.
For consideration
Enterprise Ireland is one of the most efficient TPOs active today. TISA should develop appropriate tools to monitor
and evaluate their various activities. When trade promotional activities are planned, the plans should include targets
and how these are going to measure these (short-, medium- and long term).
1.6.6 Instruments Used in Export Promotion
Enterprise Ireland services include:
Funding support (for start-ups, expansion plans, and R&D business plans);
Export assistance (including the provision of in-market services, local market information
and the facilities of their international office network);
Support to develop competitiveness (helping companies to become leaner to make them
more competitive in international markets);
Incentives to stimulate in-company R&D (new product, service and process development to
ensure sustainability, and growth through the evolution of products and services);
Assistance with R&D collaboration (with research institutions, to develop and bring new
technologies, products or processes to market); and
Connections and introductions to customers overseas (access to a global network of
contacts, from heads of government to end customers).
For consideration
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TISA should ensure that there is funding available for export start-ups and that exporters and potential exporters know
where to obtain the funding. TISA should work with the various development agencies based in each province, to
ensure that exporters are assisted in complying with the requirements.
For consideration
Although there is some development funding for expansion plans, and R&D business plans, businesses need to be
encouraged to expand production for exports. TISA should discuss how tax incentives and deductions can be used
for exporters expansion plans, and other export-related activities such R&D the development of business plans.
For consideration
TISA should ensure that there is support to develop competitiveness. This will ensure that exporters can become
leaner making them more competitive in international markets. Firms that have potential to export will also appreciated
the requirements to sell globally and this will contribute to an export culture.
For consideration
South Africa does provide assistance with R&D collaboration through the Technology and Human Resources for
Industry Programme (THRIPS) programme. It is important that this scheme get more publicity and that exporters are
assisted in accessing the programme.
1.6.7 Priority Sectors
Priority sectors are food and beverages, industrial, clean-tech and life sciences, and software and
internationally traded services.
1.6.8 Trade Information
Enterprise Ireland provides the following market/sector advice and information:
Enterprise Ireland Information Centre through which companies can obtain up-to-date foreign
market and related information on companies, products and technologies. Information is sourced
from major online international research databases, such as The Economist and Kompass, usually at
no cost to the company. The Centre’s consultants answer queries by email or telephone. For
copyright reasons, companies wishing to study the original sources are required to visit the Centre in
Dublin or to arrange to view information at regional centres.
In addition to the online sources used, Enterprise Ireland commissions and publishes market guides
and reports, which can be downloaded from the web site. In addition the web site (under the
Information Centre section) provides links to other free sources of market information. The Centre
does not itself conduct primary research.
Access to the organisation’s international office network to obtain first-hand market feedback on
assessing business opportunities, identifying routes to market, finding distribution partners,
identifying potential customers and assessing competition, and providing introductions to buyers.
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For consideration
TISA should ensure that it subscribes to all relevant online international research databases, such as The Economist
and Kompass. It should use the same tactics as Enterprise Ireland in overcoming copyright issues, where companies
wishing to study the original sources are required to visit the Centre in Dublin or to arrange to view information at
regional centres.
For consideration
TISA needs to ensure that there is a well-resourced network in South Africa providing information to exporters and
potential exporters.
1.6.9 Exporter Development
Exporter development is undertaken in several ways:
Each client is allocated a development adviser who assesses the client’s business needs,
helps to identify competency gaps and suggests solutions, interprets information and guides
the client in developing an export strategy.
First Flight Programme: This programme is for companies new to export, or who want to
target new markets and provides a systematic approach to help companies research,
prepare and develop an export strategy. It encompasses introductory workshops, access to
information through the Information Centre, the appointment of a First Flight Mentor to
assist with an export-readiness assessment and the development of a First Flight Action Plan.
Mentors, who are experienced senior executives drawn from the private sector, act as
confidential sounding boards, advising clients on key operational and strategic issues.
For consideration
The term mentor as it tends to be used by agencies in South Africa refers more correctly to consultants. This tends to
create confusion, among both the agencies and potential mentors/consultants. Both have important roles to play,
especially with potential SME exporters.
A strategic consultancy grant is available to support clients in hiring outside consultants to assist in the development
and implementation of strategic activities. Innovation Vouchers enable clients to work with Ireland’s higher education
institutes to explore a business opportunity or technical problem.
There are several programmes designed to improve selling capabilities of Irish exporters, ranging from a top-level 10-
month customised programme to short export sales workshops.
1.6.10 Outgoing Missions
Regular outward missions are undertaken and usually led by a member of government.
8.6.9 Trade Shows
Enterprise Ireland arranges for group stands at some 35 to 40 international trade shows each year.
In addition, financial assistance is provided for individual participation at recognised foreign trade
shows.
40
1.6.11 Opportunity Matching
This is facilitated through assistance with inward buying missions as well as networking events
organised by Enterprise Ireland’s foreign offices. The foreign offices also arrange introductions to
potential buyers for clients visiting from Ireland.
1.6.12 Targeting Markets
Irish economic success depends on the growth of indigenous companies as well as on increased FDI.
Enterprise Ireland stresses the further market diversification of Irish exports diversify into more
foreign markets so that sales are not over-exposed to the economic fortunes of any particular
country or region. While it supports Irish companies in maintaining their position in traditional
markets (the UK and EU), it pushes for growth in emerging high-growth markets in Africa, South
America and the Far East.
Enterprise Ireland believes that in the coming years Irish companies must be able to compete on the
international stage and take advantage of the upside to globalisation by using high value,
knowledge-intensive activities to support sustainable jobs and relatively high wage rates.
Although the level of FDI in Ireland, relative to the size of the economy, is one of the highest in the
world, Ireland’s export and FDI competitiveness has weakened during the last five years. IDA has
drawn up its Ireland 2020 Strategy aimed at reversing that trend. The strategy calls for all relevant
government departments, other agencies such as Enterprise Ireland, as well as universities and the
business sector to work together as Team Ireland. New emerging high-growth countries are among
the targets for new FDI, as they are for increased exports.
For consideration
Enterprise Ireland stresses the further market diversification of Irish exports diversify into more foreign markets. More
support is therefore given to diversification rather than maintaining or market penetration. TISA needs to know where
exporters are exporting and encourage diversification.
1.6.13 Closing Export Deals
While extensive customised support may be given to Enterprise Ireland’s clients in developing their
export business, it is up to clients themselves to close export deals.
1.6.14 Export Collaboration
Enterprise Ireland works closely with other agencies, for example, with the Department of
Agriculture, Food and the Marine and third level institutions to achieve the substantial growth
targets set out in the ‘Food Harvest 2020’ strategy.
Enterprise Ireland also works to develop clusters of firms in niche areas such as microelectronics,
water and wastewater treatment; energy management; generic pharmaceuticals and technologies
for specialist medical areas, including endovascular surgery and orthopaedics.
For consideration
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Enterprise Ireland relies on clusters which implies that there is support along the entire value chain from the supply-
to demand-side. Export Councils should therefore operate more as Sector Councils and ensure the exporter or
potential exporter has the full service menu and that niche clusters are also supported.
1.6.15 Country Branding
There appears to be no specific ‘branding’ of Ireland as such. However, both Enterprise Ireland and
the IDA actively promote Ireland’s significant advantages to foreign potential buyers and investors.
1.6.16 Assessing Performance
Enterprise Ireland’s Annual Report gives specific measurements of performance:
Total value of client exports in 2011:
€15.2 billion (€13.9 billion in 2010)
Value of new exports in 2011: €2.14 billion (€1.32 billion average previous 3 years)
Total value of Irish exports in 2011: €85 billion (€84 billion in 2010) Employment by client companies: 141 228 (same in 2010) Substantial R&D projects (€100 000+/year):
743 clients
New high-potential start-ups: 93 In addition, Enterprise Ireland maintains records of other investments and assistance to clients, as
well as the numbers participating in trade shows and outward missions.
For consideration
Ireland’s NES in concept and implementation revolves around selected enterprises in specific sectors, with an
emphasis on face-to-face service provision. Export development is not confused with enterprise development, which
is the responsibility of agencies other than Enterprise Ireland.
1.7 Canada
1.7.1 Introduction
The federal structure of government in Canada is mirrored to some extent in enterprise and
exporter development services. Foreign Affairs and International Trade Canada (DFAIT) is the
government department responsible at federal level. There are development agencies at provincial
level handling both enterprise development and export and investment promotion. In the mid-1990s
a specific strategy, known as Trade Team Canada, was implemented to ensure that all relevant
government departments and agencies at all levels worked in unison in the interests of export
development.
Although the term seems no longer to be in practice, it is clear that the cross linkages established by
this strategy are still working. A central website, Canada Business, carries links to all relevant
government departments and provincial agencies to assist Canadian business.
Guiding the planning of DFAIT and provincial agencies is Canada’s Global Commerce Strategy (GCS),
the international arm of a broader national economic competitiveness strategy 'Advantage Canada'
42
(2005), which delineates the unique and important role of the Government of Canada in creating the
conditions for Canadian businesses and organisations to thrive in today's global economy.
1.7.2 Strategic Export Goals
A major priority for the DFAIT for 2012-2013 is to “contribute to economic prosperity and job
creation through continued implementation of the GCS, with an emphasis on expanding and
diversifying commercial relationships with emerging and high-growth markets.”
The department’s priority commitments to achieve this are stated as being:
Increase and diversify commercial engagement in key markets in Asia, in particular with China, India,
Japan, Korea, and Mongolia and the Trans-Pacific Partnership, and in the Americas with Brazil and
MERCOSUR, through a coordinated whole-of-government approach;
Conclude agreements with the European Union in 2012 and with India in 2013;
Refresh the GCS, including to ensure that Canada is branded in a way that is most advantageous to
the country’s trade objectives in priority markets, with an initial focus on positioning Canada as a
supplier of choice for energy;
Work with partner departments to improve visa granting procedures to increase commercial
engagement in priority markets.
1.7.3 Vision and Mission
The Canadian government is pursuing what it refers to as the most ambitious pro-trade plan in
Canadian history—one that focuses on protecting current exports, forging new trade and investment
ties with key partners and opening new markets so Canadian exporters can continue to grow and
succeed around the world. The GCS is the roadmap for Canada’s international trade development.
The ultimate goal of the GCS is to position Canada as a world leader in a highly competitive global
economy by strengthening the environment and the support systems for Canadian firms to
participate in global commerce, thereby enhancing Canada's productivity and competitiveness.
For consideration
TISA should brand the Integrated National Export Strategy (INES) as the “most ambitious pro-trade plan” in South
African history. It is however important that the words are in fact backed up with actions and the resources required to
implement the strategy.
1.7.4 Institutional Framework
At federal level, Foreign Affairs and International Trade Canada provides exporter development
services through its Trade Commissioner Service. Trade Commissioners are based in each
province/territory as well as in 150 international locations.
The regional trade commissioners work closely with regional and provincial development and trade
promotion agencies.
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At federal level, in addition to the Trade Commissioner Service, the Canada Border Services Agency
provides a full range of information regarding customs clearance for import and exports, including a
step-by-step guide for SMEs. This is available on an excellent website.
Canada Business is a collaborative arrangement among federal departments and agencies, provincial
and territorial governments and various not-for-profit agencies. Its basic aim is to reduce the
complexity of dealing with multiple levels of government and to consolidate business information in
one convenient service. Through its web site, Canada Business provides linkages to:
Atlantic Canada Opportunities Agency (ACOA);
Canada Economic Development for Quebec Regions;
Canadian Northern Economic Development Agency;
Industry Canada; and
Western Economic Diversification Canada.
With regard to export/exporter development, the site provides detailed linkages to Canadian and
non-Canadian assistance and information sources. It has a useful page on government grants, loans
and financing, enabling a company to tailor information to its needs, size, industry sector and
purpose.
For consideration
Canada has a hybrid department (Foreign Affairs and International Trade Canada) which combines DIRCO and TISA.
This ensures that international export marketing activities are well coordinated. It also allows for better allocation of
resources and a wider spread. Trade Commissioners are based in each province/territory as well as in 150
international locations. Government should review this model and interrogate it more thoroughly.
1.7.5 Financing National Export Strategies and Programmes
The Canadian government allocates resources to sectors and products where clients are active and
where officials in each country develop a trade action plan based on client’s needs. In common with
South Africa many of Canada’s exports are commodities and trade promotion plays a minor role.
Most of the services are therefore taken up by SMEs. Their requests drive the allocation of
resources.
Because the budget comes from various government departments and agencies, it is difficult to
identify what resources are allocated in total. However The Department of Foreign Affairs and
International Trade budgets about US$200 million for international business development.
1.7.6 Export Development
1.7.7 Product Development and Capacity Building
Assistance in these areas is provided at regional and provincial level. For example, ACOA’s Business
Development Programme, focused on SMEs, provides funding for the development, expansion and
modernising of businesses as well as for R & D costs. The Newfoundland and Labrador Department
of Innovation, Trade and Rural Development has an SME Fund to assist companies in strategic
growth sectors as well as a Supplier Development Programme. These are not necessarily aimed only
44
at potential exporters but are designed to build capacity and develop new products in the business
sector in general.
The different regional bodies and provincial agencies focus on different target sectors, depending on
local resources, stage of development and business potential.
1.7.8 Market Access
Canada is a member of North American Free Trade Agreement (NAFTA) and works to strengthen ties
with the USA and Mexico. Canada also actively pursues the development of trade and economic
agreements with countries worldwide. Countries with which Canada is actively negotiating or
considering negotiations include India, Japan, the EU, India, the Ukraine, Israel (expansion of current
agreement), Turkey, Morocco, CARICOM, Dominican Republic and Jordan. In every case, the
question of new trade agreements is open for consultation with the private sector before
negotiations proceed.
1.7.9 Instruments Used in Export Promotion
The Trade Commissioner Service provides information and assistance under a range of categories,
through its website as well as through face-to-face encounters with its clients. These services are
augmented by regional agencies, such as ACOA, whose SME and export development assistance is
tailored to specific regional conditions and needs.
Canada also has export awards. There is extensive media coverage and the winners’ profiles are
distributed to all Canadian foreign missions. Winners may also use the Canada Export Awards logo
on their promotional material for three years.
For consideration
National export awards are given high visibility in Canada and the United Kingdom. They are regarded as an important
export awareness building tool as well as a way of promoting the countries’ brand.
1.7.10 Priority Sectors
The Trade Commissioners in each province indicate the sectors they focus on. Overall, priority
sectors in Canada are high value-added sectors such as: advanced manufacturing technologies;
aerospace; agriculture technology and equipment; arts and cultural industries; bio and health
industries; building products and construction; environmental industries; financial services; food and
beverage; information and communications technologies; metals, minerals equipment and services;
ocean technologies; oil and gas equipment and services; renewable energy; service industries and
capital projects.
1.7.11 Trade Information
Through the Trade Commissioner Service the following trade information is provided:
Market Reports: Information on foreign markets; hundreds of analyses of industry sectors
are available.
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Webinars: Online seminars on business opportunities abroad.
CanadExport: The official e-magazine of the Canadian Trade Commissioner Service includes
the latest trade news.
Global Value Chains: Innovative business strategies designed to boost SMEs in the global
marketplace.
The Virtual Trade Commissioner (VTC) is a gateway to a world of information online. With VTC
companies can: personalise a web page to contain specific country information and business
opportunities; access current market reports, sector-specific news and trade events; receive
assistance and request services from Trade Commissioners located in Canada and in a specific
foreign market; manage online applications to the funding programmes, such as: Investment
Cooperation Program (INC), Invest Canada-Community Initiatives (ICCI) and Global Opportunities for
Associations (GOA), supporting businesses, communities and associations.
For consideration
TISA should consider using Webinars and establishing an official e-magazine for South Africa exporters and potential
exporters.
For consideration
TISA should consider establishing a “Virtual Trade Commissioner” where South African exporters can access their
own personalised web page containing specific country information and business opportunities; accessing current
market reports, sector-specific news and trade events; receiving assistance and request services from TISA or TISA’s
partners.
1.7.12 Exporter Development
Workshops and seminars are organised by the Trade Commissioner Service through the local offices.
Training and development is also provided at regional and provincial level.
More specialised training is provided by the Forum for International Trade Training which is an
industry led organisation funded by Human Resources Development Canada. It offers a three-hour
going global workshop online and at locations across Canada. It also offers a series of eight courses
that accredited by The International Association of Trade Training Organisations (IATTO). There are
another 35 educational partners mainly community colleges across Canada that support this
programme.
Canada generally provides a good follow-up programme to first-time exporters. The embassy and
consulate-based trade staff are trained and ready to help wide variety of market access issues.
Nevertheless first-time exporter assistance takes precedence over the needs of exporters who want
to grow.
The Trade Commissioner Service also assists with the commercialisation of Canadian innovations
abroad, assist for sourcing innovative technologies and partnerships, and financial support through
various funding mechanisms in order to increase Canadian innovation capacity.
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1.7.13 Outgoing Missions
Market entry is supported through a multilayer programme of trade missions. At the highest level
these include trade missions are led by the Prime Minister. Companies are invited to participate
based on the potential for new business development and their activity in one of several business
sectors that are featured on the mission. The focus is to develop country to country business
relationships. Missions led by the Minister of international trade are focused on individual sectors.
At regional level, missions are more business-oriented. ACOA, for example, places emphasis on
outgoing foreign missions. Some of these are ‘educational’, that is, ACOA takes a group of business
people to, for example, and India to expose them to the country so that they will be more inclined to
follow-up and actually seek business opportunities. This emphasis is apparently because research
into clients’ needs, conducted by ACOA through a series of focus groups, indicated that companies
found foreign trade missions useful in developing exports.
Nonetheless, participation by enterprises, especially small ones, in missions and other trade
promotion activities is inhibited by management capacity (not capability) and cash flow limitations
(participants usually have to pay for their own airfare and subsistence in the foreign market).
For consideration
TISA should consider charging for services but ensuring that services provided by FERs and local staff
gives exporters value for money. Tax deductions can be used contribute to these costs.
8.6.10 Trade Shows
Trade shows are considered by DFAIT and regional agencies to be effective export promotion tools
when companies are well prepared. They encourage trade associations to coordinate the efforts of
multiple companies in their sectors. DFAIT provides the hardware for the country pavilions at sector
trade shows, but companies or industry associations cover the costs. These costs are eligible for co-
funding under the Programme for Export Market Development.
1.7.14 Opportunity Matching
The Trade Commissioners based in foreign locations provide specific trade leads to Canadian
companies, both directly and through the Virtual Trade Commissioner website.
1.7.15 Targeting Markets
The DFAIT has as a first priority to increase and diversify commercial engagement in key markets in
Asia, in particular with China, India, Japan, Korea, and Mongolia and the Trans-Pacific Partnership,
and in the Americas with Brazil and MERCOSUR, through a coordinated whole-of-government
approach; and to conclude agreements with the European Union in 2012 and with India in 2013.
Nonetheless, market information is available on request from the Trade Commissioner Service and
the regional agencies covering virtually all foreign markets.
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1.7.16 Closing Export Deals
Trade commissioners may not act as marketing representatives for Canadian companies. They do
make introductions and may even accompany the company representatives to meetings but do not
act on the company’s behalf when they are not present.
1.7.17 Export Collaboration
Cross linkages between federal, regional and provincial agencies and with industry associations and
other private bodies ensure a high level of collaboration on export development. However, it has to
be acknowledged that the sector priorities differ somewhat from province to province, so
collaboration is not always possible at a national level for individual programmes.
1.7.18 Country Branding
Canada faces a unique problem compared with other countries in that its integration with the
United States makes it difficult to project a distinct image abroad. The country faces a serious
identity problem in many markets. This is especially true for high-technology products, which are
perceived to be of American origin. For this reason it has been recommended, as stated earlier, that
the GCS should ensure that Canada is branded in a way that is most advantageous to the countries
trade objectives in priority markets, with an initial focus on positioning Canada as a supplier of
choice for energy.
1.7.19 Assessing Performance
At federal level, Canada evaluates programme effectiveness almost entirely on the basis of client
satisfaction. It does this through systematic annual surveys. The process is therefore managed by
self-evaluation rather than rigorous internal or external assessment. Nevertheless the assessments
have resulted in the restructuring of certain programmes.
At regional level, measurement is often against specific targets. ACOA, for example, measures
performance against such criteria as:
Increased export sales of C$3.29 per C$1 of assistance.
Increased GDP over 5 years of C$4 per C$1 spent.
Client export performance 5% better than non-clients.
1.8 The United States
1.8.1 Introduction
We have included considerable detail on aspects of the US National Export Initiative because of the
challenges faced in terms of the institutional framework: like South Africa, the US encompasses a
federal/national dimension as well as state/provincial and city/metro structures whose efforts need
to be coordinated to ensure the best use of resources.
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1.8.2 Strategic Export Goals
As in many countries, exports serve as a countercyclical force for the US economy, stimulating the
US economy when demand from abroad is greater than domestic demand. The US National Export
Strategy (2011) recognises this and states “historically, U.S. companies seeking to expand their
revenues focused first on increasing their number and share of US customers. For years, this focus
served as a winning strategy for many of the most successful U.S. companies.” However, it also goes
on to say that “Today, global economic trends make clear that successful companies are those that
reach and sell to consumers outside U.S. borders and around the globe.”
The focus of the American National Export Initiative (NEI) announced in 2010 was to support
“millions of jobs here at home”. The US National Export Strategy recognises that US exports of goods
and services supported 10.3 million jobs in 2008. As a result of the 2009 recession only 8.5 million
jobs in America were supported by exports. When launching the NEI President Obama stated:
“[W]e need to export more of our goods. Because the more products we make and sell to other
countries, the more jobs we support right here in America. So tonight, we set a new goal: We will
double our exports over the next five years, an increase that will support two million jobs in
America. To help meet this goal, we are launching a National Export Initiative that will help farmers
and small businesses increase their exports.”
For consideration: A statement at Presidential level to emphasise the importance of value-added
export growth for South Africa and that relevant departments and institutions, both public sector
and private, at all national, provincial and metro level, must be responsible for setting targets and
held accountable for achieving them.
1.8.3 Vision and Mission
The vision statement is not articulated in a statement but has been derived from speeches made by
President Obama where he sets out a vision of doubling exports by 2015 and, in so doing, creating 2
million jobs. The U.S. Commerce Secretary John Bryson expanded this: “I will prioritise one simple
imperative: to help American businesses build it here and sell it everywhere.”
1.8.4 Institutional Framework
Recognising the value of partnerships, U.S. export promotion agencies have developed collaborative
relationships with the private sector, cities, and states. For example, Commerce initiated its
Corporate Partnership Programme, leveraging the private sector’s sales and marketing expertise in
2004.
The TPCC is an interagency committee whose objective is to coordinate and set priorities for federal
agencies involved in export promotion and to propose a unified export promotion budget to the
President.
The key agencies are the U.S. Department of Agriculture (USDA), U.S. Department of Commerce,
Export-Import Bank of the United States (Ex-Im Bank), Overseas Private Investment Corporation
(OPIC), U.S. Trade and Development Agency (TDA), Small Business Administration (SBA), U.S.
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Department of State, Office of the U.S. Trade Representative (USTR), and U.S. Department of the
Treasury. The Secretary of Commerce chairs the TPCC.
Yager (2009) stated in a report to the US Senate that “Export promotion efforts in the United States
are guided by the National Export Strategy. According to the strategy, 20 agencies are part of the
TPCC, of which nine of the agencies have budgets for programs or activities related to export
promotion, with the Departments of Commerce, Agriculture, and State actively engaged in export
promotion overseas. Agency export promotion activities include providing basic export counselling;
assisting with collecting and providing data on foreign markets; and advising firms on how to best
market their products overseas.”
Elements of U.S. export promotion activities that warrant attention are regarded as:
Coordination;
Targeted services for small-and medium enterprises and other priorities;
Performance monitoring; and
Partnerships and methodologies for setting user fees.
The NEI introduced a new level of coordination to federal export promotion activities. This created a
President’s Export Promotion Cabinet (EPC) to ensure that export promotion is a high priority for all
relevant agencies. Members of the EPC include the nine key Secretaries or Directors of the export
promotion agencies of the TPCC and senior White House advisers. The Cabinet is to coordinate with
the TPCC in order to “operationalise” the NEI. The Cabinet identified eight priority areas:
1. Exports by SMEs;
2. Federal export assistance;
3. Trade missions;
4. Commercial advocacy;
5. Increasing export credits;
6. Macroeconomic rebalancing;
7. Reducing barriers to trade; and
8. Export promotion of services.
The Cabinet noted that four general themes apply to all eight priority areas:
1. Strengthen interagency information-sharing and coordination;
2. Leverage and enhance technology to reach potential exporters and provide U.S.
businesses with the tools necessary to export successfully;
3. Leverage combined efforts of state and local governments and public-private
partnerships; and
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4. Have unified goals for TPCC member agencies to support the NEI’s implementation.
For consideration
The US President’s EPC could be compared in stature to the South African National Planning Commission.
The Department of Commerce, through its International Trade Administration (ITA), is the lead
agency providing export assistance services for U.S. non-agricultural businesses. ITA resources
include:
1. Trade specialists in over 100 U.S. Export Assistance Centres (USEACs) and
approximately 150 overseas offices;
2. Industry experts and market and economic analysts;
3. Market access experts; and
4. Import policy and trade compliance analysts.
The agency is divided into four policy units and an Executive and Administrative Directorate. The
Trade Promotion and the U.S. and Foreign Commercial Service (Commercial Service) is the main
trade promotion unit of ITA. It has trade specialists in 109 U.S. cities and in more than 75 countries
who work with U.S. companies to help them get started in exporting or increasing sales in foreign
markets. Its services include market research; trade events to promote U.S. products and services;
introductions of qualified buyers and distributors in foreign countries to U.S. companies; and
counselling and advocacy services throughout the export process.
The Advocacy Centre of this unit serves as an advocate for U.S. companies by assisting them in
pursuing foreign business opportunities and dealing with foreign governments. It also has liaisons to
five Multilateral Development Banks (World Bank, Inter-American Development Bank, European
Bank for Reconstruction and Development, Africa Development Bank, and Asia Development Bank)
to counsel U.S. companies on working with the banks and on procurement and contracting issues.
The Manufacturing and Services (MAS) unit works to strengthen the global competitiveness of U.S.
industry, expand market access for U.S. businesses, and increase U.S. exports. As the research arm of
ITA, the MAS undertakes industry economic and trade policy analysis, helps formulate U.S. trade
policy, participates in trade negotiations, organises trade capacity-building programs, and evaluates
the impact of U.S. and foreign regulations on U.S. manufacturing and service industries. The MAS
works with other federal agencies, private sector partners, and Congress in developing a public
policy environment to help advance the competitiveness of U.S. firms at home and abroad.
The Market Access and Compliance (MAC) unit monitors foreign country compliance with trade
agreements with the United States, identifies compliance problems and market access obstacles,
and informs U.S. firms of foreign business practices and opportunities. The MAC has country desk
officers with expertise on the commercial, economic, and political climates in their assigned
countries. The desk officers focus on resolving trade complaints and market access issues.
ITA has other functions, such as countering unfair foreign trade practices, in order to boost exports.
The Import Administration (IA) unit is ITA’s lead unit on enforcing trade laws and agreements. Its
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primary role is to enforce U.S. anti-dumping and countervailing duty laws and to develop and
implement other policies and programs aimed at countering unfair foreign trade practices.
Led by the Department of Commerce’s ITA, USEACs constitute a key component of support services
provided by federal government agencies to U.S. exporters. The USEACs are one-stop shops,
designed to provide export assistance for SMEs. They are located in major metropolitan areas
throughout the United States and their mission is to provide the help to US exporters and potential
exporter to compete the global marketplace.
They provide export counselling, planning, and financing services, such as working with firms to
identify target markets, to formulate marketing strategies, and to identify export financing options.
Through USEACs, the agencies work to coordinate their export education, promotion, and finance
services to U.S. businesses. USEACs coordinate with Foreign Commercial Service posts that provide
export assistance services. USEACs also work closely with non-federal export service providers, such
as state agencies and world trade centres, to provide export assistance for U.S. businesses. Some
USEAC services are free, while others are fee-based (this is discussed in greater detail below).
1.8.5 Local Export Assistance
Coordination of the U.S. government’s export promotion activities has been a long-standing policy
issue. The effectiveness of the TPCC in fostering interagency coordination has been limited even
though its mandate is
To establish a set of priorities for federal export promotion activities,
To coordinate a government-wide export promotion framework, and
To propose a unified export promotion budget to the President.
Interagency coordination by the TPCC inherently is complicated by the fact that multiple agencies
are involved in export promotion. These are independent agencies with their own missions, goals,
and priorities. Many of these agencies prioritise the promotion of exports, but often, it is within the
context of their own agency missions.
US opinion is divided, with some policymakers welcoming the concerted effort to coordinate export
promotion at the federal level through the creation of the EPC. They believe that the elevation of
export promotion as a policy issue to the cabinet level will ensure that it is given national priority.
However, critics contend that the NEI essentially is a bureaucratic manoeuvre to superimpose the
newly created EPC over the existing TPCC. They contend that it does not bring substantive reforms
or improvements to coordination of U.S. export promotion. Schwenninger and Sherraden (2010)
point out that “most state governments have had export promotion programs for several decades
now, including some efforts to help finance exports, but these efforts have had a modest impact at
best. To be sure, a coordinated federal effort is welcome, and is likely to have more success than the
scattered efforts of state trade missions, but even if successful it will make a relatively small
contribution to the overall goal of doubling American exports.”
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1.8.6 Financing National Export Strategies and Programmes
The TPCC does not have an independent budget, nor does it have any specific authority to direct
member agencies’ allocation of resources. The TPCC secretariat does not review member agency
budgets in relation to the annual NES and its budgetary needs. Each federal agency has its own
statutory requirements and budgets appropriated by various congressional committees. As a result,
each agency submits its annual budget request separately to the President. The individual agencies
and the TPCC determine which programmes or activities are considered to constitute trade
promotion and therefore included in the Annual Report of trade promotion budget authority.
However, a breakdown of these activities within each agency is not listed. Instead the TPCC
publishes overall trade promotion spending by agency (see following table).
Table 13: TPCC Program Budget Authority, FY 2006-FY 2012 (US$ m)
Agency FY06 Actual
FY07 Actual
FY08 Actual
FY09 Actual
FY10 Actual
FY11 Request
FY12 Request
U.S. Department of Agriculture (USDA) $819 $674 $642 $515 $674 $642 $515
Department of Commerce 352 356 339 350 356 339 350
Department of Energy (DOE) 9 --- --- --- --- --- ---
Department of State 170 176 184 198 176 184 198
Department of the Treasury 3 3 3 3 3 3 3
Export-Import Bank (Ex-Im Bank) 98 38 1 3 38 1 3
Overseas Private Investment Corporation (OPIC)a
(161) (192) (165) (170) (192) (165) (170)
Small Business Administration (SBA) 4 5.2 6 6.4 5.2 6 6.4
U.S. Trade and Development Agency (TDA) 50 50 51 51 50 51 51
U.S. Trade Representative (USTR) 44 44 44 46 44 44 46
Total 1,549 1,346 1,270 1,172 1,346 1,270 1,172 Source: (Ilias, Hanrahan, and Villarreal 2012)
The budget request for FY 2013 for direct funding for ITA is $517 million, an increase of $57 million
from the FY 2012 estimated funding amount.
Funding Levels for the International Trade Administration: FY 2002-FY 2011 and
Table 14: Request for FY 2012 (millions of U.S. dollars)
ITA Unit FY 06 Actual
FY 07 Actual
FY 08 Actual
FY 09 Actual
FY 10 Actual
FY 11 Request
FY 12 Request
FY 13 Request
U.S. Commercial Service $236 $235 $242 $243 $263 $260 $270 $307
Manufacturing and Services (MAS) 49 48 42 49 50 49 47 45
Import Administration (IA) 60 61 64 67 70 68 69 92
Market Access and Compliance (MAC)
45 44 46 45 47 49 47 48
Administration and Executive Direction
26 26 26 25 27 28 27 25
Direct Program 416 414 420 429 457 454 460 517
Reimbursable Program 14 14 17 17 20 23 23 22
Total Obligations 430 428 437 446 477 477 483 539 Source: (Ilias, Hanrahan, and Villarreal 2012)
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U.S. government agencies may finance and insure U.S. exports to foreign countries for a number of
reasons, including
To assume commercial and political risks that exporters or private financial institutions are
unwilling or unable to undertake alone;
To overcome maturity and other limitations in private sector export financing; and
To counter officially backed export credit financing offered to foreign exporters by their
governments.
USDA takes the lead on agricultural export financing, while Ex-Im Bank is the lead agency for
providing financing and insurance for non-agricultural exports. Export financing for small business
exporters is available from Ex-Im Bank and SBA. Related to exports also is OPIC’s role in financing
and insuring U.S. private investment for projects overseas. For example, OPIC supported investment
in infrastructure projects in developing and emerging markets may lead to the sale of U.S. goods and
services for these projects and in these markets more broadly.
In 2012, an additional $6 billion over and above the amount listed in the table above was allocated
through the Commodity Credit Corporation (CCC), which is a wholly owned US government
corporation created in 1933 to stabilise, support, and protect farm income and prices. It is
authorised to buy, sell, lend, make payments and engage in other activities for the purpose of
increasing production, stabilising prices, assuring adequate supplies, and facilitating the efficient
marketing of agricultural commodities. The export programmes funded through CCC are
administered by the Foreign Agricultural Service. The CCC has the authority to borrow up to $30
billion from the U.S. Treasury to carry out its obligations. Net losses from its operations subsequently
are restored through the congressional appropriations process. (Ilias, Hanrahan, and Villarreal 2012)
SBA provides export financing and promotion services to small businesses. SBA’s Office of
International Trade (OIT) assists with four stages of export promotion:
Identifying small businesses interested in export promotion;
Preparing small businesses to export successfully;
Connecting small businesses to export opportunities; and
Supporting small businesses once they find export opportunities;
SBA also participates in the regional network of USEACs.
In FY 2011, the OIT assisted 1,346 small business exporters to access capital through its export loan
programmes in the amount of $924 million through 387 lenders, which supported $1.8 billion export
sales, according to SBA. The FY 2012 enacted budget for SBA was $919.8 million, and the
Administration requested $1,115.4 million for FY 2013. Hoover (2010) summed up the feeling of
business leaders who praised the NES’s plans to increase trade promotion efforts and provide more
loans to small exporters. However they cautioned this alone will not be enough to reach the
President’s goal of doubling U.S. exports over the next five years.
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1.8.7 Instruments Used in Export Promotion
In the United States export promotion was considered necessary in addressing market failures to
achieve broader trade policy objectives that included:
Foreign market information: Some firms may not export because they lack information
about export markets, but U.S. officials abroad may have access to commercially valuable
information about foreign markets that the private sector may not otherwise be able to
access.
Advocacy: Government representation on behalf of a firm competing for a potential export
sale may influence procurement decisions, particularly in helping establish a firm’s credibility
in foreign markets.
Export finance assistance: Government finance can fill gaps created when the private sector
is reluctant to finance certain exports, particularly for SMEs.
1.8.8 Priority Sectors
In the 2010 NEI Report it was noted that “many countries are targeting key sectors for economic
expansion” and recommended that “TPCC agencies should increase the number and size of trade
activities that promote key sector technologies to decision makers in key markets.”
The United States has export-competitive products and services across a wide range of industries.
Just as a successful U.S. company develops a global product strategy in addition to country-specific
strategies, the NES seeks to increase U.S. exports by developing comprehensive global sector
strategies and country strategies. These global sector strategies aim to help focus government
resources on the products and services for which government actions will have the greatest impact.
The criteria include:
How export-intensive (per cent of total output consistently exported) the sector is;
Its contribution to U.S. employment;
How competitive the sector is; and
The extent to which it is integrated into global supply chains.
To ensure the continued success of these sectors, the Federal Government serves as
partners with industry to address these challenges.
1.8.9 Trade Information and Exporter Development Services
The U.S. government provides export assistance services, such as distribution of trade-related
information to exporters, foreign country market research, and counselling, to both new and
seasoned exporters. Key agencies that offer direct export assistance include the USDA, Department
of Commerce, Department of State, and SBA. The U.S. government also conducts feasibility studies,
which evaluate the economic, financial, technical, and other aspects of proposed projects in foreign
countries that may generate exports of U.S. goods and services. USDA and TDA both conduct such
studies. (Ilias, Hanrahan, and Villarreal 2012)
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Not all of these services are provided free of charge. The pricing methodology developed by the U.S.
Commercial Service was designed to bring the organisation into compliance with full cost recovery
requirements set forth by the Office of Management Budget (OMB). The process of developing the
pricing methodology involved analysis of actual costs as defined by OMB and level of effort required
to deliver each service.
The U.S. and Foreign Commercial Service (U.S. Commercial Service) within the U.S. Department of
Commerce recently published a notice in the Federal Register to solicit public comment from the
business community and stakeholders on proposed user fee increases.
The U.S. Commercial Service intends to use this information to evaluate whether the proposed user
fee schedule should be implemented; to evaluate options for seeking an exemption from the full
cost recovery requirements of OMB to offer a discount to small-and medium businesses; and to
request for OMB approval of the pricing methodology.
The user fee for both standard services and customised services will be set at one flat rate per hour
multiplied by the estimated number of hours for service delivery to determine full cost. Therefore,
the cost of each standard service previously offered at one global price will increase, but the service
will continue to be delivered in the same manner throughout U.S. Commercial Service global
operations. The proposed percentage increase on affected services would range from 11 percent to
171 percent, depending on the type of service provided.
1.8.10 Outgoing Missions
The Export USA programme includes an introductory seminar, a visit to a Canadian Consulate in the
United States or an advanced seminar plus a trade mission to the United States; New Exporters to
Overseas organises seven-day missions to Europe and are organised on a regional basis. Although
individual firms can take part in them, the focus is on industry associations or chambers of
commerce.
1.8.11 Export Collaboration
Export Trading Company Act
The globalised economy presents increasingly intense competition from foreign suppliers in the
export market. Moreover, U.S. companies currently face competitive pressures on an
unprecedented scale. The Export Trading Company Act (ETCA) was created by Congress to enable
U.S. firms to collaborate with each other to reduce their exports costs, become more efficient at
exporting, and, in turn, compete more effectively in the export market. (Downloaded from
http://www.trade.gov/mas/ian/etca/index.asp on 3 December 2012)
The Export Trade Certificate of Review
The Export Trade Certificate of Review provides substantive federal antitrust protection and
procedural benefits to U.S. firms interested in collaborating on export activities. By coordinating with
one another under the legal protection of this programme, U.S. firms can reduce their shipping
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costs, boost their negotiating power, fill large export orders, and develop long-term export business.
(Downloaded from http://www.trade.gov/mas/ian/etca/index.asp on 3 December 2012)
For consideration
Similar legislation in South Africa would streamline the process of obtaining exemption from the requirements of South
African Competition legislation. This has been noted as a barrier to export development by certain industry groups.
1.8.12 Assessing Performance
Yager (2009) reported that “However, as we testified in 2006, the focus of the national export
strategies continues to change from year to year with little evaluation of previous efforts’
effectiveness. For example, the 2003 strategy prioritised on capacity building, Russia, and
transportation security; the 2004 strategy highlighted China, free trade agreements, and
coordination in crisis regions; and the 2005 strategy covered free trade agreements, China, and six
“growth markets” (Japan, South Korea, India, Brazil, Russia, and the European Union). At the time of
our 2006 testimony, some member agency officials commented on the ad hoc nature of the national
export strategies.”
For consideration
TISA should compiling annual reports specifically focused on South African exports. The report should be conducted
independently and audited. All exporters and stakeholders should be afforded the opportunity of commenting on the
findings and the final report should be submitted to Parliament, who can then ensure that sufficient resources are
made available to achieve South Africa’s export targets.
1.9 The United Kingdom
1.9.1 Strategic Export Goals
In the presentation of the national budget in March 2011, the UK Government announced a plan to
put the UK on a path to sustainable, long-term economic growth. The Government’s economic policy
objective is to achieve strong, sustainable and balanced growth that is more evenly shared across
the country and between industries. The Plan for Growth contains four overarching ambitions to
ensure that progress is made towards achieving this economic objective. The ambitions are:
To create the most competitive tax system in the G20;
To make the UK one of the best places in Europe to start, finance and grow a business;
To encourage investment and exports as a route to a more balanced economy; and
To create a more educated workforce that is the most flexible in Europe.
Each ambition is supported by a number of measurable benchmarks (16 in total) against which the
Government expects to be judged. The Government also constantly benchmarks the UK against best
practice around the world. In August 2011, and March and August 2012, the Government issued
performance reports in terms of the Plan and made implementation adjustments where it felt they
were required.
In 2011 the country’s Prime Minister David Cameron set a goal to get an additional 100,000 UK firms
exporting and the Chancellor set a target of more than doubling UK exports to £1 trillion by 2020.
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For consideration
There are many factors that have an impact on a country’s export performance. The dti should ensure that all factors
are undertaken and measured.
1.9.2 Vision and Mission
Taking the trade-related ambition of the Plan for Growth the specific benchmarks laid down for the
government to achieve are:
Ensure the UK remains one of the top destinations for FDI
An increase in exports to key target markets
An increase in private sector employment, especially in regions outside London and the
South-East
Increased investment in low carbon technologies
The Business, Innovation and Skills Department is at the heart of the UK Government’s focus on
sustainable and balanced growth. Its vision statement is “To achieve strong, sustainable and
balanced growth, evenly shared across the country and between industries.”
After an extended period of consultation allowing the private sector, both as individuals and as
business groupings, to make recommendations, the UK’s published its Trade and Investment for
Growth White Paper in February 2011. This set out a series of practical first steps towards achieving
relevant ambitions of the Plan for Growth.
Particular emphasis was placed on supporting SMEs to expand and export. The Government acts to:
Improve and expand the trade finance and insurance products it offers - boosting support for
businesses who want to export, particularly SMEs - and bringing the UK broadly into line with the
services provided in other countries.
Increase the UK Trade and Investment’s focus on emerging markets and launch: a new online service
offering access to sales leads around the world; a new online peer-to-peer exchange to enable
companies to help themselves and help each other; and a new high-profile award for companies
which are ready to export, but need encouragement to take the next step.
Lobby European partners to radically improve the regulatory environment in the Single Market for
SMEs - including exempting SMEs from unnecessary EU regulation such as certain accounting
requirements.
The paper also sets out an ambitious range of other actions to help secure a strong, sustainable and
open global economy that benefits all nations, including working to finalise the Doha Round through
the WTO, pursuing more EU FTAs with countries such as India, Canada, Singapore, MERCOSUR and
also Japan, and strengthening the multilateral trading system including enabling developing
countries to benefit from trade and investment.
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Trade and Investment for Growth White Paper does have a vision (or rather a sub-vision) for
elevating the UK’s relations with the emerging powers by boosting its commercial, political,
development, cultural, economic and educational ties with these countries.
There are also sectoral visions such as the UK’s Aerospace Growth Partnership whose vision is to
“Ensure that the UK remains Europe’s largest aerospace manufacturer and globally keeps its position
as second only to the US. This is an ambitious and challenging goal, given intensifying international
competition and the rapid pace of innovation in the sector.”
For consideration: To ensure broad-based input into a National Export Strategy for South Africa, we
should adopt a process similar to the UK’s of circulating a Green Paper (in effect, the proposed NES
arising from this project) for consultation and comment within a certain time frame, and then
developing a White Paper, which envisages the final objectives, medium-term targets and
implementation measures and any necessary legislation, for final review.
1.9.3 Institutional Framework
The Business, Innovation and Skills Department carries the prime responsibility for export planning
and development, through its UK Trade and Investment division (UKTI). UKTI has a staff of 2,400 and
a presence in 96 countries.
1.9.4 Financing National Export Strategies and Programmes
Budget allocations are made through the Business, Innovation and Skills Departmental budget.
1.9.5 Export Development
1.9.6 Product Development
Through Business, Innovation and Skills Department, access to funding opportunities is provided for
R&D.
1.9.7 Capacity Building
Many of the UKTI programmes are geared to increasing operational and management capacity of
SMEs. In addition, there is a network of tertiary educational institutions to assist in capacity building.
1.9.8 Market Access
As pointed above UKTI actively pursues an open international trade environment that, among other
things, improves market access for UK companies.
1.9.9 Instruments Used in Export Promotion
UKTI provides the following range of services:
International Trade Advisers located throughout the UK.
Passport to Export aimed at SMEs is an all-inclusive programme.
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Gateway to Global Growth service is a 12-month programme of strategic support for
experienced exporters.
Export Marketing Research Scheme.
Export Communications Review to assist companies with the linguistic and cultural aspects
of doing business overseas, including cultural awareness reviews and communications
planning.
Overseas Market Introduction Service (OMIS).
Trade Fairs & Exhibitions.
Business Opportunities Alerts.
Aid Funded Business UKTI’s Aid Funded Business Team can help you through the process
used by multilateral agencies funding development projects and help relevant companies to
find out more about the opportunities and win aid funded business.
FCO Political and Economic Updates Varied and topical reports from Foreign and
Commonwealth Office (FCO) diplomats provide your company with authoritative, clear
assessments of political and economic factors in key emerging markets.
Overseas Business Risk.
8.6.11 Trade Information
Trade and market information is provided through the export market research scheme as well as
through several other programmes.
UKTI and the FCO bring together authoritative, accessible and topical information on issues such as
cyber risks, bribery and corruption which could affect UK businesses when trading overseas.
8.6.12 Exporter Development
UKTI’s international trade teams are located in more than 40 local offices around the country and
provide face-to-face professional advice across a wide range of export issues.
Overseas Market Introduction Service
This service provides tailored market research and in-market assistance. Delivered by UKTI staff in
British Embassies, High Commissions and Consulates across the world, it can include market advice,
support during overseas visits, arranging meetings with key contacts, analysis of market entry
strategies, bespoke events such as product launches and identification of potential business
partners.
1.9.10 Trade Shows
UKTI’s Tradeshow Access Programme (TAP) provides grant support for eligible SME firms to attend
trade shows overseas. The UK also presents national pavilions in major international trade shows.
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1.9.11 Opportunity Matching
UKTI’s High Value Opportunities Programme identifies, prioritises and supports businesses to access
large-scale overseas procurement opportunities which range from major infrastructure,
manufacturing and engineering, through to big supply chain or value chain opportunities.
1.9.12 Export Collaboration
UKTI runs a number of partnership programmes with initiatives like the Global Entrepreneur
Programme, aimed to help SMEs expand their business.
1.9.13 Assessing Performance
UKTI has developed an effective performance measurement and monitoring mechanism which
ensures:
Robust accountability: UKTI reports in detail the value its trade services deliver for business
customers and for the UK economy. Outside professionals undertake full investigations of
the various programmes offered by UKTI and the reports are available to the public on the
website.
Strong customer focus and increased professionalism.
Effective performance management and human resource development.
In 2009/10, the UKTI, using data from surveyed clients (i.e. firm level data) has estimated
that for every £1 spent on export promotion, £19 37is generated in additional profit.
On a broader scale, as reported above, an update on progress with the Plan for Growth is
provided to Parliament every six months and is available for public perusal.
1.10 Australia
1.10.1 Introduction
The Australian Trade Commission, or Austrade, is an Australian government trade and investment
development agency. It is a statutory agency within the Foreign Affairs and Trade portfolio, with
offices in overseas embassies and consulates, and representative arrangements in some other
locations.
Through a national network of 12 regional offices and a global network of offices across nearly 50
countries, Austrade assists Australian companies to:
Select, access and connect with buyers in offshore markets;
Attract productive FDI into Australia; and
Promote Australia’s education sector internationally.
37 http://www.ukti.gov.uk/uktihome/aboutukti/item/114708.html
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1.10.2 Strategic Export Goals
Australia does not seem to have a consolidated National Export Strategy. Mortimer et al (2008)
concluded that “the challenges facing Australia require a new and national export and investment
strategy. This strategy should be based on well-considered and widely agreed priorities and involve
all levels of government and the business community.
“A sound macroeconomic framework is essential in encouraging a more flexible and productive
economy. Engagement in international export and investment is an important element in fostering
dynamic, outward-looking companies and driving higher levels of competitiveness and productivity.
“Action is also needed to enhance the productive capacity of the economy, to remove domestic
impediments to a closer engagement with the global economy, to open markets and remove foreign
barriers to Australian exports and investment, and to increase the effectiveness of programs and
services that support trade and investment.”
1.10.3 Vision and Mission
Austrade has the vision to be recognised as:
The world’s leading export and international business facilitation agency.
A major contributor to Australia’s economic growth and the globalisation of Australian
business.
An organisation that excels in client service, information management and the development
of the full potential of its people.
Its mission is that “Austrade contributes to community wealth by helping more Australians succeed
in export and international business.”
1.10.4 Institutional Framework
Australia has established political independence for its trade promotion organisation (TPO) by
structuring it as a private public entity, managed by an influential board of directors, with a majority
from the private sector. Established under the Australian Trade Commission Act 1985, Austrade is a
prescribed agency subject to the Financial Management and Accountability Act 1997 and the Public
Service Act 1999. Austrade operates as a statutory authority within the portfolio of Foreign Affairs
and Trade, with Austrade's Chief Executive Officer reporting directly to the Minister for Trade. Board
members are elected for fixed terms and come from large and midsize exporters in a variety of
industries. TPO status should state very clearly that the board, not the government, has final say
over budget and policy issues. This helps to maintain a long-term private sector focus, regardless of
the direction of political influences, leaving government-appointed directors to provide specialised
expertise.
Public sector directors in Australia include high-level officials in the Ministry of Trade and other
government departments. Representation from ministries of transportation, industry, science and
technology, and even education is seen as desirable, given the role they all play in building a
competitive export sector.
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For consideration:
TPO status should state very clearly that the board, not the government, has final say over budget and policy issues.
This helps to maintain a long-term private sector focus, regardless of the direction of political influences, leaving
government-appointed directors to provide specialised expertise.
In Australia, Austrade’s services and programmes are delivered through 12 Austrade locations and a
network of 31 TradeStart locations in metropolitan and regional areas, operating in partnership with
Australian state and territory governments, industry associations and regional development bodies.
The Australian government-wide Market Development Group coordinates all federal government
trade-related activities. It is responsible for working with the Australian Department of industry,
tourism and resources which promotes FDI in Australia. Austrade has a relationship with many of the
sub-national governments in Australia and collaborates with them in executing their specific
exporter development programmes.
In a review of 104 countries, the World Bank study found that a single and strong export promotion
agency is preferred to the sometimes observed proliferation of agencies within countries. Well
coordinated activities among a larger partnership of support agencies are emphasised in studies by
the Australian Trade Authority (Austrade) and the Boston Consulting Group. Austrade, for example,
stated that effectively coordinating export service providers is important for potential and new-to-
export firms, since some— especially SMEs— have encountered difficulties in identifying or
accessing appropriate services for their needs.
For consideration:
TISA needs to ensure that export development and export promotion activities are well coordinated.
1.10.5 Financial Support for Exporters
The Export Market Development Grant (EMDG) scheme remains Australia's main financial assistance
programme targeting mainly small but also medium-sized enterprises across all sectors of the
economy. Grants partially reimburse expenditure (up to 50% above a threshold) on specific export
promotion activities to any overseas market except New Zealand, Iraq, and the Democratic People's
Republic of Korea. Austrade provides online information on export financing and other government
financial assistance programmes and administers the EMDG Scheme.
EMDG encourages small- and medium-sized Australian businesses to develop export markets by
reimbursing up to 50 per cent of eligible export promotion expenses above A$10,000 provided total
eligible expenses incurred amount to at least A$20,000. Eligible businesses can receive a maximum
of seven taxable grants of up to $150,000 each.
1. Overseas representation
2. Marketing consultants
3. Overseas marketing visits
4. Communications
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5. Free samples
6. Patents, trademarks, registrations
7. Trade fairs, seminars, in-store promotion
8. Promotional literature and advertising
9. Overseas buyers’ visits to Australia
EMDG payments assessment measure is tied to two alternative tests (export performance test,
Australian Net Benefit Requirements) for applicants who have already received two grants.
Export Finance and Insurance Corporation (EFIC) is the Australian government’s export credit
agency. It is a self-funding statutory authority operating in accordance with commercial principles. It
provides various finance, insurance, and guarantee facilities to support Australian companies
exporting or investing overseas. EFIC's support includes: direct loans (to buyers); export finance
guarantees (to banks financing contracts with buyers); documentary credit guarantees (to banks
confirming letters of credit); and payments insurance (against non-payment by the buyer). The
terms and conditions of such products are subject to the OECD guidelines.38 The level of official
support depends on the degree of local content ("Australian activity" or "Australian content")
involved: export contracts with over 50% local content may receive support for up to 85% of the
eligible contract value (ECV) (sum of the imported components into the buyer's country, i.e.
Australian plus third country activities plus the local cost which must be the lower of 30% of ECV or
the local cost amount). Where the "Australian activity" involved is less than 50%, the level of support
would normally be limited to the degree of "Australian activity".
Although permitted by the EFIC Act, the EFIC does not normally provide credit insurance. Other
means of support that are not subject to OECD guidelines include: contract bonds (to buyers to
cover advance payment, seller's performance and warranty of products sold), working capital
guarantees (to banks), and political risk insurance (to banks and/or Australian companies investing
abroad). The Minister for Trade can direct or approve the EFIC's entry into transactions considered
to be in the "national interest" (e.g. automotive)39; the Government is responsible for the financial
consequences of national interest transactions.40 EFIC's obligations to third parties are guaranteed
by the Government; although this guarantee has never been used, it is potentially an additional
element of assistance for exporters.
Besides the Australian Federal government, the state governments offer assistance to exporters
through a number of government grants, loan facilities and reimbursement schemes
38 The OECD Arrangement on Officially Supported Export Credits is, inter alia, aimed at preserving a level playing field in officially supported export products. 39 National interest transactions usually occur where the transaction size or risk exceeds the EFIC's commercial parameters, and where the Minister for Trade
considers them to be in the national interest. For example, on the National Interest Account, in 2008/09 EFIC provided a working capital line of credit to GM
Holden Limited to support its export of motor vehicles, parts, and engineering services while the Australian manufacturer established stronger market links
under the newly created General Motors Company (EFIC, 2009). 40 As a result of exchange rates movements, the national interest account recorded a loss of $A 0.2 million in 2008/09, compared with a profit in 2007/08 of $A 4.8
million (EFIC, 2009).
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The Export Finance Navigator, developed by EFIC, has an online grants finder specifically designed
for exporters through different stages of business. The grants finder provides information on both
state and federal government financial assistance.
Australia has maintained its up-front duty and General Sales Tax (GST) exemptions for imported
goods intended for direct export or used, lost, or wasted in the processing of exports under the
Tradex scheme.41
1.10.6 Export Development
1.10.7 Getting Ready for Export
State governments also provide various services mainly focusing on information and capacity
building. For example the New South Wales Exporters Network includes practical advice.
(www.smallbiz.nsw.gov.au). The Business Victoria website has an excellent sample export strategy
(www.business.vic.gov.au). The Government of Queensland has some good material that can be
accessed through the main website of the Queensland Department of State Development, Trade and
Innovation at www.sdi.qld.gov.au. Western Australia’s Department of Industry and Resources offers
a most useful ‘Online Guide to Exporting’ that includes a module on Finance and Payment
methods.(www.doir.wa.gov.au). The South Australia Department of Trade and Economic
Development. ( www.exportsa.sa.gov.au) The Tasmanian Department of Economic Development
includes a well-arranged series of modules on exporting, all with useful
links.(ww.development.tas.gov.au)
Austrade provides information and advice to assist Australian companies to reduce the time, cost
and risk of exporting. It also provides a range of tailored trade services to Australian companies
looking to expand their business in growth and emerging markets.
The Certain Inputs to Manufacture (CIM) scheme provides duty-free entry for raw materials and
intermediate chemicals, plastic and paper goods, and metal minerals used in manufacturing directed
towards "import replacement" and export enhancement. Duty drawbacks are processed on the basis
of self-assessment. The amount of duty drawback must be calculated by the claimant using one of
the three calculation methods available.42
Austrade’s tailored trade services are designed for companies that are export-ready and that meet
eligibility criteria. These services include:
Information and advice on doing business in international markets
Help with international market selection
Identification of relevant international contacts
Assistance with market entry and expansion
41 AusIndustry online information. Viewed at: http://www.ausindustry.gov.au/importandexport/ tradexscheme/Pages/TradexScheme.aspx [21 May 2010]. 42 The three calculation methods are: shipment-by-shipment basis method (when imports directly relate to exports); representative or averaging shipment basis
method (for high volume low value goods), where a representative shipment for a period is picked as a sample of the values of identical items, the averaging of
shipments is costed over time and must not result in an overclaim; imputation method (when import documents are generally unavailable), where the basis on
which to calculate duty drawback can be 30% of the purchase price of the goods whenever these goods are fully imported and have been purchased in Australia
by the exporter (Australian Customs Service online information. Viewed at: http://www.customs.gov.au/webdata/ resources/files/FS_Export-Concessions-
Duty-Drawback-Scheme.pdf [2 August 2010]).
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Identification and follow-up of specific international business opportunities
The Australian government requires Austrade to recover costs where it works intensively in the
direct interest and for the benefit of an individual Australian business. Tailored trade services that
require more than two hours of Austrade time are charged on a fee-for-service basis.
1.10.8 International Readiness Indicator
Austrade's International Readiness Indicator is an online tool for new exporters and has been
designed to help Australian businesses determine whether their business is ready for exporting. The
indicator draws on Austrade’s experience in assisting Australian firms enter international markets. It
focuses on the key aspects of what it takes to be ready for export and compete successfully in
overseas markets.
1.10.9 Capacity Building
Austrade has two linked export-readiness programmes, TradeStart and Export Access. Companies
that become export-ready can move on to begin market entry activities under the guidance of
export counsellors. This includes counselling through the process of visiting the target market (at
company expense) and following up to determine next steps.
The “Are you ready to export?” section of Austrade’s website provides an export-readiness checklist
as well as information on capabilities that a company must develop before beginning to export.
Companies can also fill out a detailed assessment questionnaire, the Export Capability Tool, in about
15 minutes and receive an automated assessment. The potential exporter is then offered an
opportunity to be contacted by an Austrade export counsellor.
Australia’s “user-pay” system is the only system flexible enough to assist those exporters that wish
to penetrate the existing markets or develop new markets. At graduated stages of exporter
development, all services provided by Austrade in-market are charged to exporters at market rates
(up to US$150 per hour). It is interesting to note that although Austrade is making a reasonable
profit and happy to take on additional work, most exporters do not complain if the services rendered
are of an adequate standard and the returns from the additional exports are high.
Austrade often locates offices located strategically in the foreign markets to focus on key sectors
where there are buyers for Australian exports. The trade professionals in the foreign offices are a
mixture of Australians and locally hired sector experts.
In April 2009, the New Exporter Development Program, which was confined to SMEs, was phased
out and replaced by the Getting into Export Program, which provides, inter alia, advisory and
training support to all new exporters. TradeStart, a coaching and action learning programme, which
was scheduled to conclude at the end of the 2009/10, was extended for four years. During this
period the authorities plan to invest a total of $A 14.4 million to assist SMEs, particularly those
located in rural Australia, and industries that have high-growth potential to commence exporting,
and to convert irregular exporters to sustainable export activity.
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Education and training services – such as provision of courses - are eligible for EMDG assistance
regardless of whether the services are delivered or supplied in or outside Australia. For educational
goods – such as books - to be eligible under EMDG, they must be goods made in Australia (or if
Austrade determines that Australia would derive a significant net benefit from the sale of those
goods outside Australia.)
The Australian Institute of Export is one of the leading service providers. Established in 1957, it has
become the leading Australian industry body for international trade. Through various initiatives it
has assisted companies, of all sizes and across all industry sectors, to develop and grow their
business in the international marketplace. It delivers a range of education and training programmes
in International Trade. These courses qualify for EMDG assistance
1.10.10Priority Sectors
Food and beverage
Renewable energy
ICT
Financial services
Mining
Advanced manufacturing
Building and construction
1.10.11Trade Information
General information about exporting and doing business in international markets is provided free of
charge to Australian companies and can be accessed via Austrade’s website, seminars and events or
Austrade staff.
1.10.12Outgoing Missions and Trade Shows
Austrade does not provide financial assistance for participation in trade missions, trade shows, or
incoming buyer missions, but does offer trade show services for a fee. It maintains a short list of best
exhibitions around the world, and it stages country pavilions at key trade shows. Services include
consulting to assist the exporter in selecting an appropriate exhibition, understanding in-market
business practices, preparing an exhibit, and arranging follow-up appointments. These services are
eligible for co-funding along with broader measures of community awareness.
1.10.13Opportunity Matching
An online directory of exporters is designed to connect Australian exporters with foreign buyers.
Foreign importers can search according to product or access overviews of key Australian sectors.
Austrade does not have a formal matching service but individual trade commissioners provide the
service on an ad hoc basis.
Austrade distributes qualified trade opportunities or export leads on a non-exclusive basis to eligible
Australian businesses, either directly to organisations that are already registered with Austrade or
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indirectly through third-parties such as Australian industry and government networks. Australian
businesses receiving trade opportunities assess their suitability to supply the particular product or
service sought by foreign customers and then if suitable, submit an expression of interest to
Austrade. Organisations that match the specified requirements are then put forward to the foreign
customer for consideration and if interest is shown, a formal introduction is made by Austrade.
1.10.14Targeting Markets
Selecting target markets and market information and advice is provided to Australian enterprises
through 15 Austrade offices and more than 30 TradeStart offices. First-time exporters receive a set
of free information about the general market conditions and economic dynamics for individual
markets. A wide variety of country guides and sector market reports are also available from the
Austrade website, providing an introduction either to a country market or to a global sector.
When firms consider themselves ready to enter into foreign markets, they are provided with
detailed research, industry analysis and business matching services as well as market entry
assistance. “Tailored solutions” can be obtained for a fee. First-time customers get a lower rate for
the first 10 hours. Initial consultations are free and when customised work becomes necessary,
Austrade officials begin providing clients with cost quotations. These fees are eligible for co-funding
under the EMDG program. Companies can also register for free trade briefing reports provided by
the Economic Analytical Unit of the Department of Foreign Affairs and Trade. Co-financing through
EMDGs provides assistance for SME export development activities in general, with exporters
selecting the specific components they need. (Note that this approach is similar to Canada’s.)
A company can receive eight grants plus three more for each new foreign market entered, but the
grant can be reduced under an export performance test that is applied starting with the third grant.
This is a reimbursement programme, and companies do not need to be preapproved. They apply for
the grant at the end of their fiscal year for money spent during the year. Any company with income
of less than AU $ 50 million (US $ 35 million) can apply, provided that its products have at least 50%
Australian content or meet certain other criteria.
1.10.15Closing Export Deals
Austrade’s foreign staff is trade commissioners and are part of diplomatic missions. They may
therefore not act as company marketing representatives. They do however provide introductions to
qualified buyers and other services such as market intelligence and assistance with product
launches.
1.10.16Country Branding
In 2009 the Australian government hosted a series of discussions about the importance of Australia’s
international image for exporters, and the ways in which industry might benefit from and contribute
to updating Brand Australia. This led to a commitment of $20 million over four years for the Building
Brand Australia Programme. It is a whole-of-government initiative administered by Austrade.
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The purpose of the programme is to develop a knowledge base, assets and strategies that can be
used to help enrich Australia’s reputation over time.
Positioning Australia, under the slogan Australia Unlimited, as a world-class business partner and
showcasing its commercial, intellectual and creative credentials not only supports Australian firms
seeking international buyers, investors and students, but it also supports successful economic,
cultural and political engagement more broadly.
Using digital content platforms, the Australia Unlimited programme is promoting the nation’s
commercial, intellectual and creative credentials. And it is asking Australia’s exporters,
internationally focused business leaders, one-million-strong expat community and growing alumni
around the world to do the same.
1.10.17Assessing Performance
Austrade uses the most systematic performance assessment techniques of any of the agencies
studied. Each of the agency’s three trade-related “outcomes” (awareness raising, export services,
and export finance assistance) is subdivided and assigned a target against which results are
measured annually. Some measures are related to the volume of activity, while others are purely
results-oriented and based on survey data. For example, under awareness raising the number of
events is counted, but so are the number of positive media mentions, and the proportion of survey
respondents indicating “unprompted awareness of Austrade,” as well as broader measures of
community awareness. Similarly, export services are rated according to both the volume of activities
and their export impact, in terms of the number of clients and the dollar volume. Export impacts are
also systematically assessed on a sector by sector basis, and all of this information is used to shape
export promotion efforts.
Client satisfaction is assessed through the Performance Measurement Annual Client Survey, which
includes satisfaction ratings and a measurement of the export impacts of Austrade’s services. In
2002, Austrade commissioned A.C. Nielsen to conduct a client satisfaction survey based on a random
sample of 500 clients. Data from both surveys is used to develop staff training. Austrade’s other
services, which include investment promotion and consular services, are rated in a similar way.
An Austrade headquarters official said that linking export-readiness training with individual coaching
for first-time exporters is the most effective component of the domestic program. The official added
that export market selection advice, which is integrated into the training provided under the
TradeStart/Export Access program, is considered extremely valuable. The strategy of preparing new
exporters through free services and then linking them to customised fee-based services, starting
with an initial 10-hour partially subsidised consultation, has proven very effective because it creates
a bridge from general export training and information services to company-specific market entry
strategies. Another official added that because TradeStart/Export Access carefully selects target
markets first-time exporters have much more success. The value of this service consistently shows
up in satisfaction surveys as a “greatly appreciated” service by clients.
The EMDG program is also regarded as very successful, both in raw performance and cost-
effectiveness. Austrade approved grants to 3,078 companies totalling US$ 98 million in 2001−2002,
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with an average grant of about US$ 32,000. Given the threshold of more than US$ 10,000 and a co-
financing factor of 50 per cent, this implies average spending on export promotion by these
companies of about US$ 75,000. The value of exports generated by recipients was estimated at
more than $5 billion, creating an estimated 60,000 jobs. The client satisfaction rating was 88 per
cent.
Another Austrade official, based in the United States, said that the EMDG program has been very
successful in increasing the number of regular exporters because of an element of the programme
known as the New Market Provisions. This provision allows exporters who have already received the
maximum of eight grants (over as many years), to apply for up to three more grants in each new
market when it expands its exporting scope.
Opportunity matching systems that provide export promotion officials with information about
exporter capabilities and generate a reverse flow of information about market opportunities are
seen as critical to the success of other program elements even though they may not generate a lot of
immediate sales on their own. Registering with the Austrade exporter database and accessing the
related opportunities database provides an extremely cost-effective way for Australian companies to
establish an in-market presence that will alert them of opportunities that may come up.
EMDG payments assessment measure tied to two alternative tests (export performance test,
Australian Net Benefit Requirements) for applicants who have already received two grants.
Research has found that for each EMDG recipient an additional 2.4 companies benefit from
following the EMDG recipients into offshore markets. Further, EMDG recipients are estimated to
have a 13.2% increase in labour productivity as a result of the grant. Modelling indicates that each
dollar of EMDG generates some $A 13.5 to $A 27 of exports.
1.10.18WTO’s Trade Performance Review
1.10.19State Trading
According to Australia's latest WTO notification on state trading in 2010, five state-trading entities
operated in Australia during the review period, with activities largely focused on exports in bulk of:
barley from the State of South Australia, by Australian Barley Board (ABB) Grain Export
Limited;
wheat, by Australian Wheat Board (AWB) (International) Limited;
barley, lupins, and canola from Western Australia, by Grain Pool Pty Ltd;
sugar from Queensland, by Queensland Sugar Limited (QSL); and
rice from New South Wales, by its Rice Marketing Board.
The sole exporter or single-desk (i.e. monopoly) rights of ABB Grain Export Limited and AWB
(International) Limited were terminated in July 2007 and July 2008, respectively. Those affecting the
export of barley, canola, and lupins were terminated in October 2009, and those relating to the QSL
expired in September 2009. The Rice Marketing Board is the only notified entity with export
monopoly rights still in place. Nevertheless, there are still a relatively large number of public entities,
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with or without monopoly or exclusive trading rights in goods and services, at Commonwealth, state
or territory level (section (4)(iv)(b)). In 2008/09, the entities discussed in this section accounted for
91%, 39.6%, and 65.7% of total exports of wheat, barley, and canola, respectively. No data on
exports of raw cane sugar and rice by the relevant state-trading entities were available.
1.11 Chile
1.11.1 Introduction
Chile’s economic development strategy, with its reliance on market deregulation and giving equal
treatment to all economic sectors, means that, in practice, very few specific instruments are used to
support environmental exports.
ProChile has a wide range of services to support domestic exporters from information systems of
high quality, to support the participation of the most important international fairs, to programs
specifically designed to develop export capabilities.
In the 1990s, ProChile promoted non-traditional exports and disseminated information to facilitate
their introduction in external markets. The agency does not have any special instruments to promote
environmental exports, but such exports have been “receiving preferential treatment among the
funds for the promotion of Chilean exports” since their inclusion in 2001 in ProChile’s official “Export
Supply” category. Thus, ProChile organises and sponsors fact-finding missions abroad so that
participants can become acquainted with other countries’ regulations, environmental standards and
technology, as well as acquiring more general market information and establishing initial business
contacts. The agency also organises visits to international environmental fairs and marketing
missions to promote Chilean products and services (FIC, 2001).
In September 2001, CORFO introduced three mechanisms to help SMEs adopt cleaner production
standards: co-financing to help pay for expert technical assistance in adopting cleaner production
processes and products; co-financing for pre-investment studies to encourage investment decisions
on pollution prevention and monitoring; and long-term financing through banks and leasing agencies
for both cleaner production technology and end-of-pipe equipment, with total funding of USD 32
million available. These measures have increased the number of SMEs with access to competitively
priced credit. They were designed to provide continual financial support through the various stages
of a cleaner production project: initial diagnosis, pre-investment studies, technical assistance and
acquisition of the appropriate technology (FIC, 2001).
CORFO offers two instruments for financing and promoting innovation and technical development:
the National Technology and Production Development Fund (FONTEC) and the Development and
Innovation Fund. Although designed for general purposes, they can be adapted and applied to
environmental matters in areas such as clean production, environmental management and
information systems.
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1.11.2 Strategic Export Goals
To realise this commitment into tangible actions, the Department has established guidelines for
ProChile for 2010 - 2014 that will guide the organisation's work in the coming years, these are:
Incorporate differentiating domestic exports to address the challenges of a sustainable
export.
Elements that improve early detection competitiveness and endanger the sustainability of
Chilean exports.
International Trade Centre.
Promote adjustment and harmonisation of export structure with sustainability
requirements.
Induce international positioning Chile as a country with decisive action to generate
sustainable exports.
Promote the development of a national export supply seize new market niches: products
with ethnic differentiation (Kosher or Halal), fair trade, among others.
1.11.3 Vision and Mission
ProChile’s mission is to “support and advance Chilean business interests in the global marketplace by
assisting in the development of the export process.” The agency is responsible for establishing
international business relationships, and for providing market research, international trade data, and
sales leads for the export industry. It emphasises promotion of non-traditional products.
1.11.4 Institutional Framework
The Chilean Trade Commission (ProChile) is the country’s export promotion agency. It is one of three
divisions of Dirección General De Relaciones Económicas Internacionales (Direcon), within the
Ministry of Foreign Affairs. Direcon’s objective is to consolidate and expand Chile’s international
trade through partnerships and agreements that advance Chilean interests.
Direcon has negotiated many agreements with Chile’s trading partners, including the free trade
agreement with the United States, the Political and Economic Partnership Agreement with the
European Union, free trade agreements with Mexico and Canada, and economic cooperation
agreements with MERCOSUR, Bolivia, Colombia, and Peru.
Through its 15 regional offices throughout Chile and headquartered in Santiago, ProChile works to
identify regional export supply in order to generate sales promotion plans and support regional
companies in prospecting, penetration and retention in foreign markets. In turn, together with the
regional government, the private sector, universities and other institutions, ProChile helps to
promote the internationalisation of the region and to enhance the utilizsation of the network of
trade agreements.
ProChile has four operating divisions.
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1. The Sectoral Division manages the delivery of export promotion products and services to
each exporting sector.
2. The International Division manages the operation of the trade offices abroad.
3. The Marketing Division manages all marketing activities, including trade missions and trade
shows.
4. The Information and Technology Division manages systems for providing information to
clients, including websites and training modules.
ProChile works with a number of government entitles to coordinate export development initiatives
with broader objectives. Key organisations include:
The Chilean Agency of Training and Employment Science,
The Chilean Customs Office,
The Institute of Agro-pecuarian Development, and
The Foreign Investment Committee.
The offices and commercial representations of ProChile are strategically located in over 40 countries.
Some are located with diplomatic missions and others are freestanding commercial offices. They
have specialised teams with all the know-how necessary to support Chilean exporters in
international management. They also conduct a transcendental work of positioning Chile's image in
the world.
1.11.5 Financing National Export Strategies and Programmes
Chile provides a number of co-financing arrangements for exporters. It has long subsidised the
execution of company export plans on a case-by-case basis through an annual Export Grant
competition. Chile provides 50 per cent co-funding for trade shows, but has restricted eligible
expenses to include only participation in a country pavilion and related logistical expenses. Due to
funding shortages, priority sectors are identified and then supported.
Prochile encourages Chile and exporters, associations of exporters, and potential exporters to
submit export plans to an annual competition for export grants. These plans outline how the market
exploration and penetration will be accomplished. Applications are selected on the basis of their
export potential. Successful participants receive up to 50% of the total amount to be spent on the
venture and funds may only be used to implement the export plan.
Companies in the same industry are encouraged to work together to lower costs. Funding through
other channels is also encouraged. Corfo, a government agency is responsible for the development,
promotion, and control of domestic production of goods and services. It focuses its support on SMEs
and provides and financing support, production, and financing through a variety of programmes
including ISO 9000 and ISO 14 000 certification programs.
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1.11.6 Instruments Used in Export Promotion
Prochile proactively promotes exporting in all regions of the country, creating and strengthening the
export capacity of ProChile customer. Its functions are to:
Align the institution to the needs and requirements of Chilean companies exporting or with
export potential.
Enhance service sector exports, which are expected in 2050 to have a stake of about 50% of
Chile’s total exports.
Have trained specialists and professionals, to support Chilean companies in their
internationalisation process to make them sustainable and competitive over time.
Coordinate and disseminate effectively the various export promotion services that are
available to Chilean companies.
1.11.7 Priority Sectors
Chile’s export promotion program has traditionally targeted sectors. The country’s export mix
consists largely of commodities, especially consumer commodities for which branding can be very
effective (e.g., seafood, fresh produce, processed foods, wines beverages). (Nathan and Associates
2004)
1.11.8 Trade Information
ProChile aims to generate and disseminate timely, relevant and high-quality business information.
ProChile publishes an export directory that includes profiles of Chile and exporters including contact
information, destinations of exports, and products. The hard copy is sold and but it is also available
electronically (CD and a separate website - www.chileinfo.com).
Prochile’s offices (both in Chile and abroad, are equipped with video conferencing technology.
Potential buyers are invited to the foreign offices to participate in virtual meetings was qualified
Chilean exporters.
1.11.9 Exporter Development
Chile has an internal site for exporters (www.pro-Chile.cl). It is an integrated interface for services to
exporters. It includes a calendar of events and a variety of studies and reports. It includes a guide to
exporting (the decision to export, the exporting process, and incentives for exporters). Prochile also
has a call centre for exporters. Success stories are also posted on the website on an ad hoc basis.
Besides a high-profile to national exporter award, industry associations also give out export awards.
Prochile has a comprehensive and systematic training system for SMMEs that wish to start
exporting. It includes training modules on production capabilities, market research, logistics,
marketing plans, banking, international law, searching for partners, as well as the export process.
Private consultants have been hired to provide individualised one-on-one counselling as part of the
programme. Prochile also operates export training programmes was organised business.
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1.11.10Targeting Markets
ProChile establishes priorities through a combination of market analysis and collaboration with
industry associations. The governing policy is to give priority to markets with the most potential for
export growth, especially those where free trade agreements are in effect.
Prochile publishes and sells country guide handbooks of Chile’s major trading partners. Foreign
offices and undertake studies of specific sectors in target markets which are made available to
exporters without charge. Business associations and exporters can make formal requests for in-
depth studies on specific topics.
1.11.11Closing Export Deals
Foreign trade offices distributes promotional material to prospective buyers of Chilean products.
Samples, catalogues, and brochures are requested when opportunities are recognised.
Since the staff located in diplomatic missions they are restricted in their ability to act as
representatives of Chilean companies.
ProChile staff in foreign countries has diplomatic status and assist in cases where multilateral or
bilateral trade agreements have been breached.
1.11.12Country Branding
ProChile’s country branding is under the slogan “Chile All Ways Surprising” and is linked to trade
shows and sector oriented. All government-assisted programmes must combine the name Chile with
the sector brand. Some export industries have joined forces to create multi-industry branding
approach. The associations of fresh fruits common fresh salmon and wine launched the brand
“Flavours of Chile”. ProChile supervises, coordinates, and co-finances all these promotional
activities.
Companies and associations involved in trade shows and other export initiatives are expected to
ensure that their exhibits, literature, and other materials comply with this global branding strategy.
1.11.13Assessing Performance
Achieving efficiency in the administration and budget of ProChile.
Be an efficient vehicle for commercial and operational management of ProChile, allocating resources
to timely promotion projects.
Monitor the use of the budget based on the planned objectives.
Resources available in the currencies and budget allocations.
1.12 BRIC Countries
The following information on Brazil, India and China has been drawn from TPRs undertaken by the
WTO. These reviews examine, inter alia, the export and import policies applied by WTO member
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countries. They are especially relevant because the survey of exporters highlighted the difficulty of
South African companies in accessing BRIC markets.
1.13 Brazil
(TPR February 2009)
1.13.1 Broad Trade Policy Objectives43
Brazil's broad trade policy objective is to use trade to foster sustainable economic growth. Regional
economic integration and export promotion and diversification are important policy targets. Brazil
considers unhindered access for its agricultural products to the world's largest markets
indispensable for the creation of wealth and social progress. Brazil supports enhancing south-south
trade, while recognising the need for more flexible rules for developing countries at the multilateral
level. At the regional level, Brazil's major trade objective is to reinforce the MERCOSUR customs
union.
1.13.2 Overview of Trade Policies and Practices
Brazil continued to take gradual steps to simplify and modernise its customs procedures. The
average applied most favoured nation (MFN) tariff was 11.5% in 2008, up from 10.4% in 2004; the
average tariff on agricultural products (WTO definition) was 10.1%, and on non-agricultural products
11.6%. All tariffs are ad valorem. In addition to tariffs, imports are subject to four non-cumulative
domestic taxes; the application of two was extended to imports in 2004. Brazil continues to be an
active user of anti-dumping measures. As at October 2008, it had 63 AD measures in force, affecting
the exports of 23 trading partners; the average duration of an AD measure is some 6 and a half
years.
Brazil implements a number of schemes to encourage exports, including export financing, insurance,
and guarantee programmes. One of the main schemes, the Export Financing Programme (PROEX),
was challenged in the WTO and modified during 2008. Brazil provides other incentives and
government assistance to domestic producers both at the federal and at the state level. Export taxes
are levied on cigars, leathers, and skins.
1.13.3 Measures Directly Affecting Imports
Customs procedures and documentation
During 2008, Brazil continued to take gradual steps to simplify and modernise its customs
procedures. For example, it introduced an express import declaration regime for frequent importers,
and reduced by 26% the number of rejected import declarations.
All individuals and legal entities engaging in foreign trade must be registered with the SECEX in the
single Register of Importers and Exporters (REI). Since 1999, registration with SECEX is automatic at
43 Brazil was discussed in the NEDP Phase1 report. This is included in Appendix 2.1.
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the time of the first import operation, but may be denied in cases of abuse of economic power or for
breach of tax, exchange rate, or trade regulations.
With few exceptions, all trade operations must be registered in the Integrated Foreign Trade System
(SISCOMEX), a computerised system that processes all customs procedures. SISCOMEX operations
may be performed by the importer, or through its accredited representatives (e.g. custom broker).
Only Brazilian citizens are allowed to act as customs brokers in Brazil.
In 2004, in order to improve its efficiency, Customs introduced the "blue line" regime, through which
goods of authorised importers are preferentially directed towards the green channel (see below). To
qualify for the "blue line", importers must have strong internal control systems in place, and comply
with other requirements established in the legislation. In 2007, some 85.5% of all import
declarations were processed through the green channel.
Brazilian legislation requires that importers must be responsible for all customs formalities and
duties, therefore, import contracts known as delivered duty paid (DDP) (an Incoterm) are not
allowed.
Tariffs
Structure
The Brazilian MFN tariff applied in January 2008 had 9,765 lines at the eight-digit level, with rates
ranging from duty free to 35%. All tariffs are ad valorem, levied on the c.i.f. value of the imports.
Brazil grants at least MFN treatment to all its trading partners. It does not impose seasonal,
temporary, or variable import levies.
The 2008 simple average applied MFN was 11.5%, up from 10.4% in 2004. This is mainly due to an
increase of 1.1 percentage points in the average tariff of non-agricultural products (WTO definition)
to 11.6%, since the agriculture sector average remained practically constant at 10.1%. More
specifically, between 2004 and 2008, Brazil increased its applied tariffs for chemical products,
footwear, and textiles and clothing; the latter incurred the highest increase (7.9 percentage points).
Brazil's tariff structure still shows low dispersion, as measured by a coefficient of variation of 0.7.
Table 15: Summary analysis of the MFN tariff, 2008
Description
MFN
No. of lines Average (%) Range (%) Coefficient of variation(CV)
Final bound average (%)
Total 9,765 11.5 0 - 35 0.7 30.2
HS44 01-24 1,064 10.2 0 - 35 0.5 35.7
HS 25-97 8,701 11.6 0 - 35 0.7 29.5
Source:WTO Secretariat estimates, based on data provided by the Brazilian authorities.
44 The Harmonised Commodity Description and Coding System (HS) of tariff nomenclature is an internationally
standardized system of names and numbers for classifying traded products developed and maintained by the
World Customs Organization (WCO)
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Brazil reduced its highest duty rates from 55% in 2004 to 35% in 2008. Duty-free tariff lines
represent 8.3% of the total tariff. If only dutiable lines are considered, the tariff average rises to
12.5% in 2008. More than one-third of tariff lines bear rates between 1% and 10%. The most
frequent duty rate is 14%, accounting for some 22% of total lines, followed by the 2% duty rate,
representing about 18% of total tariff lines.
Some 58% of tariff lines carry rates of 10-20%; 661 lines are subject to tariffs higher or equal to 20%
but lower than 35%, of which most are applied to cotton, man-made staple fibres, beverages,
nuclear reactors and electrical machinery. The highest rate of 35% applies to 424 tariff lines (4% of
the total), including garlic, tyres, carpets and textile floor coverings, textiles, footwear, articles of
apparel and clothing, and motorised vehicles. The highest average rate applies to the textile and
clothing product group (25.1% in 2008, up from 17.2% in 2004), followed by dairy products and
transport equipment.
The tariff continues to show signs of escalation in most industries, with a higher tariff average on
processed items than on semi-processed goods, which, in turn are higher than raw materials.
Brazil has applied the MERCOSUR Common External Tariff (CET) since 1 January 1995. Agreed
exempted items had to be phased out by end-2010.
Tariff bindings
Brazil bound its whole tariff in the context of the Uruguay Round. Bindings for agricultural products
(WTO definition), range from 0% to 55%, with the highest averages applying to dairy products, grains
and tobacco. Bound rates for non-agricultural products range from 0% to 35%. The calculated overall
average for the bound tariff is 30.2%, which comprises an average of 35.2% for agricultural goods
and 29.6% for non-agricultural goods.
At end 2008, the WTO process of certifying Brazil's tariff bound schedule in order to incorporate the
changes resulting from the introduction of the Harmonised System 2007 had not been completed.
Tariff concessions
Tariff concessions may be obtained through the "Ex Tarifário" mechanism, a temporary reduction in
import duties for products in the BK and BIT lists (see above). Tariff rates are normally reduced to
2%, or 0% in a few cases. The reduced tariff rates may be used for two years; the objective of the
concessions is to reduce investment costs.
Goods imported under the temporary admission regime are eligible for total or partial tariff
exemptions, while goods and services imported into a free-trade zone or export zone are eligible for
exemption (or reduction) from all taxes and duties levied on imports.
Other charges affecting imports
In addition to tariffs, the following internal taxes are levied on imports:
The industrial products tax (IPI);
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The tax on the circulation of merchandise and on the supply of interstate transportation and
communication services (ICMS);
Contributions to the social integration programme (PIS); and
Contributions to finance social security (COFINS).
All four taxes follow value-added tax principles. The application of the PIS and COFINS to imports
was introduced in 2004. Internal taxes are applied to different product groups at diverse rates, with
the ICMS also varying from state to state, all of which adds complexity to the tax system. Moreover,
certain states establish ICMS exemptions for goods produced and sold within that state, but apply
the full ICMS rate to imported goods and goods from other states.
Brazil applies two special charges on transportation, including imports: the additional airport tax
(ATAERO), and the additional tax for the renovation of the merchant marine (AFRMM).
Contingency measures
Brazil continues to be an active user of AD measures. It has 63 AD measures in force, affecting the
exports of 23 trading partners (October 2008). Most of these measures take the form of specific
duties; 32 have been in place for over five years, and 11 for at least 12 years. The number of AD
investigations initiated and of provisional AD measures applied since 2004 increased compared with
the previous review period, but the number of new definitive AD duties (28) was only marginally
higher. AD measures have been applied more frequently to semi-processed products.
Anti-dumping measures
In the period January 2004 to October 2008, Brazil initiated 61 AD investigations (of which 22 were
initiated in 2008), compared with 37 initiated during 2000-03. Of the 61 investigations, 21 (35%)
resulted in the application of final duties, 15 (25%) were terminated without the imposition of
duties, and 25 (40%) are ongoing (October 2008). During the same period, 30 reviews of AD duties
were initiated (two of which were mid-term reviews), and 13 additional sunset reviews initiated
before 2004 were finalised. Out of these 43 reviews, the vast majority (32) resulted in the renewal of
duties, four in non-renewal, and three in the establishment of price undertakings; 4 are ongoing.
During the review period, Brazil reviewed two AD duties upwards, on the imports of bicycle tyres
and garlic from China.
As in the period 2000-03, 25 trading partners were affected by AD measures (new, renewed, and
provisional) during the review period (considering the EC as one). China remains, by far, the most
affected trading partner, followed by the United States and India. The number of new duties applied
to China remained constant, while those applied to the EC fell significantly.
As at October 2008, Brazil had 63 AD measures in force, compared with 48 in June 2004. Brazil
imposed 26 new definitive AD duties between January 2004 and October 2008, which is marginally
higher than the number of new AD duties imposed during 2000-03. Six definitive AD measures were
suspended during the review period, two of which were re-applied three years later (chrome iron
from South Africa and Russia), and one applied one year later (bicycles from China).
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Of the 63 AD measures in force, four were provisional measures, one was a price undertaking, four
were ongoing sunset reviews, 27 involved new duties, and 27 renewed duties. Most of the products
affected belong to basic industries such as plastics, base metals, chemicals, and machinery. Fully
processed products represent 35% of the imported goods affected by AD duties, while semi-
processed products 62%. Furthermore, of the 63 AD measures in force, 31 had been renewed after
one or more sunset reviews, i.e. they had been in place for over five years. Eleven AD measures had
been in place for at least 12 years. The average duration of an AD measure in place in October 2008
was some 6.4 years.
In contrast with the situation in June 2004, most AD duties in force in October 2008 were specific
rather than ad valorem. The 13 definitive ad valorem duties ranged from 0% for glyphosate to
202.3% for pencils.
Countervailing duties
Since its last Review, Brazil has applied only two new CV duties, both of which are still in force
(October 2008). The measures concern two products exported from India: stainless steel bars and
PET film. No other CV measures were in force during the review period. No preliminary measures
have been taken since 1995.
Prohibitions, restrictions, and licensing
Brazil imposes import prohibitions on virtually all used consumer goods, including motor vehicles, as
well as on certain grapes and grape juices to be used in the production of wine, and wine
transported in containers larger than five litres. Brazil uses both automatic and non-automatic
licences; the latter affect slightly more than one-third of all tariff lines. Licences for used machinery,
equipment, and cargo containers are issued only if no similar goods are produced in Brazil. Licences
are not issued for the importation of retreaded tyres, except from MERCOSUR; this exception was
found inconsistent with multilateral rules by a Panel.
Technical regulations and standards
A large number of agencies issue technical regulations at the federal level, each following its own
procedures. The adoption in 2007 of guidelines for the elaboration of technical regulations is thus a
valuable measure to help ensure that this process is carried out in a transparent and consistent
manner. Brazil is also taking steps to ensure that the notification of technical regulations is in all
cases made within the multilaterally recommended periods. Technical regulations are always
published in the Official Journal and, according to the authorities, are mostly based on international
standards.
1.13.4 Measures Directly Affecting Exports
1.13.5 Procedures and Documentation
All procedures for the export of goods take place electronically through Brazil's Integrated Foreign
Trade System (SISCOMEX), introduced in 1997. Operations in the SISCOMEX can be made by
exporters or their representatives, including banks. In 2006, the Government approved the
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development of an Internet-based system, which will register sales and acquisitions of services and
of intangible goods. The new system is expected to be implemented in 2009. No fees are required in
relation to export procedures or documents.
Effective 1 March 2007, foreign currency sale contracts are no longer required for exports of goods
and services, and Brazilian exporters of goods and services may keep abroad the totality of their
export proceeds. However, if the exporter decides to bring the export proceeds into Brazil, a foreign
exchange contract must be made with a financial institution registered in the Central Bank
Information System (SISBACEN).
1.13.6 Export Taxes
Brazilian legislation allows for the application of an export tax of 30%, which can be decreased or
increased (to up to 150%) by the CAMEX. The export tax applies, in principle, to all exports, but with
the exception of a few products listed below, the tax is zero-rated. The export tax is assessed on the
f.o.b. value or the price of the goods in the international market at the time of exportation.
Table 16: Export taxes, 2004-08 NCM Heading Products Destination Rate Legislation Situation as at August 2008
0801.31.00 Cashew nuts, with shells
Any country 30% CAMEX Resolution No. 31, 20/10/03
Expired on 21/10/2005
2401, 2403 Tobacco and its substitutes
Paraguay and Uruguay
150% Decree No. 3,646, 30/10/00
Revoked by Decree No. 5,492, 18/07/05
2402.20.00 Cigars South and Central America and the Caribbean
150% Decree No. 2,876, 14/12/98
In place
41011, 4102, 4103, 4104.11, 4104.19
Leathers and skins
Any country 9%c CAMEX Resolution No. 42, 19/12/06
In place
4813 Paper for cigars South and Central America and the Caribbean
150% CAMEX Resolution No. 26, 28/08/03
Revoked by CAMEX Resolution No. 20, 05/07/05
5601.22.91 Cylinders for cigar filters
South and Central America and the Caribbean
150% CAMEX Resolution No. 26, 28/08/03
Revoked by CAMEX Resolution No. 20, 05/07/05
Chapter 93 Arms and ammunition
South and Central America and the Caribbean
150% CAMEX Resolution No. 17, 06/06/01
In place
Source:Information provided by the Brazilian authorities.
1.13.7 Export Prohibitions, Restrictions, and Licensing
1.13.8 Export Prohibitions
In compliance with United Nations resolutions, Brazil restricts exports of: weapons and military
equipment to Iraq, Ivory Coast, Liberia, Sierra Leone, and Somalia; and material and technology that
could lead to the development of nuclear weapons to Iran. Exports of some organic chemicals
included in HS Chapter 29 are prohibited to non-signatories of the Montreal Protocol. Exports of
wood in the rough (HS 4403) have generally been suspended unless certain conditions are met, and
are subject to prior approval of the IBAMA.
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1.13.9 Export Quotas and Licensing
Brazilian exports of certain bovine meat and poultry products are subject to country-specific tariff
quotas in the EU. Quotas are administered through an export licensing procedure.
Exports of certain wood (pine, imbuia, and virola) are subject to specific rules and require prior
authorisation from the IBAMA. Exports of mahogany, Brazil wood, and cedar are subjected to
permission by CITES, which is issued by the IBAMA. Exports of jacaranda from Bahia (HS 4407.29.90)
are ruled by special norms on the grounds that this wood is becoming extinct.
Prior authorisation is required from various agencies for exports of a relatively large number of
products, generally for safety, health, security or environmental reasons, or when they are subject to
export quotas.
1.13.10Export Support and Related Tax Measures
Establishing tax neutrality for exports remains a key element of Brazil's trade policy. Brazil considers
that this objective is served by the implementation of schemes such as the drawback system, EPZs,
no indirect taxation on exports, and a Special System of Industrial Depots subject to Standardised
Control. The latter is similar to the drawback system but is narrower in scope and may be extended.
Export subsidies
The Export Financing Programme (PROEX) procedures used for the aircraft sector were redefined as
a consequence of a WTO DSB ruling that found that they constituted an export subsidy (section(v)(a)
below). The Brazilian Special Export Programme (BEFIEX), notified as subsidy to the WTO, and that
provided the exemption or reduction of import duties and of the IPI on imports of machinery,
equipment and accessories, as well as of raw materials, intermediate products, and inputs to firms
that exported industrial goods, subject to export performance targets, was discontinued on
31 December 2002.
In 2003, Brazil notified WTO Members that it did not grant export subsidies to agricultural products;
this corresponded to the 1999-01 period. No new notification has been submitted since then.
Drawback
Brazil uses a drawback system that provides for the suspension, exemption, or restitution of tariffs.
The system also allows for the suspension of taxes such as the IPI, PIS, COFINS, ICMS, and AFRMM
paid on imported inputs or parts used to produce exportable goods or to package them. The
procedures for granting the drawback were consolidated by Ministerial Act (Portaria) SECEX No. 36
of 22 November 2007; if all the conditions for the drawback are not met, all taxes must be paid back
with interest calculated at the SELIC rate.
Users of the drawback regime are industrial or commercial enterprises engaging in foreign trade.
The drawback regime as applied by the SECEX has two modalities: suspension and exemption.
The suspension modality consists in deferring payment of import duties and other taxes on goods to
be exported after transformation or assembly. It is granted by the SECEX electronically for the
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minimum period required for importation, manufacture, and exportation, maximum two years.
However, the suspension of duties may be granted for a maximum of five years when the goods are
imported to produce capital goods with a long production cycle. Extensions to the benefits may be
requested. Within the suspension modality, there are some special cases, such as the generic
drawback, the input drawback (intermediário), and the drawback for agricultural or livestock
products.
The exemption modality allows imports of inputs, free of import duties, the IPI, PIS, COFINS, and the
AFRMM, in a quantity equivalent to those already imported tax paid, and used for the production of
exported industrial goods, in accordance with Law No. 10,865/2004, Article 14. Procedures and
conditions are the same as for the suspension modality, except that companies must also present a
request to the Banco do Brasil's office in their jurisdiction, and proof of imports and exports made.
Imports that benefit from the regime are subject to automatic licensing before they can clear
Customs, and the drawback concession is valid for just one year.
An electronic drawback system has been in place since 1 November 2001. The system operates
through the SISCOMEX and integrates export and import operations. To benefit from the electronic
drawback system on their imports, exporters must obtain an import licence, processed and granted
automatically through the SISCOMEX.
Special System of Industrial Depots subject to Standardized Control (RECOF)
The Special System of Industrial Depots subject to Standardized Control (RECOF) suspends the
payment of tariffs PIS, COFINS and the IPI levied on imports for industrial transformation and
production of goods for export. The suspension is for one year, with the possibility of an extension
for an additional year, during which the goods must be exported or duties paid. The RECOF's
beneficiary base is narrower than that of the drawback suspension modality; the RECOF is mostly
aimed at assembly, transformation, and reconditioning activities in: the aeronautic industry (RECOF
Aeronáutico); the automotive industry (RECOF Automotivo); the informatics and
telecommunications industries (RECOF Informática); and the semiconductors and high-technology
electronics industry (RECOF Semicondutores). Concessions are approved by importer. Under the
RECOF, benefits may be extended beyond their initial period of one year, unlike the drawback
system, which may not be extended.
Authorisation to use the RECOF is granted by the Federal Revenue Secretariat of Brazil (RFB).
Enterprises must export products using the imports under the regime for a value of at least 50% of
the value of the imports under the RECOF, and not less than US$ 10 million for companies
benefitting from RECOF Informática and RECOF Semicondutores, and US$ 20 million for companies
benefitting from the other RECOF modalities.
Companies benefitting from the regime must have capital equal to or above R$25 million (some
US$ 15 million. Beneficiaries must also commit to cap sales to the domestic market at a maximum of
20% of the goods imported under the regime. This limit can be raised to 25% if the company exports
annually, using the goods imported under the regime, for a value of over US$ 50 million, or of 30% if
it exports over US$ 100 million. Such sales are subject to all the taxes imposed on domestic
acquisition or importation, with interest at SELIC rates and applicable penalties in accordance with
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legal provisions. The authorities note that the main products imported under RECOF from 2002 to
2007 were for the automotive and aeronautic industries.
Export-processing zones
Companies established in EPZs are allowed to acquire or import goods and services with suspension
of import duty and of the Tax on Industrial Products (IPI), and the Contribution to Social Security
Financing (COFINS), the Contribution to the Social Integration Programme (PIS), and the AFRMM.
The suspension applies to new and used capital goods for use by enterprises authorised to operate
in the EPZ, under certain conditions. To benefit from the scheme, firms must export 80% of the
turnover related to the sales of goods and services. Products and services sold in the internal
market, as well as the services and goods used as inputs in the production of those domestic sales,
are subject to all taxes imposed on domestic acquisition or importation. All taxes must be paid with
interest at the SELIC rate.
Administration of EPZs is under the supervision of the National Council of Export-Processing Zones
(CZPE). The CZPE is responsible for granting EPZs concessions, which are valid up to 20 years,
renewable for the same period for long-term investment amortization. EPZs that do not start
operations within 12 months of their agreed installation chronogram lose the right to installation.
Companies that wish to establish in EPZs must submit an application in accordance to CZPE’s
regulations, contained in Decree No. 6,634 of 5 November 2008. As at November 2008, 17 EPZs had
been authorised but none was yet in operation.
Other export-related tax concessions
In accordance with Decree No. 5,183 of 13 August 2004, the withholding tax on overseas payments
and remittances for the promotion of exports is zero-rated, including for market research,
promotion of products, rent of stands, and participation in fairs. Requests must be submitted to the
DEPLA.
1.13.11Export Finance, Insurance, and Guarantees
Brazil implements a number of other export financing, insurance, and guarantee schemes aimed at
helping producers and exporters to access credit. The Export Financing Programme (PROEX) is one of
Brazil’s main tools to support exports. The programme is aimed at providing access to credit, at
preferential conditions, to companies that would, otherwise, have difficulties obtaining it, or would
be able do so only at the high market interest rates in the domestic economy. The manner in which
PROEX was applied to aircraft exports was challenged in the WTO, and its procedures were modified
twice during the period under review after the DSB determined that they constituted an export
subsidy. In addition, the BNDES-EXIM programme provides preferential export credits linked to
domestic content.
Post-shipment financing takes the form of refinancing to clients abroad, through the discount of
promissory notes or letters of credit, issued for the purchase of Brazilian goods on the list of
products that may be financed. The refinancing is for up to 12 years, on up to 100% of the value fob
exported.
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The cost of refinancing is the London Interbank Offered Rate (LIBOR) corresponding to the financing
period plus a BNDES remuneration, which varies from 1% to 2.5% according to the risks incurred,
plus the financial institution's remuneration. An administrative commission management fee of up
to 1% and a commitment fee of 0.5% are also levied.
1.13.12Export Insurance and Guarantees
Brazil provides export insurance through the Export Credit Insurance (SCE) scheme, which
guarantees and covers losses incurred by exporters from non-receipt of foreign payments for their
exports at market conditions. The SCE covers any exporter or financial institution that finances or
refinances exports. There are five specialised institutions authorised to operate the SCE for goods
and services against commercial, political, and extraordinary risks in short-term transactions, for up
to 90% of the risk: the Brazilian Export Credit Insurance Company S.A. (SBCE); SECRESB; Euler
Hermes; Credit y Caución; and Mapfire. The five insurance companies are private, although SBCE has
two public companies as minority shareholders.
The SBCE is the only institution authorised to operate the SCE for medium-and long-term operations.
It provides coverage for external Brazilian sales against commercial, political, and extraordinary risks.
The value of exports covered by the SBCE totalled US$ 7.28 billion over 2004-07, representing 1.42%
of total exports. The main users of export insurance credit have been the civil construction and
capital-goods industries. All banks may use the SBCE for short-term operations. In practice, only
BNDES and Banco do Brasil use the SBCE, for the medium-and long-term operations under the SCE.
SBCE short-term operations (under to two years) generally take the form of an annual global policy
by the exporter, usually applied to products with shipment periods of up to 180 days. For certain
products, such as some equipment, this period may be extended for up to two years, depending on
prior analysis. Export credit insurance coverage is to a maximum of 90% of the risk.
For medium-and long-term commercial operations (over two years), and for political and
extraordinary risks of any term, the SBCE acts on behalf of the Government and coverage is through
the Export Guarantee Fund (FGE). Export credit coverage granted by the Government varies in
relation to risks involved, as a general rule, to a maximum of 90%. This type of insurance is geared, in
general, to projects involving capital goods, services, and other specific contracts. Policies can be of
two types: supplier's credit, issued on behalf of the exporter; and buyer's credit, issued on behalf of
a bank. Decree No. 6,314 of 20 December 2007 extended the guarantees granted under the FGE to
four years in the case of defence-related exports.
1.13.13Export Promotion and Marketing Assistance
Extensive assistance is provided by the Brazilian Trade and Investment Promotion Agency (Apex-
Brasil), which is an autonomous social service affiliated to the Ministry of Development, Industry and
Foreign Trade. Its mission is to: “promote exports of Brazilian products and services, contribute to
the internationalisation of Brazilian companies and attract foreign investment into Brazil.”
Apex-Brasil’s resources comprise approximately 300 employees, working at its Head Office in
Brasilia; 10 regional offices, located in Manaus, Goiania, Belo Horizonte, Recife, Florianopolis,
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Fortaleza, Campo Grande, Curitiba, Porto Alegre and Sao Paulo; and business support centres,
located in Miami, Brussels, Moscow, Warsaw, Havana, Beijing, Dubai and Luanda.
Apex-Brasil’s annual budget is BRL 371 million (R1 618 million). The Agency is structured in nine
operating units: business management; sector projects; image and market access;
internationalisation; business and competitive intelligence; special projects; exporting industrial
extension; new products development; accountability.
Apex-Brasil operates by:
Partnering with sector/industry associations in Integrated Sector Projects, which are sector-
specific; the broad sectors are: agribusiness, food and beverage; housing and civil
construction; entertainment and services; machinery and equipment; fashion; and
technology and health care. These sectors cover some 70 sub-sectors of industry and
services. All the industry associations are required to cater for SME, as well as large ones.
Conducting foreign market research and intelligence studies and reports through its foreign
business support centres.
Providing extension services to Brazilian companies through the regional desks.
Coordinating the activities of international forums (Brazil-US CEO Forum, Brazil-UK Joint
Economic and Trade Committee, Brazil-Mexico Forum, Brazil-India Forum).
Networking with international export support organisations such as the International Trade
Centre.
Services/information provided: Either directly to potential and current exporters or through the
sector-linked Integrated Sector Projects, Apex-Brasil provides the following services: information;
building export capacity; supporting export capacity development; training for export; assisting
micro, small-and medium-sized enterprises through the Exporting Industrial Extension project
(PEIEX); trade promotion services usually provided through the Integrated Sector Projects and
including trade missions, business rounds, international fairs, and incoming trade missions.
1.13.14Incentives and Other Government Assistance
Assistance for production and investment, in general, is granted mostly through official credit. Some
30% of total credit in 2008 went to earmarked activities, with the national development bank
(BNDES) managing more than half. Such credit is made available at rates significantly below market
rates, and in some cases are linked to local-content requirements. Brazil has notified to the WTO
that a number of regional assistance programmes provide subsidies for the development of
particular regions, and for R&D. Incentives for regional development are also provided through the
free-trade zones regime.
Brazil provides incentives and government assistance both at the federal and at the state level.
Incentives programmes can be regional, aimed at developing research, or targeted at specific
sectors; sectoral assistance is discussed in Chapter IV.
Free-trade zones
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Under Brazilian legislation, free-trade zones for imports and exports, are defined as zones created to
promote the development and regional integration of border areas in the north region, for which
they are granted fiscal incentives.
Eight free-trade zones have been created (Manaus and Tabatinga, in Amazonas; Macapa/Santana in
Amapá; Brasiléia and Cruzeiro do Sul, in Acre; Boa Vista and Bonfim, in Roraima; and Guajará-Mirim,
in Rondônia). However, only the Manaus Free-Trade Zone (ZFM) is engaged in production operations
(mid-2008); the others engage only in commerce operations.
Incentives to companies established in the ZFM are in the form of tax suspensions, reductions or
exemptions, granted by the federal and state governments. The main requirement for the
concession of benefits is observance of the basic productive process (PPB) criteria, for which firms
need to undertake agreed local manufacturing steps for specific products, and provide a detailed
description of the various stages of assembly, preparation, and transformation of inputs used for
manufactures. All imports to the ZFM require a licence, authorised both by the SECEX and by
SUFRAMA. The incentives will be in force until 2023, in accordance with Constitutional Amendment
No. 42 of 19 December 2003.
R&D and other programmes
The Ministry of Science and Technology (MCT) is responsible for the administration of R&D
programmes and incentives. Law No. 8,661 of 2 June 1993 establishes Brazilian policy for
technological training in industry and agriculture, and fiscal incentives for promoting R&D
programmes in Brazilian enterprises.
Other credit schemes
The BNDES also maintains a number of schemes that facilitate access to credit at preferential
conditions. Operations under these credit lines may be carried out directly by the BNDES, or through
accredited financial institutions. Production of certain goods for export (but not for the Brazilian
market) is eligible for credit. In addition, production of new machinery and equipment produced in
Brazil and accredited by the BNDES, is eligible for credit. Other eligible projects: implementation,
expansion, and modernisation of fixed assets; offering or development of services for export; foreign
commercialisation of eligible goods; and working capital associated with a fixed investment. A
number of items are eligible for credit, under certain conditions, including: importation of
equipment; expenses incurred through the importation of equipment, and implementation and/or
expansion of foreign activities.
Other schemes
Law No. 9,478 of 6 August 1997 created a Special Regime for the Exportation and Importation of
Goods Destined to the Exploration of Petroleum and Natural Gas (REPETRO). The REPETRO allows for
the "fictitious exportation" and subsequent importation, under the suspension modality of the
drawback regime, of goods produced in Brazil sold in foreign currency to a person domiciled abroad
for use in the exploration of petroleum and natural gas in Brazil. The REPETRO also covers aircraft,
classified in heading 88.02 of the MERCOSUR Common Nomenclature, when leased by an airline
granted a regular transport concession in Brazil. The application of federal and state taxes on these
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goods is suspended. The regime is granted with the waiver of all import taxes until 31 December
2020.
The Competitiveness Promotion Guarantee Fund (FGPC) was created in 1997 to guarantee the risk of
financing operations undertaken by the BNDES and FINAME to micro, small, and medium-sized
enterprises that: export; produce inputs to manufacture, assemble, or package exports; or engage in
projects to increase their competitiveness. Each operation can be guaranteed, using FGPC funds, for
70% or 80% of its value, depending on the size of the enterprise, its location, and the type of credit
received. Some 77 operations for a total of R$13.3 million were conducted in 2006. In 2007, 24
operations for a total of R$2.9 million, were approved by the BNDES.
1.14 India
(TPR August 2011)
1.14.1 Overview of Recent Trends
India continued to streamline customs procedures and implement trade facilitation measures. An
electronic system for customs clearance has been introduced, and a risk management system is also
in place to selectively screen high and medium risk cargo for customs examination. Despite these
measures, India's import regime remains complex, especially its licensing and permit system, and its
tariff structure, which has multiple exemptions that vary according to product, user, or specific
export promotion programme.
India's tariff is announced in the annual budget but individual tariff rates may be changed during the
year. In addition to the standard tariff rate, importers are required to pay an additional duty
("countervailing duty") and a special additional duty instead of local taxes. To determine the
"effective" applied tariff rate (i.e. basic duties and other customs duty) on a particular product,
separate customs and excise tax schedules must be consulted, which adds to the complexity of the
tariff. India's tariff comprises mainly ad valorem rates (some 94% of tariff lines), levied on the c.i.f.
value of imports; and some alternate or specific duties (6.1% of all tariff lines). During the period
under review, the average tariff rate declined: the simple average applied MFN tariff was 12% in
2010/11, down from 15.1% in 2006/07. This is reflected in a decrease in both agricultural and
industrial average tariffs due to India's shift towards lower tariffs.
Import restrictions may be imposed on grounds of, inter alia, health, safety, moral, and security
reasons, and for self-sufficiency and balance-of-payments reasons. India links the use of import
restrictions and licensing, and other non-tariff measures (NTMs) to domestic policies; for example,
NTMs are relaxed when imports are necessary to alleviate inflation or shortages. State trading is also
used as a policy tool, to ensure, inter alia, a "fair" return to farmers, food security, the supply of
fertiliser to farmers, and the functioning of domestic support price systems. India is one of the most
active users of anti-dumping measures among WTO Members. Since its last Review in 2007, India
has also imposed several safeguard measures. As a result of an amendment of the legislation as of
2010, safeguard measures may also take the form of quantitative restrictions.
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As in the case of imports, export prohibitions and restrictions are mainly in place to ensure domestic
supply of specific goods and thus may be removed and applied as the circumstances require. In
order to reduce the anti-export bias inherent in India's import and indirect tax regime, a number of
duty remission and exemption schemes are in place to facilitate exports. Tax holidays are also
available to investors through the export-processing zones and export-oriented units.
India grants direct and indirect assistance to various sectors. Most central government subsidies are
destined for agriculture. Other key subsidies include those for diesel and fertilisers. The states
provide additional subsidies, especially for basic services such as education and health, and
electricity and water. Price controls apply to some commodities and are used as a means to provide
subsidies to farmers and a population under the poverty line, and to ensure a "reasonable price" for
quality drugs.
Since its last Review, India has made several amendments to its main competition policy legislation
and the Competition Commission of India (CCI) created under the Competition Act 2002 started
operations in 2009. In addition, some aspects of the law affecting mergers and acquisitions recently
entered into force. India became an observer to the WTO Agreement on Government Procurement
in February 2010. Its procurement system continues to be decentralized, comprising a multiplicity of
entities at different levels of Government (including numerous central public-sector enterprises),
and no common legislation governing procurement. Public procurement is considered as an
important instrument of government policy and is used to obtain certain socio-economic objectives.
As a result, the Central Government has set reservations and price preferences as part of the
procurement system. However, competition from foreign suppliers is ordinarily allowed.
1.14.2 Measures Directly Affecting Imports
1.14.3 Customs Procedures
Registration and documentation
India has six regimes for entry of imports: (a) imports for home consumption; (b) warehousing; (c)
transhipment; (d) transit; (e) re-importation; and (f) imports for SEZs. For home consumption,
importers may clear goods after payment of the duties and charges, or for warehousing without
immediate payment of duties. In general, transhipment of containers at Indian ports is allowed
without any examination by Customs. Transhipped good require a transhipment bill of lading. Transit
of goods through India is allowed without payment of duty and without examination by Customs,
except if customs officials are informed of the possibility of illegal trade. Goods exported from India
may be re-imported within three years but there must be no change in the classification of the
goods. Re-imported goods are subject to duties, except goods exported for repairs abroad, for
exhibitions, or as samples, which may be re-imported duty free. SEZs are deemed foreign territory
for trade operations. Imports into SEZs enter without payment of taxes or duties. They are not
subject to customs examination at the port; any required examination will take place at the zone.
For imports under duty exemptions and free-trade zones schemes, importers are required to
"execute" a bond with Customs. The bond is equal to the amount of payable duty on the imported
goods.
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Customs clearance has been more efficient since 2007: on average, import procedures are
completed in 20 days (41 days in 2007), including 8 days for document preparation and 4 days for
customs clearance and technical inspections. The cost per container is US$ 960, including preparing
documents (US$ 390) and clearing customs (US$ 120).
Preshipment inspection
Preshipment inspection for imports of certain goods has been mandatory since 2004. Goods subject
to preshipment inspection include unshredded metallic waste and scrap (since 2004), and shredded
metallic waste and scrap (since 2009). Imports of unshredded metallic waste and scrap are
permitted through 26 designated ports. Inspections ensure that consignments are free of arms,
explosives, and radioactive-contaminated materials. Preshipment inspection certificates are issued
by accredited certifying agencies located inside and outside India.
Imports of certain types of second-hand and defective steel products, as well as textiles and clothing
articles are subject to preshipment inspection on safety and health grounds.
Customs valuation and clearance
The determination of value of imports should be based on the transaction value, i.e. "the price
actually paid or payable for the goods when sold for export to India", including any amount paid or
payable for costs and services (e.g. commissions and brokerage, royalties and licence fees, transport
and insurance costs, and handling charges). The calculation is based on the exchange rate in force
when the bill of entry is presented to Customs. For goods sold on "high-seas" sale contracts, the
price paid by the last buyer constitutes the transaction value. A landing charge (for loading,
unloading, and handling) of 1% of the c.i.f. value is added to the c.i.f. value, to calculate the
transaction value (earlier known as "assessable value").
Rules of origin
India does not apply non-preferential rules of origin. Preferential rules of origin are applied under
regional and bilateral trade agreements; these have not changed since the last Review of India.
Maximum foreign-content requirements range from 30% to 70%; other criteria to determine origin
are sufficient transformation and change in tariff classification. There are also product-specific rules
of origin under the SAFTA (180 products), and agreements with Korea, Rep. of (1,780 products), and
Singapore (380 products).
Table 17: Rules of origin under preferential trade agreements, 2011 Agreements Maximum foreign-content requirements Minimum cumulative local-content requirements
Regional
Asia-Pacific Trade Agreement (APTA)
55% of the f.o.b. value (least developed countries (LDCs): 65%)
60% of the f.o.b. value (LDCs: 50%)
Global System of Trade Preferences (GSTP)
50% of the f.o.b. value (LDCs: 60%) 60% of the f.o.b. value (LDCs: 50%)
South Asian Free-Trade Areas (SAFTA)
60% of the f.o.b. value (LDCs: 70%; Sri Lanka: 65%) and change in tariff classification
50% of the f.o.b. value, 20% of the f.o.b. value and change in tariff classification
South Asia Preferential Trade Arrangement (SAPTA)
60% of the f.o.b. value (LDCs: 70%) 50% of the f.o.b. value (LDCs: 40%)
Bilateral
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Agreements Maximum foreign-content requirements Minimum cumulative local-content requirements
Afghanistan 50% of the f.o.b. value and change in tariff classification
40% of the f.o.b. value and 30% of the f.o.b. value
ASEAN 65% of the f.o.b. value and change in tariff classification
65% of the f.o.b. value and change in tariff classification
Bhutan n.a. n.a.
Chile 60% of the f.o.b. value and change in tariff classification
60% of the f.o.b. value and change in tariff classification
Korea, Rep. of 65% of the f.o.b. value and change in tariff classification
65% of the f.o.b. value and change in tariff classification
MERCOSUR 40% of the f.o.b. value 40% of the f.o.b. value
Nepal 70% of the f.o.b. value and change in four-digit tariff classification
n.a.
Singapore 60% of the f.o.b. value and change in tariff classification
60% of the f.o.b. value and change in tariff classification
Sri Lanka 65% of the f.o.b. value and change in tariff classification
35% of the f.o.b. value and 25% of the f.o.b. value
Thailand 60% of the f.o.b. value and change in tariff classification
40% of the f.o.b. value and change in the tariff classification
Other preferential areas
Mauritius, Seychelles, and Tonga 50% of ex-work price of five specific items and 75% ex-work prices for others
50% of ex-work price of five specific items and 75% ex-work prices for others
Least-developed countries 70% of the f.o.b. value and change in tariff classification for not wholly produced or obtained category
70% of the f.o.b. value and change in tariff classification for not wholly produced or obtained category
Source:WTO Secretariat
1.14.4 Tariffs
Applied tariff structure
Under the Customs Tariff Act 1975, the MFN tariff is based on the standard rate, which is a statutory
duty; however, the "effective" tariff may be lower because of general- or industrial-use-based
exemptions. India's tariff is announced in the annual budget at the end of February each year;
however, additional changes to individual tariff rates may be made during the year by the Ministry
of Finance's Central Board of Excise and Customs, through notifications published in the Gazette of
India; this adds to the complexity of the tariff.
The 2010/11 applied tariff (HS 2007 nomenclature) has 11,328 tariff lines at the eight-digit level,
comprising rates ranging from zero to 150%. Some 94% of tariff lines are ad valorem; duty is levied
on the c.i.f. value of imports. Alternate or specific duties apply to 6.1% of all tariff lines, unchanged
since 2006/07. The simple average applied MFN tariff was 12% in 2010/11, down from 15.1% in
2006/07. Both agricultural and industrial average tariffs declined reflecting India's shift towards
lower tariffs. India provides a number of exemptions on imported inputs for certain sectors or
importers, depending on the industrial use of the import. As a result of these exemptions, the
effective applied tariff is considerably lower than the simple average standard rate. However,
because a large majority of the exemptions relate to industrial use, they cannot be included in the
general tariff analysis. To the extent that a tariff exemption is clearly related to a particular tariff
line, the Secretariat has tried to incorporate it in the tariff analysis.
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Table 18: Tariff structure (per cent), 2006/07 and 2010/11
MFN effective applied rates Final bound rate 2006/07 2010/11
1. Bound tariff lines (% of all tariff lines) 75.2 75.6 75.6
2. Simple average rate 15.1 12.0 46.4
Agricultural products (HS01-24) 38.2 35.1 119.1
Industrial products (HS25-97) 11.8 8.6 33.7
WTO agricultural products 36.2 33.2 118.3
WTO non-agricultural products 12.0 8.9 32.0
Textiles 12.2 9.6 26.9
Clothing 12.5 10.0 37.1
3. Duty-free tariff lines (% of all tariff lines) 2.7 3.2 1.9
4. Domestic tariff "peaks" (% of all tariff lines) 2.5 2.2 6.5
5. International tariff "peaks" (% of all tariff lines) 12.5 11.9 87.7
6. Overall standard deviation of tariff rates 15.0 14.2 40.8
7. Coefficient of variation of tariff rates 1.0 1.2 0.9
8. Non-ad valorem tariffs (% of all tariff lines) 6.1 6.1 8.0
9 Nuisance applied rates (% of all tariff lines) 0.5 0.7 0.0
Source:WTO Secretariat calculations, based on data provided by the Indian authorities.
Non-ad valorem rates apply to 690 tariff lines: five are specific rates (i.e. almonds, shelled and in
shell (two HS lines), and platinum (three HS lines)), while 685 (6.1% of all tariff lines) are alternate
rates (textiles and clothing). The simple average applied MFN tariff in 2010/11 was 13.4% including
AVEs (12% without AVEs). The inclusion of AVEs affects only industrial average tariffs, which increase
from 8.6% to 10.3% (10.6% under WTO non-agriculture). Mainly affected are textile and clothing,
with average protection of 16.2% and 25.7%, respectively, and of 9.6% and 10% if AVEs are not
included in the tariff analysis. This confirms that protection may increase considerably by the use of
specific rates: some goods have protection of around 600% (e.g. shawls, scarves (exceeding 60 cm)
and the like of silk (HS 6214.10.20 (598.32%)), women's or girls' suits of silk (HS 6104.19.20 (620%)),
and scarves of silk measuring 60 cm or less (HS 6214.10.10 (656.41%)).
In 2010/11, tariffs range from zero to 150%. The majority of lines (71% or 8,042) carry a rate greater
than 5% but less than 10%, while 12.8% of total lines have a tariff rate greater than zero but less
than 5%. This is a major change from 2006/07, when 65% of all lines were within the 10-15% range,
and 10.4% of lines at 25-30%. The number of duty-free lines has increased slightly. Although average
rates have declined, some products continue to bear very high rates, notably some beverages,
spirits, and coffee and tea. Dispersion remains high: the standard deviation shows only a slight
decrease, from 15 at the time of the last Review of India to 14.2.
Average tariff protection declined from 15.1% to 12% in 2010/11. Since 2007, the simple average
tariff for agricultural goods (WTO definition) has declined from 36.2% to 33.2%, but remains
substantially higher than for manufactured goods. Beverages and spirits bear the highest protection,
followed by coffee and tea, dairy products, and sugar and confectionary. Non-agricultural products
face an average tariff of 8.9%, down from 12% in 2007. The decrease in the average rate reflects a
decrease from a peak rate of 12.5% in 2006/07 to rates of 10% and 7.5%. However, fisheries and
transport equipment still bear above average tariff protection of 29.5% and 21.5%, respectively.
India's tariffs are higher for agriculture goods and processed goods than for semi-manufactures. This
responds in part to the strategy of protecting agriculture and promoting the development of
manufacturing activities, which require imports of intermediate goods. It may also reflect India's
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policy of granting import duty concessions for intermediate goods under different export and
investment promotion schemes.
Table 19: Summary analysis of the tariff, 2006/07 and 2010/11
2006/07 effective applied rates (MFN)
2010/11 effective applied rates (MFN)
Bound tariff
No. of lines
Average (%)
Range (%)
No. of lines
Average (%)
Range (%)
Range (%)
Total 11,695 15.1 0-150 11,328 12.0 0-150 0-300
HS 01-24 1,466 38.2 0-150 1,433 35.1 0-150 10-300
HS 05-97 10,229 11.8 0-100 9,895 8.6 0-70 0-150
By WTO definition
Agricultural products 1,492 36.2 0-150 1,431 33.2 0-150 10-300
Non-agricultural products (excl. petroleum)
10,185 12.0 0-70 9,879 8.9 0-70 0-150
Petroleum 18 9.7 0-10 18 8.2 0-10 n.a.
By sector
Agriculture, forestry and fisheries 659 29.5 0-100 621 28.8 0-100 10-150
Mining 229 5.7 2-12.5 232 5.1 0-10 5-40
Manufacturing 10,806 14.4 0-150 10,474 11.1 0-150 0-300
Manufacturing excl. food processing
9,934 12.0 0-100 9,605 8.8 0-60 0-150
By stage of processing
First stage of processing 1,300 23.6 0-100 1,261 22.5 0-100 5-150
Semi-processed products 4,465 11.7 0-100 4,339 8.6 0-60 0-150
Fully processed products 5,930 15.8 0-150 5,728 12.2 0-150 0-300
Source: WTO Secretariat calculations, based on data provided by the Indian authorities.
1.14.5 Bound Tariff
The implementation of India's Uruguay Round tariff commitments was completed in 2005. Some
75% of India's tariff is bound, 100% for agricultural (WTO definition), and 71.6% for non-agricultural
products. Bound rates are mainly ad-valorem (90.2%); non-ad valorem bound rates apply mainly to
textile and clothing. India did not bind any tariff lines in HS sections 12 (footwear and headgear), 19
(arms and ammunitions), and 21 (works of art); partial bindings are mainly in HS section 11 (textiles
and clothing). Bindings range from zero to 40% for non-agricultural products, with some exceptions
such as fish products (150%); and range from 10% to 300%, for agricultural products, with most
bound at 100% and 150%. Some edible oils are bound at 300%. The average bound tariff is 118.3%
for agricultural products (WTO definition) and 32% for non-agricultural products. Bound rates
exceed applied rates; the average bound tariff is 46.4%, compared with an average MFN tariff of
12%.
The gap between applied and bound tariff rates provides the authorities with scope to raise applied
tariffs. These gaps allow the Government to modify tariff rates in response to domestic and
international market conditions. If domestic agricultural prices rise, tariff rates are lowered to create
downward pressure on domestic prices and minimise the impact on consumers; when prices fall, the
rates are often increased to protect farmers by raising the overall cost of imports.
Tariff concessions
Under Section 25(1) of the Customs Act 1962, the Central Government is empowered to exempt any
goods from customs duties on grounds of public interest. Tariff concessions are announced in the
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annual budget and throughout the year through notifications by the Ministry of Finance. These
concessions are both product-specific and based on end-use. During the review period, revenue
forgone as a result of customs duty concessions increased from 29% to 39% of total revenue,
amounting to some US$ 168 billion during 2006-07/2009-10.
Goods imported under processing-for-export regimes (e.g. SEZs and export-oriented units (EOUs))
are eligible for tariff concessions. Other programmes to promote exports and investment also
provide for tariff concessions.
Preferential tariffs
Preferential rates are granted for certain articles under GSTP, regional (SAFTA, APTA, MERCOSUR,
and ASEAN), and bilateral agreements (Singapore, Korea, Rep. of, Chile, and Sri Lanka). Under the
GSTP, India has granted tariff concessions to 12 countries on a limited number of products. Only
preferences under the SAFTA II (at 2.3%) and under the Sri Lanka FTA (at 2.3%) are significantly
lower than the simple average applied MFN of 12%. In other instances, preferences are not
substantial (Korea, Rep. of) or the number of tariff lines subject to preferences is minimal
(e.g. MERCOSUR and Chile).
1.14.6 Other Charges Affecting Imports
India applies a number of duties and charges on imports, other than tariffs. These include: the
additional customs duty, the special additional duty, the education cess and the secondary, higher
education cess. Some charges and cesses are also applied on specific products.
Calculation of all charges applied imports including landing charges, the effective customs duty, the
additional customs duty, the special additional customs duty, and the education cess show an
average protection of 25.6% compared to 12%. The authorities noted that some of these charges are
"in lieu" of domestic taxes.
Table 20: Summary analysis of India's imports charges, 2010/11
No. of lines
Effective applied rates (MFN) Total duty rate, incl. extra charges
Average (%) Range (%) Average (%) Range (%)
Total 11,328 12.0 0-150 25.6 0-527.4
HS 01-24 1,433 35.1 0-150 42.6 0-527.4
HS 05-97 9,895 8.6 0-70 23.1 0-107.1
Source: WTO Secretariat calculations, based on data provided by the Indian authorities.
Some imports are also subject to specific duties. For instance, imports of high-speed diesel oil and
petrol (i.e. motor spirits) are subject to a fuel cess (previously the additional excise duty or road cess)
at a rate of Rs 2 per litre, to finance the Central Road Fund. According to the authorities, this cess is
charged as part of the additional duty.
The national calamity contingent duty (NCCD) is levied on pan masala; some cigarettes and tobacco
products; petroleum oils; telephones for cellular network or for other wireless networks; and
vehicles and motor cycles. The NCCD is both specific and ad valorem, ranges from 1% to 45%, and is
also levied on similar domestic products.
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The 2010/11 Budget introduced the "clean energy cess" (Rs 50/tonne) to be levied on coal, lignite,
and peat produced in India and imported. This cess is to finance the establishment of a National
Clean Energy Fund to fund research and innovative projects in clean energy technologies. It is levied
on raw coal (HS 2701), raw lignite (HS 2702), and raw peat (HS 2703) at a rate of Rs 50/tonne in
addition to any other cess or duties levied on these goods.
1.14.7 Import Prohibitions, Restrictions, and Licensing
Import restrictions may be imposed for security, self-sufficiency, balance-of-payments, health, and
moral reasons. In practice, India links the use of import restrictions and licensing, and other
non-tariff measures (NTMs) to domestic policies, for example, by relaxing NTMs when imports are
required to alleviate inflation or shortages. The use of NTMs raises the cost of exporting to India and,
in some cases, may be equivalent to an import prohibition.
Import licensing
India applies an import licensing system to administer the importation of restricted items. Import
licences are administered according to the Foreign Trade (Development and Regulation) Act 1992
and Foreign Trade (Regulation) Rules 1993. Licensing requirements may be eliminated without
legislative approval.
Under India's current Import Policy Schedule (Foreign Trade Policy 2009-14), some 422 tariff lines at
the HS eight-digit level are subject to import restrictions (up from some 415 tariff lines in 2007).
They represent around 3.7% of total tariff lines. Some 275 tariff lines are restricted while some
147 are restricted subject to conditions. Restrictions imposed in 2007 under HS sections 1, 2, 5, 19
(arms and ammunition), and 21 (works of art), remain unchanged. The goods imported under a
licence cannot be exported without the written permission of the Directorate-General of Foreign
Trade (DGFT).
Imports of certain goods (24 tariff lines) are subject to import restrictions depending upon their
import price. These imports are restricted (i.e. subject to a licence) when the c.i.f. price is lower than
the minimum price. Minimum import prices are set taking into account domestic and international
prices and quality.
Import quotas
India maintains import quotas for marble and similar stones (HS 2515.11.00, 2515.12.10,
2515.12.20, and 2515.12.90) and for sandalwood (HS 4403.99.22). Quotas are established annually
and administered on an MFN basis. There is no maximum limit to be allocated per applicant.
Applications are examined upon receipt and assessed according the criteria stated in the
notifications and circulars issued by DGTP on a yearly basis. India does not maintain bilateral quotas.
Since the removal of most quantitative restrictions on imports in 2001, a mechanism has been set up
to monitor imports of items considered to be sensitive. There are currently some 415 sensitive
items, compared with 300 in 2007. Monitored sensitive items include milk and milk products, fruits
and vegetables, pulses, poultry, tea and coffee, spices, food grains, edible oils, cotton and silk,
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marble and granite, automobiles, parts and accessories of motor vehicles, products produced by
small-scale industries, and other products (bamboos, cocoa, copra, and sugar).
As of 2010, India may impose quantitative restrictions by notification in the Gazette of India, on
imports of goods that cause serious injury to domestic industry, as a result of a safeguard
investigation.
Other import restrictions
Imports of certain items, including motor vehicles, and second-hand cars (less than three-year old)
must be imported through specified ports (Chennai, Kolkata, and Mumbai for new vehicles; and
Mumbai for second-hand cars). Until 2008, imports from Sri Lanka that were subject to preferential
tariffs (such as tea and garments) had to be imported through specific ports (Kochi and Kolkata for
tea, and Chennai and Mumbai for garments).
1.14.8 State Trading
State trading is used as a policy tool, to ensure, inter alia: a "fair" return to farmers as well as food
security; the supply of fertiliser to farmers; and that the domestic support price system for kerosene
and Liquefied Petroleum Gas (LPG) are properly implemented through the importation by a single
operator.
India maintains state trading for certain agricultural goods (i.e. some cereals, copra, and coconut oil),
urea, and petroleum oils. Seven state-trading companies (STEs) are authorised by the DGFT to trade
in these goods. However, under the Foreign Trade Policy 2009-14, the DGFT may authorise other
companies to import any goods subject to state trading, when STEs are not able to supply the
market. The Indian Oil Corporation continues to have the monopoly on imports of natural gasoline
liquid (HS 2710.11.20), other natural gasoline liquid (HS 2710.11.90), and light diesel oil
(HS 2710.19.40); other STEs and private companies may market other hydrocarbons.
The exclusive right to import (or export) is granted to a state enterprise under the provisions of the
Foreign Trade Policy 2009-14. Also, under the Foreign Trade Policy, all STEs granted special privileges
to import (export) must make such purchases (sales) in accordance with commercial considerations
including price, quality, availability, marketability, and transportation. STEs should act in a
non-discriminatory manner.
STEs also assist India in its goal of "balancing" Indian imports and exports through the use of
countertrade, which involves an agreement for one country to sell goods to another in exchange for
goods (perhaps also involving some cash or services) of an equal value from the second country. The
practice is most prevalent between countries that have foreign exchange constraints or
balance-of-payments issues. India has stated that it has no countertrade requirements, although
private companies are reportedly "encouraged to use countertrade" and MMTC Ltd. promotes
countertrade operations on its website. Most recent uses of countertrade by India involved capital
goods. Private companies are encouraged to use countertrade. Global tenders usually include a
clause stating that, all other factors being equal, preference is given to companies willing to agree to
countertrade.
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1.14.9 Contingency Measures
Anti-dumping and countervailing measures
Anti-dumping investigations may be initiated by the Directorate-General of Anti-Dumping and Allied
Duties (DGAD), in the Department of Commerce, upon a written application by or on behalf of
domestic industry, or on its own initiative if there is justification to launch an investigation. For an
investigation to be initiated, the investigation petitioners must account for at least 25% of total
domestic production of the like article; and the domestic producers expressly supporting the
application must account for more than 50% of the total production of the like article by those
expressly supporting and opposing the application. In accordance with the Indian legislation,
dumping per se is not actionable. Indian legislation provides for levying anti-dumping duty
retrospectively, where there is a history of dumping that caused the injury or when the injury is
caused by massive dumping, in a relatively short time, so as to seriously undermine the remedial
effect of an anti-dumping duty.
Anti-dumping duty is not payable on products imported by units in export-processing zones (EPZs) or
export-oriented units (EOUs), or on products imported by Advance Licence holders. The final
anti-dumping duty paid on imported goods used in the manufacture of export goods may be
refunded as brand rate of duty drawback in accordance with the drawback rules.
Countervailing measures may be imposed provisionally six months after the date of initiation of an
investigation, and may remain in force for a maximum of four months. Final findings must be
published by the DGAD within one year of the date of initiation; the period may be extended by the
Central Government in exceptional circumstances, by a further six months.
India is one of the most active users of anti-dumping measures among WTO Members. From the
inception of the WTO until 30 June 2010, India accounted for 436 of the 2,433 anti-dumping
measures adopted by Members, that is 17.9% of the total. During the same period, India initiated
613 investigations, out of a total of 3,752. The initiations affected mainly China (137), Korea, Rep. of
(47), Chinese Taipei (45), the EU (42), Thailand (36), Japan (30), the United States (29), Indonesia
(24), Singapore (23), Malaysia (22), and the Russian Federation (19).
Between January 2006 and 31 December 2010, India initiated 209 anti-dumping investigations
against 34 trading partners, compared with 176 reported in its last Review. The products involved
included chemicals and products thereof, plastics and rubber and products thereof, base metals, and
textiles and clothing. As at 31 December 2010, 207 anti-dumping measures were in force, compared
with 177 on 30 June 2006. India did not take any countervailing actions during this period. Measures
were applied on 30 trading partners, including South Africa. The majority were applied on China (67
or 32.4% of the total), Korea, Rep. of (19 or 9.2%), Chinese Taipei (19 or 9.2%), Thailand (14 or 6.8%),
the EU or its members states (12 or 5.8%), and Japan, Malaysia, and the United States (9 or 4.3%
each).
Safeguards
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Initiations of safeguard investigations increased substantially during the period under review.
Although no investigations were initiated in 2006 and 2007, and only two were initiated in 2008,
13 investigations were initiated during 2009. A review investigation was initiated in the first quarter
of 2010 and a new safeguard investigation (N1, 3-dimethyl butyl-N Phenyl paraphenylenediamine),
in December 2010. Another new investigation was initiated in the first quarter of 2011.
1.14.10Technical Regulations and Standards
Standards
According to the authorities, there were no major changes related to the process of standardisation
in India during the review period. Indian standards are established based on the provisions of the
Bureau of Indian Standards Act 1986 and the Bureau of Indian Standards Rules 1987. The Bureau of
Indian Standards has been placing emphasis on harmonising national standards with international
and regional standards; thus international standards are often adopted as Indian standards under
the numbering system of ISO/International Electro-technical Commission (IEC), or are harmonised
with international standards in areas of India's trade interests.
The Bureau of Indian Standards is a member of the International Organization for Standardization
(ISO) and participates in ISO technical and policy-making committees. It is also a member of the IEC;
it participates in 73 IEC technical committees and it is an observer in 83. The BIS has bilateral
cooperation memoranda of understanding with the national standards bodies of Afghanistan,
Bhutan, Brazil, France, Germany, Israel, Mauritius, Nigeria, South Africa, the United Arab Emirates
(UAE), and the United States. It also has an MRA with the national standards body of Sri Lanka.
Labelling
According to the authorities, labelling requirements are uniform across all states and for all foreign
suppliers. Labels must be in Hindi (Devnagiri script) and in English. In certain instances, they must be
written in the language of the locality where the product is ultimately sold. This increases
distribution costs, since India has 16 official languages, and food-processing companies often do not
know which pallet of food products will be transported to a specific State. The requirement that
packaging must specify the maximum retail price of the product, including taxes, is a further
complication, since sales taxes are levied at the state level.
Sanitary and Phytosanitary measures (SPS)
SPS matters continue to be governed and enforced through a number of laws and agencies. The
main institutions involved in the establishment and implementation of SPS measures for food items
are the Ministry of Health and Family Welfare, the Department of Animal Husbandry, Dairying, and
Fisheries; the Directorate of Plant Protection, Quarantine and Storage; the Bureau of Indian
Standards; and other state government agencies.
India has not notified the WTO regarding the recognition of equivalence of other countries' SPS
measures.
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1.14.11Measures Directly Affecting Exports
Procedures
With a few exceptions (Table AIII.1), exporters must register with the DGFT and obtain an
importer-exporter code (IEC) number to be able to export. In addition to the IEC, exporters also need
to obtain a business identification number from the DGFT to be allowed to file the shipping bill. The
shipping bill may be processed manually or through the electronic data interchange (EDI) system.
The average time for the completion of export procedures is 17 days (down from 27 days in 2007),
which includes 8 days for documents preparation and 2 days for customs clearance and technical
inspections. According to World Bank information, export procedures cost on average US$ 945 per
container, including documents preparation (US$ 350) and customs clearance (US$ 120).
Quality control and preshipment inspection
Since 2007, India's quality control and preshipment inspection measures for exports have remained
broadly unchanged. They currently apply to basmati rice, black pepper, dairy, eggs, fish and fish
products, honey, meat and meat products, and processed food products containing red chillies.
Under the Export Policy Schedule (Foreign Trade Policy 2009-14), it appears that preshipment
inspection also applies to exports of canned meat products and marine species (except those
contained in the Wild Life (Protection) Act 1972).
Export taxes, charges, and levies
Export taxes are used as a policy instrument to, inter alia, ensure domestic supply of raw materials
for higher-value-added industries, promote further processing of natural resources, ensure an
"adequate" domestic price, and preserve natural resources. Export taxes for tanned and untanned
hides, skins, and leathers (except manufactures of leather) have remained in place since the last
Review of India in 2007. Export taxes for iron ores and concentrates (including iron ore fines),
chromium ores and concentrates, and products of iron and steel (including ferrous waste and scrap,
flat-rolled products, and tubes and pipes) were introduced in 2009. Export taxes are sometimes used
with other measures to attain short-term goals. For instance, in April 2010 India introduced export
licensing/EARCs for raw cotton and cotton waste in addition to export taxes for six months to ensure
an adequate domestic supply and to contain an increase in the price of cotton in the domestic
market.
An export cess is collected for the development of a specific industry; it is consequently levied on
certain exports for the development of that industry. As at 2011, a cess applies to exports of shellac
and lac-based products, manganese ore, chrome ore, mica products, and iron ore.
Table 21: Export taxes, 2011 Product Rate Implementation/status
Tanned and untanned hides, skins, and leathers (except manufactures of leather)
10%-25% of the f.o.b. value 2007/in force
Iron ores and concentrates, including iron ore fines
20% of the f.o.b. value for iron ores and concentrates 5% of the f.o.b. value for iron ore fines
2009/in force
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Product Rate Implementation/status
Chromium ores and concentrates Rs 3,000 per tonne 1 March 2007/in force
Ferrous waste and scrap, and remelting scrap ingots of iron or steel
15% of the f.o.b. value 1 March 2007/in force
Raw cotton Rs 2,500 per tonne April 2010/removed in October 2010
Cotton waste 3% of the f.o.b. value April 2010/removed in October 2010
Source:CBEC online information, "Customs Tariff 2009-10: Part III: The Second Schedule: Export Tariff and Corresponding Exemption Notifications" and information provided by the Indian authorities.
Table 22: Export cess rate, 2011 Product Cess rate
Shellac and lac based products Rs 2.30 per quintal
Manganese ore Rs 4 per tonne
Chrome ore Rs 6 per tonne
Mica products 3.5% of the f.o.b. value
Iron ore Rs 1 per tonne Source:CBEC online information, "Customs Tariff 2009-10: Part III: The Second Schedule: Export Tariff and Corresponding Exemption Notifications".
1.14.12Minimum Export Prices
Under the Export Policy Schedule (Foreign Trade Policy 2009-14), India maintains minimum prices on
exports of onions and basmati rice.
1.14.13Export Prohibitions, Restrictions, and Licensing
Export prohibitions
Export prohibitions apply mainly for environmental, food-security, marketing, pricing, and domestic
supply reasons; and to comply with international treaties. Since 2007, additional products have been
subject to export prohibitions, including non-basmati rice, wheat, pulses, and edible oils.
Although exports of non-basmati rice and wheat are prohibited, the ban does not apply to exports of
organic non-basmati rice and organic wheat certified by the Agricultural and Processed Food
Products Export Development Authority (APEDA). These products are subject to an export quota of
10,000 tonnes and 5,000 tonnes per year, respectively.
Export prohibitions and export quotas are notified on an annual basis; they are usually in place for a
specific period, during which they may be subject to changes. These changes diminish the
predictability of the regime.
In addition, India bans exports of some products to the Democratic People's Republic of Korea, Iran,
and Iraq, under UN resolutions; and of rough diamonds to the Bolivarian Republic of Venezuela,
under the Kimberly process.
Export licensing and quotas
Under the current Export Policy Schedule, some 167 lines (171 lines in 2007) at the HS eight-digit
level, excluding products of special chemicals, organisms, materials, equipment, and technologies
100
(SCOMET), are currently subject to restrictions. Products may be exported only if a licence is issued
by the DGFT.
1.14.14State Trading
State trading of exports has the stated purpose of ensuring better marketing and prices of
agricultural and minor forest products, grown by small-scale farmers, as well as to prevent
fluctuations in domestic prices; and to ensure supply of kerosene and liquefied petroleum gas (used
as domestic fuels), and conservation and proper use of some metal ores. Since 2007, exports
through state-trading have also included all varieties of onions (prohibited for exports from
December 2010 to February 2011, manganese ores (above 46% manganese (Mn)), and beneficiated
chrome ore fines/concentrates.
As for imports, state-trading enterprises (STEs) are granted special privileges to export but must act
in accordance with commercial considerations and in a non-discriminatory manner. The exclusive
right to export is granted to an enterprise by the DGFT under the provisions of the Foreign Trade
Policy (Paragraph 2.11). However, if STEs are not interested in exporting, other exporters may
approach the DGFT for permission to export.
1.14.15Export Support
During the period under review, India did not make any notifications to the WTO regarding export
subsidies on agricultural products.
India's latest notification to the WTO Committee on Subsidies and Countervailing Measures dates
from 2010. The tax incentives notified were those provided under the Income Tax Act 1961 to
free-trade zones, and to export-oriented units (EOUs). The tax deductions for exporters on their
profits under section 80HHC of the Income Tax Act 1961, notified previously by India have been
phased out; no deduction under this section has been available since 2005/06.
India is an Annex VII (b) Member under the SCM Agreement and as such may maintain these export
promotion schemes until its per capita gross national product (GNP) reaches US$ 1,000 in constant
1990 dollars for three consecutive years. In the last three years for which data are available
(2006-08), the country's gross national income (GNI) has remained below US$ 1,000 in constant
1990 dollars.
Free-trade zones and export-oriented units (EOUs)
Exports are encouraged through the establishment of SEZs and export-oriented units (EOUs).
Special economic zones (SEZs)
SEZs may be set up by the central or state governments or by private developers (including
foreigners) as joint ventures with the State or fully private. The legal framework regulating SEZs at
the central government level is the SEZ Act 2005 and Rules 2006. Also, some states have enacted
their own laws and rules to regulate SEZs. State SEZ legislation follows the lines of the SEZ Act 2005.
All SEZs are under the administrative control of the SEZ Development Commissioner.
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Firms established in an SEZ benefit from several incentives subject to generating net foreign
exchange earnings within five years of operation. SEZ units are exempt from various taxes, including
income tax, central sales tax, minimum alternate tax, dividend distribution tax, service tax, and from
a series of state taxes (i.e. sales tax, stamp duty, and electricity duty. SEZ units may import all types
of goods (including new and second-hand capital goods) duty free both from abroad and from the
domestic tariff area (DTA). Imports and exports into/from the SEZ are not subject to routine customs
examination; for instance, "let export" orders are granted on the basis of self-certification by the
SEZ. Also, exports of products manufactured in SEZs are not subject to compulsory preshipment
inspection. State trading does not apply to SEZs (except for iron ore). However, other export
measures do apply to exports from the SEZs, but with exceptions. For instance, minimum export
prices apply to exports from SEZs only when raw materials procured indigenously are exported
unprocessed.
There is no quantitative limit on the amount of SEZs exports into the DTA. However, sales into the
DTA attract all the same duties and charges as any other import.
As at end 2010, India had 374 SEZs with 3,245 units producing manufactured goods and providing
services and warehousing for a total investment of US$ 43 billion and 644,073 employees. During
the period under review, exports from SEZs increased from some US$ 15 billion to US$ 49 billion, in
value, accounting for 17% of total exports in 2009/10, compared with 9.08% in 2007/08. Major
exports from SEZs include chemicals and pharmaceuticals, computer and electronic software, and
gems and jewellery. Taxes forgone as a result of the benefits granted to SEZs have more than
doubled between 2007/08 and 2009/10 (from Rs 18 billion to Rs 39.9 billion).
Table 23: Incentives granted to SEZ units, 2011 Duty-free imports/domestic procurement of goods for development, operation, and maintenance of SEZ units
100% income tax exemption for SEZ units for the first five years, 50% for the next five years, and 50% of the ploughed-back export profit for the next five years
Exemption from minimum alternate tax
Exemption from the central sales tax
Exemption from the service tax
Exemption from the state sales tax and other levies (e.g. stamp duty and electricity duty) as extended by the respective state government
External commercial borrowing by SEZ units up to US$500 million in one year without any maturity restriction through recognised banking channels
100% FDI investment through automatic route
Single-window clearance for central and state level approval procedures
Source:Department of Industrial Policy and Promotion (2010), National Manufacturing Policy: A Discussion Paper and SEZ online information, "About SEZs: facilities and incentives".
Table 24: Exports from SEZs, 2007 10 (US$ billion, unless otherwise specified) Sector 2007/08 2008/09 2009/10
Biotech 0.04 0.19 0.10 Computer/electronic software 0.89 3.61 10.17 Electronics hardware 2.47 2.90 3.87 Electronics 0.12 0.08 0.21 Engineering 0.37 0.69 0.93 Gems and jewellery 5.11 7.43 9.74 Chemicals and pharmaceuticals 0.32 1.42 16.44 Handicrafts 0.01 0.01 0.01 Plastic and rubber 0.15 0.08 0.15 Leather, footwear, and sports goods 0.05 0.06 0.10
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Sector 2007/08 2008/09 2009/10 Food and agri-industry 0.14 0.07 0.08 Non-conventional energy 0.03 0.05 0.31 Textiles and garments 0.29 0.66 0.74 Trading and services 4.64 4.18 5.53 Miscellaneous 0.20 0.75 0.66 Total 14.81 22.15 49.05 Percentage share of SEZs exports of India's total exports 9.1 12.0 27.4
Source: Information provided by the Indian authorities.
Export-oriented units (EOUs)
The Export-Oriented Units (EOUs) Scheme, introduced in early 1981, complements the SEZ scheme.
EOUs are regulated by the Foreign Trade Policy. As in the case of the EPZs, the main objectives of the
EOU Scheme is to increase exports and foreign exchange revenues, promote the transfer of latest
technologies, stimulate direct foreign investment, and generate additional employment. EOUs are
similar to EPZs but may be located anywhere in the country. Initially, EOUs were concentrated
mainly in manufacturing (e.g. textiles, food processing, and electronics) but currently agri-businesses
and firms supplying services also operate under the EOU Scheme.
The minimum investment in an EOU is Rs 10 million. EOUs are licensed to manufacture or provide
services for export for an initial period of five years, which may be extended; they may benefit from
tax and other incentives, subject to export performance. Sector-specific requirements are stipulated
in the provisions of the EX-IM Policy, and vary from sector to sector. EOUs must also generate net
foreign exchange earnings within five years of starting operations. If the unit is not NFEE positive,
the Development Commissioner is required to inform the Central Excise authorities for recovery of
the proportionate duty.
As in the case of the SEZs, EOUs are exempt from various taxes, including income tax, until
31 March 2011. EOUs may import all types of goods (including new and second-hand capital goods)
duty free from the DTA and abroad, and are exempt from routine customs procedures both when
importing and exporting. Manufacturing EOUs are exempt from the state-trading regime with the
exception of chrome ore/chrome concentrate.
Table 25: Incentives granted to EOUs, 2011 Inputs are exempt from customs duty Exemption from Customs and Central Excise duties on import/local procurement of capital goods, raw materials, consumables, spares, packing material, etc. Reimbursement of central sales tax Corporate/income tax holiday until 31 March 2011 Reimbursement of duty paid on fuels procured from domestic oil companies as per the rate of drawback No import licences are required Import of second-hand capital goods are allowed Supplies from the DTA to EOUs are deemed exports and are exempt from payment of the excise duty 50% of production may be sold in the domestic market on payment of duty, generally 25%, plus a 100% additional customs duty 100% FDI investment through automatic route
Source:Department of Industrial Policy and Promotion (2010), National Manufacturing Policy: A Discussion Paper; and Export Promotion Council for EOUs and SEZs, Circular No. 77, 6 July 2009.
In 2009/10, India had 2,553 EOUs, manufacturing goods and providing services, excluding trading,
which is not allowed. During the period under review, exports from EOUs decreased in value from
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some US$ 42 billion to US$ 18 billion, accounting for 10% of total exports in 2009/10, compared with
26% in 2007/08. This decline was due to some enterprises leaving the EOUs regime. Exports of
chemicals and pharmaceuticals, the most important products exported by EOUs, declined from US$
24 billion in 2007/08 to US$ 4.7 billion in 2009/10. Taxes forgone as a result of the EOU Scheme
decreased from Rs 105 billion in 2007/08 to Rs 70 billion in 2009/10.
Table 26: Exports from EOUs, 2007 10 (US$ billion, unless otherwise specified) Sectors 2007/08 2008/09 2009/10
Textiles and garments, yarn 1.73 1.20 0.79 Computer software 1.20 0.75 0.89 Electronics hardware 1.15 1.19 0.98 Engineering goods 4.74 4.14 3.18 Chemicals and pharmaceuticals 24.02 23.69 4.52 Leather and sports goods 0.18 0.18 0.17 Gems and jewellery 2.33 0.93 1.04 Plastic, rubber, and synthetic 0.38 0.37 0.32 Foods and agri and forest products 0.93 1.02 0.90 Miscellaneous 5.30 5.01 4.86 Total 41.96 38.47 17.64 Percentage share of EOUs exports of India's total exports
25.7 20.8 9.9
Source: Information provided by the authorities.
"Drawback"
The Customs Act 1962 (Sections 74-76), and the Customs and Central Excise Duties and Service Tax
Drawback Rules 1995 continue to regulate the drawback system in India. Under the drawback
system, exporters are entitled to a refund of: the customs duties (including additional duties) on
imported goods that are exported without transformation (Section 74); or customs duties, central
excise duties, and the service tax levied on materials imported or procured locally to manufacture
export products (Section 75). There are two types of drawback: the "all industry rate" and the
"brand rate" for which the refund may be negotiated.
Other duty and tax concessions
In addition to the SEZs and EOUs regimes and the duty drawback system, India has a number of
export incentive schemes, some of which are contingent on value addition and export obligations.
India's exports concession schemes include: (i) duty exemption schemes, which allow exporters to
import inputs (including fuel and oil) duty free; (ii) duty remission schemes, entitling exporters to a
refund of customs duty on the inputs used to produce exports (post export replenishment/remission
of duty paid on inputs); (iii) reward schemes granting exporters duty credits; and (iv) the Export
Promotion Capital Goods Scheme, which allows exporters to import capital goods, at concessional or
zero duty rates, subject to an export obligation. Special schemes are also in place for gems and
jewellery, and for export and trading houses. Income forgone as a result of these schemes totalled
Rs 312,922 million in FY 2009/10.
The product coverage and the level of concession under these schemes changed during the period
under review and new schemes were implemented. Amendments included: (i) introduction of a zero
duty rate under the Export Promotion Capital Goods Scheme; (ii) increase of the duty credit to from
1.25% to 2% of the f.o.b. value of exports under the Focus Product Scheme, and from 2.5% to 3% of
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the f.o.b. value of exports under the Focus Market Scheme; (iii) reduction of the minimum value
added required to receive benefits for gems and jewellery from 2%-6.5% to 1.5%-5%; and (iv) the
introduction of a 15% minimum value-added requirement under the Advance Authorization Scheme.
Since 2007 two new export incentive schemes have been introduced, the Status Holder Incentive
Scheme and the Agri Infrastructure Incentive Scheme.
As is the case with other measures, duty concessions are also used to attain short-term objectives.
For instance, as of April 2010, duty concessions granted under the Duty Entitlement Passbook
Scheme to exporters of cotton yarn were suspended, for six months, to reduce exports in an attempt
to control the domestic price of cotton.
1.14.16Export Promotion and Marketing Assistance
In addition to tariff concessions and export programmes, the Department of Commerce encourages
exports indirectly, through a number of schemes. The Assistance to States for Development of
Export Infrastructure and Allied Activities Scheme provides assistance for, inter alia, setting up new
export promotion industrial parks/zones (including SEZs), and supporting infrastructure (e.g. road
links to ports, inland container depots, container freight stations, and power supply). The Marketing
Development Assistance Scheme supports export promotion activities through EPCs; the Market
Access Initiative Scheme supports EPCs and trade bodies (i.e. chambers of commerce and industries)
that participate in export promotion activities. The Department of Commerce also provides support
for trade facilitation (e.g. implementation of a single window for clearance of goods and e-trading
facilities). India's 20 EPCs and the five Commodity Boards continue to promote exports of specific
products. Other bodies affiliated to the Ministry of Commerce and Industry are also actively involved
in promoting exports through training, organising trade fairs/exhibitions in India and abroad, and
acting as arbitrators in commercial disputes.
1.14.17Export Finance and Insurance
Export finance is provided primarily by the Export-Import Bank of India (Ex-im Bank), and through
mandatory annual lending targets for foreign banks. In order to promote trade and investment, the
Ex-im Bank provides Indian exporters with export credits on a cost-plus basis at market-related
interest rates. The Ex-im Bank also provides finance and export support for export-oriented units
(EOUs), and value-added services (e.g. advice and marketing support aimed at evaluating
international risks and export opportunities). The Bank coordinates the work of other institutions
financing trade (exports and imports). The Ex-im Bank may also provide lines of credit to
governments and to overseas financial institutions to enable buyers in those countries to purchase
goods and services from India; the terms of these credits are negotiated between the Ex-im Bank
and the overseas agency, based on market interest rates usually linked to the LIBOR.
The Ex-im Bank also provides various export guarantee schemes and fee-based services to support
international trade and investment, and conducts related research.
During 2009/10, the Ex-im Bank approved loans amounting to Rs 388.43 billion, up from
Rs 267.62 billion in 2006/07. The main industrial sectors to which the Bank has exposure remain
textiles and clothing, metals and metal processing, and chemicals and petroleum.
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Insurance against export credit risk is provided by the Export Credit Guarantee Corporation of India
Ltd. (ECGC). ECGC is a state-owned company, under the administrative control of the Ministry of
Commerce and Industry, registered as a non-life insurance company under the Insurance Regulatory
and Development Authority Act. It provides exporters insurance against commercial or country risks;
it also grants guarantees to banks/financial institutions, which allows them to offer export credit
facilities to exporters, on a more liberal basis. The ECGC also provides overseas investment insurance
to Indian companies investing in joint ventures abroad through equity or loans. The ECGC holds 60%
of India's total export credit risk market and covers exports to 193 countries. The authorities noted
that the ECGC does not receive a subsidy from the Government. The ECGC also operates the
National Export Insurance Account (NEIA), which covers export credit risk for large long- and
medium-term overseas projects that are commercially viable and of national interest (i.e.
strategically important from an economic and political point of view) but fall beyond ECGC's
underwriting capacity.
1.14.18Other Support
Explicit subsidies
Direct or explicit subsidies as reported in the Central Government's annual budget amounted to Rs
1,641.5 billion (2.1% of GDP) in 2009/10, up from Rs 571.3 billion (1.3% of GDP) in 2006/07.
The bulk of India's explicit subsidies continues to be aimed mainly at supporting the agriculture
sector, to promote food security and reduce poverty. As a result, most of the outlays are allocated to
food and fertilisers
Subsidies for domestic liquefied petroleum gas and kerosene under the Public Distribution System
(PDS), and for freight, were put in place in 2002 after the dismantling of the administered pricing
mechanism (APM), with the aim of protecting the poor.
Credit policies
The Central Government allocates funds to subsidise interest rates, including to exporters. Under
these schemes, which are managed by different ministries (e.g. Ministry of Finance, and of Heavy
Industries and Public Enterprises) central public sector enterprises (CPSEs) also have access to credit
at preferential rates. Information is neither available regarding the amount of credit provided at
preferential rates or subsidised rates for each sector nor on the CPSEs which benefit from
preferential interest rates.
Micro and small enterprises
Support is also provided to micro and small enterprises (MSEs). Historically, in India a number of
products have been reserved for exclusive manufacturing by MSEs. Products are eligible for
reservation if manufacturing by MSEs is economically viable and technically feasible. MSEs
accounted for around 39% of India's manufacturing output and 33% of exports (in value) at
end-March 2009. However, the reservation policy, which has limited competition in reserved
industries, has reportedly hindered competitiveness among MSEs. A recent study shows that MSEs
continue to use obsolete technology, attract unskilled labour, have inefficient management, and
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face challenges such as marketing bottlenecks and poor infrastructure. This lack of policy success
may have been one of the reasons why there has been a progressive de-reservation of products. The
reservation/de-reservation of products is reviewed regularly by the Advisory Committee on
Reservation, under the Ministry of Micro, Small, and Medium Enterprises (MSMEs). The trend
towards de-reservation accelerated substantially during the period under review: at present,
20 products are in the reserved category, down from 236 in May 2006.
Table 27: Products reserved for MSEs, 2011 Food and allied industries: pickles and chutneys, bread, mustard oil (except solvent extracted), and groundnut oil (except solvent extracted) Wood and wood products: wooden furniture and fixtures Paper products: exercise books and registers Other chemicals and chemical products: wax candles, laundry soap, safety matches, fireworks, and agarbatties Glass and ceramics: glass bangles Mechanical engineering, excluding transport equipment: steel almirah, rolling shutters, steel chairs (all types), steel tables (all other types), steel furniture (all other types), padlocks, stainless steel utensils, and domestic utensils (aluminium)
Source:Development Commissioner (Ministry of Micro, Small, and Medium Enterprises) online information, "List of items reserved for exclusive manufacture in micro and small enterprises".
In addition to the set-asides, MSMEs may benefit from a number of other assistance schemes,
managed by the Ministry of MSMEs and supporting institutions (e.g. the Office of the Development
Commissioner and the National Small Industries Corporation). These schemes aim to assist MSMEs,
in particular MSEs, in the promotion and marketing of exports, product certification, technology
upgrading, and human resources development. MSEs are also granted a 15% price preference for
central government purchases. The authorities noted that this price preference is advisory in nature.
At the state level, other schemes also implemented to support the development of MSMEs include:
the development of industrial estates, tax incentives, and subsidies for electricity and capital. Under
the General Excise Exemption Scheme, MSMEs with annual turnover of up to US$ 1 million are
granted full excise exemption up to US$ 375,000; MSEs may also benefit from excise duty
exemptions.
Despite efforts to assist MSMEs, "sickness" or "incipient sickness" remain a concern. The
Government-appointed Task Force on MSMEs has recommended a gradual agenda of actions in
order to provide relief and stability to MSMEs. Recommendations cover credit, marketing,
infrastructure, technology, skill developments, and taxation. The agenda has not yet been
implemented.
1.15 China
(TPR May 2012)
1.15.1 Customs Procedures, Valuation, and Rules of Origin
Customs procedures
China's main legislation and procedures on customs clearance has remained unchanged since its
previous Review in 2010. Customs is in charge of administering and enforcing customs legislation.
Under the Foreign Trade Law and the Rules for the Registration of Foreign Trade Operators,
individuals as well as legal persons and other organisations need to be registered as "foreign trade
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operators" with the Ministry of Commerce (MOFCOM) or its authorised bodies as well as with
Customs before filing customs declarations.
Importers may request advance written rulings from Customs; the rulings are binding. The legal basis
of the advance written rulings from Customs is the Customs Law and the Interim Measures on the
Administration of the Administrative Rulings of Customs.
In 2010, the average time required for customs clearance was 1.7 hours for exports (2.4 hours in
2008) and 15.5 hours for imports (14.1 hours in 2008).
Under the "regional customs transit system", goods authorised by Customs may be transported
within China as bonded goods; importers submit customs declarations only at the place where they
are registered, and not at the port of entry.
Preshipment inspection
China's preshipment inspection (PSI) requirements have remained unchanged since 2010. The
requirements, are intended to: protect public health; improve the phytosanitary situation; protect
the environment; and prevent counterfeit goods from entering the country. PSI requirements have
not been notified to the WTO.
Under Article 22 of the Regulations, PSI is required on imports of waste raw materials and used
machinery and electrical products. China has designated some foreign institutions to conduct PSI
and to issue certificates in this regard; the current list of designated foreign institutions was not
made available to the Secretariat. Preshipment inspection of waste raw materials and of used
material and electronic products is carried out mainly by inspection bodies abroad; for large-scale
sets of equipment where technical support is deemed necessary, the Chinese Government may send
inspection and quarantine personnel abroad, upon the request of foreign inspection bodies, to
provide technical guidance and consultancy. PSI is also required for imports of certain commodities
related to national security, with high value or complicated technology; and equipment exceeding
certain height, length or volume.
Customs valuation
Customs value is determined on the basis of transaction value, which includes the costs of transport
(freight charges) and insurance and other related charges. Where it is not possible to determine the
transaction value, the customs value is based on (in sequential order): the transaction value of
identical goods; the transaction value of similar goods; the deductive value; the computed value;
and the value determined on a "reasonable" basis. Data provided by the authorities indicate that in
2011, customs value for more than 99% of China's imports was determined on the basis of
transaction value.
Rules of origin
China applies non-preferential and preferential rules of origin. Non-preferential rules of origin are
intended to serve as a basis for applying MFN rates.
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Preferential rules of origin are applied in accordance with the various regional and bilateral trade
agreements currently in force between China and its trading partners, and to certain imports from
LDCs. Preferential rules of origin tend to vary from agreement to agreement, and sometimes across
product groups, which add to the complexity of China's import regime.
1.15.2 Tariffs
Overview
According to China's national budget, in 2011, tariff revenue accounted for 2.7% of total tax
revenue, down from 2.8% in 2010.
China's import tariff rates comprise MFN tariff rates, non-MFN tariff rates ("agreement" tariff rates,
"special preferential" tariff rates, "general" tariff rates), and tariff-quota rates. The Customs Tariff
Commission may set interim rates whenever it considers such rates necessary.
China provides at least MFN treatment for all WTO Members except El Salvador and some territories
of EU member states. While the authorities state that they do not collect data on the share of
China's imports subject to different tariff rates (i.e. MFN rates and non-MFN rates), according to the
UN COMTRADE database, most of China's imports appear to be subject to MFN or more favourable
rates.
China is a party to the Information Technology Agreement. In accordance with the agreement, China
eliminated tariffs on all information technology products on 1 January 2005.
MFN tariff rates
Bound MFN tariff rates
All of China's tariff lines are bound at ad valorem rates. The applied MFN tariff rates are close to the
bound rates, imparting a high degree of predictability to China's MFN tariff. Bound rates varied from
zero to 65% for agricultural products, and from zero to 50% for non-agricultural products in 2011.
Applied MFN tariff rates
China's applied MFN tariff rates consist of "standard" applied MFN rates as well as "interim" MFN
rates for certain products. The interim tariff effectively replaces the applied MFN tariff; interim rates
are not higher than the corresponding standard applied MFN tariff rates.
Table 28: China's tariff structure (per cent), 2007, 2009 and 2011
MFN applied rate Final bound
rate 2007 2009 2011
Bound tariff lines (% of all tariff lines) 100 100 100 100
Simple average rate 9.7 9.5 9.5 9.9
Agricultural products (HS01-24) 14.5 14.5 14.5 14.6
Industrial products (HS25-97) 8.9 8.6 8.6 9.0
WTO agricultural products 15.2 15.2 15.1 15.3
WTO non-agricultural products 8.8 8.6 8.6 9.0
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Duty-free tariff lines (% of all tariff lines) 8.7 9.4 9.4 7.5
Simple average rate of dutiable lines only 10.7 10.5 10.5 10.7
Domestic tariff "peaks" (% of all tariff lines) 2.4 2.1 2.2 2.4 International tariff "peaks" (% of all tariff lines) 15.6 14.9 14.8 15.7
Overall standard deviation of tariff rates 7.5 7.5 7.5 7.5
Coefficient of variation of tariff rates 0.8 0.8 0.8 0.8
Nuisance applied rates (% of all tariff lines) 2.7 2.7 2.7 2.6
Source:WTO Secretariat calculations, based on data provided by the authorities of China.
In 2011, China's applied MFN tariff (including interim rates) consisted of 7,977 lines at the HS 2007 8-
digit level (up from 7,868 lines in 2009); 7,925 lines (99.3%) were ad valorem rates. Unchanged since
2009, the 2011 applied MFN tariff contained 57 different ad valorem rates, ranging from zero to
65%. Non-ad valorem rates applied to 52 tariff lines: 44 at specific rates; 5 at rates involving either
an ad valorem rate, if the price was below or equal to a certain amount, or a compound rate, if the
price was higher; and 3 alternate rates (ad valorem rate or specific rate, whichever was lower).
The simple average applied MFN duty rate was 9.5% in 2011 (the same as in 2009). The simple
average applied MFN rates for agricultural products (WTO definition) and non-agricultural products
were 15.1% (slightly lower than in 2009) and 8.6% (unchanged), respectively.
The dispersion in applied MFN rates, indicated by the coefficient of variation, was 0.8% in 2011
(unchanged since 2009); the standard deviation of tariff rates was 7.5% (also unchanged). China's
applied MFN tariffs show positive escalation between semi-processed and fully processed products
for, inter alia, textiles and leather, wood and furniture, and chemicals, and in some cases negative
escalation between unprocessed and semi-processed products.
Non-MFN rates
China accords preferential tariff rates (agreement rates) under various bilateral/regional trade
agreements or arrangements. In addition, China applies special preferential tariffs (zero-rated)
unilaterally to imports of a number of goods from 36 LDCs with which it has diplomatic relations.
China intends to eliminate tariffs on 97% of its tariff lines (at the HS 8-digit level) on imports from
these LDCs; in 2011, tariffs were eliminated on 60.5% of tariff lines.
"General" tariff rates are applied to imports whose origin cannot be determined, or that originate in
countries and regions to which China does not apply MFN tariff rates, agreement rates, or special
preferential rates (i.e. El Salvador and some territories of EU member states, as well as WTO non-
members). In 2011, the simple average of the general rates was 56.8%, much higher than the
applied MFN rate (9.5%) (the simple average of the general rates for agricultural products (WTO
definition) and non-agricultural products were 68.4% and 55.0%, respectively).
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Table 29: Summary analysis of China's preferential tariff, 2011 (%)
Total WTO agriculture WTO non-agriculture
Average
(%)
Duty-
free
rates (%)
Average
(%)
Duty-
free
rates (%)
Average
(%)
Duty-
free
rates (%)
MFN 9.5 9.4 15.1 7.0 8.6 9.8
Agreement tariff rates
APTA 8.9 9.6 14.1 8.0 8.1 9.9
ASEAN
Brunei Darussalam 1.0 91.7 2.5 89.7 0.7 92.0
Cambodia 1.1 90.8 2.6 88.7 0.9 91.1
Indonesia 1.0 91.7 2.5 89.8 0.8 92.0
Laos 1.1 90.9 2.6 89.1 0.9 91.1
Malaysia 1.0 91.7 2.5 89.8 0.8 92.0
Myanmar 1.0 91.7 2.5 89.6 0.8 92.0
Philippines 1.0 91.7 2.5 89.4 0.7 92.0
Singapore 1.0 91.7 2.5 89.8 0.7 92.0
Thailand 1.0 91.7 2.5 89.4 0.8 92.0
Viet Nam 1.0 91.7 2.5 89.4 0.8 92.0
Hong Kong, China CEPA 7.3 29.4 13.0 19.7 6.4 31.0
Macao, China CEPA 7.5 24.6 10.6 32.5 7.0 23.3
Chinese Taipei ECFA 9.2 10.3 15.0 7.0 8.3 10.9
Pakistan FTA 6.2 35.8 12.1 21.9 5.3 38.1
Chile FTA 1.4 75.1 3.9 67.2 1.0 76.4
New Zealand FTA 2.4 24.9 5.1 13.9 1.9 26.6
Singapore FTA 9.0 12.2 14.1 10.6 8.2 12.5
Peru FTA 4.8 61.2 10.8 30.4 3.8 66.1
Costa Rica FTA 4.7 65.5 11.1 34.1 3.7 70.5 Least developed preferential rates
Special preferential tariff agreement for: Bangladesh and Laos under APTA 9.3 10.4 15.0 7.0 8.4 11.0
Cambodia 8.8 14.6 12.2 28.2 8.3 12.5
Laos 9.0 13.1 13.1 21.4 8.4 11.8
Myanmar 9.1 12.2 14.0 13.5 8.4 12.0
36 LDCs 5.1 60.6 9.3 55.5 4.4 61.4
Niger and Somalia under LDC 8.9 15.3 14.6 10.7 8.0 16.1
Source:WTO Secretariat calculations, based on data provided by the authorities of China.
Tariff rate quotas (TRQs)
In 2011, TRQs were applied to eight categories of imported goods, involving 45 tariff lines at the HS
8-digit level: wheat (6 lines), maize (5), rice (14), sugar (6), wool (6), wool tops (3), cotton (2), and
chemical fertilisers (3) (same as in 2009). These TRQs are applied to imports from all countries. The
process of quota allocation and re-allocation is managed by the NDRC and MOFCOM.
Tariff exemptions and reductions
China's schedule of tariff exemptions remains unchanged since 2010. Raw materials and spare parts
may be imported in bond under processing trade, in accordance with relevant provisions; this policy
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also applies to processing trade within Customs controlled areas such as EPZs. Processing trade
accounted for 41.2% and 38.9% of total trade in 2009 and 2010 (the latest years for which data were
made available by the authorities), respectively. With a view to reducing energy consumption and
protecting the environment, the Government may not grant preferential treatment under
processing trade to certain goods.
Indirect taxes affecting imports
VAT and excise taxes, where applicable, are collected at the border on imports. The rates for imports
and domestically produced goods are generally the same. The current VAT rates are 17% or 13% for
most goods. Some imports, such as those destined for EPZs, may be granted VAT reductions or
exemptions, in accordance with relevant provisions.
1.15.3 Import Prohibitions and Licensing
The authorities state that China has no WTO-inconsistent quantitative restrictions on imports.
Import prohibitions
China maintains import prohibitions on grounds of public interest, environmental protection, or in
accordance with international commitments. In general, prohibited products are listed in the
Catalogues of Commodities subject to Import Prohibitions, issued by the MOFCOM and other
relevant ministries, such as the General Customs Administration, AQSIQ or the Ministry of
Environmental Protection. Changes in China's import prohibitions included those concerning
incandescent lamps, with a view to improving energy efficiency, protecting the environment, and
responding to global climate change, in accordance with the Energy Conservation Law; the
prohibitions are to be implemented between 1 November 2011 and 1 October 2016.
In 2011, import prohibitions covered, inter alia: waste (e.g. products of animal origin, mineral
products, rubber, skins and leather, paper, glass, lead, toys and sport equipment, copper, cement),
second-hand/used items or scraps (e.g. clothes, precious metals, machinery and electronic
equipment, aluminium containers for compound or liquefied gas, transport equipment), opium,
chemicals, and incandescent light bulbs.
Imports may also be prohibited on grounds of animal, plant, or human health and safety, in
accordance with Article 16 of the Foreign Trade Law and Article 4 of the Regulations for the
Implementation of the Law on the Entry and Exit Animal and Plant Quarantine.
Licensing
MOFCOM together with the General Administration of Customs (GAC) and other relevant authorities
issue the annual Catalogue of Goods Subject to Automatic Import Licensing Administration, and the
Catalogue of Goods Subject to Import License Administration in the second half of every year in the
form of a MOFCOM Announcement, which is to be implemented the following year. These two
catalogues list all the products subject to import licensing procedures except for those under TRQ
administration. The authorities state that the regime applies equally to goods from all WTO
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Members and non-members. Licences are not transferable. No fees, charges, deposits or advance
payments are required for the issuance of licences.
Non-automatic import licences
In 2010, 87 tariff lines (at the HS 8-digit level) were subject to non-automatic import licensing (down
from 95 in 2009). Applicants must apply for an import permit prior to applying for an import licence.
Import permits are issued by the Ministry of Environmental Protection or MOFCOM, depending on
the product. Once the permit is obtained, a licence will be granted automatically by MOFCOM to the
importer. The licence is valid throughout the calendar year, and may be extended once, for a
maximum of three months.
Automatic import licences
The authorities state that automatic import licences are applied in China to monitor certain imports
for statistical purposes; automatic import licensing entails no quantitative import restrictions. In
2010, 592 lines at the HS 8-digit level (7.4% of total lines) were subject to automatic import licensing,
up from 560 tariff lines (7.1% of total lines) in 2009; 32 tariff lines were added to the list on 1 January
2010, and 21 lines on 1 January 2011. These concerned mainly poultry, vegetable oil, tobacco,
chemical fertilisers, coal, natural rubber, iron ore, crude and processed oil, steel, machinery
products, automobile components, and ships.
1.15.4 State Trading
The State may subject certain goods to state trading, with a view, inter alia, to ensuring stable
domestic supply, stabilising prices, food safety, and protecting the environment and exhaustible
resources. Products subject to state trading (on imports) comprise: grain (including wheat, maize,
and rice), sugar, cotton, chemical fertiliser, tobacco, crude oil, and processed oil.
Only the China National Tobacco Import & Export Group Corporation, a state-trading corporation, is
allowed to import tobacco. All other products subject to state trading may be imported by both STEs
and non-STEs meeting certain requirements; no data on import and export quantities for products
subject to state-trading arrangements for the review period were made available to the Secretariat.
Most state-trading products are also subject to tariff rate quotas. Data provided by the authorities
show that the shares of tariff rate quotas allocated to STEs remain high and unchanged. In 2011,
STEs accounted for 90%, 70%, 60%, 50%, and 33% of total tariff quotas allocated for wheat, sugar,
maize, rice, and cotton, respectively.
1.15.5 Contingency Trade Measures
Anti-dumping measures
MOFCOM is responsible for investigating and determining dumping, injury, and causal link. When
the anti-dumping investigation involves agricultural products, the injury investigation is conducted
jointly by MOFCOM and the Ministry of Agriculture.
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China's anti-dumping system includes a range of mechanisms to provide interested parties access to
information, and rights of participation.
China may take ''corresponding'' measures when a trading partner ''discriminatorily'' imposes AD
measures on exports from China. This article provoked questions and concerns from Members in the
October 2002 meeting of the WTO Committee on Anti-Dumping Practices. China answered that
China had not applied Article 56, and that before taking ''corresponding measures'' in respect of a
WTO Member China would resort to the relevant WTO dispute settlement provisions. Recently, the
EU submitted a request for consultations regarding China's AD measure on Certain Iron and Steel
Fasteners; issues that the EU wishes to raise in the course of the consultations include Article 56 of
the Regulations.
Initiations of AD investigations by China increased from 14 in 2008 to 17 in 2009, then decreased to
8 in 2010. According to the authorities, of the 25 investigations initiated in 2009 and 2010, around
80% resulted in provisional measures, compared with 94% in 2007-08. China had 117 AD duty orders
in effect as of December 2010, up from 97 in 2009. Imports from 18 countries or territories were
affected. Imports from Japan are subject to the largest number of China's AD duty orders,
accounting for about 20% of the total, followed by the Republic of Korea (17%), and Chinese Taipei
(10%). Chemical products account for 58% of these orders, while 26% involve resins, plastics, and
rubbers. Other categories subject to AD duty orders are base metals, minerals, and papers, each of
which accounts for less than 5% of all orders; 43% of AD duty orders had been in place for more than
5 years.
Table 30: China's anti-dumping measures by product and by country (in force as of 31 December 2010)
Country Products45
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Japan 13 5 1 1 2 1
South Korea 12 4 1 1 1 1
United States 10 5 1 1 1 1
Chinese Taipei 6 5 1
EU 4 2 1 1 1
Russia 2 3 1
Singapore 3 2
India 3
Indonesia 2 1
Malaysia 2 1
Thailand 3
United Kingdom 2 1
France 1 1
Germany 2
Italy 1
Netherlands 1
45 Products:
(a) Products of the chemical and allied industries. (f) Machinery and electrical equipment
(b) Resins, plastics, and articles; rubber and articles. (g) Textiles and articles.
(c) Base metals and articles. (h) Live animals and products.
(d) Mineral products. (i) Prepared foodstuff; beverages, spirits, vinegar; tobacco.
(e) Paper, paperboard, and articles.
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Country Products45
(a) (b) (c) (d) (e) (f) (g) (h) (i)
New Zealand 1
Saudi Arabia 1
Total 68 31 5 4 3 2 2 1 1
Source: WTO document G/ADP/N/209/CHN, China's Semi-annual Report under Article 16.4 of the Anti-Dumping Agreement.
Countervailing measures
China initiated its first countervailing investigation on 1 June 2009. By end-August 2011, it had
initiated four investigations, involving grain-oriented flat-rolled electrical steel, broiler products,
saloon and cross-country cars, all originating in the United States, and potato starch originating in
the EU. The three investigations initiated in 2009 all concluded that there existed a subsidy, an injury
and a causal link between the subsidy and the injury. Of the three investigations, two resulted in
countervailing duty orders while the other has not as yet resulted in a CVD. The case initiated in
2010 is currently under investigation. The average duration of countervailing investigations is around
13 months.
Safeguards
China has not initiated any safeguard investigations pursuant to the WTO Agreement on Safeguard
since its previous Review.
1.15.6 Standards and Other Technical Requirements
Standards and technical regulations
China continues to be an active member of the WTO Committee on Technical Barriers to Trade.
According to the authorities, in the period 1 January 2009 to end-October 2011, China made a total
of 350 notifications to the Committee on Technical Barriers to Trade (including revisions, addenda,
supplements, and corrigenda). In the same period, through 37 supplementary notifications,
unofficial English translations were provided by the EU for some of the documents referred to in the
notification. China's notifications cover a wide variety of products and concerns, with particular
emphasis on human health and safety. China has used the Committee to raise concerns about
measures or proposed measures in its export markets on products ranging from toys to herbal
medicines. Other Members have also expressed concerns about technical barriers to trade (TBT)
measures taken and proposed by China on products ranging from cotton and textiles to lighting and
light signalling devices for motorbikes.
China is a member of the International Organization for Standardization (ISO), the IEC, and the
International Telecommunication Union (ITU), the World Health Organization of the United Nations
(WHO), and Codex Alimentarius Commission, as well as several regional standards organisations
such as the Pacific Area Standards Congress.
There are four levels of standards in China: national, trade, local and enterprise standards. If there
are no national standards for technical requirements that need to be standardised for certain trades
throughout the country, trade standards may be formulated. Trade standards become null and void
automatically after the corresponding national standards enter into effect. In the absence of
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national standards or trade standards, local standards may be formulated on safety and sanitation
requirements for industrial goods that need to be unified in the provinces, autonomous regions, and
municipalities directly under the Central Government. Local standards become null and void
automatically after the corresponding national standards or trade standards enter into effect. In the
absence of national standards, trade standards or local standards for certain products, the
enterprises producing such products may formulate their own standards as the basis for organising
production. Where there are already national, trade or local standards, enterprises are encouraged
to formulate and apply enterprise standards that are stricter than the corresponding standards.
Local standards for safety and hygiene for industrial products are mandatory in the administrative
region in which they were developed. Standards in other categories are voluntary.
Product certification
Under the Regulations on Certification and Accreditation, products listed in the Compulsory Product
Certification Catalogue may not be sold or imported into China unless they have China Compulsory
Certificates and carry CCC marks. The catalogue lists 22 groups and 163 categories of products,
including electrical wires and cables, circuit switches, low-voltage electrical apparatus, small power
motors, electric tools, electric welding machines, telecommunications equipment, motor vehicles,
tyres, agricultural machinery, household electronic appliances, audio/video equipment, information
technology, lighting appliances, safety glass, latex products, medical apparatus and instruments, fire
safety and prevention products, decoration and ornament products, and toys.
Ten certification organisations were designated by the CNCA to process applications for CCC marks.
The China Quality Certification Centre (CQC) has established 11 branches (branch centres) and has
more than 200 designated laboratories, both in China and abroad.
Sanitary and Phytosanitary measures
Responsibility for policy, legislation, regulations and their implementation on sanitary and
phytosanitary issues in China is divided among a number of Government agencies. China is a
member of the Codex Alimentarius and the World Organization for Animal Health and a contracting
party to the International Plant Protection Convention. In each case, the contact point is the relevant
department of the Ministry of Agriculture.
China is an active participant in meetings of the WTO SPS Committee. In the period between 1
January 2009 and 31 October 2011, China made 376 notifications to the WTO SPS Committee
(including revisions, corrigenda, addenda, and supplemental notifications). On several occasions,
other Members have used the Committee to raise concerns about SPS measures taken or proposed
by China, including hygiene standards for distilled spirits, import restrictions on products, and
quarantine testing, as well as about SPS notification practices. The concerns about SPS notification
practices followed the adoption of the Food Safety Law of 2009 with nearly 100 notifications made
with a 15-day comment period. China has also used the Committee to raise a number of issues with
other Members, including: measures taken by the United States on imports of food products
containing meat, poultry or processed egg products, imports of wooden handicrafts, imports of
catfish, and new legislation on food safety; measures taken by Canada on exporters of pet foods;
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and measures taken by the EU on testing controls for imports on certain types of kitchenware from
China and Hong Kong, China.
Labelling
All products sold in China must have Chinese language labels. The label must state, inter alia, name,
specification, net weight, date of manufacture, component or ingredient list of the product, the
manufacturer's name, address and contact information, country of origin, quality guarantee period,
product standard code and storage conditions, common name, and production licence of food
additives.
1.15.7 Government Procurement
China is now well-engaged in the process of acceding to the WTO Agreement on Government
Procurement (GPA), and preparatory work is under way on eventual changes to the legislative
framework to bring it in conformity with the GPA. Related institutional adaptations, including
training of central and local government personnel to implement the agreement, are also in
progress. When completed, China's accession to the GPA is expected not only to substantially
facilitate trade, but also to facilitate a modernisation of China's procurement system that will yield
substantial benefits for China.
The Government's objectives in procurement include: improving efficiency in the use of public funds;
protecting the rights and interests of the parties participating in government procurement; and
promoting better governance. In addition, there is growing recognition of the significance of the
government procurement system for both trade and FDI in China.
According to data provided by the authorities, the total value of government procurement increased
to ¥842.2 billion in 2010, up from ¥599.1 billion in 2008; it accounted for about 2.1% of GDP (2% in
2008). However, on average, sources indicate that government procurement in developed and
developing countries accounts for 10-15% of GDP. The authorities maintain that this small
percentage is mainly because the data cover only procurement by government departments,
institutions, and public organisations using fiscal funds, for goods, construction, and services listed in
the Centralized Procurement Catalogue.
Local governments account for a major part of government procurement in China; they accounted
for about 93% of the total value of government procurement in 2010. According to the authorities,
there are no data on how much of the ¥4 trillion economic stimulus package was allocated to
government procurement.
The Government does not consider procurement by state-owned enterprises (SOEs) as government
procurement; the authorities state that China has no plan to include procurement by SOEs, whose
daily operations are not controlled by the Government, into the scope of its definition of
government procurement.
Under the Government Procurement Law, the Government is, in principle, required to procure
domestic goods, projects, and services. Exceptions can be and are routinely made when the goods,
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projects, or services required are unavailable in China or unavailable on reasonable commercial
terms, or when the goods, projects, and services are procured for use outside China.
Furthermore, there are no provisions on local content, or rules of origin, to determine whether a
product is produced domestically. In practice, procurement of foreign products appears to occur
routinely. The authorities state that the statistical system for China's government procurement has
no data on the procurement of foreign products.
China has not signed any bilateral or regional agreement on government procurement to date.
Import-related financing
The state-owned Export-Import Bank of China (EX-IM Bank) offers import credit to importers in
China. This is intended to satisfy the medium- and long-term capital needs of importers of, inter alia,
capital goods, resources, energy sources, raw materials. In 2010, EX-IM Bank facilitated imports of
products to a value of US$ 53.1 billion.
1.15.8 Measures Directly Affecting Exports
Procedures
Exporters must register with Customs before making customs declarations, which must be made by
the consigner or an entrusted agent (declaration enterprise) after the goods arrive at the customs
surveillance zone, and 24 hours before loading, unless otherwise approved by Customs. China's
customs transit procedures for exports have remained largely unchanged since 2009.
Exports of animals and plants and their products are subject to SPS requirements similar to those on
imports, and to the requirements of the importing country. Enterprises exporting certain products
may go through inspection at their production areas, rather than at ports; AQSIQ has a positive list
of these products, comprising 2,623 tariff lines at the HS 10-digit level. However, these exports need
to be inspected at the port if they are transported in bulk, are for foreign assistance, need to be
repacked at ports, or are subject to bilateral or regional agreements requiring SPS inspection at the
border. Goods that do not meet the SPS requirements are not allowed to leave the country.
Export subsidies
The authorities state that China does not provide any export subsidies. In October 2011, China
notified to the WTO its subsidy programmes during 2004-08.
Export taxes
China's export taxes, in the form of statutory rates and interim rates (applied for a specific period),
are levied on an MFN basis. In 2011, statutory export taxes were applied to 99 tariff lines (at the HS
8-digit level, except for 1 tariff line where the rate is applied only partially) up from 95 in 2009. The
99 tariff lines involved 70 lines subject to lower and three to higher interim export taxes; the
remaining 26 lines had no corresponding interim duties. Interim export taxes also applied to 237
tariff lines that were not subject to statutory export taxes; out of the 237 lines, 4 lines involve
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interim rates that are applied only partially. Most export duties involve ad valorem rates ranging
from 0 to 40% (unchanged since 2009).
Tax rebates on exports
Excise tax is fully rebated on exports.
VAT may be rebated on exports, although the rebate rates are, by and large, lower than the VAT
rates actually paid. The difference between the two rates constitutes a levy on exports, which may in
turn constitute assistance to downstream processing of the products affected, and could affect
China's terms of trade. China adjusts VAT rebate rates as part of its industrial policies, to control,
restrict, or otherwise "manage" the export of certain products. In particular, on 15 July 2010, China
eliminated VAT rebates on exports of steel, starch, ethanol, and semi-finished copper products,
covering 406 tariff lines. VAT rebates on exports reached ¥920.5 billion in 2011, some 7.7% of total
merchandise exports (up from ¥648.7 billion and 7.9% in 2009).
China does not have any duty drawback schemes other than those under "processing trade".
8.6.12.1 Tax concessions under processing trade
Under the mode of "processing trade", goods are imported in bond (therefore not subject to import
tariffs and related tax) if they are exported within a certain period after processing and assembly.
However, materials and parts listed in the Catalogue of Goods Subject to Import Prohibition Under
Processing Trade may not be imported in bond and thus are still subject to import tariffs and related
tax.
1.15.9 Export Prohibitions, Restrictions, and Licensing
Export prohibitions
Products listed in the catalogues of products subject to export prohibitions are prohibited from
being exported under normal trade, mainly because of China's international obligations and
domestic considerations regarding environmental and human health protection, and preservation of
natural resources. China has released five batches of export prohibition catalogues since its
accession to the WTO; the last took effect on 1 January 2009. China maintained general export
prohibitions on a total of 45 items at the HS 8-digit level in 2011 (no change since 2009).
Export quotas and licensing
Rare earth has been subject to export quota and licence since 1999. Quotas for coal exports were set
at 38 million tonnes for 2011. China also introduced export quotas (together with licensing
requirement) on rare earth ferroalloy (ex. HS 7202.99.91) on 20 May 2011. The authorities believe
that these export restrictions could help conserve natural resources or protect the environment.
Export quotas
China applies global quotas as well as destination-specific quotas. Destination-specific quotas apply
to live cattle, live swine, and fowl to be exported to the Hong Kong and Macao Special
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Administrative Regions (SARs). In 2011, global export quotas applied to 181 lines at the HS 8-digit
level, up from 173 lines in 2009; the increase reflects, inter alia, the addition in May 2011 of rare
earth ferroalloy (ex HS 7202.99.91).
Export licences
China's export licensing requirements are implemented mainly to fulfil its obligations under
international agreements. In 2011, 246 lines at the HS 8-digit level were subject to export licensing
(242 lines in 2009); these do not cover lines subject to global export quotas.
8.6.12.2 State trading on exports
China maintains state trading on some exports with a view to: ensuring stable domestic supply;
avoiding drastic price fluctuations in international markets; safeguarding food safety; and protecting
exhaustible and non-recyclable natural resources and the environment. State trading is not used to
fulfil the Government's contractual obligations, except in certain circumstances, such as food aid to
foreign countries.
Exports that are subject to state trading (the same as at the time of the previous Review) include
maize, rice, coal, crude and processed oil, cotton, antimony and antimony products, tungsten and
tungsten products, silver, and tobacco.
While imports subject to state trading may be imported by non-state-trading enterprises (STEs),
exports subject to state trading must always be exported by STEs. Some STEs, however, are not
state-owned enterprises (SOEs) (for example, for the exports of tungsten, antimony, and silver). The
authorities maintain that export prices charged by STEs are determined by the enterprises
themselves, based on, inter alia, domestic prices plus transportation and storage costs, interest
rates, inspection fees, and international market prices.
Export finance, insurance, and guarantees
China provides export credit financing mainly through its official export credit agency, the Export-
Import Bank of China (EX-IM Bank); it also provides export credit insurance, by the China Export &
Credit Insurance Corporation (SINOSURE). According to the authorities, both domestic and foreign
firms receive export finance or export credit insurance from the EX-IM Bank or SINOSURE under the
same terms and conditions, and there is no local-content requirement to obtain export finance.
An estimate provided by the Chinese authorities indicates that in 2008 the total value of new
medium- and long-term (i.e. more than one year) official export credit by the EX-IM Bank amounted
to US$ 6.3 billion.
The EX-IM Bank, the only bank providing export credit in China, is wholly owned by the Central
Government. The EX-IM Bank raises funds, inter alia, through the sale of bonds in the domestic and
Hong Kong China capital markets; according to the Bank, its credit ratings are compatible with
China's sovereign ratings. The Bank's main mandate is to facilitate the export and import of Chinese
mechanical and electronic products, complete sets of equipment, and new- and high-tech products;
assist Chinese companies with comparative advantages in their offshore contract projects and
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outbound investment; and promote its foreign relationship and international economic and trade
cooperation.
The authorities have indicated that, although China is not a participant in the OECD Arrangement on
Officially Supported Export Credits, the EX-IM Bank in practice "refers to the Arrangement for key
conditions of issuing export credit and is generally consistent with the basic framework of the
Arrangement", and that "its lending interest rate is either a fixed one taking reference from OECD-
released CIRRs or a floating rate which is a reconciled LIBOR".
SINOSURE is China's only policy-oriented insurance company specialising in export credit insurance.
As a wholly state-owned company, SINOSURE was set up to facilitate Chinese exports and
investments, especially exports of high-tech or high value-added capital goods, by offering export
credit insurance against non-payment risks, and providing services in financing, information, and
receivables management.
Promotion and marketing assistance
Apart from export financing and insurance, other export assistance includes: online information
provided by MOFCOM to facilitate exports, such as information on goods and markets (e.g. list of
importers and exporters); support for SME to participate in overseas exhibitions and to acquire
international certifications; building overseas labour service platforms to assist the Chinese people
working abroad; export fairs held by China Foreign Trade Centre under MOFCOM; consultation
services offered by the China Council for the Promotion of International Trade (CCPIT), and the
International Market Exploration Fund managed by MOFCOM and MOF, to promote SMEs'
participation in overseas exhibitions.
1.15.10Measures Affecting Production and Trade
1.15.11Taxation and Tax Incentives
Overview
China's tax revenue increased steadily during the review period (Table III.7). China applies the same
taxation to domestic- and foreign-funded enterprises, except for transitional arrangements for
preferential policies to FIEs under the previous Law on Income Tax of Enterprises with Foreign
Investment and Foreign Enterprises.
Indirect taxes
Indirect taxes, including import duties, VAT, consumption tax, business tax, city maintenance tax,
tonnage tax (for ships), resource tax, and tobacco leaf tax, account for most of China's tax revenues
(76% in 2011, up from 74% in 2009).
Direct taxes
Direct taxes accounted for 24% of total tax revenue in 2011, down from 26% in 2009. Revenues from
enterprise income tax and individual income tax are shared 60:40 between the Central and local
governments.
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Tax incentives
Tax incentives accorded in China include enterprise income tax rate reductions or exemptions and
VAT reductions.
Under the Enterprise Income Tax Law, incentives are given to enterprises investing in less developed
regions, such as western China, and for investment in activities encouraged by the Government,
such as agriculture, environmental protection, renewable energy, software and integrated circuits
industries, and securities investment and fund development. Enterprises engaging in high-tech and
new-technology activities are subject to an enterprise income tax at 15% (instead of the statutory
25%).
SMEs may benefit from, inter alia, lower enterprise income tax and lower VAT.
Transfer pricing
Article 41 of the Law on Enterprise Income Tax stipulates that business transactions between
enterprises and their affiliates that are deemed to reduce the taxable income or income of such
enterprises and their affiliates and that are not in compliance with the arm's-length principle are
subject to the Law. In this case, the taxation authority has the right to make an adjustment in
accordance with reasonable methods. The Regulations on the Implementation of the Enterprise
Income Tax Law further set out details of the arm's-length principle and reasonable methods for
transfer pricing.
Bilateral agreements on avoidance of double taxation
China had signed 96 agreements on avoidance of double taxation by the end of June 2011. In the
period between 2010 and 2011, China concluded or updated such agreements with Finland, Malta,
Syria, and Zambia.
1.15.12Subsidies and Other Government Assistance
General features
The use of subsidies and other government assistance appear to be an important feature of China's
trade policy making. However, because of the limited information made available, it is difficult to
confirm this. In general, very few details are available on China's subsidies and other government
assistance, particularly at the sub-central level, on their type and size, the financial outlays involved,
and the objectives of the programmes and their results.
Government assistance to business is granted at the central and sub-central (e.g. provincial) levels.
The main instruments of support are direct grants, subsidised loans, and tax benefits, which include
exemption or reduction of value-added tax, enterprise income tax, and import duties.
China's latest notification to the WTO on subsidies (2009 notification) contains information on
assistance to businesses established in various sectors or regions. It lists programmes providing
government assistance at the central government level between 2005 and 2008; no information
regarding subsidy programmes provided by local governments has been provided. In many cases,
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there are no precise figures on the magnitude of subsidies provided by the government, many of
which are in the form of tax benefits.
Assistance to the automotive sector
In the face of the global economic recession, an Industry Revitalisation Plan for the Automotive
Sector was adopted for the period 2009-11. Consumers, inter alia, in rural areas received financial
assistance when they purchased new vehicles; assistance was also extended for scrapping old
automobiles. The authorities note that this programme was abolished on 1 January 2011.
In 2009, the central government started to provide lump sum grants to consumers who bought new
energy-saving or new energy cars listed in a promotion catalogue.
Assistance to small-and medium-sized enterprises
The Government accords financial assistance to SMEs; this includes grants, subsidised loans, and
capital investment to the enterprises.
The Development Fund for SMEs provides them with grants or subsidised loans for projects that
SMEs invest in. Assistance up to ¥3 million is provided for each individual project invested.
Government assistance for interest payment should not exceed 2 years.
A Special Fund for the Establishment of Service System for SMEs provides financial assistance to
institutions that provide SMEs with services, including training, management consulting, and helping
SMEs to start a business. A Fund for SMEs International Market Exploration provides SMEs with
financial assistance for their international marketing activities; the assistance includes grants
covering the cost of attending exhibitions, accreditation fees for quality management system,
environment management system or for the product.
Enterprises making low profits receive preferential tax treatment.
Other assistance
It would appear that some incentives appear to exist at the sub-central level, mainly cash awards, for
locally registered enterprises to apply for famous brand recognition. It was not clear to the
Secretariat whether all measures at the sub-central level have been abolished along with the
abolition of measures at the central level.
China notified a number of measures to assist R&D; most of them involved preferential tax
treatment.
FDI and foreign-invested enterprises received preferential tax treatment until the end of 2007. Since
1 January 2008, high- and new-technology industries have been subject to a preferential enterprise
income tax rate (15%, instead of the standard rate of 25%); high- and new-technology industries
established in certain SEZs and some other areas receive preferential tax treatment.
For agriculture, China adopts domestic support measures including direct payments, insurance
programmes, input subsidies, and internal price supports (Chapter IV(1)).
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1.15.13Industrial Policies
Industrial policies remain important aspects of the Government's policies to "guide" the allocation of
resources. During the period under review, no changes were made to the 2009 "industrial policy"
programmes that identified ten sectors (nine manufacturing) most affected by reduced external
demand due to the global crisis.
Under the 2009 programme, sector-specific policies were issued to boost development of the ten
sectors. The major measures include: lowering the taxes levied on enterprises, for example, by
adjusting VAT rebate rates; providing preferential loans or other financial assistance to enterprises in
these industries to encourage, inter alia, innovation. The Government also aims to consolidate
industry structures by encouraging mergers and acquisitions. Tax policies China adopted under the
industrial revitalisation plans for ten sectors included adjustments of the VAT rebate on exports of
certain products, and reduction of the purchase tax for certain passenger cars. During the period
under review, value-added tax rebate rates were not adjusted in favour of exporters. Financial
supports provided under the industrial revitalisation plans for ten sectors are mainly those to
promote direct consumption, including subsidies for home appliances going to the countryside,
automobiles and motorbikes to the countryside, and "old for new" household appliances. The
authorities maintain that commercial banks in China follow market principles when providing loans.
State-owned enterprises, private enterprises, and corporate governance
Enterprises may be grouped into: SOEs, collectively owned enterprises, joint-stock enterprises,
"domestic private" enterprises, individual businesses (sole proprietorships), and foreign-invested
enterprises (FIEs). Under the "guidance" of the Government, inter alia, FIEs, whose productivity is
usually higher, have been encouraged owing to their more advanced technology, or better sales
channels abroad.
SOEs have traditionally benefited from better access to capital than domestic private enterprises,
although the authorities emphasise that this is due, inter alia, to historical reasons and the size of
enterprises, and that the Government has always supported the development of enterprises of all
ownership structures equally.
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1.16 Findings and Conclusion
The following is a summary of the findings
Table 31: Summary of the findings
Str
ateg
ic le
ader
ship
Exp
ort
sp
ecif
ic le
gis
lati
on
Sp
ecif
ic N
ES
TP
O le
gis
lati
on
TP
O f
un
ctio
n
Fu
nd
ing
Nat
ion
al d
evel
om
ent
pla
n
Su
b-n
atio
nal
dev
elo
pm
ent
pla
ns
Str
ateg
ic e
xpo
rt g
oal
s
SM
AR
T t
arg
ets
Sec
tor
targ
ets
Exp
ort
er D
evel
op
men
t
Exp
ort
dev
elo
pm
ent
Lin
ked
to
FD
I
Acc
ess
to f
inan
ce
Imp
rovi
ng
co
mp
etit
iven
ess
Lin
ked
to
En
terp
rise
dev
elo
pm
ent
Lin
ked
to
Ind
ust
rial
dev
elo
pm
ent
Philippines X GC CD X X X X X
Malaysia X X GC* X X X X X
Jamaica X GC CD X X X X
Uganda X X GC X X X X
Ireland X GC* X X X X X X
Canada GCR CR X X X X X
USA X R** CR X X X X X
UK x WP GCR X X X X X X
Australia X GCR
CRP X X X
Chile X CG X X X
GGovernment
RRegional
CCentralised
PPrivate
MPPP
*Commercial orientation
**Trade Promotion Coordinating Committee
DDonor-aid
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1.16.1 Background Legislation and Institutional Framework
All the initial ten countries researched have a legislative and institutional framework for the NES. In
most cases (Philippines, Malaysia, Jamaica, Ireland, Canada, and the United Kingdom) the NES was
an integral part of, or was drawn up against the background of, a national economic development
plan. Specifically of interest:
Malaysia: The Matrade Act (Matrade is the national trade promotion body) and a 5-year plan against
the Third Industrial Master Plan.
Ireland: Enterprise Ireland (established under the Industrial Development – Enterprise Ireland – Act
of 1998) plans against the National Development Plan 2007 – 2013 and Action Plan for Jobs.
United Kingdom: Export strategy part of the Plan for Growth 2011, based on a White Paper approach
allowing for stakeholder input. United Kingdom Trade and Investment (government department) is
responsible.
Brazil: The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) was formerly a Special
Management Unit at Sebrae (Brazilian Service to Support Micro and Small Enterprises, roughly
equivalent to the SEDA, but in 2003 was established as an autonomous social service affiliated to the
Ministry of Development, Industry and Foreign Trade.
United States: The current export drive is being led from the top, following President Obama’s target
in 2010. No single export promotion organisation at any level although International Trade
Administration of Dept. of Commerce is the lead federal agency in non-farming export promotion;
TPCC coordinates federal agencies, mostly federal government departments; President’s EPC
includes key members of TPCC plus White House advisers (there is thought that this has merely
created an additional layer); many states have their own export development bodies, both public
and private sector.
Regarding India and China various mechanisms for export development (duty drawbacks, etc.,
special export or industrial zones, etc.) are covered by individual legislation. The WTO TPR reports
admitted that not a great deal of information on export strategy was forthcoming; with India this
was partly due to the devolution of power to individual provinces and the complex legislative
environment.
1.16.2 Strategic Export Goals
All ten countries initially researched set out specific strategic goals. These usually covered specific
growth and value targets; but they also included longer-term strategic issues such as:
Moving up the value chain and capturing higher-value processes in global supply chains (i.e.
increased beneficiation and processing locally prior to export)
Sector-specific goals, usually based on the country’s resources
Stimulating innovation and driving competitiveness
Developing and supporting enterprises
Market-specific goals, usually linked to sector goals.
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1.16.3 National Export Strategy and Foreign Direct Investment
Some countries link export strategy to promotion of FDI: Uganda, Australia, Chile, Canada at regional
level, and the United Kingdom.
Malaysia, Philippines, Jamaica and Ireland separate the two issues.
1.16.4 Financing the NES and Associated Programmes
In all the countries researched, the NES and associated programmes are financed at varying levels
through central budgets. In federal/provincial environments, (e.g. Canada, United States, Australia)
additional funding is usually provided at regional, provincial and state level.
Developing countries such as Jamaica, Philippines and Uganda, solicit additional NES
funding/assistance from international and foreign agencies, e.g. ITC and CBI.
1.16.5 Export Development
We looked at export development initiatives in terms of product development, capacity building and
market development and access.
Product development: This is a focus in most countries, with the emphasis on added value, often
linked to specific sector targets.
The developed countries show a strong link to innovation, for which assistance/incentives are
allocated (United Kingdom, Ireland).
1.16.6 Capacity Building
Capacity building – management and production:
Understandably, this is a focus of the developing countries and is linked to specific targeted sectors
in some cases; it can include access to funding to increase output.
In developed countries, capacity building is linked to educational institutions to develop
management capabilities; access to funding is also provided.
Malaysia should be noted for its programmes for Bumiputera (indigenous Malays) and women,
which are drawn up in conjunction with the National SME Development Council.
Capacity building – infrastructure:
Development of infrastructure to support increased exports is an essential element of national
economic development plans (medium- to long-term) of countries such as the Philippines and
Uganda, as well as Jamaica and the more developed Malaysia.
It is not specifically mentioned in planning by developed countries such as the United Kingdom and
the United States.
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1.16.7 Market Development/Market Access:
In most cases, this development aspect is approached by negotiating more FTAs.
In the case of the United Kingdom, the policy is to encourage more EPAs between the European
Union and other countries and to promote open trade policies.
Australia and Chile have specific programmes focusing on Asia and other high-growth markets linked
to priority sectors.
1.16.8 Priority Sectors
We looked at the priority sectors that the countries are targeting and the issue of country branding
(this is in the context of exports and FDI). Philippines and Jamaica have a range of products and are
promoting their individual countries as ‘brands’. Uganda is working on country image-building, with
no specific brand. Canada positions itself as an energy supplier of choice (for FDI). Chile has been
using the overall brand slogan “Chile: All Ways Surprising” (reportedly not very successfully).
Australia is using the slogan “Australia Unlimited”.
It is interesting that Matrade (Malaysia) does not promote “Malaysia” as a brand, but does promote
individual Malaysian brands.
1.16.9 Brazil, India and China
As explained earlier, we were unable to conduct detailed research on these three countries. In the
case of India and China, especially, it appears from the TPR that import barriers on certain goods are
high, both in terms of procedures and tariffs.
At the same time, while both countries maintain that they no longer provide export subsidies at
central government level, it is highly likely that assistance could be provided at provincial or state
level. The WTO admitted that it was not provided with sufficient information by the Chinese
authorities to determine the situation.
All three countries are active users of anti-dumping measures.
While we recognise that it is important for the dti to understand the assistance in whatever form
that is provided to Indian and Chinese exporters, we do not believe (contrary to some export
associations) that a South African INES must be based solely – or even mainly – on such practices.
1.16.10Points for Consideration
The following threads running through the NES approaches by the countries researched are worth
considering when the INES for South Africa is drafted.
Leadership
128
Export initiative is led from the top: President Obama in the United States, as well as the heads of
other countries (including the prime ministers of the United Kingdom and Australia), took the lead in
driving a renewed export strategy for the country.
Top-level coordination where several levels of government are involved, for example:
President’s Export Promotion Cabinet in the United States.
‘Business Canada’ (federal government grouping) web site linking all government departments and
agencies with export programmes (one-stop government contact point for companies).
For South Africa, top-level leadership is critical as is integration of all government departments that
impact on foreign trade in any way: Departments of Trade & Industry; Agriculture, Forestry &
Fisheries; Home Affairs; International Relations & Cooperation; Economic Development; Energy;
Environmental Affairs; Higher Education & Training; Labour; Mineral Resources; and National
Treasury, to name the more obvious ones.
Consultative
How strategy is developed: Consultative process used in Canada and United Kingdom, through White
Papers, to ensure all stakeholders ‘buy-in’. In other countries there is a public sector/private sector
partnership; in South Africa this might be an Export Development Council (similar in status to the
National Planning Commission?).
Focused
Sector focus:
All the countries have a degree – in some cases very marked – of sector focus. This can result
in a more effective use of limited resources.
Uganda’s matrix of sectors/needs/initiatives is a good example.
Involvement of industry associations in joint programmes.
Targeting of sectors must be accompanied by clear implementation programmes.
SME/HDI and women focus:
SME focus is considered important by all; implementation methods are somewhat different
between developed and developing countries.
Malaysia is a good example of specific focus on HDI and Women sectors, but through National SME
Development Council; Matrade is involved only when the groups are export-ready.
In Canada, Malaysia, Brazil and Ireland, primary SME development is not undertaken by the TPOs,
but by other special bodies. The TPOs have special programmes for export-ready SMEs.
In South Africa, for practical reasons there should be a split between SME development and the
export development of export-ready SMEs. This would prevent certain problems that arise, for
example, with outwards trade missions and training programmes.
Market focus:
Critical Analysis for the Integrated National Export Strategy
Page 129 of 481
The developing countries researched focus on high-growth, emerging markets. This strategy
provides for more effective use of limited resources.
At the same time, traditional markets are not ignored, even by the developing countries.
The development and implementation of free trade agreements to a successful INES is
acknowledged.
The support of a liberal trade regime is voiced by most countries, but in some cases this is possibly
more “lip service” than implemented policy. This is seen as being the case with India and especially
China.
For South Africa, the lesson is possibly to maintain a balance between traditional partners (who
purchase a greater mix of value-added goods from South Africa) and the high-growth emerging
markets. Sector-specific strategies should take market focus into account.
Export development:
This area encompasses many elements of competitiveness and is clearly one that South Africa needs
to pay attention to.
Product development receives high priority in every case (including India and China), with the
emphasis on moving up the value-added curve. Innovation plays an important role and is assisted.
Global value chains are emphasised in most strategies.
Product development is linked to target sectors and covers all aspects of the product, including
packaging and branding. Product standards and international compliance are essential background
issues in this context. South Africa is reasonably placed in this area.
Capacity building at enterprise level is important in all countries, but especially so in developing
countries. Various funding programmes have been developed for the establishment and expansion
of production units and improvements in productivity.
Generally there is a close link between the TPO and leading educational institutions to provide
suitable business development programmes. This link does not seem to be as well developed in
South Africa. There is also usually a network of business mentors (not be confused with consultants)
who help to transfer skills from established to emerging enterprises.
It may be useful to recall that in the 1950s, Malaysia, as a precursor to its major industrial push,
focused wholly on raising the level of the educational system and actively sought well-qualified
foreign teachers to take up positions in the system.
Capacity building in infrastructure is taken into account in the developing countries. The linking of
the NES to the national development plan in most cases helps to ensure that infrastructure planning
takes export goals into account. This is critical for South Africa not only regarding roads, rail, ports
and airports, but also power and water supply.
Competitiveness:
130
Australia and the United Kingdom are outspoken on reduced protection to improve competitiveness.
The Philippines and the United Kingdom have a policy to improve the general legislative
environment for exports: to remove/amend regulations that inhibit exports.
Philippines and the United Kingdom call for a stable (not weak) exchange rate policy.
Exporter development:
A previous study for the NEDP gave detailed information about exporter development programmes
in a number of countries, including Brazil, Canada, Malaysia and Ireland and contained
recommendations for South Africa. Some of the important points are repeated below taking into
account also the recent research into the additional countries.
All the TPOs provide a range of services including information, advice, training, promotional activities
(trade fairs and missions), trade leads and introduction.
All TPOs have a well-constructed, fully comprehensive web site providing fast links to all government
departments involved in exports as well as to information sources, online training, etc. Matrade’s is
especially effective.
Face-to-face counselling is extensive in Canadian TPOs, Enterprise Ireland, Matrade, UKTI, Austrade
and JAMPRO (Jamaica). Counsellors are extensively trained and tend to remain in their positions for
lengthy periods and develop specific sector and market knowledge. This is a critical element in the
success of the programmes run in these countries.
All TPOs use telephone and email contact with exporters. Matrade uses all forms of digital
communication and has an sms warning system advising exporters of any change in product
standards in their target markets.
Cost of services:
Basic information services are free of charge.
Many of the countries also provide specific information free of charge.
Austrade and some US services charge for specialised information and research services based on a
pre-determined rate per hour.
ProChile works with industry associations on a cost-sharing basis for specific programmes.
General observations
South Africa’s INES needs to be endorsed from the top and to integrate relevant aspects and
activities of the large number of government departments that have an impact on the export
environment. It also needs to integrate activities at the various levels of government: national,
provincial and local.
Critical Analysis for the Integrated National Export Strategy
Page 131 of 481
To achieve the integration, consultation needs to be implemented at all levels and with the private
sector.
Planning should include specific objectives, actions and time frames.
Planning needs to cover raising the competitiveness level of South African production units through
product development (possibly on a sector basis), capacity building of enterprises and infrastructure,
removal of unnecessary barriers to export, and effectively delivering exporter support and assistance
programmes.
Above all leadership is a common thread in successful countries and leadership from the President,
the Cabinet, the Officials at all three spheres of government and business are necessary to drive a
successful export strategy.
132
Appendix 2. Global trade performance per country
Table 32: Global trade performance per country
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
World R 17 855 727 049
-R 281 638 900
5 19 100
Tuvalu R 13 082 -R 50 708 85 1 -14 202 0 93
Gambia R 94 731 -R 248 958 64 2 171 9 0 93
Burkina Faso R 2 312 412 -R 93 984 53 3 80 16 0 93
Niue R 3 934 -R 9 052 50 4 -93 224 0 93
Ghana R 18 400 572 R 4 827 245 44 5 252 5 0.1 66
Cocos (Keeling) Islands R 53 195 R 49 925 41 6 797 2 0 93
Guinea-Bissau R 344 772 R 44 050 40 7 110 14 0 93
Cayman Islands R 990 318 -R 2 330 459 36 8 -15 203 0 93
Democratic Republic of the Congo R 6 366 040 R 1 118 488 30 9 19 129 0 93
Eritrea R 338 135 -R 119 053 28 10 3118 1 0 93
French South Antarctic Territories R 19 051 -R 75 600 27 11 161 10 0 93
Lao People's Democratic Republic R 2 441 203 -R 1 521 362 26 12 44 40 0 93
Timor-Leste R 151 874 -R 436 555 25 13 148 11 0 93
Micronesia (Federated States of) R 51 488 -R 52 604 24 14 -11 200 0 93
Togo R 865 543 -R 342 177 24 14 30 79 0 93
Mongolia R 4 377 542 -R 2 001 323 24 14 43 46 0 93
Azerbaijan R 26 480 189 R 16 747 320 24 14 24 103 0.1 66
Mali R 498 844 -R 2 040 956 23 18 48 36 0 93
Rwanda R 417 342 -R 939 222 23 18 75 18 0 93
Qatar R 108 159 233 R 90 778 851 22 20 62 24 0.6 34
Benin R 924 880 -R 8 668 297 22 20 42 48 0 93
British Indian Ocean Territories R 12 299 -R 46 553 21 22 254 4 0 93
Nauru R 75 230 R 45 638 20 23 33 69 0 93
Ethiopia R 2 614 892 -R 6 281 396 20 23 12 169 0 93
United Republic of Tanzania R 4 734 960 -R 6 449 261 20 23 17 140 0 93
LAIA not elsewhere specified R 13 441 -R 28 516 376
19 26 -70 221 0 93
Cook Islands R 33 670 -R 70 495 19 26 36 62 0 93
Zambia R 9 000 946 R 1 823 158 18 28 25 100 0.1 66
India R 301 483 250 -R 160 919 541
18 28 37 59 1.7 17
Congo R 16 070 857 R 8 409 283 17 30 132 12 0.1 66
Cambodia R 6 704 137 R 560 804 17 30 20 122 0 93
Critical Analysis for the Integrated National Export Strategy
Page 133 of 481
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
Bangladesh R 25 891 270 -R 4 991 207 16 32 32 73 0.1 66
Mauritania R 2 457 999 R 5 293 16 32 239 6 0 93
Democratic People's Republic of Korea R 3 363 732 -R 418 388 15 34 63 23 0 93
Viet Nam R 97 730 073 -R 16 703 488
15 34 30 79 0.5 39
Paraguay R 5 517 377 -R 6 798 183 15 34 22 111 0 93
Uruguay R 8 141 179 -R 2 662 628 14 37 17 140 0 93
Indonesia R 203 496 619 R 26 061 069 14 37 29 86 1.1 25
Iraq R 75 313 114 R 47 178 222 14 37 53 33 0.4 46
Albania R 1 948 207 -R 3 447 646 14 37 26 97 0 93
Solomon Islands R 611 209 R 215 586 14 37 50 34 0 93
Bolivia R 9 112 658 R 1 439 998 14 37 31 75 0.1 66
Colombia R 56 953 516 R 2 278 694 14 37 43 46 0.3 54
Australia R 245 631 027 R 11 311 699 13 44 19 129 1.4 20
Malta R 5 278 694 -R 2 117 244 13 44 42 48 0 93
Malawi R 1 425 289 -R 1 002 407 13 44 34 68 0 93
Oman R 47 091 873 R 23 472 475 13 44 29 86 0.3 54
Comoros R 58 464 -R 112 285 12 48 72 19 0 93
Mayotte R 15 468 -R 360 780 12 48 69 20 0 93
Peru R 45 636 085 R 7 888 993 12 48 30 79 0.3 54
Panama R 14 554 816 -R 7 246 782 12 48 32 73 0.1 66
Papua New Guinea R 8 296 570 R 2 185 158 12 48 31 75 0 93
Niger R 973 822 -R 928 260 12 48 101 15 0 93
UAE R 191 748 223 R 4 866 466 11 54 42 48 1.1 25
Myanmar R 8 141 670 -R 4 152 896 11 54 28 90 0 93
Kyrgyzstan R 1 978 932 -R 2 281 755 11 54 33 69 0 93
Lebanon R 4 266 856 -R 15 895 781
11 54 0 187 0 93
Georgia R 1 990 845 -R 4 398 153 11 54 26 97 0 93
Kazakhstan R 88 117 775 R 50 079 070 11 54 54 31 0.5 39
Gibraltar R 290 124 -R 15 752 549
11 54 -33 213 0 93
Gabon R 10 445 322 R 7 007 777 10 61 67 21 0.1 66
Palestine R 74 114 -R 397 164 10 61 -31 211 0 93
Namibia R 5 900 941 -R 556 336 10 61 1 186 0 93
Republic of Moldova R 2 216 815 -R 2 974 456 10 61 44 40 0 93
Brazil R 256 038 702 R 29 795 293 10 61 30 79 1.4 20
China R 1 898 388 435
R 154 993 569
10 61 20 122 10.6 1
Tokelau R 41 435 R 10 273 10 61 230 7 0 93
134
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
Senegal R 2 541 705 -R 3 367 212 10 61 18 136 0 93
Nicaragua R 2 280 872 -R 2 766 388 10 61 23 105 0 93
Vanuatu R 382 299 -R 100 093 9 70 -20 206 0 93
Romania R 62 692 001 -R 13 673 284
9 70 27 95 0.4 46
Thailand R 228 823 973 R 340 671 9 70 17 140 1.3 22
Uganda R 2 159 077 -R 3 471 798 9 70 33 69 0 93
Ecuador R 22 345 204 -R 1 940 857 9 70 28 90 0.1 66
Afghanistan R 473 104 -R 10 004 368
9 70 -1 189 0 93
Republic of Korea R 555 208 898 R 30 803 674 9 70 19 129 3.1 6
Lithuania R 28 068 648 -R 3 732 640 9 70 35 66 0.2 59
Guatemala R 10 161 041 -R 6 449 773 9 70 20 122 0.1 66
Honduras R 3 533 561 -R 5 009 694 8 79 14 160 0 93
Kuwait R 93 389 545 R 74 425 364 8 79 41 52 0.5 39
Kenya R 5 853 310 -R 9 174 198 8 79 13 165 0 93
Latvia R 11 988 196 -R 3 442 583 8 79 35 66 0.1 66
Argentina R 83 950 225 R 7 001 024 8 79 23 105 0.5 39
Belize R 398 197 -R 439 666 8 79 41 52 0 93
Bulgaria R 28 165 220 -R 4 328 391 8 79 37 59 0.2 59
Belarus R 40 294 012 -R 5 453 057 8 79 60 27 0.2 59
British Virgin Islands R 616 489 -R 3 607 250 8 79 19 129 0 93
Estonia R 18 132 591 -R 651 143 8 79 42 48 0.1 66
Somalia R 151 854 -R 1 010 802 8 79 11 175 0 93
Nigeria R 109 116 162 R 61 950 305 8 79 37 59 0.6 34
Pakistan R 25 343 769 -R 18 234 490
8 79 18 136 0.1 66
New Zealand R 37 633 151 R 1 521 894 7 92 22 111 0.2 59
Saint Kitts and Nevis R 44 886 -R 201 769 7 92 40 56 0 93
South Africa R 92 975 613 -R 6 750 403 7 92 30 79 0.5 39
Singapore R 409 503 631 R 43 733 140 7 92 16 152 2.3 14
Saudi Arabia R 336 754 007 R 223 529 178
7 92 44 40 1.9 16
Sudan R 13 350 263 R 5 596 122 7 92 44 40 0.1 66
The former Yugoslav Republic of Macedonia
R 4 455 375 -R 2 551 876 7 92 187 0 93
Brunei Darussalam R 12 272 208 R 6 619 007 7 92 40 56 0.1 66
Bosnia and Herzegovina R 5 850 079 -R 5 200 496 7 92 22 111 0 93
Angola R 66 150 416 R 48 255 286 7 92 25 100 0.4 46
Mozambique R 3 604 118 -R 2 701 529 7 92 61 26 0 93
Côte d'Ivoire R 11 049 063 R 4 329 076 7 92 7 183 0.1 66
Critical Analysis for the Integrated National Export Strategy
Page 135 of 481
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
Guyana R 1 048 656 -R 635 294 7 92 12 169 0 93
Haiti R 884 091 -R 2 732 210 7 92 28 90 0 93
Guinea R 2 600 435 -R 321 482 6 106 27 95 0 93
Jordan R 7 963 486 -R 10 337 596
6 106 13 165 0 93
Hong Kong, China R 455 573 380 -R 55 281 358
6 106 14 160 2.6 11
Iran (Islamic Republic of) R 112 645 613 R 53 224 000 6 106 30 79 0.6 34
Barbados R 508 446 -R 1 266 957 6 106 62 24 0 93
Bermuda R 588 381 -R 3 090 898 6 106 -23 209 0 93
Sri Lanka R 10 011 282 -R 9 685 198 6 106 21 117 0.1 66
Egypt R 30 782 024 -R 28 486 933
6 106 17 140 0.2 59
Switzerland R 234 819 262 R 26 599 364 6 106 20 122 1.3 22
Norfolk Island R 3 682 -R 17 466 6 106 23 105 0 93
Russian Federation R 478 009 197 R 193 272 309
5 116 19 129 2.7 9
Poland R 188 105 090 -R 21 086 456
5 116 20 122 1.1 25
Serbia R 11 775 411 -R 8 364 021 5 116 20 122 0.1 66
Sao Tome and Principe R 18 868 -R 80 852 5 116 -16 205 0 93
Slovakia R 78 487 243 R 1 796 979 5 116 23 105 0.4 46
United States of America R 1 479 730 169
-R 782 855 465
5 116 16 152 8.3 2
Chad R 3 847 017 R 3 198 120 5 116 38 58 0 93
Faroe Islands R 951 276 R 113 081 5 116 28 90 0 93
Czech Republic R 162 111 727 R 11 569 284 5 116 23 105 0.9 30
Mexico R 349 569 049 -R 1 273 337 5 116 17 140 2 15
Chinese Taipei R 306 997 986 R 25 682 403 5 116 12 169 1.7 17
Malaysia R 226 992 682 R 39 419 673 5 116 14 160 1.3 22
Netherland Antilles R 4 759 197 -R 1 068 753 4 128 64 22 0 93
Israel R 67 796 328 -R 5 729 777 4 128 16 152 0.4 46
Greece R 31 711 070 -R 29 121 084
4 128 46 39 0.2 59
Cyprus R 1 957 548 -R 6 761 303 4 128 30 79 0 93
Chile R 81 411 129 R 6 504 054 4 128 15 159 0.5 39
Venezuela R 91 338 260 R 54 950 646 4 128 36 62 0.5 39
Ukraine R 68 393 034 -R 14 214 503
4 128 33 69 0.4 46
Turkey R 134 915 252 -R 105 923 601
3 135 18 136 0.8 32
Trinidad and Tobago R 18 921 120 R 11 717 900 3 135 36 62 0.1 66
Spain R 308 886 939 -R 65 581 123
3 135 26 97 1.7 17
Fiji R 733 680 -R 1 123 739 3 135 8 179 0 93
136
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
Armenia R 1 320 411 -R 2 788 937 3 135 31 75 0 93
Japan R 823 183 759 -R 32 196 715
3 135 7 183 4.6 4
Morocco R 21 795 732 -R 13 871 367
3 135 22 111 0.1 66
Montserrat R 3 760 -R 9 976 2 142 -38 215 0 93
Hungary R 111 216 834 R 9 846 837 2 142 17 140 0.6 34
Botswana R 5 881 918 -R 1 390 093 2 142 25 100 0 93
Costa Rica R 10 222 241 -R 8 041 564 2 142 13 165 0.1 66
Sierra Leone R 436 683 -R 944 091 2 142 24 103 0 93
Tunisia R 17 846 965 -R 6 105 160 2 142 9 177 0.1 66
Syrian Arab Republic R 7 207 002 -R 9 369 090 2 142 -8 195 0 93
Sweden R 187 179 002 R 11 178 942 1 149 18 136 1 28
Saint Helena R 25 223 -R 26 060 1 149 21 117 0 93
Portugal R 58 932 195 -R 21 392 266
1 149 21 117 0.3 54
Equatorial Guinea R 13 173 384 R 10 851 714 1 149 41 52 0.1 66
Falkland Islands (Malvinas) R 192 405 -R 20 576 1 149 4 185 0 93
Burundi R 181 601 -R 663 267 1 149 54 31 0 93
Belgium R 477 925 236 R 12 709 141 1 149 16 152 2.7 9
Algeria R 73 436 306 R 26 216 576 1 149 29 86 0.4 46
Iceland R 5 348 791 R 503 031 1 149 16 152 0 93
Greenland R 736 654 -R 235 616 1 149 10 176 0 93
Germany R 1 482 202 274
R 221 904 737
1 149 17 140 8.3 2
Netherlands R 530 575 759 R 37 738 127 1 149 8 179 3 7
Lesotho R 789 825 R 538 955 1 149 48 36 0 93
France R 581 541 871 -R 119 309 775
0 162 14 160 3.3 5
Ireland R 129 346 449 R 62 270 517 0 162 9 177 0.7 33
Austria R 178 068 110 -R 13 085 342
0 162 17 140 1 28
Bahamas R 726 943 -R 2 683 373 0 162 17 140 0 93
El Salvador R 4 065 073 -R 5 019 377 0 162 -10 199 0 93
Denmark R 112 783 919 R 14 952 579 0 162 17 140 0.6 34
Dominica R 54 865 -R 174 204 0 162 56 30 0 93
Croatia R 13 364 022 -R 9 350 672 0 162 13 165 0.1 66
Canada R 450 430 008 -R 149 501 0 162 17 140 2.5 13
Norway R 159 360 558 R 68 511 723 0 162 22 111 0.9 30
Slovenia R 28 984 136 -R 2 252 707 0 162 19 129 0.2 59
Yemen R 6 947 667 -R 3 085 923 0 162 8 179 0 93
Critical Analysis for the Integrated National Export Strategy
Page 137 of 481
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
United Kingdom R 472 095 631 -R 162 316 831
0 162 16 152 2.6 11
Seychelles R 376 149 -R 222 466 -1 175 -2 191 0 93
Europe Othr. NES R 18 929 527 R 13 647 929 -1 175 8 179 0.1 66
Anguilla R 10 960 -R 43 602 -1 175 -15 203 0 93
Philippines R 48 042 129 -R 15 650 555
-1 175 -7 193 0.3 54
Italy R 523 179 069 -R 34 331 632
-1 175 17 140 2.9 8
Luxembourg R 16 512 731 -R 9 510 578 -2 180 19 129 0.1 66
Mauritius R 2 255 421 -R 2 903 197 -2 180 22 111 0 93
Madagascar R 1 471 524 -R 1 485 610 -2 180 36 62 0 93
Cuba R 3 508 978 -R 2 894 251 -2 180 29 86 0 93
Cameroon R 4 956 454 R 414 303 -2 180 20 122 0 93
New Caledonia R 1 657 544 -R 2 039 332 -2 180 31 75 0 93
Tajikistan R 932 691 -R 2 959 813 -2 180 -8 195 0 93
United States Minor Outlying Islands R 185 897 -R 1 278 985 -2 180 -31 211 0 93
Uzbekistan R 6 022 524 -R 3 653 236 -3 188 14 160 0 93
Swaziland R 760 815 R 446 803 -3 188 -9 197 0 93
Montenegro R 627 532 -R 1 916 512 -3 188 44 40 0 93
Liberia R 924 291 -R 16 968 195
-3 188 -1 189 0 93
Djibouti R 64 876 -R 2 318 160 -3 188 -21 207 0 93
Tonga R 17 099 -R 95 979 -4 193 49 35 0 93
Free Zones R 2 411 650 -R 1 926 212 -4 193 -21 207 0 93
French Polynesia R 149 818 -R 1 477 909 -5 195 -2 191 0 93
Bhutan R 217 438 -R 134 300 -5 195 12 169 0 93
Dominican Republic R 6 112 524 -R 12 043 609
-5 195 28 90 0 93
Finland R 78 794 218 -R 5 067 440 -6 198 12 169 0.4 46
Saint Vincent and the Grenadines R 38 432 -R 345 046 -6 198 -7 193 0 93
Western Sahara R 4 271 R 3 284 -6 198 298 3 0 93
Zimbabwe R 2 149 961 -R 2 160 212 -6 198 58 29 0 93
Central African Republic R 103 937 -R 110 766 -7 202 16 152 0 93
Kiribati R 8 598 -R 83 149 -9 203 121 13 0 93
Maldives R 83 279 -R 1 328 422 -10 204 12 169 0 93
Bahrain R 7 071 251 -R 3 102 665 -11 205 -56 219 0 93
Turkmenistan R 6 984 200 R 892 391 -11 205 191 8 0 93
Cape Verde R 68 893 -R 892 369 -12 207 48 36 0 93
Grenada R 34 346 -R 134 577 -12 207 60 27 0 93
Christmas Islands R 22 738 -R 34 825 -13 209 41 52 0 93
138
Val
ue e
xpor
ted
in 2
011
(US
D
thou
sand
)
Tra
de b
alan
ce in
201
1 (U
SD
th
ousa
nd)
Ann
ual g
row
th in
val
ue b
etw
een
2007
-201
1 (%
)
Ran
k
Ann
ual g
row
th in
val
ue b
etw
een
2010
-201
1 (%
)
Ran
k
Sha
re in
wor
ld e
xpor
ts (
%)
Ran
k
Andorra R 91 122 -R 1 513 204 -13 209 -13 201 0 93
Samoa R 54 390 -R 291 516 -13 209 -9 197 0 93
Marshall Islands R 507 301 -R 13 543 211
-14 212 21 117 0 93
Palau R 19 552 -R 33 821 -15 213 21 117 0 93
Africa not elsewhere specified R 61 290 -R 4 819 904 -16 214 -37 214 0 93
Jamaica R 1 517 247 -R 2 582 674 -16 214 44 40 0 93
Libya R 18 740 286 R 11 676 963 -18 216 -62 220 0.1 66
Pitcairn R 3 366 -R 232 -19 217 78 17 0 93
Saint Lucia R 46 740 -R 3 474 858 -20 218 -48 217 0 93
St. Pierre and Miquelon R 6 883 -R 53 652 -23 219 23 105 0 93
Ship stores and bunkers R 126 382 -R 34 031 340
-26 220 -93 224 0 93
Macao, China R 869 952 -R 7 056 890 -26 220 0 187 0 93
Antigua and Barbuda R 29 028 -R 442 068 -26 220 187 0 93
Wallis and Futuna Islands R 384 -R 37 140 -30 223 -74 222 0 93
Oceania NES R 15 504 -R 109 853 -39 224 -27 210 0 93
Northern Mariana Islands R 1 760 -R 85 762 -41 225 -48 217 0 93
Neutral Zone R 158 -R 201 -47 226 -47 216 0 93
America not elsewhere specified R 4 471 -R 16 464 750
-47 226 -91 223 0 93
Turks and Caicos Islands R 8 533 -R 251 652 162 187 0 93
Suriname R 2 466 872 R 829 046 162 22 111 0 93
Aruba R 148 020 -R 1 047 781 162 19 129 0 93
Nepal R 907 634 -R 5 008 289 162 9 177 0 93
Sources : ITC calculations based on UN COMTRADE statistics.
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Appendix 3. Removing Barriers to SME Access to International Markets46
Programme Objectives
Denmark Export Preparation Programme
SMEs are offered 25 hours of counselling on internationalisation (export, sourcing and networking) free of charge in order to prepare them for the process of internationalisation.
Export Start Programme This programme is to assist SMEs in the process of internationalisation through counselling on e.g. partner search, export, sourcing, establishment, fairs, network building, etc. to supply them with competencies lacking mainly market information, access to networks to actually get the SME to start exporting.
Born Creative Programme
This programme is to assist SMEs in the process of internationalisation through counselling on e.g. partner search, export, sourcing, establishment, fairs, network building, etc. to supply them with competencies lacking mainly market information, access to networks to actually get the SME to start exporting.
Born Global Programme This programme assists SMEs within the high-technology sector e.g. IT, life science, health and media sector both inside and outside the innovative environments.
Finland Fintra Fintra is Finland’s leading trainer in international business management. Fintra specializes in training services, creating tailor-made concepts to meet the development needs of companies and individuals in an increasingly global business environment.
Finpro Finpro is an association founded by Finnish companies at different stages
of internationalization.
Finpro is a consulting organisation focused on accelerating the internationalization of Finnish companies while managing the risks involved. Finpro carries out this national task through a client oriented approach in cooperation with other service organizations working towards the same goals. We operate through a unique global network: 50 Finland Trade Centers in 40 countries as well as 2 Trade Centres in Finland.
France Prospecting Tax Credit Tax relief against the employment of a person for export development.
Export/Recruitment Contract
Scheme to allow overseas employment for export development on favourable legal basis (redundancy law).
Bilateral Partnerships for Industry and Technology
Scheme to promote partnerships with foreign companies
Customized Export Project Management (SIDEX)
Support to help smaller companies project their expertise to foreign partners
Germany Worldwide active A framework programme that contains specific activities yet has various objectives covering the entire range of possible support vehicles.
R&D cooperation Provide SMEs with R&D capabilities to be successful internationally (focus on exporting).
Greece International growth training
Training seminars for SMEs representatives:
• Training to think strategically on global basis.
• To manage effectively international partnerships.
46 These programmes were listed in Removing Barriers to SME Access to International Markets (OECD 2008)
140
• To staff effectively through expatriation and localization.
• To manage the learning process on a global basis.
• Adapt the company as its needs shift.
Ireland Enterprise Ireland (EI)(Market Development)
The Market Development Programme by EI supports companies through various means after market entry decisions were made. This includes help with recruiting local staff, providing facilities in special Trade and Technology Centres and specific market analysis.
Netherlands Programme for starters abroad
The programme facilitates SME-enterprises (less than 100 employees) that have hardly any experience with exporting. The programme is focused on providing advice and assistance for the preparation and implementation of an export plan, as well as contribution to the costs of specific activities that are part of the export plan.
Poland Company development for exporters programme
Scheme aimed at providing SMEs with necessary capabilities and required funds for developing products and improving their operations to be able to target specific export markets.
Romania Access support for SMEs
The objective of this Programme is to facilitate the access of the
Romanian SMEs to foreign markets, the capitalization of their export
potential, as well as to decrease the gap of market information,
consultancy and training services that exist between the Romanian SMEs
and those from the European Union. The Romanian Government will
implement actions to:
• Facilitate the participation of SMEs in fairs and international events;
• Support consultancy and training entrepreneurs in drafting export
strategies, in marketing techniques and export management;
• Develop cross-border transactions through e-commerce.
Spain Programme A It consists of a permanent action, addressed to Spanish companies in order to help them to overcome trade barriers in the foreign markets. The Secretariat-General for Foreign Trade examines and assesses the complaints presented and takes action, whether assisting the affected companies technically, or, if necessary, trying to solve the problem through bilateral contacts with the host authorities in collaboration with the Spanish Commercial Office of the Spanish Embassy in the country where the problems arise. When necessary, an action and support from the EU Commission may be requested, as much as legal actions based on EU law.
Programme B Project Online for the Identification of Problems of Spanish Companies in the European Single market: it consists of a preliminary enquiry addressed to Spanish exporting companies in order to ask them which kind of problems they find when trying to access to the other European markets, and to compile the information received.
Sweden SOLVIT & National Board of Trade
European network for removing trade barriers. Deals with complaints filed by individuals and businesses mainly concerning the misapplication of Internal Market law by public authorities.
United Kingdom
Passport to Export A programme to develop the trading capability of SMEs that are new to exporting.
Switzerland Export promotion organisation
Helps Swiss SMEs to develop international business activities by
delivering the following support:
• Export audit,
• Identify strengths and weaknesses of the enterprise;
• Giving first basic information,
• Giving first advice.
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Australia NEDP Assist small-and medium-sized Australian companies to develop their
business overseas and make their first export sale.
EMDG Grants programme designed to encourage small-and medium-sized Australian businesses (SMEs)to enter into export and become sustainable exporters.
Canada EXPORT Help! Companies will have access to a pool of exports experts to provide assistance tailored to their specific export-related needs. Up to a maximum of 40 hours, depending on the scope of work to be completed is provided.
Exporter Development Initiative
Only for Manitoba companies; through outreach consultation, the Exporter Development Initiative(EDI) is designed to assist new and experienced exporters to become export-ready and to support experienced exporters in entering new markets.
Assistance Programme for businesses project: Market Development
This programme is a jointly elaborated business development project,
some activities of which may be eligible for financial assistance. The
programme also supports projects submitted by a group of businesses.
• Business development projects;
• Market development;
• Innovation and adaptation to change (Quebec only).
Aboriginal Business Development Programme
Programme targeted at new and existing SMEs designed to help them become and remain competitive in the Canadian and in international markets. A range of activities are eligible for funding.
Small Business and
Market Development
Programme
The programme provides new entrepreneurs and expanding small
businesses with funding to help them acquire the necessary expertise to
pursue new business ideas and new markets for their products or
services. The programme is intended to support new growth
opportunities in the economy, such as value-added manufacturing
activities and export-oriented opportunities.
Atlantic Canada
Opportunities Agency –
Business Development
Programme
Support firm by building awareness of export markets and by assisting in
the development and implementation of international marketing
strategies.
International Business
Development
Agreement
Increase awareness, provide trade training, gather market information
and intelligence and do market entry support.
Atlantic Canada
Opportunities Agency –
Atlantic Trade and
Investment Partnership
Increase commercialisation particularly of new economy firms and
attract FDI by developing strategic action plans and their
implementation.
Japan Seminar for
International Business
JETRO and SMRJ hold seminars for international business. They provide
specific foreign market information for enterprises.
Adviser programme for
Trade and Foreign
Investment
JETRO and SMRJ employs OB or experts of trade companies,
manufacturing companies, banks, lawyers, and accountants, etc. as
advisers. In order to support foreign investment and trade, advisers
provide specific information and advice to their client.
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New Zealand Exporter Education
Programme
The Exporter Education Programme (EEP) provides existing and new
exporters with the skills and advice to help them grow their exports.
Workshop topics include:
• Getting started in Exporting • Market Entry Strategies • Planning for Export Success • Tax Issues for Exporters • Trade Fairs – Critical Success Factors • Developing Your Winning Sales Pitch
Other SME support New Zealand further runs a number of other support programmes
targeted at SMEs. Their focus is however not on international activity per
se.
Source: OECD (2008) Removing Barriers to SME Access to International Markets, OECD Paris, pp. 131-138.
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Appendix 4. A Brief Analysis of the Policy Environment
4.1 Introduction
The volumes and the type of products a country exports are the outcome of many factors. These
factors include endowments (natural resources, capital and human resources); technology; size of
the domestic market; proximity to other markets; and the cost of doing business. These factors are
influenced directly by government policy.
This section discusses both the work that has been done in the policy environment in general
(particularly as it affects exports and export promotion) as well as policies, strategies and
programmes that have a bearing on exporter development and export promotion.
4.2 Policy Environment
Since the end of apartheid in 1994, South Africa’s government has made considerable efforts to
tackle the high level of inequality and poverty. Policymakers have long sought to overcome
constraints in the economy through a comprehensive framework such as the Growth, Employment
and Redistribution (GEAR) strategy of 1996, the Accelerated and Shared Growth Initiative for South
Africa (AsgiSA) announced in 2006 and, more recently, the 2010/11–2012/13 Industrial Policy Action
Plan (IPAP2) and the New Growth Path (NGP), launched in 2010, which builds on previous policy
initiatives. The National Development Plan: vision 2030 (NDP) consolidates the earlier policies and
offers a long-term vision.
The NES must be consistent both with national macro policies and also with the mission and
objectives of the dti. It is intended to support achievement of both the National Industrial Policy
Framework and the South African TPSF. Although these preceded the NDP they contribute to it. The
next sections will therefore analysis the NDP and use it as the setting for looking at the other policies
that have a bearing on exports in general and the INES in particular.
4.2.1 National Development Plan
National Planning Commission
President Zuma appointed the NPC in April 2010. The Commission consists of 25 part-time
commissioners appointed because of their expertise, experience and ability to contribute to a
dynamic development plan for the country. The NPC is responsible for developing a long-term vision
and strategic plan for South Africa. The Commission will also advise on cross-cutting issues that
impact on South Africa’s long-term development.
The mandate of the Commission is to take a broad, cross-cutting, independent and critical view of
South Africa, to help define South Africa in 20 years’ time and to map out a path to achieve those
objectives. The Commission put forward solid research, sound evidence and clear recommendations
for government.
The Commission worked with broader society to draw on the best expertise, consult the relevant
stakeholders and help to shape a consensus on what to do about the key challenges facing South
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Africa. Government has often taken a sectoral and short-term view that has hampered
development. Taking a long-term and independent view will add impetus, focus and coherence.
NPC diagnostic report
The Commission’s Diagnostic Report, released in June 2011, set out South Africa’s achievements and
shortcomings since 1994. It identified a failure to implement policies and an absence of broad
partnerships as the main reasons for slow progress, and set out nine primary challenges:
1. Too few people work;
2. The quality of school education for black people is poor;
3. Infrastructure is poorly located, inadequate and under-maintained;
4. Spatial divides hobble inclusive development;
5. The economy is unsustainably resource intensive;
6. The public health system cannot meet demand or sustain quality;
7. Public services are uneven and often of poor quality;
8. Corruption levels are high; and
9. South Africa remains a divided society.
National Development Plan–Vision 2030
The NDP is a visionary document, highlighting weaknesses and bottlenecks. The plan, which is aimed
at eliminating poverty and reducing inequality by 2030, is the product of in-depth research over
more than two years by 26 experts appointed by the President to the NPC.
The plan bemoans the fact that “Eighteen years into democracy, South Africa remains a highly
unequal society where too many people live in poverty and too few work. The quality of school
education for most black learners is poor. The apartheid spatial divide continues to dominate the
landscape. A large proportion of young people feel that the odds are stacked against them. And the
legacy of apartheid continues to determine the life opportunities for the vast majority. These
immense challenges can only be addressed through a steep change in the country's performance.”
The plan proposes a multidimensional framework “to bring about a virtuous cycle of development,
with progress in one area supporting advances in others.” The achievement of the objectives of the
National Development Plan requires progress on a broad front, but three priorities stand out:
Raising employment through faster economic growth;
Improving the quality of education, skills development and innovation; and
Building the capability of the state to play a developmental, transformative role.
The NDP points out that sustainable growth and development will require:
Higher savings;
Investment; and
Export growth.
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The NDP points out that leadership is required to drive the implementation. As far as the both the
NES and the NEDP are concerned, leadership is also a critical ingredient.
With unemployment at roughly 25% in 2010, the NDP aims to put policies in place so that by 2030
unemployment will decrease to 6% while the labour force participation rate will increase from 54%
to 65%. This means that employment needs to increase from 13 million to 24 million people – an 11
million, or roughly 85%, increase in employment over the eighteen-year period. The NDP has a
strong focus on employment and it proposes to create 11 million jobs by 2030 by:
Realising an environment for sustainable employment and inclusive economic growth;
Promoting employment in labour-absorbing industries;
Raising exports and competitiveness;
Strengthening government’s capacity to give leadership to economic development; and
Mobilising all sectors of society around a national vision.
The goal is therefore for GDP to grow by 5.4% per annum. This implies that by 2030 the economy
will be 2.7 times its size in 2010 with a per capita GDP increase from R50 000 to R110 000. This
should lift most, if not all, out of poverty.
Its proposals include:
Diversifying South Africa’s trade towards emerging economies;
Revitalising logistics and transport links;
Promoting manufacturing in areas of competitive advantage;
Packaging regional tourism offerings; and
Lowering the costs of living and of doing business.
The key ingredients for success are:
The active efforts of all South Africans;
Growth, investment and employment;
Rising standards of education and a healthy population;
An effective and capable government;
Collaboration between the private and public sectors; and
Leadership from all sectors of society.
In this regard the INES will play an important role in coordinating export development and
promotional activities and ensure that these interventions and services are provided in the
appropriate place, to the organisations that can best use them to increase exports and also
efficiently and effectively.
For consideration:
Collaboration between the private (export councils, organised labour), parastatal organisations, non-governmental
organisation and the public sectors (all relevant departments and sub-national government is critical.
These issues will be addressed in more detail in other chapters of this report.
146
For consideration:
Leadership is also very important. In the analysis of best practice, successful countries have always had leaders that
set targets and motivate role players in achieving them. The INES should therefore be used to define the role of the
various societal leaders in growing and diversifying exports.
4.2.2 The Role of Exports in the NDP
There have been shifts in global trade and investment that are reshaping the global economy
including the emergence of rapidly growing economies, particularly China, India and Brazil. As
emerging economies increase their share of world trade and investment, the United States, Europe
and Japan will experience a relative decline.
Urbanisation and industrialisation in China and India are likely to keep demand for natural resources
relatively high for the foreseeable future. The emergence of more consumers in the BRIC and
developing countries will broaden opportunities for all economies.
The NDP notes that South Africa should be “Increasing exports, focusing on those areas where South
Africa already has endowments and comparative advantage, such as mining, construction, mid-skill
manufacturing, agriculture and agro-processing, higher education, tourism and business services.”
And also: “Over the past five years, South Africa’s exports to advanced economies have slowed in
response to lower demand. This decline has been offset by increased demand from Asia and higher
prices for commodities. While South Africa has maintained a reasonably sound trade balance, owing
largely to high commodity prices, it is of concern that high value-added and labour-intensive exports
are slowing.” It is clear that more attention needs to be given to these products while maintaining
current markets.
South Africa needs to diversify and “redirect its attention to pursuing niche export opportunities in
the economic powerhouses of the future, many of them emerging economies. “
The NDP highlights the linkages between export, trade and industrial policies. These opportunities
can only be exploited if industrial policy supports sectors and industries that can best produce the
goods and services required of the new markets South Africa wishes to serve.
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Figure 6: The quandary of growth and job creation
Source: National Planning Commission’s National Development Plan: Vision 2030 (2011)
South Africa can benefit from rapid growth in developing countries that leads to increased demand
for commodities and expanding consumer markets. At the same time, these trends pose challenges
for middle-income countries as a result of greater competition in manufacturing and certain
information technology-enabled services. The rise of emerging markets also increases international
competition, placing downward pressure on the wages of low-skilled workers in tradable sectors.
The NDP envisions that the share of exports in South African output will rise and the profile will be
more diverse, with a growing portion of non-mineral manufactures and services. A greater
proportion of exports will be directed to emerging markets. Opportunities for increased trade and
bilateral investment in Africa will develop.
Exports are projected to increase by 6% per annum, which in turn is projected to increase income
and thus saving out of income. The NGP highlights the fact that exports of manufactured goods must
grow by 7-8%. This implies that labour-intensive manufactured products should grow in the order of
9-10%.The NDP recognises that it is not the export volumes that are important but the type of
products that are exported. The focus should be on labour-intensive manufacturing, mid-skill service
exports and process outsourcing.
It recognises that to expand production requires more active promotion of demand for South African
products in domestic and foreign markets. Policy will focus on developing areas of competitive
advantage, where there are revealed strengths. In the process of implementation, it will be
important to learn from success and failure and to withdraw from sectors where mistakes have been
148
made. South African companies will be encouraged to participate in regional infrastructure projects,
and also in integrating regional supply chains to promote industrialisation.
Table 33: Indicative scenarios - sector distribution of employment
Source: NDP (2012)
For consideration
Since exports are projected to increase by 6% per annum the NGP highlights the fact that exports of manufactured
goods must grow by 7-8% - implying that labour-intensive manufactured products should grow 10% or more, the INES
should set these and determine appropriate interventions. The INES has a 25 year horizon and therefore resources
should not be seen as a constraint.
4.2.3 The New Growth Path (NGP)
The NGP preceded the NDP and is described as a framework that will advance the country’s target of
achieving 5 million new jobs by 2020. It recognises the need for a coordinated set of actions across a
broad front and identifies a “development package” consisting of macroeconomic strategies,
microeconomic measures and stakeholder commitments to drive employment and economic
growth.
Areas of priority
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The NGP has six priority areas to job creation:
Infrastructure development;
Agriculture;
Mining;
Manufacturing;
The "green" economy; and
Tourism.
Policy packages
The NGP identifies the uncompetitive South African currency as an obstacle to job creation and sets
out clear steps for government to address the impact of the rand on the economy and jobs. It
proposes a looser monetary policy with lower interest rates, greater building of foreign reserves and
a sovereign wealth fund to manage foreign reserves more actively. The document notes that the
monetary policy stance will do more to support a competitive exchange rate while continuing to
target low and stable inflation.
The challenge of keeping inflation under control involves a stronger role for competition policy and
strategic investigations into conduct of various economic agents leading to high and volatile prices
for intermediate inputs for producers and basic consumer goods, including important commodities
such as maize, steel and fertilisers.
The NGP calls for a broad pact between business, labour and government aimed at fostering
employment creation while enhancing competitiveness and social equity and development goals.
The pact proposed commitments on wages, prices, savings and jobs. The proposal on commitments
to lower prices by businesses particularly concerns input costs and basic consumer goods.
On labour market policy, the document pursues three objectives:
To promote partnerships for productivity improvements,
To address concerns about the vulnerability of workers in the labour market, and
To ensure more efficient decision making.
It calls for productivity pacts between business and labour at workplace and sector level. It commits
to action by the government to reduce worker vulnerability by addressing problems in contract
work, subcontracting, outsourcing and labour broking. Reforms to the The Commission for
Conciliation, Mediation and Arbitration (CCMA) should also reduce abuse by managerial and other
high-level staff.
Laying the basis for implementation
The responsibility for coordinating the country’s NGP lies with the Department of Economic
Development. The Department also oversees the work of key state entities and programmes
engaged in economic development, e.g. the Industrial Development Corporation, providing finance
for industrial development in South Africa and the rest of Africa (www.idc.co.za), the Competition
Commission (www.compcom.co.za); and the Infrastructure Development Programme.
150
It identifies measures to strengthen the capacity of the state and enhance the performance of the
private sector to achieve the employment and growth goals. The NGP proposes major improvements
in government, with a call for slashing unnecessary red tape, improving competition in the economy
and stepping up skills development.
The NGP sets targets for scarce and key skills and identifies the role of government departments and
agencies in working to meet these goals. This emphasis on skills applies across the economy and will
be a centrepiece of partnership with business and labour. Key targets include the aim to produce:
30 000 more engineers by 2014, with an improved focus on high school maths and
science and changes to university funding formulae to achieve this, and
50 000 more artisans by 2015, with annual targets for Eskom and Transnet and for
individual Sector Education and Training Authority (SETAs) to achieve this.
The NGP calls for stepping up the focus on workplace training, targeting on-the-job training and
refresher programmes for 10% of the workforce every year. It also calls for measures to make it
easier to import scarce skills by streamlining the work permit and visa system. This will be
accompanied by a skills transfer programme to ensure that local skills development is enhanced.
It recognises that South Africa cannot develop as an enclave in Africa. It identifies major
opportunities on the African continent and calls for greater focus by South African business on
opportunities in Africa’s fast-growing economies. This is accompanied by commitments to improve
cross-border infrastructure and measures to address unnecessary regulatory obstacles to the
movement of people and goods, as part of building a common market on the continent.
It sees active stakeholder engagement and collective action as central to building a better South
Africa and it requires the government to:
Facilitate national and workplace productivity accords,
Support community organisation, including through the community works programmes
and other delivery mechanisms that build community and collective action, and
Strengthen existing institutions for social dialogue, including Nedlac, sectoral and local
forums.
The implementation process for the NGP must manage key risks as well as ensuring clear
prioritisation. These risks include the still fragile global recovery; competition and collaboration with
the new fast-growing economies; and competing interests domestically.
4.2.4 The NGP and Exports
Re-industrialisation has been identified in the growth path as being critical. It holds that this is more
than identifying sectors and product niches; but also markets. South African businesses need to do
more to find opportunities in the fast-growing economies of China, India and Brazil47. Measures to
47 Market access to these markets is difficult, not only because of language and other cultural barriers, but also
because of market access restrictions.
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enhance domestic and regional demand as well as extending export promotion strategically to the
rapidly growing economies of the global South. These measures need a competitive rand to succeed.
The document points out that while trade with China has grown significantly, South Africa still
largely exports raw materials and imports value-added manufactured products. The Comprehensive
Strategic Partnership signed in August 2010 between the two countries commits to “improve,
through a concerted effort, the current structure of trade between the two countries, in particular
by working towards a more balanced trade profile and encouraging trade in manufactured value-
added products to China, in this spirit, will encourage its enterprises to increase investment in South
Africa’s manufacturing industry to promote the creation of value-adding activities in close proximity
to the source of raw materials.” Therefore the NES must include practical proposals to take
advantage of this joint commitment.
The NGP sees regional development as an imperative for both solidarity and sustainable growth and
estimates that increased exports to SADC alone can generate almost 60 000 additional direct jobs by
2015 and around 150 000 by 2020.
Export taxes on selected mineral products linked to clear industrial strategies have also been
proposed. Although this would limit exports of those inputs, it would reduce the domestic price of
inputs.
The NGP recommends guidelines for granting exemptions in terms of the Competition Act for
cooperation between producers where this will demonstrably benefit job creation and expansion
into export markets. (See section on the Competition Act.)
The NGP also recommended “developmental trade policies”. These are discussed below.
Strategic export promotion
Challenge for South Africa around diversification up the value chain.
Re-industrialisation leveraging off opportunities identified in growth path is critical.
This goes beyond identifying sectors + product niches; but also traditional markets.
SA businesses need to do more to find opportunities in fast-growing BRIC economies.
(take advantage of Comprehensive Strategic Partnership with China).
Promoting regional development.
Measures to enhance domestic + regional demand as well as extending export
promotion strategically to the rapidly growing economies of the global South.
These measures need a competitive rand to succeed.
Importance of developmental trade policies.
For consideration
The INES should address the issue of diversification up the value chain and how exports can play a role. It should
show how to identify sectors and new+ product niches, while retaining traditional markets. SAn businesses need to
do more to find opportunities in fast-growing BRIC economies.
152
For consideration
TISA needs to engage with the SARB regarding the exchange rate and the volatility of the rand and how these policies
influence competitiveness in the short and long term.
For consideration
The dti need to work closer with businesses and focus on developmental trade policies that will contribute to
competiveness in short and the long term.
4.2.5 Trade and Industrial Policy
Trade and industrial policy is the responsibility of the dti. The main policy directives of the
Department are contained in the National Industrial Policy Framework (NIPF), IPAP: 2012-13 to
2014-15, and the South African TPSF.
4.2.6 National Industrial Policy Framework
The NIPF provides strategic guidelines to assist in the development of secondary industries within
the country, including the clarification of roles, responsibilities and interactions between public and
private sectors. The objective of the NIPF, as stated in the State of the Nation Address 2007, is to:
Intensify implementation of customised sector measures to facilitate investment in
Business Process Outsourcing and Offshoring (BPO), tourism, biofuels, chemicals and to
finalise practical programmes for forestry and paper, clothing and textiles, metals and
engineering.
Develop an overarching strategy to prioritise key interventions in mining and mineral
beneficiation, agriculture and agro-processing, the white goods sector, creative
industries, community and social services and pharmaceuticals. This must include a drive
to increase the national capacity to produce capital goods.
Develop programmes to facilitate investment in sectors along the supply chain for the
infrastructure programmes, including capital goods in ICT, transport and energy.
Government will also take a variety of steps to improve competition in the economy,
among others to lower the cost of doing business and promote investment, including
practical introduction of the Regulatory Impact Assessment System, developing high-
speed and international broadband capacity, finalising the plan to improve the capacity
of the rail and port operators, and strengthening the effectiveness of our completion
authorities.
The NIPF was designed to set out the government’s approach to industrialisation and policy
development and implementation. The NIPF moves to increase the production of value-added
products and services, intensification of the South African industrialisation process moving towards a
knowledge economy, the promotion of a labour-absorbing industrialisation path focusing on
incorporating previously disadvantaged and marginalised communities while building on the
countries productive capabilities.
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In January 2007 Cabinet adopted the NIPF which sets out government’s broad approach to
industrialisation with the following core objectives:
To facilitate diversification beyond South Africa’s current reliance on traditional
commodities and non-tradable services. This requires the promotion of increased value-
addition characterised particularly by movement into non-traditional tradable goods and
services that compete in export markets as well as against imports.
The long-term intensification of South Africa’s industrialisation process and movement
towards a knowledge economy.
The promotion of a more labour-absorbing industrialisation path with a particular
emphasis on tradable labour-absorbing goods and services and economic linkages that
catalyse employment creation.
The promotion of a broader-based industrialisation path characterised by the increased
participation of historically disadvantaged people and marginalised regions in the
mainstream of the industrial economy.
Contributing to industrial development on the African continent, with a strong emphasis
on building its productive capacity.
Rather than a ‘one-size-fits-all’ approach to industrialisation, the NIPF focuses on identifying and
addressing the cross-cutting and sector-specific constraints and opportunities prevailing in the
industrial economy through 13 strategic programmes. These are:
1. Sector strategies
2. Industrial financing
3. Trade policy
4. Skills and education for industrialisation
5. Competition policy and regulation
6. Leveraging public expenditure
7. Industrial upgrading
8. Innovation and technology
9. Spatial and industrial infrastructure
10. Finance and services to small enterprises
11. Leveraging empowerment for growth and employment
12. Regional and African industrial and trade framework
13. Coordination, capacity and organisation
For consideration:
The NIPF does not include an NES or an FDI strategy and should be amended to include this.
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4.2.7 Industrial Policy Action Plan (IPAP2)
The NIPF represents a significant step forward in scaling up South Africa’s efforts to promote long-
term industrialisation and industrial diversification beyond the current reliance on traditional
commodities and non-tradable services. Its purpose
is to expand production in value-added sectors with
high employment and growth multipliers that
compete in export markets as well as compete in
the domestic market against imports. In so doing,
the action plan also places emphasis on more
labour-absorbing production and services sectors,
the increased participation of historically
disadvantaged people and regions in our economy
and will facilitate, in the medium term, South
Africa’s contribution to industrial development in
the African region.
The Industrial Policy Action Plan (IPAP2) is a ‘living
document’ which outlines a range and combination
of industrial policy interventions and instruments
to address the critical challenges of our economy.
IPAP will from now on take the form of a three-year
rolling action plan, which will be strengthened and
refined on an annual basis. IPAP will identify the lead and partner departments and institutions
responsible for its implementation. It underlines the necessity for the integration and alignment of
the work of government departments and institutions. It identifies the constraints and risks,
economic rationale, economic outcomes and key action plans (KAPs) for each one of these actions. It
attaches ambitious but realisable timelines to this work. Its implementation will be reviewed and
monitored against these measurable actions and it will be the subject of annual amendment and
strengthening.
4.2.8 Sectors
The dti's IPAP 2012/13 - 2014/15 identifies three sector clusters that are critical to the industrial
development of the South African economy, namely:
Cluster 1 - Qualitatively new areas of focus
Realising the potential of the metals fabrication, capital and transport equipment
sectors, particularly arising from large public investments;
Upstream Oil and Gas;
'Green' and energy-saving industries;
Agro-processing, linked to food security and food pricing imperatives; and
Boatbuilding.
Cluster 2 - Scaled-up and broadened interventions in existing IPAP-sectors
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Automotive products and components, and medium-and heavy-commercial vehicles;
Plastics, pharmaceuticals and chemicals;
Clothing, textiles, footwear and leather;
Biofuels;
Forestry, paper, pulp and furniture;
Creative and cultural industries; and
Business process services.
Cluster 3 - Sectors with potential for the development of long-term advanced capabilities
Nuclear;
Advanced materials;
Aerospace, Defence; and
Electro-technical and ICT.
For consideration
Linkages between the IDD, the export councils and TISA is weak. There is no coordination between the supply-side
measures and the market or export promotional activities. Internal mechanisms need to be put in place to ensure
better coordination and use of scarce resources.
4.2.9 A South African Trade Policy and Strategy Framework
South African TPSF builds on the NIPF and sets out the contribution trade policy should make to
advancing industrial development, upgrading and diversification along a growth path that addresses
structural constraints in the economy, including unemployment and poverty. The Framework sets
out the key principles and approaches to South Africa’s strategy for global integration with respect
to its engagements and negotiations at multilateral, regional and bilateral levels. It aims to provide
greater clarity on the linkages between trade and tariff policy and industrial policy. One of the
defining features of trade policy in South Africa today is its demotion from being a key driver of
growth to the use of trade policy as a mere tool of industrial policy.
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Internationally, open economies with an export base
perform much better in terms of economic growth
than do closed economies. Increasingly, production is
becoming globally integrated, and South Africa forms a
vital part of international supply chains. Therefore,
dismantling barriers to trade, especially those faced by
South African exporters, is a critical component of any
economic strategy that promotes sustainable growth.
Trade policy remains an instrument of industrial policy
in a context of narrowing options under multilateral
and bilateral trade arrangements. Trade policy will be
informed much more closely by sector strategies, at
both the negotiating and administrative levels. A
particular focus will be on reducing input costs for
labour-intensive and value-adding manufacturing
sectors. Export and FDI promotion will be more
targeted.
Tariffs are used as an instrument of industrial policy, and therefore decided on a sector by sector
basis. They depend on the needs and constraints of sector strategies. In reality, the South African
TPSF invites certain industries to apply for selective tariff increases on products on a case-by-case
basis. According to newspaper reports, the dti encourages companies in strategic industries to apply
for tariff increases to protect them from cheap imported products. Strategic industries are those in
the priority sectors defined in the Department’s IPAP.
The IPAP identifies sets of policies such as procurement, industrial financing, competition and
regulation, skills development and innovation, and trade measures including tariffs, enforcement
and standards, quality assurance and metrology measures to strengthen the productive side of the
economy.
In its semi-annual report on anti-dumping actions to the WTO in August 2012, South Africa had 31
definitive anti-dumping measures in force; 7 under review and five under investigation. In addition
according to TRALAC48, the South African International Trade Commission (ITAC) receives many
applications for tariff increases on products used or produced in several strategic industries such as
textile fabrics; glass, paper and plastic products; frozen half shelled mussels. There was also an
application for an increase in the domestic dollar-based reference price for wheat over the past year.
ITAC also finalised investigations into, and recommended tariff increases on, products such as
processed tomatoes, stainless steel sinks and uncooked pasta. The dti is prepared to use the trade
policies at hand to increase tariffs on imported products which threaten local manufactures or
where the applied tariff is below the bound rate allowed by the WTO.
48 Email received from TRALAC on 15 January 2013.
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Business Unity South Africa (BUSA) points out that “there are useful points of synergy between the
Trade Policy and the IPAP 2, including on non-tariff barriers and standards. Tariffs can be used to
indirectly support industrial development and ensure food security but they are only part of the tool
box for creating an overall business environment which is conducive for growth. The “mechanics” of
trade are just as important as the policy, including R&D, market analysis, border controls and
customs procedures, transport infrastructure and costs, as well as access to information. We hope to
see a greater focus on trade facilitation in the work programme designed to implement and refine
the Trade Policy in the future.”
Every nation has some form of “trade policy” in place, with public officials formulating the policy
which they think would be most appropriate for their country. Trade policy generally is a set of rules
and regulations that are intended to change international trade flows, particularly to restrict
imports. Trade policy can involve various complex types of actions, such as the elimination of
quantitative restrictions or the reduction of tariffs. It also refers to trade relations between countries
especially where economic integration is involved.
Edwards and Lawrence (2006) point out that “South African trade policy has exerted a major
influence on the composition and aggregate growth of trade. In the apartheid period, trade
protection seriously impeded both exports and imports, and the economy depended on favourable
global commodity price trends to avoid running into an external constraint. South Africa developed a
comparative advantage in capital-intensive primary and manufactured commodities partly because
of its natural resource endowments but also because the pattern of protection was particularly
detrimental to exports of non-commodity manufactured goods.”
4.2.10 Tariff Policy
The TPSF states: “Tariff setting in South Africa is decided primarily on a sector by sector basis,
dictated by the needs and imperatives of sector strategies. Sectoral work is grounded on a ‘self-
discovery’ process of engagement between government and stakeholder to meet industrial policy
objectives. As a general guideline, tariffs on mature upstream input industries could be reduced or
removed to lower the input costs for the downstream, more labour-creating manufacturing
activities. Tariffs on downstream industries, particularly those that are strategic from an
employment or value-addition perspective, may be retained or raised to ensure long-term
sustainability and job creation in the context of domestic production capabilities/potentialities and
the degree of trade and production distortions on these products at the global level.”
In contrast to approaches that advocate a uniform and rapid elimination of tariffs, the strategic
approach to tariff policy places ITAC at the centre of determining the tariff regime. The TPSF
continues: “There is no a priori presumption of the benefits or costs of maintaining either low or
high tariffs, but the upper limits for tariff setting have been set by the obligations South Africa has
taken in the WTO and in other bilateral trade agreements.” The TPSF adopts a “strategic approach to
tariff reform that supports industrial and employment objectives”.
In carrying out this complex task, the methodology that ITAC uses becomes critical. It is a coherent
and transparent methodology that is applied consistently across all sectors and uses the following
adjudication criteria:
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Whether a product is produced domestically or not;
Whether there is tangible potential to produce domestically;
Import and export data;
Demand and supply;
Comparison of domestic prices with import prices;
Productivity;
Productive capacity;
Market share;
Profitability;
Effective rate of protection;
Employment; and
Investment.
Although the South African tariff rates have declined remarkably since 1994, informed by the above
approach, South Africa has since the onset of the Global Recession in 2008 introduced higher duties
on 137 lines (mainly textiles and clothing); introduced ten rebates; tariffs on nine lines have been
reduced. The average tariffs are considerably higher than those of the European Union.
BUSA feels that the “approach is appropriate and has to date worked relatively well”. The
organisation was, however, concerned that “the functioning of ITAC is efficient and not hampered
and that recommendations made are considered timeously by decision makers”. BUSA contends
that tariffs alone cannot be used to ensure long-term sustainability and job creation. Tariffs are but
one tool and may in some cases not be the most effective one to achieve the goals of industrial
policy.
Freytag (2011) points out that high tariffs reduce the demand for foreign exchange, increasing the
price of rands in foreign currency terms. This disadvantages exporters. Higher tariffs provide an
incentive for manufacturers to serve domestic markets only. This limits South African exports
further. The input demand channel increases the costs for industries that depend on imported
inputs. Apart from transport equipment, the typical inputs for downstream industries, such as
minerals, chemicals, base metals, machinery, specialised equipment, have below-average
protection.
For consideration
Duties result in a bias against exporting. This bias has a negative impact on South Africa’s exports and duties should
be reviewed in light of the export promotional activities required by the NDP and the NGP.
4.2.11 Multilateral Trade Relations
The WTO is an organisation that intends to supervise and liberalise international trade. It was
established in 1994 as part of the Uruguay Round trade negotiations and became operative in 1995.
It administers the General Agreement on Tariffs and Trade (GATT), the first multilateral agreement
signed in 1947 to regulate international trade, as well as agreements that have been signed
subsequently. South Africa was one of the founder signatories of the GATT in 1947 and founder
members of the WTO.
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The WTO deals with the regulation of trade between member countries and provides a framework
for negotiating and formalising trade agreements, and a dispute resolution process aimed at
enforcing members’ adherence to WTO agreements they have signed. It is attempting to complete
negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on
addressing the needs of developing countries. The future of the Doha Round remains uncertain: the
work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and
the round is still incomplete.
Ismael (2012) points out that “South Africa’s participation in the WTO was informed by its domestic
development challenges, and that its values were derived from its long struggle against apartheid
and its transition to a new democracy. In addition, its political leadership in the Doha negotiations
was strengthened by its deep democratic institutions and consultative processes. South Africa’s
values, articulated by Nelson Mandela, reflected a deep commitment to multilateralism and
consensus building, fairness and justice, inclusiveness, and a concern to support and promote
development, within South Africa, and also in developing countries of the South, especially the
African continent.”
Ismael (2012) identifies five negotiating approaches including:
1. The need to take into account the interests of ‘both’ South Africa and others, especially that
of the African Continent;
2. The capacity to listen to different sides of an argument;
3. Consultations with constituencies at home;
4. Balancing principles with capacity to implement; and
5. Adhering to ‘principles’ while being pragmatic on ‘strategy’.
4.2.12 Regional and Bilateral Relations
4.2.13 The Southern African Customs Union (SACU)
SACU is an important basis for the government’s global strategy. The revised SACU agreement,
concluded in October 2002 and effective from July 2004, is the result of a lengthy negotiation
process that commenced in 1994 with the objective of increasing regional integration and
cooperation. The agreement is of historic significance in that it commits South Africa to effectively
ceding sovereignty over trade policy formulation and implementation to a new institutional base
where decisions will be taken democratically. In terms of the agreement, all decisions over tariffs
and trade remedies will be taken at the SACU level by a Council of Ministers, which in turn will be
advised by a new SACU tariff body and a commission of senior officials. National institutions, such as
South Africa’s ITAC, will merely provide recommendations to these structures on the basis of
investigations which the former conduct. So SACU will potentially be fully involved in all current and
future negotiations.
The agreement makes provision for the development of common policies in industry, and
cooperation in agricultural policy, competition policy and anticompetitive practices. It also calls for
the development of harmonised procedures and regulations to govern all aspects of the common
trade regime.
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4.2.14 The Southern African Development Community (SADC)
Southern Africa is important to South Africa’s economy - the growing trade surplus with SADC
countries partially contributes to offsetting trade deficits with other regions. The structural trade
imbalance between South Africa and its SADC partners, however, is economically unsustainable over
the longer term. The government therefore sought to restructure regional arrangements by pursuing
policies to promote industrialisation in the SADC. This entails using Southern Africa as an integral
part of supply chains for globally competitive manufacturing processes. Through a combination of
sectoral cooperation, policy coordination and trade integration, South Africa’s regional policy aims
to achieve a dynamic regional economy capable of competing effectively in the global economy.
4.2.15 National Customs Business Forums
The SADC sub-committee on Customs cooperation (SCCC), during its 20th meeting, made the
recommendation to establish National Customs Business Forums (NCBF) in all member states. The
NCBFs are meant to facilitate a stronger partnership between Customs and business at national
level, promoting a regular and results oriented dialogue, and taking action on existing challenges in
the supply chain of goods. (http://www.ftwonline.co.za/News.aspx?NewsNo=19213 downloaded 31
May 2013)
4.2.16 Tripartite Free Trade Area (TFTA)
There is a proliferation of regional trading arrangements. A free-trade area is a trade bloc whose
member countries have signed a FTA, which eliminates tariffs, import quotas, and preferences on
most (if not all) goods and services traded between them.
South Africa’s trade strategy aims to expand trade and investment links in Africa in the context of
‘developmental integration’ in Southern and Eastern Africa. While the TPSF seeks to consolidate
links with traditional partners, it emphasises building economic complementarities with rising
economies in the South.
The concept of establishing a TFTA that joins together the Common Market for Eastern and Southern
Africa (COMESA), the EAC, and the SADC has gained currency and momentum in recent years. The
TPSF recognises that in the context of intensifying competition for access to Africa’s resources and
growing markets, advancing the integration agenda in SACU, SADC and the TFTA is more urgent. To
this end the Tripartite Initiative to integrate SADC, the EAC and COMESA is important. The Common
Market for Eastern and Southern Africa, the East African Community and the Southern African
Development Community (COMESA-EAC-SADC) Tripartite brings together 26 southern and eastern
African countries, which are members of these three Regional Economic Communities (RECs). The
intention is to free all regional trade within a three-year period.
The ‘Guidelines for Negotiating the TFTA among the member or partner States of COMESA, EAC and
SADC’, published in June 2011, briefly describe the scope and principles of the FTA negotiations. The
negotiations will take place in two phases: with the usual goods’ issues occupying most of the first
phase; and discussions on competition policy, intellectual property rights and trade in services
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carried over to the second phase. At first glance, this seems all too familiar – the possibility of getting
down to business in services, anytime soon, would seem remote.
Beyond the potential gains for South Africa through expanded market access, the TFTA is not
without challenges. Trade in services still remains a critical area for growth that is as yet
inadequately explored and it has only been scheduled for the second phase of negotiations.
Domestically, a re-evaluation of South Africa's approach to trade in services negotiations could reap
major benefits for the country in the rest of the continent.
The TFTA will also potentially enhance South Africa's investment footprint in Africa, in line with our
regional development strategy. South African companies confront investment and competition
policy issues which should prompt some introspection on the issues regionally. It is time to begin
defining a strategy on the so-called new generation issues as ignoring them will not help South
Africa, while a good strategy will maximise the gains and minimise the losses.
The TFTA also presents an opportunity for a revision of the SADC rules of origin whose complexity
has turned them into an effective trade barrier. This will facilitate a move away from the use of rules
of origin as a protectionist measure. Consideration of more general rules by South Africa will pave
the way for deeper and more meaningful integration than has been achieved within SADC for
instance.
The TPSF proposes stronger trade integration with other developing countries through various
instruments of South-South cooperation whose exact content is not precisely defined. What is
apparent, however, is the government's insistence on entering into preferential trade agreements
(PTAs) with these 'south' countries. The effectiveness of these agreements is very much in question
and, in the case of the SACU-MERCOSUR PTA, the government's analysis in the TPSF casts doubt on
their efficacy.
SACU, and by extension South Africa, is also in the process of negotiating a PTA with India. Early
signs indicate that this will be an extremely difficult negotiation process and the potential benefits
are also questionable. It then becomes clear that these agreements are driven by political rather
than economic imperatives especially considering South Africa's growing orientation towards
emerging economies, particularly the BRIC. South-South cooperation aside, South Africa does not
seem to have any strategy in place vis-à-vis trade agreements with its major trading partners and
this results in ineffectual PTAs such as the one with MERCOSUR. Key to such a strategy would be
South Africa relooking at its approach to trade in services, implementing reforms in areas such as
competition and investment, and playing an active role in pursuing coherence on these policies in
SACU and SADC.
For consideration
TISA should ensure that the Tripartite Free Trade Area becomes a reality as soon as possible as this will contribute
the removal of many obstacles that exporters and potential exporters face when entering export markets.
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4.2.17 Africa Growth and Opportunity Act
Although the Africa Growth and Opportunity Act (AGOA) is a unilateral US dispensation towards
most sub-Saharan African countries, it continues to play an important role in South Africa's
development and export performance. In many ways, the complementarity between trade and
industrial policy is demonstrated by South Africa's support for AGOA and the enactment of the
Automotive Production and Development Programme (APDP) which replaced the Motor Industry
Development Plan (MIDP.) This has gone a long way towards establishing South Africa as a motor
industry manufacturing hub in Africa. The long-term extension of AGOA will be to South Africa's
immense benefit and will ensure that the trading relationship with the USA remains healthy.
Finally, given the above, there is room for more open discussion on South Africa's stance on trade
policy. As we attempt to emulate or replicate the 'growth model' of the largest emerging economies,
will also depend significantly on trade policy and accompanying macroeconomic policies. Full
complementarity between South Africa's trade and related policies will enable us to ensure internal
coherence and, hopefully, play an important role leading SACU and the wider SADC region.
Of concern is the lack of change in terms of South Africa’s export basket. Exports tend to be
dominated by the same products. Commodities remain the main export earner. South Africa will
need to increase its exports particularly in higher value added manufactured products. While this is
primarily a challenge for industrial policy, the TPSF can complement the national effort by enhancing
access to global markets for South African products, and by shaping trade and investment relations,
and their related rules, to support these objectives.
For consideration
TISA needs to ensure that AGOA is extended beyond the expiry date and lobbying efforts should be strengthened.
The products included and the various rules need ensure that South Africa can maximise employment opportunities
through increased exports to the USA.
4.3 Current Policy Issues Hampering or Promoting Trade
4.3.1 The Establishment of the Export Credit Insurance Corporation of South
Africa Ltd (ECIC)
The ECIC facilitates and encourages South African export trade by underwriting bank loans and
investments outside the country, thus enabling foreign buyers to purchase capital goods and
services from South Africa.
For consideration
The ECIC does not cover short-term insurance needs. TISA needs to investigate ways in which short-term insurance
can be provided more cheaply. This can be done through ECIC or tax incentives to South African exporters.
4.3.2 Fiscal Policy
Fiscal policy is the responsibility of the National Treasury of South Africa. National Treasury’s policy
directives are mainly contained in the statements on the national budget.
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The authorities have been committed to careful fiscal management and maintaining macroeconomic
stability. They are also trying to strike a balance between providing stimuli and maintaining fiscal
sustainability. The fiscal space for managing any future stress diminishes as government debts
increase. They recognise the merits of wage moderation in the public sector, as well of making space
for needed public infrastructure.
Although South Africa has embarked on a more interventionist approach to development, exporters
need stability, certainty and transparency. Exporters do not enjoy many incentives (many of which
are prohibited by the WTO).
For consideration:
Various incentives will be proposed by the NES and National Treasury should provide these without jeopardising
macroeconomic stability.
4.3.3 Monetary Policy
The SARB is the central bank of the Republic of South Africa. The primary purpose of the SARB is to
achieve and maintain price stability in the interest of balanced and sustainable economic growth in
South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial
stability.
Since the introduction of the flexible inflation-targeting framework in February 2000, the
specification of the target has been reviewed on a number of occasions. The initial target measure
was the CPI minus mortgage costs (CPIX). Following revisions to the methodology employed to
compile the Consumer price index (CPI), namely a change in the treatment of housing, mortgage
interest costs no longer needed to be removed from the CPI when evaluating the effects of
monetary policy. Since 25 February 2009, the inflation target is a range of 3 to 6 per cent for the
year-on-year increase in the headline CPI (CPI for all urban areas) on a continuous basis. The inflation
target is set by government after consultation with the SARB.
The SARB has opted for a classical cash reserve system as a framework for its monetary policy
implementation. In this framework an appropriate liquidity requirement or structural money market
shortage is created by levying a cash reserve requirement on banks. The main refinancing operation
is the weekly seven-day repurchase auction, which is conducted with the commercial banks, at the
repo (policy) rate as determined by the Monetary Policy Committee. The SARB lends funds to the
banks against eligible collateral, which comprises assets that also qualify as liquid assets in terms of
the prudential liquid asset requirement. In addition to the main repo facility, the SARB offers a range
of end-of-day facilities for the commercial banks to square-off the daily positions on their settlement
accounts, e.g. access to their cash reserve balances held with the SARB, supplementary repos/
reverse repos conducted at the repo rate and an automated standing facility whereby the end-of-
day balances on the banks' settlement accounts are automatically settled at a rate of 100 basis
points below or above the policy rate.
A range of open market operations is also conducted to manage the liquidity in the market in order
to give effect to the SARB’s monetary policy stance. The open market operations include the
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issuance of SARB debentures, reverse repos, the movement of public sector funds between the
market and the SARB and the conducting of money market swaps in the foreign exchange market.
In its Country Report, the IMF stated that “the inflation-targeting framework has been crucial in
South Africa’s resilience to the large shifts in the global external environment. It has allowed the
monetary authorities to provide stimulus while keeping inflation expectations well anchored.”
In common with other emerging markets, strong capital inflows into South Africa largely because of
loose monetary policy in developed countries have been the main driver of the rand’s gains in the
recent past. Foreign inflows into South Africa’s bond market tripled in 2010 and although they
slowed in 2011, the rand continued to be strong. The rand has been a positive factor for inflation,
which has been inside the central bank’s target of between 3% and 6% since February 2010.
SARB maintains that it is not planning to target a specific exchange rate level for the rand. As a
result, the currency is volatile and often over- or undervalued. A stronger rand leads to a reduction
in the supply of foreign currency, since it reduces foreign demand for South African exports, as they
are more expensive (in weaker foreign currency terms). Therefore when the rand appreciates,
foreign goods become relatively cheaper and South Africans import more. Further, it has a negative
impact on domestic labour-intensive production, employment and exports.
4.3.4 Monetary Policy and Exchange Rates
Real exchange rates are influenced by government policies and many other factors (spending
patterns, taxes and tariffs, exchange controls, and the competitiveness of SA industries).
A 10% weaker real rand is like a 10% tariff on all imports and a 10% subsidy for all exports. Export
subsidies raise the domestic relative price of exportables, import tariffs raise the domestic relative
prices of import substitutes. Thus weaker real exchange rates encourage production and discourage
imported consumption. A weaker real exchange rate will:
Stimulate exports;
Attract more tourists;
Reduce imports;
Improve trade balance;
Help to diversify exports;
Re-orientate the economy towards tradable sectors; and
Enhance growth and employment of unskilled labour.
These gains will be short lived if the prices of domestically produced substitutes rise to such an
extent that importing these goods would again become favourable to consumers. However, a more
competitive and stable exchange rate will encourage entrepreneurs to invest in an export-oriented
manufacturing sector
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4.3.5 Mining and Minerals Beneficiation
The government’s industrialisation policy calls for a paradigm shift in mineral development, strategic
investment in assets to maximise long-term growth, enhanced value of exports and opportunities for
sustainable jobs. This beneficiation strategy offers huge opportunities for both local and FDI.
The mining industry is an important sector of the South African economy contributing approximately
10% to the GDP in the last decade. It is also the largest contributor to the country’s exports. In 2010,
South Africa as a resource economy was estimated to possess approximately USD 2.5 trillion in non-
energy in situ mineral wealth. This makes it one of the wealthiest mining jurisdictions in the world.
In 2011 the mineral beneficiation strategy for South Africa was approved by cabinet. The policy
advances government’s developmental agenda and seeks to maximise national benefits from the
country's mineral resources. It aims to translate South Africa’s comparative advantage inherited
from its significant mineral resources to a national competitive advantage. Ultimately, its goal is
towards enhancing the value of exports, localising imports and creating sustainable jobs.
The strategy is aligned to a national industrialisation programme, which seeks to enhance the
quantity and quality of exports, promote creation of decent employment and diversification of the
economy, including promotion of the green economy. Further, the strategy is contributory towards a
strengthening of the knowledge economy in support of the overall competitiveness of the economy.
This strategy is anchored on a range of legislations and policies such as the Minerals and Mining
Policy for South Africa (1998). It advances the objectives of:
The Minerals and Petroleum Resources Development Act (MPRDA);
The Broad-Based Socio-Economic Empowerment Charter (BBSEE);
The Precious Metals Act;
The Diamonds Amendment Act;
Energy growth plan; as well as
Compliance with environmental protocols.
The strategy identifies several instruments that constitute an enabling environment for beneficiation
(policies, legislation, incentives etc.). To attain this competitive advantage, the challenges and
benefits need to be considered:
Access to raw material for local beneficiation
Lack of infrastructure
Research and development
Skills sought for expediting local beneficiation
Access to international markets for beneficiated products
The strategy recommends a set of integrated solutions to mitigate identified binding constraints and
leverage on existing national processes, such as the NGP and the national infrastructure programme.
The strategy outlines ten strategic mineral commodities, from which five value chains are selected.
The value chains specified are intended to indicate the inherent value for South Africa in embracing
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beneficiation for all strategic mineral commodities. The strategy is, therefore, not a blueprint for
individual commodity value chains, but provides a framework within which value chain specific
interventions will be anchored.
These minerals are:
Chromium
Manganese
Coal and Uranium
Nickel
Diamonds
Platinum
Gold
Titanium
Iron Ore
Vanadium
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These have been clustered according to their value chains and five value chains that will be the
preliminary focus of the new beneficiation strategy have been identified. The five value chains
are:
1. Energy commodities (coal, uranium and thorium)
2. Iron and steel (iron ore, chromium and manganese)
3. Pigment and titanium production (titanium and vanadium)
4. Autocatalytic converters and diesel particulate filters (platinum)
5. Jewellery fabrication (diamonds, gold and platinum)
For Consideration
Products that are manufactured in these five value chains should be targeted for trade promotion and SMEs
in these sectors should identified for further development as proposed in the NEDP.
4.4 The Dti’s Incentives
The dti provides financial support to qualifying companies in various sectors of the economy.
Financial support is offered for various economic activities, including manufacturing, business
competitiveness, export development and market access, as well as FDI.
A summary of these is given below:
4.4.1 Aquaculture Development and Enhancement Programme ( ADEP)
The ADEP is an incentive programme available to South African registered entities engaged in
primary, secondary and ancillary aquaculture activities in both marine and freshwater
classified under SIC 132 (fish hatcheries and fish farms) and SIC 301 and 3012 (production,
processing and preserving of aquaculture fish). The grant is provided directly to approved
applications for new, upgrading or expansion projects.
4.4.2 Business Process Services (BPS)
The South African government implemented a BPO incentive programme from July 2007.
Between July 2007 and March 2010, the incentive resulted in the creation of at least 6,000
new jobs and attracted R303 million in direct investment.
As part of a process of improving South Africa’s position as an investment destination, a
systematic review of the BPO & O incentive programme was undertaken with the private
sector resulting in a revised BPS incentive.
4.4.3 Capital Projects Feasibility Programme (CPFP)
The CPFP is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead
to projects that will increase local exports and stimulate the market for South African capital
goods and services.
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4.4.4 Clothing and Textile Competitiveness Improvement Programme
(CTCIP)
The CTCIP aims to build capacity among manufacturers and in other areas of the apparel value
chain in South Africa, to enable them to effectively supply their customers and compete on a
global scale. Such competitiveness encompasses issues of cost, quality, flexibility, reliability,
adaptability and the capability to innovate.
4.4.5 Critical Infrastructure Programme (CIP)
The CIP is a cost-sharing grant for projects designed to improve critical infrastructure in South
Africa. The grant covers qualifying development costs from a minimum of 10% to a maximum
of 30% towards the total development costs of qualifying infrastructure. It is made available to
approved eligible enterprise upon the completion of the infrastructure project concerned.
4.4.6 People-carrier Automotive Investment Scheme (P-AIS)
The People-carrier Automotive Incentive Scheme (P-AIS)is a sub-component of theP- AIS and
provides a cash grant of between 20% and 35% of the value of qualifying investment in
productive assets approved by the dti.
4.4.7 Production Incentive (PI)
The PI forms part of the overall Clothing and Textile Competitiveness Programme (CTCP) and
flows from the implementation, by the Department of Trade and Industry (the dti), of
customised sector programmes (CSPs) for the clothing, textiles, footwear, leather and leather
goods industries. The PI Guidelines seek to enable companies to present their business cases
to the CTCP Desk of the Industrial Development Corporation (IDC). They also provide a
framework for the CTCP Desk to evaluate such cases.
4.4.8 Sector-Specific Assistance Scheme (SSAS)
The SSAS is a reimbursable 80:20 cost-sharing grant offering financial support to export
councils, joint action groups and industry associations.
4.4.9 SEDA Technology Programme (STP)
STP is a division of SEDA focusing on technology business incubation, quality and standards
and technology transfer services & support to small enterprises.
4.4.10 Support Programme for Industrial Innovation (SPII)
The SPII is designed to promote technology development in South Africa’s industry, through
the provision of financial assistance for the development of innovative products and/or
processes.
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4.4.11 Technology and Human Resources for Industry Programme (THRIP)
The THRIP is a partnership programme funded by the Department of Trade and Industry (the
dti) and managed by the National Research Foundation (NRF). On a cost-sharing basis with
industry, THRIP supports science, engineering and technology research collaborations focused
on addressing the technology needs of participating firms and encouraging the development
and mobility of research personnel and students among participating organisations.
4.4.12 The Manufacturing Competitiveness Enhancement Programme (MCEP)
The MCEP, one of the key action programmes of the IPAP 2012/13 – 2014/15, will provide
enhanced manufacturing support to encourage manufacturers to upgrade their production
facilities in a manner that sustains employment and maximises value-addition in the short to
medium term.
4.4.13 Tourism Support Programme (TSP)
The Tourism Support Programme, a sub-programme of the Enterprise Investment Programme
(EIP) was introduced in 2008, replaced the Small-and Medium Enterprise Development
Programme (SMEDP) tourism programme. The incentive offered a grant of between 15% and
30% of qualifying investment costs for establishing new and expanding existing tourism
operations in South Africa. The incentive provided for qualifying investment costs of furniture,
equipment, vehicles, land and buildings and improvements of up to R200m. The maximum
incentive is R30m and is payable over three years.
For Consideration
Most exporters were either unaware of the incentives, found them too difficult to access, or simply not relevant
for their operations. More attention should be given to marketing the incentives and making the application
process easier. A full review of the success of the programmes should also be undertaken.
4.5 Advanced Manufacturing Technology Strategy
The Advanced Manufacturing Technology Strategy (AMTS) identified priority sectors within
the South African economy, and stimulated the process of technological upgrading, facilitation
of technological resource flow via new knowledge networks and built a creative and
innovative environment through a supply of skilled manpower, technology infrastructure and
funds.
The AMTS is centred on a select number of sectors and technology focus areas. Industry
Sectors to be focused on include:
Automotive (and Transport);
Metals (and Minerals);
Chemicals;
Clothing and Textiles;
Craft;
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Aerospace;
Capital Goods.
Technology focus areas include:
Advanced materials;
Product technologies;
Production technologies;
Logistics;
Cleaner production technologies;
ICT in Manufacturing;
SMME Development;
Standards, quality assurance, accreditation and metrology (SQAM) Technology
issues.
SQAM were identified as cross-cutting focus areas, and it is envisaged that additional sectors
and focus areas will be added in future.
The strategy will be implemented through a combination of interventions i.e. Centres of
Innovation, Innovation Networks and specific initiatives and programmes.
The AMTS recognises the importance of human resource development in order for the South
African manufacturing sector to excel and advance. In response to the sector’s requirement of
human resource development, the strategy proposes to focus on industry-driven and
academic institution-supported human resource development.
The AMTS also stresses the need for provincial and metropolitan council alignment in support
of implementing initiatives. Moreover, the Gauteng Provincial government highlights three
main areas of intervention regarding economic policy:
Realignment of the regions manufacturing sector (towards value-added
production efforts);
Developing the province as a smart centre; and
Expand the finance and business centres.
Without advancing technological processes and production methods these objectives cannot
be attained.
4.6 The Draft White Paper on South Africa’s Foreign Policy
There has always been an interaction between domestic business interests and foreign policy
in general and commercial diplomacy in particular. The direction that South Africa’s foreign
policy is taking is therefore critical to the NES. The draft White Paper on South Africa’s Foreign
Policy (2011) points to “the rise of new economic powers influencing a shift in the balance of
the global distribution of power”. It states as these emerging economic powers assert their
positions and seek to increase their influence in global affairs, new economic and political
groupings are formed. This has resulted in:
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New global markets;
Redirection in trade and investment flows;
Globalising labour market;
4.7 Realignment of Economic Alliances;
Increase in social divisions;
New consumption patterns and
New production networks.
The White Paper emphasises that the success of South Africa’s economic diplomacy will
determine the extent to which domestic priorities can be achieved. South Africa must be able
to participate competitively in the global market place where “globalisation continues to
shape the world at an accelerating pace. People, businesses and governments are interlinked
across the borders of the nation-state. Trade, global finance, and migration have encouraged
decades of economic growth.”
The White Paper affirms that the Department International Relations and Cooperation (DIRCO)
is the principal adviser on foreign policy, and lead coordinator and manager of South Africa’s
international relations and cooperation. The Department and its missions abroad carry out its
mandate by, inter alia, conducting economic diplomacy, advising on international law matters
and acting as custodian for all South Africa’s international agreements. South Africa’s
economic diplomacy will therefore be focused on providing guidance to government and the
business sector on economic developments and markets, pursuing market access for South
African products, attracting investments and tourism, removing barriers to trade, and
supporting the development of larger markets in Africa.
Successful economic diplomacy requires a close partnership with government, business, and
labour. A coordinated government-wide effort is essential to promote South Africa’s economic
interests in the international arena, including the use of high-level engagements. Economic
diplomacy should explore ways to strengthen ties with other regional economic groupings and
deal more effectively with non-tariff barriers. Within the partnership of government, business,
and labour it is important that South Africa’s values, principles, and reputation are reflected in
their conduct abroad. South African missions abroad are key and can assist South African
business abroad through:
Providing sufficient intelligence on market conditions,
Giving advice on interpreting market intelligence,
Providing information on local cultural nuances that would assist South African
business to better access those markets,
Advocacy, and
Market access support.
To achieve this DIRCO needs to improve its economic research capacity to strengthen its
economic diplomacy.
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South Africa will continue to support the regional economic programme of SADC that provides
for policy coordination and convergence, sectoral cooperation and market integration through
the SADC Free Trade Area. The proposed integration of SADC, COMESA, and the EAC would
also contribute to increased economic interaction.
Under the auspices of the Department, the South African Development Partnership Agency
(SADPA) will facilitate and manage development assistance in support of South Africa’s foreign
policy objectives. Therefore, to enable effective coordination and to ensure policy cohesion
and synergies in South Africa’s bilateral and multilateral interactions, the establishment of a
professional diplomatic service as well as these coordinating structures through the adoption
of legislation should be pursued. Given dynamic changes in the global environment in which
the Department operates, it will be critical for it to have the institutional flexibility to adapt its
structure and operations to meet new challenges.
For consideration:
The draft White Paper on South Africa’s Foreign Policy emphasises DIRCO’s role in commercial diplomacy
which includes elements of export promotion. DIRCO officials need to be carefully selected and adequately
prepared to undertake this task.
4.8 Special Economic Zones
A SEZ is a geographically designated area of a country set aside for specifically targeted
economic activities, which are then supported through special arrangements (which may
include laws) and support systems that are often different from those that apply in the rest of
the country.
Uses of SEZs:
Tools for long-term industrial and economic development,
Creating an enabling and sustainable environment for foreign and domestic direct
investment to thrive,
Building targeted industries, developing regions and building industrial
infrastructure.
There are different categories of SEZs
Sometimes countries use different names for the same concept, but the strategic intention is
more important than the names used. An EPZ is a designated area set up by government to
promote industrial and commercial exports and to provide tax and other incentives to export.
Historically, EPZs are exempt from numerous laws including labour laws. Another prominent
feature of an EPZ is that, once declared, the zoning applies only to industrialists or investors
that export 100% of the finished goods produced in the zone with no flexibility to sell some of
the products locally, even when expedient or practical.
Overview of SEZs history in South Africa
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Industrial Development Zones: Introduced around 2000 to promote value added
exports and export-oriented industries,
Spatial Development Corridors: Introduced to link key development nodes through
transportation networks and to catalyse development along the corridors,
Industrial Parks: Apart from private sector ones, the pre-1994 government
introduced industrial parks to develop nodes intended to promote “separate
development”.
In proposing legislation allowing for SEZs, it has been made clear that labour laws will not be
relaxed in the new arrangements for accelerating industrial development through special
economic zones. The director-general of the Department of Trade and Industry said :
“Government needs full support from organised labour and business for the proposed SEZs to
work effectively. It is not in our best interest to deregulate labour laws in order to attract FDI
and therefore exploit our workers. The model of SEZs that the government is pursuing shifts
away from competing on the basis of cheap labour to competing on the basis of the quality of
services and support measures provided in the zones and their host regions. Our challenge is
therefore to develop a comprehensive package of support measures that will be adequate to
attract desired investments but also assist the country to master the desired industrial
capabilities.”
The main aim of the SEZ bill and policy is to support the acceleration of industrial development
in order to promote growth and creation of sustainable and decent jobs and also to promote
the creation of a regionally diverse industrial economy through the creation of new industrial
hubs in under development regions.
The SEZs can be utilised to create a sustainable environment for foreign and domestic direct
investment and build targeted industries aimed at developing strategic industrial capabilities
and industrial regions.
The South African Industrial Development Zone Concept
The Minister of Trade and Industry may identify an area as suitable for development of an
Industrial Development Zone by notice in the Gazette if the Minister is satisfied that
designation of the area as an Industrial Development Zone will:
Facilitate the creation of an industrial complex having strategic economic
advantage;
Provide the location for the establishment of strategic investments;
Enable the exploitation of resource-intensive industries;
Take advantage of existing industrial capacity, promote integration with local
industry and increase value-added production;
Create employment and other economic and social benefits in the region in which
it is located; and
Be consistent with any applicable national policies and law, as determined by
appropriate environmental, economic and technical analyses.
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An Industrial Development Zones (IDZ) is a purpose built, industrial estate linked to an
international air or sea port, which might contain one or multiple Customs Controlled Areas
(CCA) tailored for manufacturing and storage of goods to boost beneficiation, investment,
economic growth and, most importantly, the development of skills and employment in these
regions. A port (air or sea port), is a place appointed or approved by the Commissioner of the
SARS under the Customs and Excise Act, 1964 (Act 91 of 1964) through which goods may be
imported or exported.
The key objectives of the programme are to:
Attract FDI;
Attract advanced foreign production and technology methods in order to gain
experience in global manufacturing and production networks;
Develop linkages between domestic and zone-based industries;
Provide world-class industrial infrastructure.
Benefits of the incentive scheme
The benefits of these incentives to exporters are explained in the incentive scheme. The
requirements are rather technical and exporters complained that the documentation was
onerous. Further there was a lack of awareness of the various incentive schemes.
Current status
The Department’s IDZ programme was initiated in 2000 and four zones were designated, with
three currently operational: Coega (Port Elizabeth), East London and Richards Bay. The IDZs
including the current ones are types of the SEZs and once the new the Act is passed they will
form part of the Special Economic Zone programme. The existing IDZs were beginning to gain
traction. The East London IDZ, which had a private sector investment of R600 million in 2009
compared to R4bn in 2012/2013. Work under the current IDZ regulations include the Saldanha
Bay which is about to be designated. The Saldanha Bay Feasibility Study published in October
2011 found that there was sufficient non-environmentally sensitive land upon which an IDZ
development could take place. The Study also found that Saldanha Bay was an ideal location
for the development of an Oil & Gas and Marine Repair Cluster. The Port of Saldanha Bay is
also competitively located between the oil and gas developments on the West Coast of Africa,
as well as the recent gas finds on the East Coast of Africa.
For consideration:
SEZs provide an opportunity to relocate export sectors closer to ports. This will help reduce costs and make
South African exports more competitive. Low value-added, heavy export products should be relocated closer
to coastal ports.
the dti is currently preparing the SEZ Bill. The main objectives of the SEZ Bill among others are
to provide for the designation, development, promotion, operation and management of
Special Economic Zones; and to provide for the establishment of the Special Economic Zones
Board. The purposes of the SEZs include facilitating creation of an industrial complex with
strategic economic advantage for targeted investment and industries in manufacturing sector
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and tradable services. It will also focus on developing infrastructure to support development
of targeted industrial activities and attracting foreign and domestic direct investment. There
are different categories of the SEZs that South Africa will make use of, namely:
A free port;
A free trade zone;
An industrial development zone; and
A sector development zone.
The IDZs would continue to be one of the elements of the SEZs.
Ten potential SEZs have been agreed upon with provinces and are still go through feasibility
studies to determine their viability.
4.9 Agriculture
In 2008 the DAFF drafted an “Agricultural Trade Development Strategy for South Africa”. Its
purposes are:
To monitor and evaluate global and local trends in trade and to provide an
informed strategic direction that can form part of government and industry’s plans
of action, to be reviewed and monitored regularly to measure progress.
To provide a common understanding and directives within government and its
institutions and the agricultural industry with regard to the application of trade
policy instruments: trade negotiations, tariff policy, trade and business support
services and regulatory support.
To provide broad-based direction on how trade in agricultural. Three main objectives have
been identified:
Agricultural and food products can contribute to the shared growth objectives of
ASGI-SA and employment creation.
Improving market access for new export opportunities through agricultural trade
negotiations.
Long-term sustainability of the production of tradable products.
Grow the exporter base.
4.10 Defence Export Strategy
Given the sensitivity of the arms trade, the defence sector is governed by a range of legislation
and regulations. The Armaments Corporation Act number 51 of 2004 sets out the objectives of
the Corporation and states that it must procure and ensure that South Africa has access to
weapons for defence.
Many of its suppliers are also exporters and a “Defence Industry Customised Sector
Programme” has been compiled.
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4.11 Creative Industries
In the Department of Arts and Culture’s Medium-term Strategic Framework, Programme 2:
Arts and Culture in Society contains the following points:
Promotion of arts and culture in South Africa and mainstreaming its role social
development.
Promotion of social enrichment, social cohesion and nation building through arts,
culture and heritage.
Promotion of social inclusion of previously marginalised groups in arts, culture and
heritage.
Socio-economic empowerment of women, youth and special groups through skills,
participation and opportunities in the arts, culture and heritage sector.
There is no specific reference to exports.
http://unctad.org/en/Pages/DITC/CreativeEconomy/Creative-Economy-Programme.aspx
4.12 Enterprise Development
In March 1995 an important milestone was achieved when government released its White
Paper on national strategy for the development and promotion of small business in South
Africa, the first time a comprehensive policy and strategy on small business development was
formulated in the country. The 1995 White Paper on national strategy on the development
and promotion of small business in South Africa included:
Creating an enabling legal framework
Streamlining regulatory conditions
Facilitating access to information and advice
Facilitating access to marketing and procurement
Facilitating access to finance
Facilitating access to affordable physical infrastructure
Providing training in entrepreneurship, skills and management
Improving industrial relations and the labour environment
Facilitating access to appropriate technology
Encouraging joint ventures
Capacity building and institutional strengthening
Introducing differential taxation and other financial incentives
4.12.1 Integrated Strategy on the Promotion of Entrepreneurship and Small
Enterprises
Since the 1995 White Paper, government-owned institutions and programmes have evolved
within all three spheres of government with the aim of providing comprehensive support to
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small business. These institutions have made progress in delivering a wide range key support
services although there is still some way to go before integration is seamless..
Summary of strategic programmes
Fostering entrepreneurship culture and increasing the enterprise creation rate
Establish a dedicated network of SMME finance
Create demand for Small Enterprise products and services
Strengthening local network for small business development support services
Improving small enterprise competencies and delivery capacity
Strengthening Enterprise Networks
Providing necessary support incentives
Improving regulatory environment
Entrepreneurship and small business research
4.12.2 Trade and Investment Development Programme (TIDP) for SMEs
The TIDP, a project co-funded by the European Union and the South African government until
the end of the first quarter of 2004, aimed to develop the competitiveness of South African
businesses in the SMME sector so that they would be able to sell their products in
international markets. It was felt that this in turn would stimulate job creation, and contribute
to export-oriented economic growth and the diversification of South Africa’s exports. The
programme, which was run by the Ntsika Enterprise Promotion Agency (now SEDA), had three
focus areas:
A Training Programme in International Competitiveness
Product and Market Development for Export
International Partnership Development Programme
The establishment of local Trade Points
4.12.3 The Establishment of Local Trade Points
The idea of establishing a worldwide network of Trade Points to reduce the costs of
international trade for small-and medium-sized business entities was first mooted in 1992.
These costs (associated with meeting regional/national standards, quality certification,
customs clearance, transport, banking, insurance, telecommunications and information
acquisition) had been identified within UNCTAD, the initiators of the concept, as the primary
inhibiting factor in increasing the participation of SMEs in international trade. To SME,
particularly those located in landlocked countries, the cost involved tended to eclipse any
perceived benefit associated with export ventures.
The Trade Point programme was initially piloted in 16 locations, many of which were in South
America. Today, more than 100 Trade Points, located in the Americas, Europe, the Middle
East, Asia and Africa, participate in the Trade Point programme which is now operated by the
World Trade Point Federation (WTPF). Across the world, more than 85% of Trade Point
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customers are from micro, small or medium-sized enterprises and, of these, more than 31%
are micro enterprises.
A Trade Point is intended to be a source of trade-related information, a trade facilitation
centre and a gateway to global electronic networks. It was envisaged by UNCTAD, the Trade
Point programme’s founder, as a place – virtual or physical – where participants in foreign
trade transactions, e.g. freight forwarders, transport companies, customs authorities, banks,
insurance companies, etc., could be brought together under a single umbrella to cost-
effectively provide all required services for trade transactions. In addition, through the then
GTPNet (now known as the WTPF website), Trade Points would also provide local importers
and exporters with international trade-related information pertaining to business and
marketing opportunities, potential buyers and suppliers of products, trade regulations,
delivery logistics and national technical specifications.
In South Africa, the establishment of Trade Points in the main centres has been the
responsibility of SEDA. There are currently four Trade Points in South Arica, in Johannesburg
(hosted by the Johannesburg Chamber of Commerce and Industry), in Durban (hosted also by
the Chamber of Commerce), Port Elizabeth and Mbombela (Nelspruit).
4.13 The Competition Act
The Competition Commission is a statutory body constituted in terms of the Competition Act,
No 89 of 1998 by the Government of South Africa empowered to investigate, control and
evaluate restrictive business practices, abuse of dominant positions and mergers in order to
achieve equity and efficiency in the South African economy.
The Act does not distinguish between domestic and foreign markets and the proposed export
consortia will have to apply for exemption.
The purpose of the Competition Act is to promote and maintain competition in South Africa
to:
Promote the efficiency, adaptability and development of the economy;
Provide consumers with competitive prices and product choices;
Promote employment and advance the social and economic welfare of South
Africans;
Expand opportunities for South African participation in world markets and
recognise the role of foreign competition in the domestic markets;
Ensure that SME have an equitable opportunity to participate in the economy; and
Promote a greater spread of ownership, in particular to increase the ownership
stakes of historically disadvantaged persons.
The Act prohibits restrictive horizontal practices which are agreements between, or concerted
practice by, firms, or a decision by an association of firms if:
It has the effect of substantially preventing, or lessening, competition in a market,
unless a party to the agreement, concerted practice, or decision can prove that
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any technological, efficiency or other pro- competitive gain resulting from it
outweighs that effect; or
It involves any of the following restrictive horizontal practices:
Directly or indirectly fixing a purchase or selling price or any other trading
condition; or
Dividing markets by allocating customers, suppliers, territories, or specific types of
goods or services; or
Collusive tendering.
Restrictive vertical practices are also prohibited. These occur when agreements between
parties has the effect of substantially preventing or lessening competition in a market. If a
party to the agreement can prove that any technological, efficiency or other pro-competitive,
gain resulting from the agreement outweighs that effect the agreement can be allowed..
Clearly exporters can increase their export values through collaboration. Firms however can
extend their collaboration from foreign markets to domestic markets. This would clearly be
contrary to the spirit if not the letter of the law.
In terms of subsection (2)(a) The Competition Commission may grant an exemption only if:–
Any restriction imposed on the firms concerned by the agreement or practice
concerned, or category of either agreements or practices concerned, is required to
attain an objective mentioned in paragraph (b); and
The agreement or practice concerned, or category of agreements or practices
concerned, contributes to any of the following objectives:
Maintenance or promotion of exports; and
Promotion of the ability of small businesses, or firms controlled or owned by
historically disadvantaged persons, to become competitive; and
Change in productive capacity necessary to stop decline in an industry and
The economic stability of any industry designated by the Minister, after consulting
the Minister responsible for that industry.
For consideration:
It is therefore recommended that TISA apply for block exemption where export consortia are being set up
under the auspices of the National Export Strategy.
4.14 Conclusion
Considerable efforts have been made by the South African government to tackle the legacy of
high levels of inequality and poverty. Various strategies and policy frameworks have been
developed over this period. These include the GEAR strategy of 1996, AsgiSA announced in
2006 and, more recently, the 2010/11–2012/13 Industrial Policy Action Plan (IPAP2) and the
NGP, launched in 2010, which builds on previous policy initiatives. The National Development
Plan: vision 2030 consolidates the earlier policies and also offers a long-term vision.
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Although the sequencing of the policies was not always optimal there is a comprehensive set
of policies and strategies. The notable exceptions are FDI and Export strategies. Trade and
industrial policies are the responsibility of the dti. The main policy directives of the
Department are contained in the NIPF, IPAP and the TPSF.
The South African INES will build on these also and contribute to achieving the national vision.
While the NIPF and the IPAP focuses on supply-side issues and the TPSF on market access, The
INES will focus on development (aspects such as exporter development), export promotion (
foreign market development), and border issues (such as trade facilitation) in the short-term.
The INES should integrate the work of all the national departments and sub-national spheres
of government. The focus should be on achieving the long-term employment targets set out in
the NDP. Collaboration between the private (export councils, organised labour), parastatal
organisations, non-governmental organisation and the public sectors (all relevant departments
and sub-national government is critical.
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Appendix 5. Review of Previous Work Done
5.1 Introduction
This chapter gives a short history of South Africa’s trade and the country’s trade policy. It looks
at the history of trade promotion and the tools that have been used and that are currently
being used. The purpose of the review of the previous work done is to determine which
instruments worked best and work to improve them and also to identify less successful actions
and to analyse the causes. This will allow for better policy development when compiling the
final INES.
The chapter also looks at current policies and tries to identify areas in which these can be
improved.
5.2 Historic Overview
Borgeon and Claude (2013) points out that even in “ancient times, trade promotion was
recognised as a key strategy, either at the national or the regional level.” During Middle Ages
European trade fairs were supported by local authorities. Even earlier Phoenician traders were
known throughout the whole Mediterranean area. After Marco Polo introduced Europeans to
Central Asia and China, Venetian prosperity was based on strong national trade promotion
policies.
During the 16th century, the spice trade was dominated by the Portuguese syndicates (with
Germans, Spanish and Italian firms).The governments played an important role and even used
their armed forces to protect trade routes. In 1600 the English bundled their resources into a
monopoly enterprise, the English East India Company. In 1707 it was incorporated into a
British joint-stock company. In 1602 the Netherlands government granted a charter to the
Dutch East India Company (Vereenigde Oost-Indische Compagnie or, VOC) to exploit trade
between Europe and the East.
8.7 South Africa’s Early Trade and Trade Policies
“Arab and Indian traders were active along the east and south-east coast of Africa (including
present-day Mozambique and South Africa) in the 8th century and probably earlier. However,
South Africa has been engaged in foreign trade as we know it today since the mid-1600s when
Jan van Riebeeck established a provisioning station for ships passing the Cape of Good Hope.
For two centuries after that, South Africa exported agricultural products and imported virtually
everything that could not be made from local resources.
The discovery of diamonds and gold in the 1870s and 1880s and the subsequent development
of the world’s largest diamond and gold mining industries changed the shape of the South
African economy and its international trade patterns.
In the late 1800s gold and diamonds became South Africa’s major exports, although
agricultural produce still featured. Imports at that time included mining machinery and related
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equipment to meet the needs of the developing wealth-creating sector, as well as consumer
goods, building materials and all the other items required by the country in general.
From the mid-1920s, there was a strong move towards the development of domestic industry
as a substitute for imports, largely driven by the growing demands of the mining sector. The
outbreak of World War II in 1939, and the consequent difficulty in obtaining foreign supplies,
further stimulated the growth of the manufacturing sector. Foreign investment in the South
African mining industry was followed by similar investment in, and licensing of, engineering
companies in South Africa.
As a result of rapidly growing trade and investment ties with major developed countries, South
Africa’s international financial links expanded, laying the basis for the country’s current
sophisticated financial services sector.
The increase in South Africa’s foreign trade from the late 1800s onwards, as well as its greater
complexity, also stimulated the development of the physical and service infrastructure
essential to a country’s foreign trade development. South Africa’s involvement in broad-based
foreign trade has been for a far longer period than that of many other developing countries
and its foreign trade infrastructure is therefore comparatively well developed.
Export earnings from the mining sector grew as new deposits were discovered and exploited.
Furthermore, as South Africa’s manufacturing base expanded and diversified, so too did its
export products. Nevertheless, many companies in the manufacturing sector regarded the
growth of the domestic market as sufficient to meet their profit ambitions and relatively few
committed themselves to export development.
The GATT was signed in 1947. This agreement involves more rigorous application of the
principle of multilateralism and MFN treatment among a large number of countries, including
South Africa and the great industrial states of the world. During this period South Africa
continued with import replacement at the expense of export promotion.
Export promotion got a boost in 1957 when South Africa revealed for the first time its
intention to introduce more purposefully measures to promote exports by the establishment
of the Export Credit Insurance Scheme, which was to be of direct assistance and
encouragement to exporters and taking special steps to increase exports. This was an
important addition to the export strategies already employed by the Department of
Commerce to promote trade.
5.3 Commercial Diplomacy
During 1964 when the first economic development programme for South Africa was compiled
and export target set, it became even more apparent that the role of exports would have to be
increased and more positive action taken to develop exports to the optimum degree. The
objective of the export policy was described by the Department of Commerce simply to
increase exports (visible and invisible) rapidly and to the maximum extent possible-but at least
to the extent envisaged by the first economic development programme.
Critical Analysis for the Integrated National Export Strategy
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The Department of Commerce developed close relationship with individual producers with a
view to determining the export potential of each company or organisation to persuading
producers to become more export-oriented, and the plan for exports. The Department
concluded by saying that ”it is realised in this connection that if the Department’s export
machinery and services can function smoothly, frustrations of the private sector will disappear
and export consciousness will soon be replaced by a positive reorientation. Sound foundations
have been laid for the 1970s and it is now up to the private sector to play.
5.3.1 Foreign Economic Offices
Based on the budget provided to the dti currently manages only 29 Foreign Economic Offices
abroad. Due to limited resources, it is not possible to be represented in every market.
However the dti collaborates closely with DIRCO offices to provide support on economic
matters where the resources do not allow for full-time dti representation.
Lederman et al (2006) found that the number of national export promotion agencies has
tripled over the past two decades. More countries have made them part of their national
export strategy. Based on data set covering 104 developing and developed countries they
suggest that on average EPAs have a strong impact on exports and for each $1 of export
promotion, they estimate a $40 increase in exports for the median EPA. They caution that
there are strong diminishing returns and therefore EPAs should remain small.
Figure 7: Export Promotion Agency Budgets and Exports per capita
184
Source: (Daniel Lederman et al. 2010)
As communication costs fell, foreign embassies and consulates lost their role in decision
making and information-gathering. Foreign services have increasingly marketed themselves as
agents of export promotion. Rose (2007) found that diplomatic representation played an
important role in increasing exports. Bilateral exports rose by approximately six to ten per
cent for each additional consulate abroad. He also found consulates had a smaller effect on
export promotion than did embassies.
For consideration
Given the resources allocated to export promotion in South Africa, urgent attention needs to be given using
existing resources more effectively and efficiently. There is a general lack of awareness of the services that
commercial diplomacy plays or could play. The services need to be marketed appropriately.
DIRCO officials generally have not been required to perform commercial diplomacy or export promotional
activities. Care needs to be take in the selection of candidates as does the training and capacity building of
them.
5.4 The Years 1971 to 1990
In 1971 The Board of Trade and Industry recommended that industries which could not
compete without protection should not be established. This recommendation was accepted by
government. However, government did not liberalise because of impending negotiations with
GATT regarding various tariff bindings. Unfortunately gold and foreign reserves reached a low
level towards the end of 1971 and the authorities again imposed a sharper degree of import
control (RSA, 1972). Kleu (1983) stated “that some monetary, semi-monetary and fiscal
measures introduced with a view to short-term considerations become protracted or
permanent and often have unfavourable side effects on the development of industry in the
long run.”
Political troubles in South Africa, especially since the 1974 coup d’état in Portugal and the
effects it had in Southern Africa and South Africa’s own political problems, prevented
Government from “adopting policies strongly in favour of market-oriented interest rates and
measures” (RSA, 1983).
In 1977, following the Reynders Commission, a Study Group under the chairmanship of Mr J
van Huyssteen was appointed to investigate the system of export incentives in South Africa.
This eventually resulted in the establishment of Categories A, B, C, and D which were effective
until 1990.
Exports as percentage of the GDP declined from 1945 to 1985. From 1972 to 1983 export
growth was slow; from 1983 to 1990, export growth was moderately high. The later period
coincided with the real depreciation of the South African Rand, but was remarkable as this
growth took place against a background of sanctions. Exports of agricultural products grew
gradually while the exports of mining equipment grew rapidly. Most of South Africa’s exports,
Critical Analysis for the Integrated National Export Strategy
185
despite the period of sanctions from 1985–1990 are sold to the EU, USA and Japan. The range
of products remained fairly limited.
5.5 National Export Strategies
Many governments have separate documents that give comprehensive details regarding the
countries approach to export promotion. This approach usually builds on the country’s
national economic policies. Other countries include export promotion in their overarching
national strategies. A few countries do not have any specific export strategy. This was a case in
South Africa in 1971 and the Reynders’ commission noted, “that it could not find any public
document in which the export policy of the Republic was explicitly stated, while official
documents (for example, in the reforms are reports by commissions, committees, the Board of
Trade and Industries, etc.) on import replacement abound. The policy in regard to exports and
export promotion lie scattered among the speeches of the ministers and government officials
and in Hansard.” (Commission of Inquiry into the Export Trade of the Republic of South Africa
1972).
Export strategies, whether they are incorporated in the national development plans or as
separate documents, have become critical. In today’s global village it is no longer “doing
business as usual.” In an ever globalising world, the competitive advantages that any firm has
achieved are becoming smaller and less durable. Internationally executives are facing several
strategic challenges:
Becoming globally competitive;
Pursuing new business opportunities; and
Maintaining their business as usual based on the perception that they still enjoy
comparative advantages or national protection, with inevitable diminishing sales or
profits.
To support their domestic businesses, governments have to establish and maintain favourable
business environments. Best practices are imitated and replicated. Advantages that any
country has (or creates) are constantly being eroded. Governments have to respond quickly to
changing conditions. However, best practices shown that there are few principles that
contribute to the success of domestic businesses in the global marketplace.
National export strategies should ensure not only on exporter development and export
promotional instruments but should also ensure that there is a conducive business
environment, although government’s focus therefore should also be on implementing sound
policies that ensure that there is a stable and sustainable environment. The favourable trade
environment should:
Provide a stable macro environment;
Maintain sound institutions;
Encourage investment in new:
Technologies;
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Markets;
Products and services;
Generate specialised skills;
Help generate innovation; and
Contribute to profitable businesses.
The national export strategy should address all the factors reducing the costs of the export
transaction by:
Improving forward and backward linkages within and among local industries;
Capture more of the value of the “local value chain” in South Africa;
Strengthen local value chains through the acquisition of new technology; and
Building export-oriented competencies for the value chains.
National export strategies are therefore integral to the countries overall economic planning.
The process must therefore be integrated into the overall economic-planning framework. The
process should not deal simply worth foreign market development and promotion but rather
should focus on establishing a national competitiveness framework. It should also look at
developing and strengthening the export culture. The national export strategy should also
ensure that it contributes to the vision and goals of national economic policy. In South Africa’s
case this implies not only improved economic growth and increasing income and wealth, but
also employment, equity, as well as poverty alleviation. In many countries the focus is on the
development of SMEs. In South Africa’s case micro enterprises have also been included.
5.6 Export Incentives
In September 1980, as a result mainly of the Reynders’ Commission and the Van Huysteen
Study Group proposals, the South African government introduced four categories of
incentives. Category A (input compensation) provided for exporters to claim 50 per cent of the
value of the import duty applicable to inputs used in the production of export goods. There
were other individual export promotion schemes in operation before 1980. The income tax
allowances for export market development, which came into operation in 1976, were the
most important. There were also transport concessions, financing incentives and iron and steel
export concessions. Although low by international standards of the time, altogether
represented 3,5 per cent of eligible exports. Exporters were also allowed to apply for a rebate
on the duty under Section 470.03 or a drawback of the duty under Section 521 of the Customs
and Excise Act. This was however only available where actual imported products were used.
Category A on the other hand made allowances for the price parity effect (which resulted from
duties) for locally manufactured goods. Under Category A it was immaterial whether the
inputs were actually imported or not. Assistance was therefore available to all producers of
export goods providing their inputs were subject to duty. It was immaterial whether this was
ad valorem, specific or formula duties. There was no provision made for compensation for the
increased costs of raw materials or inputs cause by quotas.
Critical Analysis for the Integrated National Export Strategy
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Table 34: Total Category A export assistance (R millions)
Sector 1982 1983 1984 1985 Food 15.08 12.92 12.72 9.25 Beverages 0.06 0.10 0.03 0.01 Textiles 0.44 0.61 0.70 0.80 Clothing and footwear 1.31 1.32 2.90 3.02 Wood products 0.17 0.17 0.17 0.31 Furniture 0.19 0.19 0.21 0.17 Paper and paper products 1.74 2.11 2.30 2.00 Printing 0 0 0 0 Leather products – – – – Rubber products 0.19 0.23 0.25 .012 Chemicals 3.44 3.33 0.96 1.97 Other chemicals 0.05 0.06 0.07 0.59 Non-metal mineral products 1.32 1.58 1.21 1.11 Basic metals 10.15 1078 11.32 18.60 Metal products 0.86 0.96 1.03 1.23 Machinery (excl. electrical) 0.70 0.42 0.49 0.34 Electrical machinery 0.54 0.54 0.37 0.47 Transport equipment 6.47 7.65 6.75 4.90 Other 0.46 0.44 0.53 0.92 Agriculture 9.79 7.17 8.09 15.06 Total (excl agriculture) 43.17 43.41 42.01 45.81 Total (incl. agriculture) 52.96 50.58 50.09 61.41
Source: Board of Trade and Industry (BTI): Committee of Enquiry into Export Incentives, 1987.
The Category B (value-added compensation) provided a subsidy of 10 per cent of the value-
added component of tariff-protected manufactured goods. The rationale for this assistance
was to compensate exporters for the cost-increasing effects of South Africa’s policy of
protecting industry. The value added was the difference between the export price and the cost
of the inputs in producing the final product. The value added included the overland transport
cost to the port or border, administrative and marketing overheads, wages and salaries,
depreciation, returns on land or intangible assets. It even included the compensation received
under Category A. From Error! Reference source not found. and Error! Reference source not
found. it can be seen that the value-added compensation was approximately double the input
compensation. The sectors to benefit the most were basic metals and food, although
chemicals received more Category B support.
Table 35: Total Category B export assistance (R millions)
Sector 1982 1983 1984 1985
Food 14.21 11.45 16.11 21.67 Beverages 1.24 1.82 1.55 1.42 Textiles 1.27 1.77 2.31 2.87 Clothing and footwear 1.63 1.62 4.17 5.22 Wood products 0.58 0.79 0.74 0.73 Furniture 0.57 0.50 0.40 0.44 Paper and paper products 1.32 0.96 2.44 7.08 Printing – 0 0 0 Leather products – – – – Rubber products 0.48 0.49 0.47 0.16
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Chemicals 15.23 10.74 9.72 15.22 Other chemicals 6.96 5.77 9.46 14.29 Non-metal mineral products 1.63 2.06 1.33 2.37 Basic metals 14.12 19.87 35.02 64.50 Metal products 3.13 2.7 2.85 3.57 Machinery (excl. electrical) 1.91 1.66 2.24 2.12 Electrical machinery 1.03 0.97 0.72 0.76 Transport equipment 1.54 1.09 1.03 1.40 Other 2.89 3.17 4.54 6.52 Agriculture 0.40 1.21 0.26 0.15 Total (excl agriculture) 69.74 67.43 95.09 150.34 Total (incl. agriculture) 70.12 68.64 95.35 150.49
Source: BTI: Committee of Enquiry into Export Incentives, 1987.
Under Category C discretionary incentives were provided to exporters mainly to assist with
marketing costs. Much of this category (the main exception was the warehousing assistance) is
now encompassed in EMIA.
Category D or Section 11bis of the income tax allowed exporters an additional deduction from
taxable income of specified export marketing costs of either 75 per cent or 100 per cent. The
Receiver of Revenue never calculated the cost of this deduction. It is not possible therefore to
do a cost benefit analysis of this scheme. Further, many of the costs allowed were not
necessary related to export marketing. It was however very difficult for the Receiver to verify
this. It was only in 1990 when a maximum of 20 per cent of exporter turnover could be
claimed that expenses were brought into line with actual export marketing activities.
Table 36: Total Category D export assistance (categories indicated by the claimants) R000
Sector 1982 1983 1984 1985 Food 24.4 26.6 16.0 23.7 Beverages 1.3 4.0 4.2 5.6 Textiles 3.2 4.3 6.7 8.6 Clothing and footwear 8.8 8.8 11.4 13.3 Wood products 1.3 2.2 1.9 2.3 Furniture 1.0 0.4 0.6 0.9 Paper and paper products 8.4 8.7 13.9 11.2 Printing 0.0 0.0 0.1 0.0 Leather products Rubber products 0.7 0.5 0.6 0.2 Chemicals 21.6 19.9 18.4 18.6 Other chemicals 2.1 4.9 22.8 42.3 Non-metal mineral products 6.7 8.0 8.0 10.5 Basic metals 34.1 30.3 47.0 65.9 Metal products 11.6 15.2 8.9 7.2 Machinery (excl. electrical) 4.1 5.7 7.1 8.8 Electrical machinery 2.6 1.8 5.2 4.7 Transport equipment 1.0 1.8 2.8 1.3 Other 3.1 4.7 6.5 6.3 Agriculture 59.3 49.8 72.1 97.6 Total (excl agriculture) 136.0 147.8 182.1 231.4 Total (incl. agriculture) 195.3 197.6 254.2 329.0
Source: BTI: Committee of Enquiry into Export Incentives, 1987.
Both Categories A & B were complicated and difficult to administer. Exporters had to complete
numerous forms to prove their claims, adding to the cost of exporting.
Critical Analysis for the Integrated National Export Strategy
189
Under Section 11bis and Section 17 of the Income Tax Act, exporters were entitled to claim
either 175 per cent or 200 per cent of certain export marketing expenditure depending on
whether there was an increase in export turnover. Normally only 100 per cent of a marketing
expenditure could be deducted. This in effect meant that exporters were actually not paying
much for their export marketing. The definition of marketing expenditure was very wide and
included premiums on export credit insurance, paying consultants to undertake market
research, supplying free samples, bringing prospective customer to South Africa, Preparing
and submitting tenders, commissions, SABS certification fees, membership of export
promotional organisation and warehousing. The scheme was open to abuse and just about the
only criterion for qualification was to be a registered exporter with the Department of Trade
and Industry.
5.7 The South African Foreign Trade Organisation
SAFTO was established in 1963 with the raison d’être of making South African businesses more
aware of their export potential and the need to adopt an international outlook. Its
membership grew from 130 companies in 1963 to almost 1500 in 1998, with at least a further
1 000 companies as ad hoc clients.
The organisation was modelled on successful TPOs in other countries, such as Hong Kong,
Taiwan, Chile, The Netherlands and Finland. It provided a wide range of services including
export education and training, foreign market research (both desk and in-market research),
export administration and management services, foreign trade fair participation management,
and export directories and handbooks. It also acted as a “voice” for the export community in
communications with the rest of the business sector and relevant South African government
departments.
SAFTO established “business groups” with specific regional focus. These groups would
cooperate and share information and intelligence on markets, especially in Africa, the Middle
East, Latin America and Asia (SAFTO took the first South African business missions into China
and Iran). The groups trusted each other and the trust grew as the relationships strengthened.
The Small Exporter Development Programme (SEDP), later re-named the Mariner Programme,
provided an all-inclusive hands-on service to SMEs. Aspirant companies underwent an export-
readiness evaluation before being allocated a dedicated executive who fulfilled the role of an
out-sourced export manager. The objective was to develop initial export markets for the
company (including market research, trade fair participation and logistics management), while
providing “on-the-job” training supported by attendance at SAFTO training courses, to enable
the company to take over its own export activities within 18 to 24 months.
Although SAFTO received government assistance for specific activities (e.g. SEDP), this did not
amount to more than 20 % of its revenue. SAFTO however did enjoy a close relationship with
the dti and worked on many joint projects.
Joffe et al (1995) found that South Africa’s export promotional services did not meet the
requirements of potential SME exporters and that the programmes and the institutions
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responsible for their implementation were under resourced but generally effective. However,
they were relatively inaccessible to SMEs.
Joffe et al (1995) pointed to SAFTO’s big business bias and its ‘whiteness’ as reflected in the
composition of its board of directors. They blamed this on the effective privatisation of SAFTO
and its increasing reliance on the sale of its services as the underlying reason for the
organisation’s distance from SMEs. Although the Industrial Strategy Project did recommend a
significant increase in government’s overall contribution to export support, they favoured ”the
lion’s share of the government’s subsidy to SAFTO earmarked for SMEs.”
In 1997 SAFTO was essentially taken over by the IDC and eventually liquidated..
For consideration
Although it has been argued that SAFTO favoured only large organisations, it did play a valuable role in
assisting government with developing an export culture, exporter development and even export promotion. It
was able to assist with the closing of deals which GATT, the WTO and the Geneva Conventions prohibit
diplomatic or commercial staff from doing. The country groups were valuable in exploiting “new “ markets after
the lifting of sanctions. These groups could be resuscitated. It is recommended that government indirectly
assist the private sector form a new “SAFTO” through tax deductions and that programmes for SMMEs and
Export Villages be supported directly with grants.
5.8 Export Promotion After 1990
In 1990 Category A and B incentives were replaced by the GEIS. Later The Category C scheme
what is now known as the EMIA scheme and Category D (Section 11 bis of the Income Tax Act )
was removed.
5.8.1 General Export Incentive Scheme (GEIS)
During the sanctions period it was deemed necessary to promote exports more aggressively.
In order to boost exports in general and manufactured goods in particular, it became essential
for financial export incentives to be cost-effective. The Category A and B schemes of the 1980s
were not achieving the results necessary. The reasons given were that the level of incentives
were generally too low and that the method of payment (by means of promissory notes) was
inappropriate. Government consequently developed an incentive scheme which rewarded
export performance while encouraging the beneficiation of local raw materials. The new GEIS
replaced the Category A and B incentive schemes with effect from 1 April 1990.
5.8.2 The Formula
In formulating the GEIS, the Government decided that certain basic requirements should be
met. The most important were:
Selectivity,
Simplicity,
Flexibility and
Easy administration.
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191
The degree of assistance granted was determined according to a formula, which was based on
the value of exports (U), the extent of processing of the export product (M), inflation and
exchange rate fluctuations (E), as well as the local content of the export product (P).
The formula for the calculation of the GEIS benefit was:
Z = U * (M ±E) * P
The individual components of the formula are discussed below.
Z-value
Z represented the tax-free incentive paid to exporters. Since the GEIS was an open-ended
scheme and the claims on the exchequer theoretically had no limit, although there were
budget constraints, the Department of Trade and Industry issued promissory notes for claims
more than R25 000pa (or R12 500 each six months). The promissory notes were however
interest bearing after April 1991. Prior to 1 April 1991, the interest earned on the promissory
notes was taxable. The GEIS subsidy payment was tax-free since its inception until the Minister
of Finance, Derek Keys announced the tax-exempt status would be withdrawn from March
1995. He stated that “the tax-exempt status of GEIS payments was unsound in principle and of
small effect in increasing the incentive value of the payments” (SAPA 22 June 1994). One of
the reasons for the withdrawal of both the A and B Schemes was that: “ …the method of
payment was inappropriate. ….claims for assistance could only be lodged after export had
taken place. Even now, with export assistance being provided by means of promissory notes,
claims can only be lodged annually.” As a result many exporters did not use A&B in their
costing nor did it contribute to increased expenditure. Although GEIS claims are allowed every
six months, payment still may take place by means of a promissory notes and after the export
has taken place. In the worst case scenario an exporter can wait up to two years after the
export has taken place to receive payment which may be cash or a promissory note.
U-value
The U-value represented the Free on Board (fob) value of the products qualifying for the
subsidy. This included all transport and insurance costs incurred within South Africa getting
the product to the harbour or border post. Commissions and other overheads cost which were
incurred outside South Africa were not included in the fob-value. The date stamped on the
customs documentation (DA550 and F178) was used to determine the exchange rate (spot-
rate) which was to be used to convert foreign currency into South African Rand.
Using an fob-value as opposed to an ex-works value was that in reality, transport was also
being subsidised. This subsidy would therefore tend to assist inland exporters (mainly in the
PWV or Gauteng region) who have spare capacity. This was not conducive to new investments.
If an export promotion strategy is to be followed, a firm would more likely set up near a port
as it would be closer to sources of imported raw material and export markets. GEIS therefore
hindered the development of industry in that potential investments would not be optimally
located.
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1.1.1.1 M-value
This factor was designed to promote the export of products with a high degree of value added.
Customs and Excise have categorised all products into codes based on the Harmonised Tariff
System. This system is used internationally by most of our trading partners and is harmonised
to the six digit level. The South African system consists of eight digits and is published in
Schedule 1 to the Customs and Excise Act, 1964. Using this code, all export products are
divided into four categories, namely:
Category 1: Primary Products which are products have not been beneficiated
significantly and include basic raw materials and resources.
Category 2: Beneficiated Primary Products which are products which have undergone
at least the first stage of beneficiation but the added value relative to raw material
input is still low.
Category 3: Material Intensive Products are products have been beneficiated to such
an extent that further addition of value can occur only if they are either incorporated
in or transformed into Category 4 products.
Category 4: Manufactured Products are products are considered those which have
been fully manufactured and to which adding any further value is uneconomic or
physically impossible to add prior to their use.
To illustrate the categories: raw cotton or wool would be considered a Category 1 product;
yarn spun from wool or cotton would qualify as a Category 2 product; once the yarn has been
woven into fabric it would be categorised as a Category 3 product; and finally when it was
made into a garment it was rated as a Category 4 product. Although the scheme was designed
to assist in the beneficiation of products, clearly more work goes into producing a worsted
fabric or other specialist fabric such as that used for parachutes than for a simple T-shirt. Yet
the highly beneficiated specialist fabric only attracted a Category 3 rating while the T-shirt,
which is traded almost as a commodity item in world markets, was rated Category 4.
Since the level of the export incentive increases in accordance with the product’s category
classification it was hoped that the traditional imbalance between the export of primary
products and final manufactured goods would be redressed.
P-value
GEIS also made it more profitable to export products which were manufactured with South
African content.
The p-value is calculated using the following formula:
𝑝 =𝑈 − 𝐼
𝑈
Where U is the value of exports based on the fob (free on board) price and I is the invoice
value of inputs known to be imported. Products containing more than 75 per cent local
Critical Analysis for the Integrated National Export Strategy
193
content received 100 per cent of the GEIS, while if the local content was less than 35 per cent
the export received no assistance. Within these parameters the exporter would receive GEIS
pro-rata to the actual percentage local content. In 1995 the local content threshold was
reduced to 60 per cent to receive full incentive. This gave exporters more flexibility to use
imported inputs and they could therefore to improve their competitiveness.
The P-factor encouraged exporters to buy South African inputs and discouraged making use of
rebates and drawbacks for importing raw material (under either Section 470.03 or Section
520.00). GEIS therefore inherently maintained the anti-export bias and did not attempt to
remove or reduce it. Only the symptom and not the cause of South Africa’s low export
propensity was addressed. As in the case of the U-value including transport costs (see section
3.8.3.1.2 on page 53), the p-value did not encourage the development of export industries at
coastal areas where manufacturers would have been able to import at world prices and then
again export without incurring the additional transport costs between the port and Gauteng.
E-value
To compensate for the exchange rate fluctuations and inflation, another factor was built into
the formula whereby a greater subsidy was given if the South African Rand strengthened
against a basket of currencies of South Africa’s major trading partners. Since the inception of
GEIS however this factor has been negative, which indicates that the authorities felt that the
Rand was undervalued. Figure 3–1 A graph showing the movement of the E-factor and the
REER, graphically shows the movement of the E-factor and the REER.
Table 37: The E-factors per period Period number Date E-value expires E-Value
1 30 September 1990 –0.060
2 31 March 1991 –0.065
3 30 September 1991 –0.065
4 31 March 1992 –0.055
5 30 September 1992 –0.060
6 31 March 1993 –0.055
7 30 September 1993 –0.055
8 31 March 1994 –0.070
9 30 September 1994 –0.065
10 31 March 1995 –0.095
11 30 September 1995 –0.080
12 31 March 1996 –0.100
13 30 September 1996 NA
Source: Department of Trade and Industry
The E-factor, because it was based on a basket of currencies, could not compensate for
fluctuations in individual currencies. Although the baskets was weighted to represent South
Africa’s trading patterns, exporters, especially those exporting to only one or two markets,
could be negatively affected.
Another complaint about the E-factor was that it was only announced six weeks before the
start of the new period. This was to give the SARB and the Department of Trade and Industry
time to establish a reliable future trend. However, many exporters had to prepare quotations
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for delivery in six months and therefore had to anticipate or guess the future E-factor before
quoting or determining export price lists.
These complaints were summarised by SACOB (1991) as follows: “The export community is
disappointed and confused by the announcement that the E-factor for the calculation of
export assistance under GEIS has been fixed at minus 7,5 per cent for the period 1 April to 30
September this year. The factor is adjusted on the basis of a basket of currencies. This basket
was composed on the actual exports in 1988 and has not revised since. The US$ has weakened
quite significantly since 1988 and more specifically in recent months. Exporters selling in
dollars now find themselves in a position where they lose Rand earnings on exports because of
the weakened dollar.”
Non-qualifying products
As motor vehicles and motor vehicle components benefited from Phase VI of the Local
Content Programme, they were excluded from any GEIS benefits. Second-hand, refurbished
and re-exported products did not contribute to the development of the manufacturing sector.
These products too did not qualify for GEIS either.
Jewellery, it was argued, consumes gold and other precious metals which would have been
exported in any event. The export incentive was therefore only calculated on the value added
to the precious metal employed in the manufacturing process. GEIS payments on precious and
semi-precious stones incorporated into jewellery or other articles, were calculated separately
on the export sales value of the stone according to its specific M-factor.
Category 1 products, those raw materials to which no value was added or insufficient
beneficiation took place, had a M-factor of zero. Therefore, unless the REER of the Rand
increased significantly, no products in this category would receive any benefit from the
scheme.
For consideration
GEIS played almost no role in the increase of South Africa’s exporters and exporting manufacturers did not
increase their capacity for export. There is a need for a clear link between government’s supply-side measures
and its export promotion activities. Elements of GEIS such as the E-factor should be investigated to mitigate
against adverse currency movements.
5.9 National Export Strategy
An export strategy is a comprehensive approach to increasing a country’s exports. Njoroge
(2010) points out that a NES can facilitate constructive interaction between the government,
the private sector, civil society and academia in mapping a country’s economic and export
development.
The NES is concerned with competitiveness. The issues that affect the general competitiveness
of countries can be classified in three categories: those beyond the countries border (demand-
side issues); those experienced at the border (facilitation issues); and those experienced
Critical Analysis for the Integrated National Export Strategy
195
behind the borders (supply-side issues). The International Trade Centre (2004) has included
development issues.
Figure 8: The ITC’s gears approach to developing a national export strategy
Source: The ITC 2004
Research has shown that there is a tendency for export strategies to focus on access and
market development (i.e. border-out) issues, rather than the upstream issues of capacity and
competency development (border-in) and facilitation and transaction-related issues (border).
There is also an absence of an effective public-private partnership to sustain and enrich the
process.
These terms are popular in the international trade promotion/development environment. The
border-out issues have to do with the overseas market(s) and include issues such as market
entry strategies, agent/distributor appointment, in-market promotion, foreign market
research, etc.–these are all demand-side issues. Border-in issues have to do with factors
pertaining to the operation of the exporter (product development, processing, packaging,
labelling, etc.) and the firm’s immediate home-market environment (such as inland
transportation)–these are supply-side issues.
It is important that the NES be as comprehensive as possible. Although it is not necessary to
duplicate interventions where these have been drafted, the NES must ensure that they have
been covered. A “gap analysis” from both a policy and implementation point of view must be
undertaken.
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5.10 The Draft National Export Strategy (NES)
The draft NES of 2005/6 (which was signed off internally within the dti but not officially
published) recognised the need for alignment between actions of multiple stakeholders, and
“[did] not take South African competitiveness for granted. The NES therefore operated from
the perspective that South African export performance is a function of the underlying
competitiveness issues in the economy” (p.6, 2005/6 NES). The diagram below shows how the
strategy conceptualised the relationship between the various elements underpinning export
competitiveness.
Figure 9: Draft national export strategy: export support value chain
In the mid-2000s, the dti drafted an “Export Strategy.” As far as can be ascertained, the
strategy was never formally adopted; but did serve as road map for TISA. Seven strategic
themes were identified:
1. Global Competitiveness
2. Market Access
3. Prioritising Markets
4. National Trade Information System
5. Exporter Development
6. Export Mechanisms
7. Export Incentives and Financing
This proposal will review this Export Strategy and evaluate it. It will also review international
best practice and identify gaps.
The draft national export strategy spells out an approach in relation to the following:
Market prioritisation
National Trade Information System (NTIS)
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Exporter development (in particular targeting SMMEs) with strategy from TISA, SEDA
leading implementation and incentives through The Enterprise Organisation (TEO), as
well as involvement from other trade & industry institutions
Market access (led by ITED)
Export promotion mechanisms:
Drawing on the dti as whole, other government line departments and spheres, as well as the
private sector)
There was a particular focus on the roles of TISA Export Promotion Cluster Desks, Export
Councils, and Foreign Offices, which were considered sequential and interdependent (pp. 8 & 9)
Cluster Desks were to be “fully staffed with appropriately recruited and trained staff. Their
activities will be aligned with the objectives of the ES”
5.11 Global Competitiveness
When the NES was initially drafted the industrial policy had not yet been drafted and since its
inception the industrial policy and the various IPAPs have catered for this aspect. The linkages
between the various divisions of the dti however need to be strengthened.
5.12 Market Access
The dti has used the DSM to determine priority markets. The DSM, GESS and the gravity model
are discussed elsewhere.
5.13 National Trade Information System
In June2000 an Export Information Strategy was submitted to the dti by Paul Wooten. He
identified a number of projects listed below:
Export Web (E-WEB)
Synchronised Hosting of Allied Resources (SHARE)
Active Exporters (Exporters)
Foreign Access Market Enquiries (FAME)
Visible Initiatives to the Economic World (VIEW)
Industry Statistics into Countries (INSINC)
Vocabulary at the Department of Trade & Industry (VOCAT)
Communication Online Analysis (COAN)
Valued Importers of Product (VIP)
South African exported Products (SAP)
South African Imported products (SAIM)
Incentives (INC)
World Access to Specific Productive Economies (WASPE)
Focused Foreign Industry Demographics (FFIND)
Trade Access Potential (TAP)
Geographic Access to Industry Tariffs (GAIT)
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Agencies for New Government Initiatives and Leadership (ANGIL)
Detailed Routing for Internal Value Chain Execution (DRIVE)
It does not appear as though mush progress has been made on these projects.
In the draft NES, the trade information system (NTIS)was to form an important component..
The NTIS was to serve as the information support link between domestic suppliers and
international buyers, and as a source of information for government stakeholders involved in
trade promotion and was to consists of:
Information Resource Development mandate (including the creation of purchasing
consortia to secure optimal expenditure on trade resources within South Africa)
Information dissemination services (reactive and user determined)
Information awareness services (proactive and driven by the NTIS protocols, and
includes the selective dissemination of specific information on new information
resources, important data, and opportunity alerts)
Designing and maintenance of a National exporter database
Designing and maintenance of a National trade portal
To date TISA has neither a trade portal nor a national exporter database. There is considerable
fragmentation between the private sector, Export Councils, Provinces, Metros etc. Each
organisation sets up a partial database and does not maintain it.
For consideration
Acquiring or creating information is expensive and has high fixed costs. The marginal cost of providing the
information to exporters and potential exporters is very low. It is therefore a typical public good. According to
the Constitution of South Africa libraries are the purview of provinces. The dti needs to empower provinces
and local government to provide business and export-related information.
5.14 Exporter Development
The NES is focused on exporter development. The target customer group are SMMEs, both
generally and those drawn from the ranks of the previously disadvantaged. The exporter
development programme is both modular and programmatic. The customer can elect specific
components or the entire value chain of products and services. The programme consists of five
modules: training, export-readiness assessment, product quality improvement, enterprise
productivity enhancement, product and process standards and accreditation. The programme
will be delivered through SEDA, as the overall programme manager, and other relevant
Council of Trade and Industry Institutions (COTII) agencies in their respective areas of
expertise. Trade and Investment South Africa will develop relevant policy and strategies. TEO
will administer the financial incentive programmes that form a part of the initiative.
5.14.1 NEDP
In 2011, the dti appointed a service provider to draft a NEDP aimed to increase exports in
general but especially those products and services that add value, contribute to employment
Critical Analysis for the Integrated National Export Strategy
199
and the green economy. Therefore the target customer group is SMMEs, both generally and
those drawn from the ranks of the previously disadvantaged.
The NEDP provides a platform that ensures there is a favourable or conducive environment
where exporter development can take place. It provides principles and guidelines that map a
path to sustainable exporter development. It offers an integrated approach to developing and
educating both exporters and potential exporters and organising the education and training
systems to ensure quality learning that is responsive to the ever-changing influences of the
external environment. The NEDP promotes the development life-long continuous and relevant
learning.
The NEDP will avoided a “one-size-fits-all” approach and will cater to exporters and potential
exporters at different stages of development. It focuses on developing emerging exporters,
especially black-and women-owned businesses. It also targets potential exporters that
produce environment-friendly products. While focusing on developing emerging exporters and
potential exporters, the NEDP will not neglect the development needs of existing exporters.
All programmes and interventions were demand-driven rather than supply-driven. The actual
needs of the exporter rather than the perceived needs should be met. This includes both
content and delivery of the various components. The NEDP is therefore both modular and
programmatic. The customer can elect specific components or the entire value chain of
products and services. The programme will not create any new regulations or institutions. It
will use policies (set out below) and be delivered through partners
5.14.2 NEDP Vision and Mission
The vision of the NEDP is to provide a well-resourced, efficient and effective exporter
development programme that delivers appropriately skilled exporters and that contributes to
the number of active exporters and the real value of exports growing consistently over time.
The mission of the NEDP is to:
Develop a pool of export-ready companies
Ensure that exports grow and new markets and new export products are developed
Ensure that there are effective resources available for exporter development
Provide leadership to the various stakeholders involved in exporting
Facilitate collaboration between all the various stakeholders from both the private and
public sectors
Monitor and ensure continuous improvement.
5.14.3 Foundation for Exporter Development
The foundation for exporter development is a NES, which should take into account Border-in
issues, border issues, border-out issues and development issues. The NEDP focuses on Border-
in issues. As well as requiring strong leadership from the dti, the NEDP also needs to be
200
founded on a robust export culture in South Africa. A number of proposals are put forward to
achieve this:
A nationwide outreach programme embracing the country’s political and business
leaders, community leaders, universities and schools
Introduction of President’s export awards
Encouraging the further formation of exporters’ clubs and roundtables
Establishment of a National Export Council, supported by regional Export Councils.
Kaiser found that while South African exports have shifted somewhat towards the desired
objectives, it is evident that:
Objectives have not been met to the level desired by the dti
The systems to be able to attribute the contribution to those objectives by the Export
Councils is not fully in place
They indicated that this “is not necessarily because the model has no merits, but because
there have been challenges that have prevented it from functioning better and from
accurately measuring the contribution. These challenges are laid out below and this report will
seek to examine what options there are to overcome these challenges.”
For consideration:
The report needs to be finalised and recommendations put in place49
5.14.4 Exporter’s Development Steps and NEDP Capacity Building
Central to the NEDP and the service offering it proposes is the principle that companies need
different types of services and interventions at different stages of their export development.
The NEDP identifies five phases of export development:
Phase 1: The Explorer is the enterprise that is exploring options for developing the
business, of which exporting might be a possibility.
Phase 2: The Export Aware enterprise has some idea of what exporting entails, is
export-ready in some aspects, but lacks basic export skills.
Phase 3: The Export-Ready Company has the basics in place and needs to develop an
export marketing plan.
Phase 4: The Start-up Exporter is export-ready and has completed an export marketing
plan, which now needs to be implemented to achieve initial orders.
Phase 5: The Global Exporter may have been exporting for a number of years and now
needs to further penetrate markets, develop new markets, or develop new products.
49 We do not have the final report and cannot say which recommendations should be put in place and how
they will impact the NES.
Critical Analysis for the Integrated National Export Strategy
201
Figure 10: Stages of exporter development
50
The NEDP envisages a comprehensive body of support and capacity building through a
national information network including an integrated export website and an export call centre,
different levels of training to meet specific needs, mentoring arrangements and assistance
with export promotion activities.
A Passport to Export concept is proposed as a promotional and informative mechanism to
guide and record a firm’s progress in developing export skills and its international business.
Fundamental to the NEDP is the establishment of central databases covering potential
exporters, exporters, export service providers, export trainers, mentors and consultants.
The NEDP also caters for the concepts of export villages and consortia, both geographic and
virtual.
This general approach to a comprehensive exporter development programme can
progressively increase the total pool of exporters by:
Retaining and further developing existing exporters.
Supporting and strengthening emerging exporters.
Enabling non-exporters with potential to become emerging exporters.
50
202
5.14.5 Export Villages
The majority of small South African firms do not meet the requirements and do not have the
means to successfully establish a presence on international markets. An export village or
export consortium is a voluntary alliance of firms or cooperatives. Their objective is to
promote the exporting of goods and services of its members through joint actions. Members
of a consortium realise that cooperation must prevail over competition in order to access key
markets and the latest technology. An export village or export consortium can be seen as a
formal medium-to long-term strategic cooperation between firms that acts as a service
provider specialised in facilitating access to foreign markets. Services are provided exclusively
to member firms. Since SMEs can derive the most benefits from participating in a consortium,
members are typically relatively small.
5.14.6 NEDP Business Model
The NEDP proposed a franchise approach, whereby dti, through TISA, takes the lead and
through service level agreements empowers other national agencies as well as provincial and
municipal agencies to implement specific components against agreed targets and objectives.
Throughout, the principle of the NEDP has been to use existing facilities, schemes and
programmes, but to coordinate them in a way that avoids duplication and wastage and allows
the whole to be greater than the sum of its parts.
While basic services (especially information) would be provided free of charge to eligible
enterprises, an underlying theme is that of user-pay, based on the understanding that
businesses appreciate a service more if they are required to make some financial commitment,
no matter how small.
5.14.7 Monitoring and Evaluation
The NEDP proposes a monitoring and evaluation framework to ensure that objectives are
achieved, corrective actions are taken if and when necessary, to ensure value for money and
continuous improvement.
Inputs, activities and outcomes would be spelt out in service level agreements with the various
national, provincial and municipal stakeholders. TISA would aggregate the outputs to derive a
national output for the NEDP.
Critical Analysis for the Integrated National Export Strategy
203
Figure 11: Monitoring and evaluation
The impact would be measured from actual trade data using accepted measures of market
concentration and diversification.
5.15 Export Mechanisms
Prior to 1990, South Africa had various organisations both promoting exports as well as
representing the interests of exporters. SAFTO has been discussed above but was seen as an
implementing agency rather than an advisory body. Government established an Export Trade
Advisory Committee and an Export Promotion Council. Although their activities were
coordinated nationally, regional bodies were also established in the major economic centres.
Their main role was advocacy. Their influence waxed and waned over the years. In many cases
they simply lobbied for better export incentives and grants.
For consideration
The role and mandate of Export Trade Advisory Committees or Export Promotion Councils must be clearly
spelt out. Adequate funds need to be allocated to ensure that their proposals and recommendations represent
ALL role players and that the recommendations, once implemented will have specific, measurable, achievable,
and realistic targets.
5.15.1 Export Councils
In the mid-1990s the dti initiated the formation of Export Councils as industry bodies that
would provide a platform for the interaction between the dti and exporters and potential
exporters. Their main focus was to drive the level of South African exports and thus contribute
to the economy.
An Export Council is a group of companies that represents a particular industry within an
economic sector with objective of promoting the industry as a competitive exporter of
products and services to foreign markets. As stated in the initial Terms of Reference in 1996,
Export Councils were seen as a “platform for interaction between the dti and local companies”
in relation to export issues. Export Councils were established through an application from
204
industry on a matching grant basis. Export Councils were required to develop a constitution
and submit a business plan. This self-directed application process resulted in Export Councils
being formed at varying levels of aggregation–sectors, sub-sectors, and product groupings.
Because of this application process and matching grant requirement, a minimum level of
organisation and resources were required by industries/sectors to make use of the Export
Council approach (Joint Action Groups, developed at a later stage, provided an alternative for
sectors with less resources and/or formalisation of structures).
In 1998 TISA implemented a policy of establishing and partially funding Export Councils with
the purpose of:
Stimulating export growth
Growing the exporter base
Promoting the participation of SMEs and Black Economic Empowerment (BEE)
companies into the export sector
Increasing job creation and
Sector development
In 2011 Kaiser and Associates were appointed to review the model and make recommendations. They
proposed a possible model. The found that there are 19 active Export Councils with a total membership
of 1,700 exporters. Their budgets range between about R1-million and R40-million (with reliance on the
dti funding ranging from 2% to 80%). This in turn has resulted in varied capabilities of each of the Export
Councils.
They found that the various the Export Councils faced operational challenges including:
Lack of information;
Lack of financial sustainability;
Limited capacity in both Export Councils and the secretariat;
Inadequate communication;
Inadequate access to Export Councils in particular for enterprises based in other parts
of the country;
Weak coordination, and
Insufficient governance reporting that is compliant with government requirements.
In their report Kaiser and Associates stated:
Making an appropriate decision on the future Export Council model will require
decisions at various levels, ranging from the strategic to the practical and
operational. These decisions are dependent on each other, as illustrated in the
diagram below.
Critical Analysis for the Integrated National Export Strategy
205
Figure 12: Proposed Export Council model for South Africa
For consideration
There appears to be weak coordination between the Export Councils, TISA and the IDD (although there
are exceptions where there is good coordination). The Export Councils are very loosely linked to the
IPAP priority sectors. It is recommended that:
206
IDD identify in which HS codes the IPAP priority sectors fall
IDD identify which products in each of their sectors is most competitive (in global
terms)
Export Councils identify which HS codes their members export
The IPAP sector desks, TISA sector desks and the Export Councils be realigned
Funding and grants be allocated to the products with the most potential
It is further recommended that the business plans of the provinces and Export Councils be restructured
as set out below.
5.16 Export Incentives and Financing
5.16.1 Export Marketing Assistance
According to the dti’s website the EMIA scheme develops export markets for South African
products and services and to recruit new FDI into the country. Its objectives are to:
Provide marketing assistance to develop new export markets and grow existing export markets;
Assist with the identification of new export markets through market research;
Assist companies to increase their competitive by supporting patent registrations, quality marks and product marks;
Assist with facilitation to grow FDI through missions and FDI research; and
Increase the contribution of black-owned businesses and SMMEs to South Africa’s economy.
The EMIA benefits include:
Individual Exhibition Participation:
Transport of samples;
Rental of exhibition space;
Construction of stands;
Interpretation fees;
Internet connection;
Telephone installation;
Subsistence allowance per day;
Return economy-class airfare; and
Exhibition fees up to a maximum of R45 000.
Primary Market Research & Foreign Direct Investment:
Exporters will be compensated for costs incurred recruiting in new FDI into South
Africa through personal contact by visiting potential investors in foreign countries.
Return economy-class airfare;
Subsistence allowance per day;
Transport of samples; and
Marketing material.
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Individual Inward Missions:
Assistance is provided to South African entities organising an inward buying investor,
to make contact with them to conclude an exporters order or to attract FDI.
Registration of a patent in a foreign market: 50% of the additional costs capped at R100 000 pa;
Return economy-class-airfare;
Subsistence allowance per day; and
Rental of exhibition space.
The eligible enterprises include all:
South African manufactures and exporters;
South African export trading houses representing at least three SMMEs or businesses
owned by HDIs;
South African commission agents representing at least three SMMEs / HDI-owned
businesses; and
South African exports councils, industry associations and JAGs representing at least
five South African entities.
For consideration
The incentive structure is discussed in depth below when considering best practice. However, although short-
term export targets (as well as employment goals etc.) are supplied by the recipients, these are not measured
over time to determine if the interventions are sustainable or what the long-term return on investment is.
5.17 Conclusion
Since the 1970s the South African government has pursued an interventionist export
promotion policy with various incentives and grants been offered. Neither the Category A and
B scheme nor GEIS were particularly effective and were certainly not efficient.
In more recent years the dti and TISA have done a lot of work and numerous studies and
strategies seem to have been drafted and even approved. However resources have not always
been allocated or insufficient resources have been allocated for effective implementation.
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Appendix 6. Statistical Analysis
6.1 Introduction
The purpose of this section is to reflect on the evolution of South Africa’s trade structure over
the past two decades as well as to provide a quantitative assessment of South Africa’s trade
performance in recent years. These are intended as inputs to a comprehensive INES document
for submission to the dti.
The statistical analysis undertaken is meant to provide a quantitative assessment of the
structure and patterns of trade for South Africa and locates this in the context of the trade
performance of other developing countries broadly comparable to South Africa. The statistical
analysis firstly looks at the global environment in which South African exporters have to
operate. It reflects on the recent slowdown and forecasts for the immediate future. It looks at
the worlds past trade performance and the factor that influenced that and then looks at the
potential trade developments. It looks at the role of both the drivers and the barriers to trade.
After a comparative analysis of the world, Africa and selected countries, South African trade is
analysed in depth. Although most of the detailed information is included in the accompanying
CD ROM, screen shots are used to show how South Africa, its sectors and its provinces have
performed.51
6.2 The Global Economy
The INES has being drafted against a back drop of improving fundamentals in many
economies, supported in part by stimulus measures, mainly from central banks. The global
growth outlook is improving with rising demand in many economies. These gains will
materialise slowly taking into account several risks (including the US’s "fiscal cliff" and with the
euro zone still in recession). China is still growing rapidly despite a slowdown in the growth
rate and economic growth for all of 2013 is estimated to be only slightly better than in 2012,
and well below the pre-recession period and stimulus-driven 2010.
Table 38: Economic growth forecasts for 2013 and 2014 World Bank IMF
201252 2013f53 2014f 2012e 2013f 2014f
World 2.3% 2.4% 3.1% 2.5% 2.7% 3.4%
Advanced economies 1.3% 1.3% 2.0% 1.3% 1.4% 2.2%
United States 2.2% 1.9% 2.8% 2.3% 2.0% 3.0%
Eurozone -0.4% -0.1% 0.9% -0.4% -0.2% 1.0%
Developing countries 5.1% 5.5% 5.7% 5.1% 5.5% 5.9%
Brazil 0.9% 3.4% 4.1% 1.0% 3.5% 4.0%
Russia 3.5% 3.6% 3.9% 3.6% 3.7% 3.8%
India 5.1% 6.1% 6.8% 4.5% 5.9% 6.4%
China 7.9% 8.4% 8.0% 7.8% 8.2% 8.5%
South Africa 2.4% 2.7% 3.2% 2.3% 2.8% 4.1%
51 Although initially the discussion concerning South Africa’s revealed comparative advantage and areas of potential comparative advantage were to
be discussed in this section, it has now been included in Appendix 6 together with other factors influencing South Africa’s competitiveness. 52 e = estimate 53 f = forecast
Critical Analysis for the Integrated National Export Strategy
209
Source: World Bank’s Global Economic Prospects, January 2013; IMF’s World Economic Outlook, January 2013 update.
Despite this embryonic confidence, fixed investment activity has not increased - largely
because of excess industrial production capacity and inadequate levels of demand. Firms hold
substantial cash and commercial banks are hesitant to increase exposure or raise their lending
activity. The global economic recovery therefore remains very fragile and could easily be
derailed. Businesses across the world remain cautious, limiting investment and increasing
employment.
6.2.1 Growth in World Exports
Since the industrial revolution the world’s GDP has grown significantly. Trade has been
referred to as the engine of growth. Maddison (1995 and 2001) provides historic evidence
from 1820 to show correlations between trade and economic growth.
Table 39:Growth in world trade World exports (USD
billions 1990) World GDP (USD billions 1990)
Exports as a percentage of World GDP
Per capita GDP
1820 7 694 1.0 667
1870 50 1 101 4.6 867
1913 212 2 704 7.9 1 510
1929 334 3 696 9.0 1 806
1950 295 5 336 5.5 2 114
1973 1 690 16 059 10.5 4 104
1998 5 817 33 725 17.2 5 709
Source; Maddison (1995, 2001)
With a few exceptions, world export growth has exceeded its GDP growth. International trade
is integral to the process of globalisation. Over many years, most countries have increasingly
opened their economies to international trade, whether through the multilateral trading
system, increased regional cooperation or as part of domestic reform programmes. World
trade, as a percentage of worlds GDP, has therefore grown as can be seen in the graph below.
Figure 13: World trade (as a percentage of world GDP)
Source: http://en.wikipedia.org/wiki/File:World_trade_as_share_of_world_gdp.jpg
The benefit of trade and globalisation has not reached all sections of society. Although trade
scepticism is on the rise, trade has allowed nations to benefit from specialisation and
210
economies to produce at a more efficient scale. Trade has raised productivity, supported the
spread of knowledge and new technologies, and widened the range of choices available to
consumers.
Globalisation has contributed to the growth of global value chains (these are discussed in
Appendix6) which means that intermediate goods cross borders many more times than they
did in a world where most stages of production took place within one country. This is one
reason why trade volumes decline more sharply than output during downturns and why trade
accelerates faster than GDP when the economy picks up. In 2009 trade volumes dropped by
nearly 11% whereas GDP fell by only 1%.
Trade has grown in recent years due to liberalisation. World Exports grew by over 9% annually
over the past 15 years. This can partly be attributed to increased liberalisation since the
founding of the WTO and increased globalisation. The world weighted average applied tariff
rate fell from 34% in 1996 to 2.7% in 2010.
Figure 14: Growth in world exports
Source: Own calculations using IMF IFS and World Bank Statistics
Before the 2008-2009 economic crisis, international trade in goods and services, showed a
steady increase, with the OECD total increasing (on average) by between 4 and 5 percentage
points for both measures between 2004 and 2008. In 2009 however, in the midst of the crisis,
the ratio for both imports and exports in GDP fell markedly, wiping out nearly all of the
increases recorded after 2004. The GDP ratio for imports in 2009 at 25.0% was only marginally
higher than in 2004.
The global economy weakened significantly towards the end of 2011 and further downside
risks emerged in the first half of 2012. The growth rate of global output, which had already
decelerated from 4.1 per cent in 2010 to 2.7 per cent in 2011, is expected to slow down even
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Critical Analysis for the Integrated National Export Strategy
211
more in 2012 to below 2.5 per cent. The weak global economy led to a steep fall in commodity
prices that negatively impacted the South Africa's mining-backed economy leaving it
particularly vulnerable. According to the World Bank, the South African is expected grow by
2.3 -2.4 per cent (see table above).
World GDP and Trade grew on average by 3.4% and 5.7% respectively since 1980; but trade
fell by over 10% (US$3.6 trillion) during the recent global recession. During the same period
GDP dropped by 0.5%.
Figure 15: Growth in volume of goods trade and GDP (annual % change)
Source: Own calculations using IMF IFS data
6.2.2 Global Trade Trends: Developed vs Developing Economies
The composition of world merchandise trade has shifted in the long term, with the share of
manufactured goods rising dramatically, against a decline in agricultural products and non-fuel
minerals. Developed countries share of world exports of manufactures has been greatly
diluted. This occurred firstly in labour-intensive goods and later in electronic products and
capital-intensive goods.
Before the crisis, developed economies exhibited a worsening current account deficit whereas
emerging markets and developing economies were experiencing increases in the current
account surplus. Developed countries have not yet recovered from the financial crisis, which
has left in its wake a highly indebted private sector and a vulnerable financial system.
212
Figure 16: Volume of exports of goods and services: Percent change
Own calculations using Source: IMF IFS
The share of developing economies in world total trade rose to 47% on the export side and 42%
on the import side in 2011, the highest levels ever recorded since 1948.
Figure 17: Current account balance: U.S. dollars (Billions)
Source: Own calculations using IMF IFS
6.3 Regional Export Performance
The map below shows the export and import performance of the various global regions.
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Critical Analysis for the Integrated National Export Strategy
213
World trade growth decelerated sharply in 2011, after recovering in 2010. The global economy
struggled from natural disasters, financial uncertainty and civil conflict. The slowdown had
been expected after the strong rebound of 2010 but the earthquake in Japan and flooding in
Thailand had a negative impact on global value chains. Oil supplies were threatened because
of unrest in Organization of the Petroleum Exporting Countries (OPEC) countries and this
contributed to sharply higher prices. All of these factors combined to produce below average
growth in trade in 2011.
Figure 18: Goods Trade by Region - 2011
Source: Own calculations using WITS and Quantec Research
The sluggish pace of economic growth in 2011 reduced import demand in the largest
economies and resulted in global export growth below the WTO's forecast.
6.4 World Leading Exporters and Importers of Goods Trade
The table below shows the world’s leading exporters and importers of goods trade in 2001.
Developed economies exceeded export growth expectations while developing economies did
worse than expected. Even shipments from developing economies other than China grew at a
slightly slower pace than exports from developed economies (including disaster-struck Japan).
The relatively strong performance of developed economies was driven by a robust 7.2 %
increase in exports from the United States, as well as a 5.0 % expansion in exports from the
European Union.
214
Several adverse developments disproportionately affected developing economies, including
the interruption of oil supplies from Libya that caused African exports to tumble, and the
severe flooding that hit Thailand in the fourth quarter. The Japanese earthquake and tsunami
also disrupted global supply chains, which penalised exports from developing countries such as
China, as reduced shipments of components hindered production of goods for export.
The share of developing economies and the Commonwealth of Independent States (CIS) in the
world total also rose to 47 % on the export side and 42% on the import side.
Table 40: World leading exporters and importers of Goods Trade, 2011 (US$ Billion)
Source: WTO Secretariat
Global key issues
At 5.0%, trade growth slows in 2011 following 13.8% rebound in 2010,
Further slowing to 3.7% in 2012, below the 5.4% 20-year average (WTO),
Fragile and uncertain global economy remains, with enhanced downside risk,
Shocks held back trade last year: European debt crisis, Japanese tsunami, Thai
floods,
Disasters hit supply chains and production in Japan, China and elsewhere. Most
recently Hurricane Sandy in the US,
EU may already be in recession as global output growth eases,
Oil supply disruption in Libya cut African export growth by 8%,
Critical Analysis for the Integrated National Export Strategy
215
Growth in manufactured goods trade is currently slowing, trade in automotive
products fell to single digits and electronics trade declined,
Arab spring uprisings also hit African services exports due to sharp declines in
Egypt, Tunisia.
6.5 Africa
The World Bank estimates reveal strong growth momentum in Sub-Saharan Africa (SSA),
despite the economic challenges facing the world economy. The region achieved a 4.6%
growth in 2012. Excluding South Africa, growth in SSA is estimated to have risen to 5.8%. Oil-
exporting countries have archived better growth than others due to high oil prices and
increased production. Generally favourable commodity prices and strong domestic demand,
supported by rising incomes and migrant remittances, investments in productive capacity,
including foreign direct contributed to this. Certain SSA countries are benefitting from closer
economic ties with other emerging and developing economies. They have cushioned adverse
demand conditions from the advanced world, particularly European countries. Political
tensions and domestic economic challenges in some countries, negatively affected their
economic performance.
African economies need infrastructure. This will not only make the continent as a whole more
competitive, but in the short term continued infrastructure development, the further
expansion of services sectors such as telecommunications and construction in some of the
larger economies, increasing investment in the mining sectors of countries such as Zambia and
Tanzania, as well as from continuing positive benefits associated with new mineral and oil
discoveries in various countries, FDI is also increasing.
Africa’s output is expected to expand by 50% over the next 4 years, from US$ 1.6 trillion in
2010 to approximately US$ 2.6 trillion in 2015. Economic growth is projected to expand by an
annual average real rate of 5.5% each year through the 5 year period. Africa’s GDP per capita
stood at US$1,630 in 2010; it is expected to have increased to US$2,200 by 2015, at a real
annual growth rate of 5.7%, resulting in a 30% rise in the continent’s spending power. Private
final consumption in Africa’s 10 largest economies is expected to more than double, from
around US$ 730 billion today to over US$ 1.5 trillion in 2015.
Africa’s total trade is expected to grow dramatically from US$ 654 billion in 2009 to around
US$ 1.6 trillion in 2015. Africa’s total trade is expected to expand by an average of 17% per
year and Africa’s share of global trade is expected to almost double, from the current 3.2% to
around 6% in 2015.
6.6 South Africa
South African exports of manufactured goods to Africa, for example, rose in 2011 to 27% of
the year’s total, just short of the 29% shipped to Europe and well up on the 22% exported to
Asia. Zimbabwe is ranked as the third largest export market for South African agro-food
products and our largest market in Africa in 2010. South Africa’s top 5 major agro-food exports
to Zimbabwe were sunflower seeds and oils, wheat, sugar, maize and chicken cuts. In the
216
same year, Mozambique ranked as the second largest export market for South African agro-
food products including ethyl alcohol, sugar, food preparations, maize and oranges. Since the
bulk of South Africa’s exports to Africa are value-added products, growing intra-African trade
will be important for industrial development and employment, and will cushion the impact of
low growth and downturn in traditional markets.
Figure 19: South Africa’ economic performance and forecast
Source Quantec Research 2013
According to the IDC South Africa’s GDP expanded by 2.5% in 2012 as a whole, with quarterly
growth accelerating from 1.2% in the third quarter to 2.1% in the final quarter. Manufacturing
rebounded and there was significantly faster growth in the agricultural sector and a modest
acceleration in financial and business services, as well as in transport and communications.
Quantec Research states that according to the SARB’s leading indicator point to continued
uncertainty in the short term.
6.7 Structure and Patterns of South African Trade
South Africa has a long tradition of exporting. A significant percentage of the country’s exports
have been primary products (agricultural products, precious metals and other minerals).
-3,0
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Critical Analysis for the Integrated National Export Strategy
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6.7.1 Historical Overview
Although South Africa’s trade has been growing since the 1950s, its share of world trade has
fallen considerably (from approximately 25 to 0,5%), since it was unable to keep up with the
rapid growth of world trade and increased globalisation during this period.
Figure 20: South Africa’s share of world exports declining
Source: IMF IFS
The trend has continued in recent years. South Africa’s market share expressed as an index in
volume terms has decreased while its share expressed as an index in value terms has
increased. This seems to indicate that the unit value of the country’s exports is increasing. In
other words the country is getting a better price for its exports.
Figure 21: World market share decreasing
Source: OECD Financial statistics database
60
65
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85
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95
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105
Value
Volume
218
In reviewing South Africa’s trade performance it is apparent that the economy has opened up
substantially. The level of both exports and imports has grown over the past two decades. The
table above reveals how exports have risen steadily since 1994, underlying the progressive
opening up of the South African economy that has occurred during this period. Since 2003, the
country’s demand for imports has exceeded its exports, resulting in a widening trade deficit.
In the period following apartheid, as South Africa quickly adopted a more open economic
stance, there was a great surge in export growth. It is apparent that a robust increase in
exports was recorded between 1994 and 2002. During the time growth in world exports was
also healthy. Following this period, the annual growth rate for exports from 2002 to 2006
remained high at just over 9% whereas imports grew relatively faster at 14.5%. This trade
performance led to a widening trade deficit of R3.5 billion in 2002 to R81.5 billion in 2006 even
though the REER increased in the same period. From 2007 to 2011, imports grew by only 3%
and exports rose by just under 7% owing to the slowing down of the global economy during
the crisis of 2008.
Figure 22: SA Total Imports, Exports and Trade Balance (1994-2011)
Source: Quantec International Trade Database (2012)
Furthermore, while South African exports have grown since 1994, it is apparent that growth in
South African exports is still not rapid enough. If one compares growth in more recent years to
that of some key developing countries such as Brazil, China and India, unfortunately South
Africa’s export growth performance is still not as robust as these countries.
6.7.2 Export Growth Measures
With the South African population relatively stable, exports per capita give an indication of how
total exports have been growing relative to changes in population.
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in R
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s (N
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Total Imports Total Exports Trade balance
Critical Analysis for the Integrated National Export Strategy
219
Figure 23: Exports per capita
Source: Own calculations based on Penn World Tables
Reached a high in 2007 and fell during the worldwide recession when exports fell.
The following figure shows year-on-year export growth for South Africa. Once again we see
that export growth is fairly stable, with only major worldwide recessions affecting our export
growth rates. The greatest fall in export growth was in 2008, however thereafter South
Africa’s exports have recovered well.
Figure 24: Export growth
Source: Own calculations based on Penn World Tables
The following figure provides a quarter on quarter breakdown on export growth.
As can be expected, the figures are very volatile, and care should be taken when evaluating
monthly trade balance figures.
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1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
220
Figure 25: Quarter on Quarter Export Growth
Source: Own calculations based on Penn World Tables
Table 41: Growth of trade of key developing countries (2007-2011)
Total Exports (US$
Million)
Annual Growth Rate
2007–2011 (%)
Share in World
Exports (%)
USA 1 479 730 5 8.3
Australia 245 631 13 1.4
Malaysia 226 992 5 1.3
Rwanda 417 23 0
Jamaica 1 517 -16 0
Mauritius 2 255 -2 0
Chile 81 411 4 0.5
Brazil 256 038 10 1.4
China 1 898 388 10 10.6
-0,4
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0
0,1
0,2
0,3
0,4
0,5
0,6
1Q
19
88
4Q
19
88
3Q
19
89
2Q
19
90
1Q
19
91
4Q
19
91
3Q
19
92
2Q
19
93
1Q
19
94
4Q
19
94
3Q
19
95
2Q
19
96
1Q
19
97
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19
97
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19
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1Q
20
00
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00
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20
01
2Q
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02
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03
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03
3Q
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04
2Q
20
05
1Q
20
06
4Q
20
06
3Q
20
07
2Q
20
08
Critical Analysis for the Integrated National Export Strategy
221
Total Exports (US$
Million)
Annual Growth Rate
2007–2011 (%)
Share in World
Exports (%)
India 301 483 18 1.7
South Africa 92 975 7 0.5
Source: ITC Trademap Database (2012)
South Africa has not only grown its exports, but also managed to diversify its export base
somewhat. While its export basket remains predominantly composed of mining and basic
processed goods i.e. Chapters 4-15 as was the case in 1994, today exports of advanced
manufactures account for 17.3% of total exports compared to 7% in 1994. Exports of
agricultural goods have however decreased since 1994.
Table 42: Structure of Exports, 1994-2011 (Shares - %)
Broad Classification54
Share of SA Exports (%)
1994 2000 2006 2011
Agriculture and Forestry 7.8 5.9 4.8 5.4
Mining 57.3 45.6 42.9 50.8
Basic Processing 27.9 32.2 31.9 26.5
Advanced Manufacturing 7.0 16.3 20.4 17.3
Source: Quantec International Trade Database and own calculations
At the Chapter level, the largest export is still Ch 14: Precious Metals, although the
composition of this has changed over time from being primarily dominated by exports of gold
to currently exports of platinum group metals (PGMs). The next largest category is Ch 5:
Mineral Products, of which the principal exports are HS 2701: Coal; briquettes, ovoids etc, HS
2710: Oil (not crude) from petrol & bitum mineral etc, HS 2601: Iron ores & concentrates and
HS 2610: Chromium Ores and concentrates. Exports of these 2 chapters represent just over
half of total exports.
While this again serves to reiterate the dominance of mining and basic processing exports, it is
important to remain cognisant of the increasingly important share of advanced manufactured
exports. In this regard, the above reveals how exports of particularly machinery and vehicles
54 The aggregation is based on 23 chapter data, which in itself is an aggregation of HS 2 data. The
classification was arranged as follows: chapters 1, 2, 3, 8 and 9 were amalgamated into agriculture and
forestry. Mining consists of chapters 5 and 14. Basic processing includes chapters 4, 6,7,10,11,12,13 and
15. Chapters 16, 17, 18, 19, 20, 21 and 23 were considered as part of advanced manufacturing. Other
unclassified goods (chapter 22) was added to the mining category because it includes platinum, a major
mining product.
222
have increased since 1994. These account for the greatest share of manufacturing exports.
Furthermore, what is interesting to note, however, is that as a share of total exports Chapter
14 has become progressively less dominant since 1994. This again serves to illustrate the
increased diversification in the export basket over this period.
On the import side the majority of imports are of advanced manufactures, but what is notable
is that since 1996, which saw a marked increase in the share of total imports of these goods,
the proportion of these imports has remained fairly stable. On the other hand, the shares of
imports of agricultural and basic processed goods have declined, while those of mining have
increased.
Imports are primarily of manufactured goods, of which the majority are technology and
capital-intensive goods, including machinery, vehicles and scientific equipment. Imports of
machinery are mainly driven by increased investments of local firms, although demand for
consumer goods (e.g. white goods, consumer electronics) are also represented here. The share
of total imports accounted for by Ch 5: Mineral products, has increased quite substantially
since 1994, which can be attributed to the increases in oil imports.
6.7.3 Key trading partners
Most South African exports are destined for developed markets, primarily within the EU, but
also Eastern Asia and the NAFTA. This has remained so since 1994, although trade with SADC,
for example, has increased in significance over the period until 2006. Currently SADC accounts
for almost 11% of South African exports, having increased from its level of 8% in 1994. With
regards to changes in South Africa’s exports by region, it is of particular interest to note the
substantial increase in the share of exports to Asia, which accounted for almost 20% of total
exports in 1994, and today accounts for almost 35%. This is due to the robust economic
expansion of China and the four Asian Tigers. In the same period we have witnessed a
decrease in the share of exports to the EU from over 31% in 1994 to just below 26% in 2011.
However the EU continues to be an important market for South Africa’s exports.
While the import profile by region is very similar to the export profile in that South Africa’s
imports are dominated by Asia and the EU. Today the EU accounts for almost 32,5% of South
African imports, which constitutes a remarkable decrease from the 50% recorded in 1994.
Imports from the SADC region have increased recently, although they are still dwarfed by
South African exports to the region with the SADC share of South Africa’s imports from Africa
dropping from 84% in 1994 to 55% in 2011.
Table 43: Annual Average Growth Rate SA trade in Africa (1994-2011)
Imports from Africa AAGR (%) Exports to Africa AAGR (%)
Eastern Africa Rest 14.4% 14.3%
Middle Africa Rest 15.6% 18.2%
Northern Africa 10.8% 21.6%
Critical Analysis for the Integrated National Export Strategy
223
Western Africa 31.7% 24.2%
SADC 20.6% 12.8%
World 14.1% 12.9%
Source: Quantec International Trade Database and own calculations
The fastest growing region in Africa for South Africa’s Imports and Exports is Western Africa
with Nigeria and Guinea featuring as the fastest growing markets in both imports and exports.
Exports to SADC consist of more advanced manufactured goods, which require inputs of
highly-skilled labour and capital, including machinery and vehicles. On the import side,
technology-intensive advanced goods dominate from Asia and the EU. South Africa imports a
large proportion of the machinery needed for manufacturing from the Asia and the EU. The
main factor behind such trade is differences in technology and the capacity to produce
advanced goods. In comparison, imports from the SADC region are primarily resource-based
and labour-intensive goods. The top 3 non-mineral imports from the SADC region are H7403:
Refined Copper, H7408: Copper Wire and H5201: Cotton. The top 3 non-mineral exports to the
SADC region are H8704: Motor vehicles, H7308: Iron and Steel Structures and H8474:
Machinery. So in the case of SADC region, a greater proportion of manufactured exports is
evident in South Africa’s export basket to the region, though in general the profile has not
changed dramatically since 1994. Regarding the imports from SADC, more minerals imports
feature today compared to the import profile of 1994. It is likely that this reflects growing
domestic demand following the South African manufacturing sector’s growth in significance as
an exporter. Furthermore, other elements that would contribute towards explaining why
minerals imports from the SADC have increased include: (i) South Africa’s mineral producers
and exporters are only interested in very large orders so smaller firms have to import their
requirements; (ii) the fact that some mineral processing requires other mineral inputs which
are not available locally (in small volumes or at all); and (iii) some South African mineral firms
have grown their investment presence in SADC and thus can easily tap on external supplies.
In recent years, South Africa has been progressively more interested in developing its trade,
particularly with other developing countries, including Brazil, India and China. It is evident that
trade with these countries has certainly grown if one considers the levels thereof in 1994. The
primary issue, however, is that the trade deficit with these countries has been widening
dramatically over this period, while South Africa itself is keen to increase its exports to these 3
partners. Currently exports to these countries are primarily resource-based, with the
predominant categories of exports being: HS27: Mineral fuels and oils; HS72: Iron and steel
and HS76: Aluminium and articles thereof. On the import side, advanced manufactures
dominate trade, though it is of interest to note that 34% of imports from India are of HS27:
Mineral fuels and oils and that 12% of trade with Brazil is of HS2: Meat and edible meat
products. Around 18% of imports from China are of clothing and footwear and another 45% is
of advanced manufactures including machinery.
Looking more carefully at the markets that are rapidly expanding their imports from South
Africa, it emerges that many of the aforementioned countries also feature as increasingly
224
important sources of South African imports. In contrast to the context of exports, the
agreement with MERCOSUR may also account for why imports from Argentina and Brazil have
grown by around 30% between 2000 and 2006. Increasing imports from Zambia and
Zimbabwe may be related to the preferential terms received under the SADC. If one considers
the level of imports from China, the significance of this growth in imports is elevated in
importance. This strong growth in Chinese imports has been a major contributor to the
growing trade deficit that has been evident in South Africa’s trade balance. In fact China
accounts for 14% of total South African imports currently, which is up from 4% in 2001.
Another factor in the deteriorating trade balance has been the increasing amount of oil
imports resulting from the sharp increases in crude oil prices, which have reached levels not
seen since the oil crises of the 1970s. South Africa has also shifted to obtaining more oil from
African sources, hence the growth in imports from Nigeria.
6.7.4 Exports Per Sector
Trade statistics distinguish between various types of goods:
Intermediate goods;
Raw materials;
Capital goods; and
Consumption goods.
For example, a sports car is a consumption good – the final product you buy from the dealer of
in the shop. The machine tools used to make the sport car are capital goods – they are part of
the production process. And the electronic chip recording the picture is an intermediate good.
Trade in intermediates occurs where firms decide to offshore parts of the production process
and to source the intermediates from a foreign country. Offshoring usually take one of two
forms:
Vertical FDI, where the intermediate is produced by a foreign affiliate of the firm;
or
Offshore outsourcing, where the intermediate is produced by an independent
foreign supplier.
Import barriers can deny firms access to the goods and services they need to compete
internationally. The OECD states that rather than protecting domestic jobs in developed
countries, trade restrictive policies can produce plant closures and job losses. On the other
hand, more liberal trade policies allow firms to fully benefit from international production
networks. Trade comprises both imports and exports; both are beneficial for individuals, firms,
countries and global economic performance.
South Africa has integrated into the global value chains and is benefitting from being able to
add value to final products produced in other countries.
Critical Analysis for the Integrated National Export Strategy
225
Figure 26: Exports per sector
Source: OECD (2013)
South Africa should have trade in intermediates in mind when formulating their trade
policies, and resist protectionist measures that will negative impact on this trade and may
even cause retaliation form trading partners.
6.7.5 South Africa’s exports by sector and destination
Below is a sample of the current trends showing both the destination and the trend over
time of various selected products. In the following maps and charts we identify list of
importers of products from South Africa. The charts give the top 5 importers of the product
from 2008 to 2012, showing the trend of how the country has imported and intends to
import the good over time.
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Millio
ns
Intermediate goods Raw materials Consumer goods Capital goods
226
Here we see edible vegetables and certain roots and tubers as the export product. The leading
countries that import his product include a handful of African countries as well as USA. We
see exponential growth in exports to Angola in this product, and slower growth in UK and
Zambia. However over the past 2 years, exports to Mozambique and Zimbabwe has slowed.
For the product vegetable planting materials nes, countries such as Indonesia, Pakistan and
Italy are leading importers, however the value of this exports are minimal. So the growth seen
in 2011 seems huge, however this growth is from a very low base.
Critical Analysis for the Integrated National Export Strategy
227
Plastics and articles thereof has enjoyed reasonable growth since 2009. An interesting
outcome of this is plastic and plastic products being imported by China as they are a main
producer of the goods to follow these plastic products. South Africa can look into further
manufacturing these products. African countries also topping the list of importers include
Zambia and Zimbabwe as well as the Congo.
228
Above we investigate the apparel industry: top African importers are Zambia, Mozambique,
Zimbabwe, Nigeria and Angola. The UK and USA are the other top importers of South African
apparel. This shows we are not exporting much apparel articles to China, possibly the largest
competition in this industry. These maps and charts can also give an indication then of whom
we are competing against in the sector as well as which markets we are competing for.
Critical Analysis for the Integrated National Export Strategy
229
The above charts and graphs describe the iron industry exports from South Africa. We see the
iron and steel exports to the top imports has slowed to 2010. However, iron and steel articles
has increased since 2010, giving the impression that South Africa has moved into more
processing activities to do with steel and iron, instead of just exporting raw materials. South
Africa can look into doing this for other industries such as food and beverages and other
minerals and stones.
One of South Africa’s important industries, the vehicle industry seemed to peak in 2010, with
the leading importers of our vehicles being the USA, Germany and Japan, all main players on
the world stage. Since 2010 however, this sector has seen very little to negative growth as it
was hit hard by the world financial crisis. Africa importers of the vehicles, being Nigeria and
Zambia, have been the first to recover in 2011. This shows how Africa markets can sometime
be protected from world crisis’s and how South Africa can exploit this in hard economic times
or when wanting to expand markets.
230
Another important industry for South Africa, the electrical and electronic equipment industry
has grown extremely well since 2009. Again, from this map we can identify our competition in
this sector, being Japan and China, as we do not export to these leaders in the field. African
countries form part of the top importers of our technology, being Zambia, the Congo,
Mozambique and Zimbabwe. Africa can import these products and can benefit from the
electronic equipment by “learning by doing” and other knowledge spill overs
6.7.6 SA Exports by Province
Disaggregated trade data is dangerous to interpret due to the “head-office effect” where
exports are reported as coming from the region in which the producers head office is based.
This would tend to exaggerate the exports form Gauteng and the other major commercial
centres. Nevertheless the data below is included based on data received from Quantec
Research, who in turn obtained the data form Customs and Excise. Quantec used the postal
codes of the reporting company which is all that Customs and Excise are prepared to make
available.
Figure 27: SA Exports by Province in 2008 and 2011
Source: Quantec Provincial Trade Database and own calculations
Critical Analysis for the Integrated National Export Strategy
231
SA trade is highly concentrated in Gauteng. Ranked 2nd and 3rd are KwaZulu-Natal (KZN) and
the Western Cape. Gauteng has grown market share while most of the other provinces have
lost market share
6.8 Revealed Comparative Advantage (RCA)55
The RCA is an index used in international economics for calculating the relative advantage or
disadvantage of a certain country in a certain class of goods or services as evidenced by trade
flows.
The RCA is calculated as follows:
𝑅𝐶𝐴𝑠𝑎𝑖 =
𝑋𝑠𝑎𝑖𝑋𝑠𝑎𝑡
⁄
𝑋𝑤𝑖𝑋𝑤𝑡
⁄
Equation 1
Where
𝑅𝐶𝐴𝑠𝑎𝑖 is the RCA for product i
𝑋𝑠𝑎𝑖 represents South African exports of product i
𝑋𝑠𝑎𝑡 represents total South African exports
𝑋𝑤𝑖 represents world exports of product i
𝑋𝑤𝑡 represents total world exports
A comparative advantage is ‘revealed’ in a particular commodity group if its share in the
country’s export basket is larger than the share of the commodity’s world trade in total world
trade; in other words, whether the commodity is more important to South Africa's exports
than to world trade. Comparative advantage will vary with each country. In the long run one
would expect the terms of trade to move against commodities and primary goods, hence the
general desire to trade in the more advanced manufactured goods.
55 This is more fully reported in Appendix 6 Competitive Diagnosis
232
Table 44: RCA in South Africa’s Exports at HS4 level -
Source: ITC calculations based on UN Comtrade statistics and Own Calculations
According to the calculations reported (and are available on request), South Africa’s
comparative advantage is, however, still vested in primary goods and commodities. Advanced
manufactured goods are notable in that they are not listed, meaning that South Africa exports
them at a "revealed" comparative disadvantage. It also illustrates which product lines have
gained a RCA over the past 5 years and which ones are losing a comparative advantage. For
example, H2705: Coal and Water gases, was traded at a disadvantage in 2009 but had a
positive RCA in 2011. Calculations of the South Africa’s RCA also indicate that 61 product lines
at HS4 have lost a revealed comparative advantage over the past 5 years (2007-2011).
6.9 Index of Market Concentration
When there is a concentration of either products or markets, a country or a region faces
higher risks if there is volatility or a down turn in the market. One of the dti’s goals should
therefore be to diversify. The following describes how the concentration can be measured and
interpreted.
The Herfindahl-Hirschman Index (HHI) is used to measure market concentration and can also
be used to calculate concentration in destination of South Africa’s exports. Export
Diversification, in terms of either products or destinations, can be at the intensive margin (a
more evenly spread portfolio) or at the extensive margin (more export items). Diversification is
HS Description RCA Index 2009
RCA Index 2010
RCA Index 2011
Average annual change in RCA Index, 2007-2011 (%)
1 2617 Ores and concentrates, nes 207.16 128.76 104.35 20.1
2 2610 Chromium ores and concentrates 87.63 80.33 91.52 14.5
3 3704 Photographic plates, film, paper, textiles exposed 37.30 79.33 61.83 1.1
4 7110 Platinum, unwrought or in semi-manufactured forms 63.84 65.32 59.42 -1.3
5 2602 Manganese ores and concentrates etc 36.05 53.18 44.62 8.0
6 2614 Titanium ores and concentrates 80.34 56.83 43.04 -3.7
7 2615 Niobium, tantalum, vanadium or zirconium ores and
concentrates 57.34 48.65 37.71 3.2
8 4702 Chemical wood pulp, dissolving grades 38.72 35.58 29.95 -6.0
9 2820 Manganese oxides 32.48 29.87 28.24 -4.9
10 3201 Vegetable tanning extracts; tannins & their salts 28.34 29.28 27.71 0.8
11 7202 Ferro-alloys 32.06 33.03 26.31 4.0
12 3605 Matches o/t pryotechnic articles of hd no 36.04 7.59 12.17 23.23 43.5
13 2802 Sulphur, sublimed or precipitated; colloidal sulphur 13.77 11.83 21.69 -7.4
14 3804 Residual lyes from the manufacture of wood pulp, 22.03 20.06 18.16 -3.8
15 2705 Coal gas, water gas, producer gas, other than petroleum
gases 0.74 1.02 17.70 101.7
16 7506 Nickel plates, sheets, strip and foil 19.64 28.58 17.37 -4.8
17 2619 Slag, dross other than granulated slag 23.54 19.93 14.68 -14.0
18 0805 Citrus fruit, fresh or dried 13.50 15.90 14.48 4.0
19 2823 Titanium oxides 12.75 15.56 13.78 0.4
20 2809 Diphosphorus pentaoxide; phosphoric acid etc. 17.74 12.32 13.15 -10.2
Critical Analysis for the Integrated National Export Strategy
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measured (inversely) by Herfindahl’s concentration index or Theil’s index. If the indices are
calculated over active export lines only, they measure concentration/diversification at the
intensive margin. Diversification at the extensive margin can be measured simply by counting
the number of active export lines.
Table 45: South Africa’ export concentration
Source: Own calculations using Quantec data
The closer a market is to being a monopoly, the higher the market's concentration and the less
competition the market is exposed to locally. A HHI equal to one would mean there is only one
main producer of this product, while a HHI of close to zero implies almost perfect competition
with many producers. We look here at sectors within each of the nine provinces, therefore
investigating the diversity of our destinations in terms of industry exports from the provinces.
Once again, the closer the index is to 1, the fewer players within the industry within that
province.
The above table shows a range of industries within some of the provinces as well as how
concentration with that province has changed over time. We see for example in the Free
State, the beverage industry has become more and more concentrated, moving towards only a
few producers, and a similar story is told in the Northern Cape.
The leather industry in the Free State has also become more concentrated in terms of
producers; however more competitors are participating in the furniture industry of the
province, according to the data.
What can be seen as a worrying trend emerges, many industries within the provinces are
moving towards being dominated by a few main producers. This concentration could threaten
export diversity, innovation as well as employment issues.
The following table represents industries that are less concentrated in terms of industry within
a province; therefore these industries may be seen to be exposed to more competition.
Province Industry HHy2000 HHy2005 HHy2006 HHy2007 HHy2008 HHy2009 HHy2010
P4: Free State 06: Beverages (305) 0.552262 0.627136 0.3199 0.968459 0.822391 0.999703 0.985357
P8: Mpumalanga 06: Beverages (305) 0.53597 0.842164 0.939241 0.782796 0.859091 0.529573 0.952471
P3: Northern Cape 08: Textiles (311-312) 1 0.558865 1 0.805835 0.510598 1 0.902159
P4: Free State 10: Leather & leather products (316) 0 0.590253 0.422338 0.55318 0.759352 0.819747 0.895815
P8: Mpumalanga 20: Glass & glass products (341) 0.525218 0.558637 0.735051 0.433451 0.275852 0.79001 0.875982
P9: Limpopo 13: Paper & paper products (323) 0.93022 0.948104 0.935678 0.28496 0.99258 0.946809 0.865918
P9: Limpopo 20: Glass & glass products (341) 0.966676 0.380404 0.668011 0.427458 0.241492 0.547938 0.759046
P4: Free State 05: Food (301-304) 0.184095 0.174912 0.23393 0.142302 0.147707 0.744409 0.723248
P2: Eastern Cape 10: Leather & leather products (316) 0.668412 0.292432 0.383086 0.531724 0.529779 0.539436 0.65212
P4: Free State 31: Furniture (391) 0.229207 0.338942 0.245116 0.483917 0.588761 0.898217 0.568052
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Table 12: Less concentrated in terms of industry within a province
Source: Own calculations using Quantec data
Similarly for destinations, if all of South Africa’s exports of a certain product are going to the
same destination, then we have high destination concentration. Whereas, if this same
product is going to many destination countries, then South Africa is moving towards
diversifying the imports of our goods.
The dti should continue to maintain South Africa’s market share in its traditional markets but
also grow exports in non-traditional markets. This will ensure that South Africa’s exports
indeed do diversify. If South Africa can increase its labour-intensive manufactured exports as
stated in the NDP, further diversification will be achieved.
As trade in intermediate products increases, inter-industry trade (dictated by specialisation)
decreases and results in the increase in Intra-industry trade (IIT). This is discussed below.
6.10 Intra-Industry Trade
IIT refers to the exchange of similar products belonging to the same industry. The term is
usually applied to international trade, where the same types of goods or services are both
imported and exported.
This will be used to identify the determinants of a products comparative advantage. The
traditional model of trade was set out by the model of David Ricardo and the Heckscher–Ohlin
model. These models tried to explain the occurrence of international trade. Both models used
the idea of comparative advantage and an explanation of why countries trade. Economists
have however made the point of claiming that these models provide no explanation towards
IIT as under their assumptions countries with identical factor endowments would not trade
and produce goods domestically.
There are three types of IIT:
Trade in Homogeneous Goods.
Trade in Horizontally Differentiated Goods.
Trade in Vertically Differentiated Goods.
Province Industry HHy2000 HHy2005 HHy2006 HHy2007 HHy2008 HHy2009 HHy2010
P1: Western Cape 05: Food (301-304) 0.072412 0.054324 0.045501 0.050323 0.046613 0.042295 0.038956
P1: Western Cape 08: Textiles (311-312) 0.123091 0.07197 0.063179 0.057149 0.052308 0.057852 0.046704
P5: Kwazulu-Natal 13: Paper & paper products (323) 0.046362 0.057098 0.064705 0.058191 0.066873 0.065263 0.049872
P7: Gauteng 22: Basic iron & steel (351) 0.065216 0.036604 0.041604 0.041746 0.052731 0.067761 0.058379
P7: Gauteng 26: Electrical machinery (361-366) 0.075877 0.051196 0.060634 0.070067 0.053516 0.05409 0.058906
Critical Analysis for the Integrated National Export Strategy
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Although the theory and measurement of IIT initially focused on trade in goods, especially
industrial products, it has also been observed that there is substantial IIT in the international
trade of services.
The Grubel-Lloyd index has been applied to calculate the IIT.
Conventional trade theory suggests that countries should specialise in goods in which they
have a comparative advantage. Reducing barriers to trade will therefore lead to an increase in
the production of some exports at the cost of reduced exports (and probably employment) in
other industries. However, this model only accurately predicts the trade of commodities. In
the case of goods where branding is important and where there are increasing returns to
scale, increased trade may not lead to the reduction in output of any industry. This also leads
to the case where a country can both import and export the same good, hence the term IIT. If
IIT can occur in a sector, then reducing barriers to trade will lead to both countries reducing
the number of brands of the product to capitalise on the gains from returns to scale. Trade
may thus result in both a larger variety of the good as well as lower prices. The size of IIT is
usually measured by the Grubel-Lloyd index which is merely total trade less net trade, divided
by total trade. However the results that one finds for the Grubel-Lloyd index depend to a large
extent on the degree to which one’s data is disaggregated, with more disaggregation leading
to less evidence of IIT.
6.10.1 Factors Affecting South African Competitiveness
There are many factors affecting the competitiveness of South African exports. These are
discussed below.
6.10.2 Exchange Rates
In recent years there have been debates about the impact of the volatility of the real exchange
on trade flows. On the one hand, there are views that the exchange rate volatility tends to
reduce the level of trade in a country by negatively affecting exports. There are a few economists
that favour intervention in exchange rate markets. They argue that without a lower currency,
efforts to increase the South African export industry will not work because domestic producers
cannot compete abroad and competition from cheap imports increases. This view has been
supported by economists including Joseph Stiglitz, who argues that South Africa needs a more
managed exchange rate in order to solve the high unemployment problems (Bloomberg, 7 May
2012). He advocates using a portfolio of instruments, such as stepping up the accumulation of
foreign reserves to counteract appreciating currencies. Volatility of the exchange rate makes it
difficult especially for small- and medium-sized exporters to invest in production capacity. SMEs
are vital to the reduction of employment. Barriers for them to invest and expand their
production capacity limits the extent to which they can contribute to the reduction of
unemployment in the economy.
On the other hand, those who are against intervention in the exchange rate argue that South
Africa does not have adequate foreign exchange reserves to weaken the currency. These
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analysts propose that exports should be driven by increased productivity levels and seeking
‘competitive devaluations’ will compromise structural reforms in industries (Draper, 2010).
It is argued that in the short term, a depreciation of the exchange rate leads to a rise in exports
by increasing the local prices of exports and thus raising relative profitability of export supply
(Edwards & Garlick, 2008). Depreciation of the exchange rate enables exporters to reduce the
foreign currency price of their exports, therefore increasing the quantity demanded by foreign
consumers.
However, depreciation of the currency is unlikely to enhance exports if there are supply
constraints relating to infrastructure, input supplies and production capacity. Therefore,
additional policies targeting these supply constraints would have to accompany the currency
depreciation to increase exports (Edwards & Garlick, 2008). It has been argued that using
protectionist industrial policy ignores the exchange rate response. A protectionist tariff policy
increases the demand for domestic goods in the initial stages and lowers imports. This results
in a trade surplus. This will cause the exchange rate to appreciate, which will in turn inhibit
exports.
Kganyago (2010) pointed out that it is important that not too much credit should be given to
the exchange rate in determining economic outcomes, as other factors such as interest rates,
long-run productivity development and demographic changes carry more economic
importance. Over the longer term, the real exchange rate has to depreciate to support
competitiveness of the economy. This should be done through moderation of the nominal
exchange rate, lower inflation and stronger productivity increases in sectors exposed to
international competition.
The volatility of the exchange rate is affected by global factors, including commodity prices and
capital inflows. There are arguments that it is not possible to enforce policy that weakens the
exchange rate because the global market forces affecting it are too strong. Rising commodity
prices and capital inflows lead to an appreciation of the exchange rate. In the recent years, due
to the global conditions, capital inflows into emerging economies such as South Africa have been
increasing, affecting the exchange rate.
The exchange rate is not a critical driver of exports. Schaling (2007) found that South African
exports (for the period 1994-2006) were driven by international economic conditions rather
than by the exchange rate (the elasticity of foreign economic activity is greater than the
elasticity with respect to REER. There is no robust statistical evidence that net exports are
boosted by a weaker REER. Other researchers found that South African exporters of
manufactured goods are generally price takers in the international market (Edwards and
Willcox, 2005; Alves and Edwards, 2006).
Even in the short term, though depreciating the currency (weaker Rand) may increase exports
and positively affect the current account, a stronger Rand also benefits the economy. A stronger
Rand helps lower the inflation rate and reduces the cost of imported components of the
infrastructure programmes, which will ultimately reduce pressure on public finances. South
African export industries are dependent on imported input components, such as the automotive
Critical Analysis for the Integrated National Export Strategy
237
industries. It is therefore critical to contain cost inputs to gain and sustain competitiveness.
Capital and intermediate inputs are major components of the nation’s import basket, and are
generally priced at world prices. If the exchange rate is depreciated to encourage exports, the
input costs will increase, which makes currency depreciation unattractive as a policy tool to
those against it. Therefore, the negative aspect of a depreciated exchange rate is that it leads
to higher inflation due to increased domestic currency prices of imported final/intermediate
goods and/or higher wage inflation (Schaling, 2007).
Given South Africa’s economy, the policy intervention of devaluing the nominal exchange rate
will be unsustainable as South Africa has relatively small foreign exchange reserves. Although
depreciation in the Rand will contribute marginally to South African exports efforts, it will
increase the profitability of existing large exporters in the short term (especially if they do not
rely on imported components). In the medium term, the impact will be detrimental, not only to
small emerging exporters (who generally do not engage in any transfer pricing), but to South
Africa’s export goal.
Terms of Trade and REER
In early 2012 the Rand strengthened to between R7,40:US$1 and R7,60:US$1, This was partly
due to large interest-rate differential with developed countries. The Rand encountered volatility
in response to renewed global uncertainty and a shift away from riskier emerging-market assets.
After sliding to R8,71:US$1 in June 2012 - a three-year low - the Rand strengthened to around
R8,25:US$1. After recovering towards the end of December, crippling strike action, further
sovereign risk downgrades and the possibility of mine closures, took the Rand to levels weaker
than R9:US$1 during January 2013. This volatility makes it difficult for exporters to plan and
many risk adverse manufacturers stay away from export markets.
In the graph below, we take a look at the South African REER. In recent years the greatest dips
were in 2001 and 2008, as we know from the world financial crises. However, the REER
stabilising over time.
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Figure 28: South Africa’s REER
Source: SARB
The graphs below give a forecast of the REER, NEER and USD: ZAR exchange rates
Figure 29:Forecast values of the REER, NEER and USD: ZAR exchange rates
Source: Quantec Reasearch
Investigating how the REER impacts on trade flows, we can identify industries that may be
more sensitive to exchange rate movements; this in turn will impact on trade balances.
International trade can depress real exchange rate volatility which impacts products
differently according to their degree of differentiation, giving backing to ideas for South Africa
to diverse its trade with the world. On the other end of the scale however, with greater global
supply chains and an improved degree of vertical specialisation, sensitivity can be reduced. In
South Africa’s case we see how real exchange rate could play a role in curbing the trade
deficit, accompanied by other policy actions.
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Exchange rate: USD/ZAR
Critical Analysis for the Integrated National Export Strategy
239
Figure 30: South African Terms of Trade
Source: SARB Quarterly Bulletin
The figure above shows how South Africa’s terms of trade has changed over time. We can see
during the period 1970 through to 1990 how volatile the measure was, however terms of
trade and exchange rates have since stabilised. However, we can see the terms of trade
measure that includes gold is sensitive to the price of gold and therefore can still fluctuate
depending in price of gold and dollar rates. Since 2000, both measures have trended together
within the same cycle, remaining with the (-5, 5) band.
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240
Figure 31: Terms of Trade of goods and services (percentage change)
Source: IMF
The above figure compares the terms of trade for emerging economies, SSA and advanced
economies. Terms of trade can be used to calculate the quantity of imports that a country can
purchase through the sale of that country’s exports. An improvement in a country’s terms of
trade is better for that country as it can purchase more imports for the given level of exports.
The terms of trade is influenced by the exchange rate of a country, as the value of the
currency rises, domestic process fall for imports.
We know that much of SSA is made up of emerging countries and therefor these 2 tend to
follow similar trends, as we see these countries are more sensitive to oil shocks and financial
crisis, as seen in 1998 and again in 2009.
Advanced economies have more stable terms of trade and will experience spikes where the
emerging countries suffer dips.
6.10.3 Enabling Environment
It is important that the INES should identify weakness that have an impact on strengthening
value chains domestically and assist firms to integrate into global value chains. These have
been disussed in other chapters of this Critical Review but are summarised below:
Trade policy
South Africa has entered into a number of agreements at a multilateral or bilateral level that
have an impact on the way firms do business. International trade agreements affect the
constraints to and opportunities for industry growth. Standards that are agreed to at
international forums also have an impact. Although they present opportunities for market
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Emerging Economies Sub-Saharan Africa Advanced economies
Critical Analysis for the Integrated National Export Strategy
241
expansion, they can be expensive for firms, and can easily preclude new or emerging exporters
form entering foreign markets..
National economic policy
South Africa’s regulatory environment, although critical to the functioning of markets, should
create incentives for private sector growth. Nedlac has provided a forum for business, labour
and government to negotiate and should ensure businesses involvement in the policy process.
This has not always been the case and regulations are having a negative impact on exports.
Poor local government operations have had an adverse impact on export, especially in rural
areas. Water is in short supply in many areas and most municipalities use electricity revenues
to cross subsidise other services. This makes the final export products more expensive. Critical
infrastructure is not always available.
Poor enforcement of legal and regulatory regimes increase transaction costs and risks, limiting
investments in relationships and upgrading. Conversely, conducive local and regional policies
can provide opportunities for rapid improvement of the enabling environment.
Inter-firm cooperation
In many foreign countries firms cooperate to export. Traditionally South African firms have not
cooperated to exploit foreign markets. In many sectors firms have however cooperated (or
collaborated) to exploit domestic markets creating cartels. This infringes on the Competition
Act and is discussed in Appendix6. Nevertheless local firms need to collaborate and do so
through Export Councils but the more needs to be done.
Cooperation among firms through vertical or horizontal relationships is critical for transferring
skills and reducing transaction costs.
Vertical linkages
Vertical linkages are the relationships among firms at different levels of the value chain
between input supply and distribution to the final market. These linkages are critical for
moving a product from inception to the market. They are important in:
Transferring benefits,
Learning and embedded technical,
Financial and business services from firms up the chain to firms down the chain or vice
versa.
Especially in South Africa, where many black firms have been excluded from full integration,
policies such as the Black Suppliers Development Programmes are important. Mutually
beneficial relationships among vertically related firms can improve SME’s:
Access to new markets;
New skills;
A wider range of services;
242
Reduce market risk by securing future sales; and
Create incentives for the adoption of more value-added functions or activities.
Horizontal linkages
The NEDP recognised the importance of horizontal relationships where producers are needed
to reduce the transaction costs incurred by exporters or local buyers when working with many
small suppliers (especially cooperatives). Through inter-firm cooperation, such as buying
inputs in bulk or meeting large orders, horizontal linkages can help small firms generate
economies of scale, which can contribute to their competitiveness and bargaining power.
6.10.4 Infrastructure
Mapping the trade policy instruments that impact each stage of the supply chain it becomes
clear that the same trade policy instruments regularly affect different stages. Accordingly,
trade policy instruments can be classified into a set of overarching objectives.
Create competitive infrastructure services
Promote exports and foreign investment
Move goods across borders effectively
Address export market issues
Improve inputs and capital goods
Competitive infrastructure provides services for businesses. The competitive structure and
behaviour of firms involved in the delivery of infrastructure services is enhanced or
detrimentally effected. Numerous examples illustrate the impact of state monopolies and
abuses of a dominant position in raising the input costs in developing countries, thereby
making it more difficult for them to export. Inefficient monopolies must be restructured and
competition rules applied to revitalise the performance of infrastructure sectors.
6.10.5 Global Value Chains in South Africa
The dti will have to strengthen global value chain (GVC). A great deal of research is needed to
understand the various industries in South Africa and indeed globally.
The Export Village and Export consortia concepts will also have to be supported.
6.11 Conclusion
South Africa’s trade performed has not been good. Our market share has dropped and the
country’s growth has been slower than comparative countries.
South Africa’s trade patterns have changed in recent years. African markets are being
exploited by South African exporters and the composition of the trade has changed to include
more value-added products. Capital equipment and consumer goods have been slower to
respond than intermediary goods, which have seen rapid growth.
Critical Analysis for the Integrated National Export Strategy
243
In some sectors new exporters are entering foreign markets and there is less concentration,
while in others there is increasing diversification. Efforts need to be made to attract new
exporters with non-traditional exporters while retaining the experienced exporters with
products in which South Africa has had a comparative advantage. Similarly South Africa should
continue to maintain market share in its traditional markets while growing exports to non-
traditional markets. This will ensure that South Africa’s exports indeed do diversify. If South
Africa can increase its labour-intensive manufactured exports as stated in the NDP, further
diversification will be achieved.
Exporters are concerned about the exchange rate. Their concern is not as much about the
level, but rather the volatility. Exporters are concerned about risk and can manage the benefits
of a weak Rand but also exploit a strong Rand form their capital and other intermediary inputs.
A volatile Rand is difficult to forecast and makes business decisions even riskier. All businesses
want policy certainty. Under volatile currency conditions manufacturers prefer to stay out of
the export market rather than take “unnecessary risk”.
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6.11.1 Trade Flow Analysis: Methodology and Data
The statistical analysis will include an analysis of the trade flow, the RCA, the identification of
areas of possible comparative advantage, and IIT. Where econometric and other statistical
technics are used, a brief non-technical description is provided and additional references are
made.
Analysis of data is a process of inspecting, cleaning, transforming, and modelling data with the
goal of showing trends. This section will also highlight useful information and suggest evidence-
based conclusions. Data analysis has multiple facts and approaches, encompassing diverse
techniques under a variety of names. This section is mainly descriptive. The trade data will be
analysed at national level. However, and wherever possible and practical, sub-national analysis
has been undertaken to include provincial and metropolitan assessment.56
6.11.2 Trade Flow Analysis
The trade flow analysis has been conducted using both the HS and the Standard Industrial
Classification (SIC). Using the HS classification will allow comparison with various countries
including SACU and SADC. The SIC will allow the analysis of other industrial data such as industry
turnover, labour indicators etc. The sectoral composition of South Africa’s trade in goods are
included because it may matter for growth if some sectors are growth drivers. Second,
constraints to growth may be more easily identified at the sectoral level. The trade flow analysis
will evaluate South Africa’s export performance, determine prospects, and challenges by
analysing what it exports, to whom, how much, and for how long. It will also show what South
Africa’s market shares are.
Table 46: Annual % change and forecasts 1970 to 2017
56 The study uses a variety of data from a variety of sources. In each instance the data source is appropriately referenced. Most of the South African data
has been obtained from the South African Reserve Bank (SARB) and Statistics South Africa (StatsSA). International data sources include the
International Monetary Fund (IMF), International Financial Statistics (IFS), the World Bank (WB), and the Organisation for Economic Co-operation
and Development (OECD). International trade data was obtained from the United Nations (UN) Comtrade database through the World Integrated
Trade Solution (WITS) system.
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Appendix 7. Competitiveness Diagnostics
This section examines South Africa’s competitiveness and especially factors that impact on the
country’s exports. The notion that exports and trade more generally are conducive to
economic growth has been a long-standing feature of economics. Achieving export-led growth
is essentially about finding ways to increase the ability to sell domestically produced goods
and services on global markets. This ability to export is what has often been understood as
“export competitiveness.” In this thinking, exports become the target and ultimate goal of
economic policy.
The section will firstly look at South Africa’s incentive framework, not only actual drivers but
also at obstacles. Policy-induced obstacles such as those that increase the anti-export bias are
measured and highlighted. The dti provides financial support to qualifying companies in
various sectors of the economy. Financial support is offered for various economic activities,
including manufacturing, business competitiveness, export development and market access,
as well as FDI.
South Africa has a number of product in which it is globally competitive. The RCA is an index
used to identify these products by calculating this. Although most of the detailed information
is included in the accompanying CD ROM, screen shots are used to show how the RCA can be
used to identify competitive products that give an idea of where South Africa and its provinces
should focus.
The factor conditions are also identified that contribute to the competitiveness of these
products. The dti and other economic development agencies should focus on strengthening
factors that contribute to South Africa’s competitiveness. There are a number of restrictions
that South Africa’s trading partners has placed on her products. If these can be removed,
exports could increase. Most of the detailed information is included in the accompanying CD
ROM and only highlights are provided in this report.
Econometric techniques (Product Space) are then used to identify products in which South
Africa could have a comparative advantage but do not currently export. The incentive
framework may have to be adapted to ensure that these products are adequately supported.
South Africa’s trade performance infrastructure is then analysed to ensure that trade and
especially exports are not hampered.
7.1 Assessment of South Africa’s Global Competitiveness
Competitiveness refers to the ability and performance of a firm to sell and supply goods and
services in a given market, in relation to the ability and performance of other firms in the same
market. More recently it has been applied to sectors, industries and even countries. This
concept of competitiveness has emerged as a new paradigm in economic development. These
measures of competitiveness try to capture both the limitations and challenges posed by
global competition.
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There are a number of factors that influence a countries’ competitiveness. These include
resources such as capital, labour, technology and talent. These tend to tend be to concentrate
geographically. Entrepreneurship is also a critical ingredient.
Porter (1990) has shown that networks of suppliers, buyers and even competitors that help
them to gain competitive advantages. These market relationships provide benefits through
externalities that arise from linkages among firms in a geographic area or in a specific industry
that cannot be captured or fostered by markets alone.
The process of developing networks has been referred to as:
Clusters;
The creation of value chains; or
Industrial districts.
This is discussed below.
For small open economies, especially countries such as South Africa that relies on trade and
FDI to provide opportunities to provide employment and in living standards, competitiveness
is important.
7.1.1 Trade Openness
Investigating openness to trade is important for analysts and policymakers, as there is a large
amount of literature supporting the idea of a positive relationship between trade openness
and economic growth (Edwards [1992], Krueger [1997], Wacziarg and Horn Welch [2003]).
Calculating openness using:
𝑜𝑝𝑒𝑛𝑛𝑒𝑠𝑠 =𝑥 + 𝑚
𝐺𝐷𝑃
Creating an index (base year 2005) we can investigate how willing the BRICS are to trade and
how open they make themselves to trade with the rest of the world.
254
Figure 32: Openness index - BRICS
Source: Own calculations using Penn World Tables
Russia and South Africa have always been the most open towards trade, however after 2005
and the discovery of oil resulted in Russia’s openness decline. India is making steady headway
in opening up its economy as trade becomes more and more important within their economy,
even over taking South Africa’s openness index in the last couple of years. In 2010, we can see
India seems to be trending upwards, while South Africa trends downwards. Openness is
important for attracting FDI, innovation and overall increased total trade. China has moved
towards protecting themselves and this has resulted in a more closed economy in recent
years. Openness during the crisis of 2009 fell in all BRICS countries, which can be expected as
world trade fell.
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Figure 33: South Africa’s openness
Source: Own calculations using Penn World Tables
Investigating South Africa’s openness to trade over time, the trend is positive, however there
is room for improvement, especially as India and other countries become more open towards
international trade. Decreased openness in 2003 and 2009, as world trade falls during periods
of international crisis.
South Africa’s openness therefore makes the economy, to an extent, more reliant on the rest
of the world for growth and stability. Trade policies that can take into account the benefits of
being open towards trade as well as balancing the reliance on how the rest of the world
performs, can take an economy a long way in terms of economic growth. It is therefore even
more important for the country to become more competitive.
7.1.2 Measuring Competitiveness
There are many ways in which to “measure a country’s competitiveness” – each with their
own strengths and weaknesses. Because resources that drive competitiveness, such as capital,
labour, technology and talent tend to concentrate geographically, countries have become a
natural unit against which to measure competitiveness.
Global competitiveness frameworks
The emergence of international competitiveness frameworks has been influential in
pinpointing a wide range of stumbling blocks to trade. Frameworks most relevant for trade
policy include the following:
The World Economic Forum’s Global Competitiveness Index outlines 12 pillars for global
competitiveness:
Institutions, infrastructure, the macroeconomic environment and health and primary
education are basic requirements for competitiveness.
y = 0,3614x + 45,741
0
10
20
30
40
50
60
70
80
256
Higher education and training, goods market efficiency, labour market efficiency,
financial market development, technological readiness and market size are essential
to enhance efficiency.
Business sophistication and innovation are indicators of innovation-driven economies.
The World Bank’s Doing Business Report has also emerged as a recognised framework to
measure progress related to trade policy and export competitiveness. Its 11 indices measure
ease with:
Starting a business
Dealing with construction permits
Getting electricity
Registering property
Getting credit
Protecting investors
Paying taxes
Trading across borders
Enforcing contracts
Resolving insolvency.
The World Economic Forum’s Enabling Trade Index is also relevant. The index measures how
economies have developed institutions, policies and services to facilitate trade, and groups its
indices around:
Market access
Border administration
Transport and communications infrastructure
Business environment.
World Economic Forum’s Global Competitive Report 2012-2013 (p 20) defines competitiveness
as “the set of institutions, policies, and factors that determine the level of productivity of a
country”. The productivity level of an economy determines the economic growth of the
country through the rates of return obtained by investments in an economy. A more
competitive economy will likely be able to sustain growth.
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Figure 34: The Global Competitiveness Index framework
Source: World Economic Forum’s Global Competitive Report 2012-2013
There are many determinants that drive productivity and competitiveness. The Global
Competitiveness Index below highlights the 12 pillars of competitiveness. They tend to
reinforce each other, and a weakness in one area may have a negative impact on others.
The pillars do not affect economies in the same way because countries are at different stages
of development. For example, the Global Competitiveness Index (GCI) assumes that
economies in the first stage of development are mainly factor-driven and compete on factor
endowments, so maintaining competitiveness at this stage depends on well-functioning public
and private institutions (pillar 1), a well developed infrastructure (pillar 2), a stable
macroeconomic environment (pillar 3) and a healthy and educated workforce (pillar 4).
The Global Competitiveness Index 2012-2013 indicates that generally, SSA as a whole falls
behind the rest of the world in terms of competitiveness.
South Africa is ranked 52 out of 144 countries in terms of competitiveness based on the 12
pillars (1 being the most competitive economy). It remains the highest ranked economy in SSA
and the third placed among the BRICS countries.
The table below breaks down South Africa’s global competitiveness rank based on the 12
pillars.
258
Table 47: The WEF's 12 pillars of competitiveness
Pillars Rank
Basic Requirements 84
Institutions 43
Infrastructure 63
Macroeconomic Environment 69
Health and Primary Education 132
Efficiency Enhancers 37
Higher Education and Training 84
Goods Market Efficiency 32
Labour Market Efficiency 113
Financial Market Development 3
Technological Readiness 62
Market Size 25
Innovation and Sophistication Factors 42
Business Sophistication 38
Innovation 42 Source: Global Competitiveness Report 2012-2013
7.1.3 Competitiveness Rankings
South Africa performed well on measures of the quality of institutions and on factor
allocations. It ranked 20th on intellectual property protection, 26th on property rights and 32nd
on the goods market efficiency. It however ranked very low on Labour Market Efficiency. This
could be due to the high number of strikes the economy witnessed over wages, which resulted
in loss of productivity, especially in the mining sector. The country also has to improve its
Health and Primary Education, which ranked very low. This will entail improving service
delivery, especially in less developed parts of the country.
South Africa ranked 3rd in the financial market development pillar. This indicates a high
confidence in its financial market. Due to the global economic conditions, there have been
more investments and capital inflows into emerging economies. South Africa’s strong
performance in financial markets has made South Africa an attractive market. The country
further performed well in areas such as business sophistication (38th) and innovation (42nd).
These have been the benefits of good scientific research institutions and the strong
collaborations between universities and the business sector in innovation.
The performance of South Africa has made it the most competitive economy in SSA. In order
to increase its competitiveness, it will have to improve on the other critical pillars such as
labour market efficiency. It ranked 144th in “Significant tensions in labour-employer relations”
and 140th in “Lack of flexibility in wage determination by employers”. Lack of skills is also a
problem the economy faces. The poor security situation is a big hindrance to competitiveness.
The high business costs of crime and violence (134th) affect businesses and the prospects for
Critical Analysis for the Integrated National Export Strategy
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FDI. South Africa needs to focus on solving the low performing pillars in order to drive its
competitiveness further.
These indicators give only macro indicators. Even though they are critically important for the
economy as a whole, disaggregated elements are also important. Of equal importance are the
micro indicators which indicate a countries products competitiveness or relative comparative
advantage it enjoys.
7.2 Revealed Comparative Advantage
The RCA is an index used in international economics for calculating the relative advantage or disadvantage of a
certain country in a certain class of goods or services as evidenced by trade flows.
The RCA is calculated as follows:
𝑅𝐶𝐴𝑠𝑎𝑖 =
𝑋𝑠𝑎𝑖𝑋𝑠𝑎𝑡
⁄
𝑋𝑤𝑖𝑋𝑤𝑡
⁄
Where
𝑅𝐶𝐴𝑠𝑎𝑖 is the RCA for product i
𝑋𝑠𝑎𝑖 represents South African exports of product i
𝑋𝑠𝑎𝑡 represents total South African exports
𝑋𝑤𝑖 represents world exports of product i
𝑋𝑤𝑡 represents total world exports
A comparative advantage is ‘revealed’ in a particular commodity group if its share in the country’s export basket
is larger than the share of the commodity’s world trade in total world trade; in other words, whether the commodity
is more important to SA's exports than to world trade. Comparative advantage will vary with each country. In the
long run one would expect the terms of trade to move against commodities and primary goods, hence the general
desire to trade in the more advanced manufactured goods.
South Africa’s comparative advantage57 is, however, still vested in primary goods and commodities. Advanced
manufactured goods are notable in that they are not listed, meaning that South Africa exports them at a
"revealed" comparative disadvantage. The table also illustrates which product lines have gained a RCA over the
past 5 years and which ones are losing a comparative advantage. For example, H2705: Coal and Water gases,
was traded at a disadvantage in 2009 but had a positive RCA in 2011. Calculations of the South Africa’s RCA
also indicate that 61 product lines at HS4 have lost a revealed comparative advantage over the past 5 years
(2007-2011).
57 These calculations are available on request
260
Table 48: Revealed Comparative Advantage in South Africa’s Exports at HS4 level -
Source: ITC calculations based on UN Comtrade statistics and Own Calculations
At a provincial level we find that the Western Province has the largest number of product lines
with a RCA in 2011. This is indicative of the export diversification of each province. Out of 99
product lines at HS2, the Western Province has 64 lines with an RCA. The province of KwaZulu-
Natal is in second place with 39 product lines with a RCA. Gauteng is third with 27 product
lines.
HS Description RCA Index 2009
RCA Index 2010
RCA Index 2011
Average annual change in RCA Index, 2007-2011 (%)
1 2617 Ores and concentrates, nes 207.16 128.76 104.35 20.1
2 2610 Chromium ores and concentrates 87.63 80.33 91.52 14.5
3 3704 Photographic plates, film, paper, textiles exposed 37.30 79.33 61.83 1.1
4 7110 Platinum, unwrought or in semi-manufactured forms 63.84 65.32 59.42 -1.3
5 2602 Manganese ores and concentrates etc 36.05 53.18 44.62 8.0
6 2614 Titanium ores and concentrates 80.34 56.83 43.04 -3.7
7 2615 Niobium, tantalum, vanadium or zirconium ores and
concentrates 57.34 48.65 37.71 3.2
8 4702 Chemical wood pulp, dissolving grades 38.72 35.58 29.95 -6.0
9 2820 Manganese oxides 32.48 29.87 28.24 -4.9
10 3201 Vegetable tanning extracts; tannins & their salts 28.34 29.28 27.71 0.8
11 7202 Ferro-alloys 32.06 33.03 26.31 4.0
12 3605 Matches o/t pryotechnic articles of hd no 36.04 7.59 12.17 23.23 43.5
13 2802 Sulphur, sublimed or precipitated; colloidal sulphur 13.77 11.83 21.69 -7.4
14 3804 Residual lyes from the manufacture of wood pulp, 22.03 20.06 18.16 -3.8
15 2705 Coal gas,water gas,producer gas,other than petroleum gases 0.74 1.02 17.70 101.7
16 7506 Nickel plates, sheets, strip and foil 19.64 28.58 17.37 -4.8
17 2619 Slag, dross other than granulated slag 23.54 19.93 14.68 -14.0
18 0805 Citrus fruit, fresh or dried 13.50 15.90 14.48 4.0
19 2823 Titanium oxides 12.75 15.56 13.78 0.4
20 2809 Diphosphorus pentaoxide; phosphoric acid etc. 17.74 12.32 13.15 -10.2
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Figure 35: South Africa’s Provincial RCA: No. of Product Lines with RCA at HS2 (2011)
Source: Quantec International Trade Database and own calculations
7.2.1 RCA over Time
RCA can also be calculated excluding minerals and this will allow us investigate the
manufacturing sectors advantages more clearly.
Figure 36: RCA for Platinum in semi-manufactured forms
Figure 37: RCA for Chromium ores and concentrates
Source: Quantec International Trade Database and own calculations
Combing the RCA calculations with the proximity matrix for South Africa, we can identify
products with high RCA’s, then identify which products are similar in factor conditions and
other important characteristics to these products and by the theory of areas of possible
comparative advantage see which products we should be exporting.
0 10 20 30 40 50 60 70
WP
EC
NC
FS
LP
GP
KZN
NW
MP
Product Lines
Pro
vin
ce
0,975
0,976
0,977
0,978
0,979
0,98
0,981
0,982
0,983
RSA -2007
RSA -2008
RSA -2009
RSA -2010
RSA -2011
0,976
0,9765
0,977
0,9775
0,978
0,9785
0,979
0,9795
0,98
0,9805
RSA - 2007 RSA - 2008 RSA - 2009 RSA - 2010 RSA - 2011
262
Figure 38 Snap shot of proximity matrix
In the above image, we have products with RCA greater than 0.45 and have identified a cluster
where these products are similar in the way they are produced, making it easier for knowledge
spill overs and transferring of skills, as will be discussed in areas of possible comparative
advantage.
Snap shots of interactive excel sheet:
Firstly we select the RCA tab to investigate RCA’s of different provinces or South Africa as a
whole. As exports are included in the calculation of RCA, these numbers are also included and
can be filtered for the highest in each year.
Figure 39: Snap Shots of Interactive Excel Sheet 1
Next we select RCA for South Africa and rank the products with the highest RCA. This shows us
in which products the country has a comparative advantage relative to the rest of the world, in
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263
other words, the products in which we are good at producing and therefore we should be
exporting.
Figure 40: Snap Shots of Interactive Excel Sheet 2
This is also possible for all nine provinces, in this example the Western Cape.
Figure 41: Snap Shots of Interactive Excel Sheet 3
264
Figure 42: Snap Shots of Interactive Excel Sheet 4
This RCA tool therefore will help provinces and the country as a whole to identify the products
and sectors in which they have a comparative advantage and which products they should
focus on producing.
Looking even deeper, we calculate RCA for each district/metropolitan, also available in the
interactive excel sheet:
Figure 43: Snap Shots of Interactive Excel Sheet5
Here we select the product using the HS 6 product code and given descriptions, which
provides the region’s exports, world exports RCA and the five largest trade gaps.
Critical Analysis for the Integrated National Export Strategy
265
The RCA is also mapped alongside the export volume (current prices) of the product, to see
how these 2 important indicators change over time and how they interact. These interactive
sheets can also be used to expose relationships between indicators.
Figure 44: Snap Shots of Interactive Excel Sheet 6
266
Figure 45: Snap Shots of Interactive Excel Sheet 7
Although the macro issues discussed above give an indication of what causes products to be
competitive, it is equally important to determine the causes of competitiveness of sectors and
products. The anti-export bias does contribute in this analysis.
7.2.2 Anti-export Bias
Anti-export bias presents itself in forms of disincentives to export and especially in developing
countries this can be a very real problem. South Africa faces high tariffs and quantitative
imports restrictions which can create significant levels of anti-export bias. These tariff
structures are also escalated, with higher tariffs charged on final products than the tariffs
place on inputs. South Africa has made progress by moving towards trade liberation which has
removed or reduced many tariffs and quantitative restrictions.
Tariffs and other protection can create disincentives to export in the following ways:
Escalated tariff structures and import duties increase the prices of final products
compared to the intermediate and input products used. This in turn distorts the
Critical Analysis for the Integrated National Export Strategy
267
effective rate of protection, often pushing it up above the nominal rate causing anti-
export bias.
Anti-dumping duties added to normal tariffs increases the effective protection of
import substitution production resulting in anti-export bias.
Quantitative import restrictions protect the local market, increasing profits. However,
exports markets are far more competitive and goods have to be sold here at world
prices.
The most effective way to reduce anti-export bias in developing countries and to improve the
environment for export growth is to reduce protection of the domestic market. This would
include actions such as reducing tariffs, simplifying the tariff structure as to reduce or
eliminate tariff escalation, and avoiding the use of anti-dumping and other quantitative
restrictions.
This does however seem somewhat unrealistic in South Africa’s case as many domestic
industries are currently protected and will need this continued protection for years to come.
Also, reforms of this kind are often long and difficult. In the meantime there are a number of
export promotion policies that can be used to reduce anti-export bias and make exports more
competitive.
Alternative solutions in the meantime can include special import licences for exports in order
to access inputs at world prices by passing usual tariffs. Specialised schemes such as bonded
manufacturing and export processing zones can be implemented, as used in Korea, Thailand
and Taiwan. These schemes are good starting points as they are easy to administer and at a
later stage exporters can be weaned off of the programme.
However these schemes do come at a cost to the administrator and these free trade zone
agreements can sometimes lead to the isolation of our exports from the rest of the economy,
which in turn limits any external benefits being passed on. We must take into account that
some exporters will suffer under the over- valued domestic currency even if protection is
provided.
Anti-export bias as calculated by
(1+ERPJ)/ (1-XRPJ).
Where
ERPj (effective rate of protection) = 𝑡𝑗−∑ 𝑎𝑖𝑗𝑡𝑖𝑡
1−∑ 𝑎𝑖𝑗𝑖
XRPj (implicit export tax of tariffs) =∑ 𝑎𝑖𝑗𝑡𝑖𝑖
1−∑ 𝑎𝑖𝑗𝑖
Where:
tj tariff on outputs,
ti tariff on inputs and
aij quantity of intermediate input i used in production of one unit of good j.
268
In the process of calculating anti-export bias (AEB), we can identify how much the effective
rate of protection (ERP) contributes to this type of disincentive. The higher the rate of
protection the producers receive at home, the less likely they are to be competitive and to
open themselves up to international competition and pricing, therefore they choose not to
export but rather focus on the local market. For example, South Africa’s garment and textile
sector enjoys some of the highest ERP, and therefore some of these producers are not
competitive overseas.
Therefore AEB is a combination of the rate of protection on the value-added part and the
implicit export tax faced by exporters. The higher the rate of protection, for example in the
wearing apparel sector, the higher anti-export bias will exist in that sector.
Figure 46 Anti-Export Bias trend
What is important here, is the trends of effective rates of protection and associated anti-
export bias. Downward trending anti-export bias implies lifted disincentives for exporters and
producers. Although there is a general downward trend, the anti-export-bias has not been
eliminated and will continue to hamper South Africa`s export ambitions. A high implicit export
tax will also have disincentive effects on exporters and will raise the level of anti-export bias.
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Table 49 Anti-export bias and ERP ERP 2005 AEB 2005 ERP 2007 AEB 2007 ERP 2010 AEB 2010
Wearing apparel [313-315]
11.19172 34.13783 12.06793 34.33415 14.4553 36.471
Tobacco [306] 5.622406 28.90468 6.142307 28.9585 6.493311 34.74251
Textiles [311-312] 3.40651 16.87897 3.699819 16.74561 3.929769 16.63503
Leather and leather products [316]
2.174982 15.02161 3.244604 14.8789 3.649036 14.89939
Plastic products [338] 3.955575 12.6415 4.142867 13.00029 3.538166 12.08683
Rubber products [337]
2.931995 12.49454 2.778302 12.80917 1.940293 11.84852
Beverages [305] 2.842158 8.88857 4.056153 11.06617 3.647358 11.2718
Food [301-304] 1.148631 8.554211 1.634324 10.67045 1.987813 11.00691
Metal products excluding machinery [353-355]
1.612421 7.096137 1.824323 7.23835 1.295551 7.105718
Printing, publishing and recorded media [324-326]
1.701241 7.015458 1.476574 6.961774 1.67081 7.008186
R12121: Wood and wood products [321-322]
1.823595 7.767179 1.46836 6.432913 1.32225 6.395449
Glass and glass products [341]
1.235379 5.143141 1.275443 5.253733 1.055017 5.159408
Electrical machinery and apparatus [361-366]
0.666329 4.701016 0.981309 5.510982 0.737531 4.933828
Other transport equipment [384-387]
0.70738 4.505845 1.011908 4.520191 0.459007 4.148297
R12181: Motor vehicles, parts and accessories [381-383]
-0.01977 4.2606 0.01004 4.176497 0.026578 3.994681
Coke and refined petroleum products [331-333]
0.56486 3.961732 0.728561 4.022588 0.379726 3.892909
Agriculture, forestry and fishing [1]
1.285583 3.857214 1.066368 3.784896 1.040975 3.666878
In the above table, it can be seen that the AEB for products such as food products, beverages
and tobacco, wood and products of wood and cork, textiles, textile products, leather and
footwear are among the highest and this confirms the disincentive to export these products.
These sectors may enjoy large amounts of protection due to the employment they provide,
however the high implicit costs to support and protect, must be taken into account.
The evidence also shows how ERP and anti-export bias go hand in hand. The higher the rate of
protection a sector enjoys, the higher the anti-export bias the sector faces, thus a larger
disincentive to export. Among the highest ranked sectors that face these disincentives include:
beverages, food products, metal products, wood products and glass products. These
disincentives could also arise from very competitive overseas markets.
We can also see that anti-export bias for most sectors is trending upwards over time, which
means incentive frameworks and policies in place have to work even harder to keep incentives
worth-while for the exporters. The incentives provided to exporters and potential exporters do
270
contribute to alleviating the negative impact of the AEB, but it is still remains high. The
incentive framework is discussed below.
Classical economist suggested that countries would specialise according to their comparative
advantage. Empirically this has not been the case and the phenomena of IIT have occurred.
7.3 Intra-Industry Trade
IIT refers to the exchange of similar products belonging to the same industry. The term is
usually applied to international trade, where the same types of goods or services are both
imported and exported.
This will be used to identify the determinants of a products comparative advantage. The
traditional model of trade was set out by the model of David Ricardo and the Heckscher–Ohlin
model. These models tried to explain the occurrence of international trade. Both models used the
idea of comparative advantage and an explanation of why countries trade. Economists have however
made the point of claiming that these models provide no explanation towards IIT as under
their assumptions countries with identical factor endowments would not trade and produce
goods domestically.
There are three types of IIT:
Trade in Homogeneous Goods.
Trade in Horizontally Differentiated Goods.
Trade in Vertically Differentiated Goods.
Although the theory and measurement of IIT initially focused on trade in goods, especially
industrial products, it has also been observed that there is substantial IIT in the international
trade of services.
7.3.1 The Grubel-Lloyd Index has Been Applied to Calculate the IIT.
Conventional trade theory suggests that countries should specialise in goods in which they
have a comparative advantage. Reducing barriers to trade will therefore lead to an increase in
the production of some exports at the cost of reduced exports (and probably employment) in
other industries. However, this model only accurately predicts the trade of commodities. In
the case of goods where branding is important and where there are increasing returns to
scale, increased trade may not lead to the reduction in output of any industry. This also leads
to the case where a country can both import and export the same good, hence the term IIT. If
IIT can occur in a sector, then reducing barriers to trade will lead to both countries reducing
the number of brands of the product to capitalise on the gains from returns to scale. Trade
may thus result in both a larger variety of the good as well as lower prices. The size of IIT is
usually measured by the Grubel-Lloyd index which is merely total trade less net trade, divided
by total trade. However the results that one finds for the Grubel-Lloyd index depend to a large
extent on the degree to which one’s data is disaggregated, with more disaggregation leading
to less evidence of IIT.
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271
7.3.2 Implications of IIT
World trade is increasing in IIT. Companies split their production across many countries.
Especially Multinational Corporations are creating international production chains splitting
their operations:
Design of the product;
Manufacturing of components;
Assembly; and
Marketing.
The WTO has stated that more and more products are “Made in the World” rather than
“Made in the UK” or “Made in France”. The goal of the INES should therefore seek to integrate
into value chains caused by the growing IIT.
7.4 Value Chains
One of the causes of IIT is value chains, especially when these cross borders. A value chain
includes all activities and services that are required to bring a product or service from its
conception to its end use. Value chains include:
Input suppliers;
Producers;
Processors;
Buyers;
A range of technical, business and financial service providers; and
The final markets into which a product or service is sold, whether local, national, regional or global.
Figure 47: Basic value chain
272
Understanding how industry-platforms, in which exporters operate, can become more
competitive requires analysis of the factors affecting the performance of the firms in the value
chain and the relationships among these firms including:
End markets;
Business enabling environment;
Vertical linkages;
Horizontal linkages; and
The supporting markets (financial markets, sector-specific markets and the markets for general
services and products).
A value chain has three main dimensions:
An input-output structure describing the physical production processes;
A territoriality describing its spatial organisation; and
A governance structure that describes the way in which activities are coordinated along the supply
chain.
An analysis of South Africa’s input-output table (an example is included on the CD ROM) can
show areas where the economy is importing or where additional value can be captured that
will add value and create jobs in the domestic economy. However, other factors such as the
material interconnections between firms and industries, industrial structures have important
institutional and spatial dimensions that cannot be captured by input-output analysis. The
input-output structure of a value chain allows the application of an accounting framework to
be used to decompose price into value added in each of the sectors or countries which directly
or indirectly contributed to the supply of a particular product, allowing changes in the
distribution of surplus along these chains to be observed (Gereffi 1994).
7.4.1 End Markets
End markets determine the characteristics of the final product or service generated. The
demands of the end market drive quality and standards. End buyers are:
Important sources of demand information;
Learning; and
Benefits that flow down the chain.
Analysis of end markets must demonstrate the potential for competitiveness through a
combination of three strategies:
Producing and delivering goods and services more efficiently;
Differentiating products or services through quality standards and branding; and
Exploiting new market demand.
The value chain approach assesses the opportunities in all possible markets into which
products and services flow. This complements the REN-approach described in Appendix 3.
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273
7.4.2 Global Value Chains
Since goods or services are therefore seldom produced in one country and then exported to a
final consumer, many products traded today are considered to be Made in the World.
Production nowadays involves an increasingly complex process with intermediate inputs and
supporting activities sourced globally from wherever it is most efficient to do so. This process,
known as a GVC, is described as the full range of activities undertaken to bring a product or
service from its conception to its end use and how these activities are distributed over
geographic space and across international borders.
A GVC is a network of labour and production processes whose end result is a product ready for
consumption. This analytical approach provides a valuable tool for understanding the
processes through which value added (or surplus) is created and distributed along supply
chains. Capturing more of the value adds to the country’s wealth, employment and general
prosperity.
Although this is a very simply value chain, not all the activities need to take place in one
location or even one country. In fact they seldom do. Value chain analysis identifies both
challenges and constraints that hinder the capture of higher value added sections of the
supply chain.
7.4.3 South African Exporters
The survey of exporters tried to ascertain to what extent South African exporters are
integrated into Gross Value Added (GVAs). The results are shown graphically below.
Figure 48: Responses to the question: How important are value chains
274
South African firms are generally not well integrated into international GVCs. From the survey
that is more fully reported in Appendix 9, approximately 20% of the large companies that
responded, felt that it was critical to their international competitiveness to be part of a GVC.
More than 95% of large firms felt it was either critical, very important or at the least
important.
Of the small companies that responded, almost a third felt it was critical to their
competitiveness. This is proportionally higher than any of the other sizes of companies. It
could be presumed therefore that these small firms have integrated into GVCs through firms
located in South Africa (either foreign-owned or domestic companies).
Figure 49: Source: OECD Financial statistics database
Source: Source: OECD Financial statistics database
However when an analysis of the trade data was undertaken, the data does show that in
recent years more trade is actually integrated into GVCs. Using the OECD’s Financial statistics
database, it can be seen that the unit value of South Africa’s export basket has increased
indicating that the country is exporting value-added products.
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Figure 50: Exports per sector
Source: Source: OECD Financial statistics database
Similarly, the graph below shows that the value of intermediate products has indeed
increased; confirming the fact that South Africa is becoming more integrated in GVCs.
GVC analysis also focuses on the organisation of production (reflecting economic power
relations) as determining the pattern of surplus distribution. According to the GVC approach,
in the distribution of the surplus among different participants in a value chain are caused by
changes in their political and economic power as the market structure evolves (Talbot 1997).
A value chain can also be characterised by a particular structure of production, be it
distributed geographically or among different sizes of firms, and finally, it has a particular
governance structure. The structure of a particular value chain “determines”, as well as results
from, the excess profits, or rents that appear at different stages of the value chain.
Relationships include:
Power dynamics among firms
Access to learning and innovation
Distribution of benefits
Changes in the structure of the chain occur through the struggle for rents as actors along the
chain attempt to increase the income and profit they derive from their participation (Kaplinsky
2000).
As firms try to enter GVCs it is equally important to identify products, in which sa1n
manufactures should enjoy a comparative advantage, but do not. The following section links
to the above section describing RCA and discusses how to identify possible areas of
comparative advantage using “Product Space”.
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7.4.4 Areas of Possible Comparative Advantage
The “Product Space” techniques will be used to identify possible areas of comparative
advantage. The Product Space is a network that formalises the idea of relatedness between
products traded in the global economy.
According to the theory of possible comparative advantage, if a country has a comparative
advantage in one good, then the country could possibly have a comparative advantage in
other goods with similar factor conditions, this concept is also known as proximity. Using this
proximity and RCA’s of product we can create a Product Space Map, as seen below for the
year 2000.
Figure 51: South African Product Space for 2000
Source: Own calculations based on Comtrade and WITS
Table 50 Leamer Classification of Nodes
Red Petroleum Yellow Tropical Agriculture Green Labour intensive
Orange Raw Materials Pink Animal Agriculture Blue Capital intensive
Light orange Forest Products Light green
Cereals Light blue Machinery
Purple Chemicals
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To analyse South Africa’s Product Space we use Hidalgo et al. (2007), we plan to examine how
the Product Space has changed over the period 2000 to 2011. The Product Space can also be
used to explain the network of relatedness between products, taking into account the
similarities in inputs. From this we can then discuss growth and diversification opportunities.
To understand the Product Space, the following observations can be made: the size of the
product node is proportional to its share in world exports and the colour of the node identifies
the class of product. Products from similar groups lie close together to form clusters, often
using similar factor conditions.
From the 2000 Product Space we see South Africa exports many unsophisticated goods which
are not very well connected. Products that are close together on the product map have similar
characteristics to those products already being exported, giving rise to the use of areas of
possible comparative advantage. A country wants to achieve large nodes which would indicate
a large share in the world market and dense clusters of products, meaning that the country is
using the existing comparative advantage to product and export those products with similar
input requirements. Interesting areas in the above Product Space Map are; garments, motor
vehicles and electronics as these are very dense areas. The product groups with the largest
nodes are raw materials and petroleum indicating large global market participation.
When countries want to diversify their product mix of exports, they tend to add products that
are closely related to the products in which they currently have an RCA. Hausmann and Klinger
(2006, 2007) found that the Product Space of South Africa is highly heterogeneous, meaning
there are dense parts of the Product Space with highly inter-connected products as well as
very sparse parts. They conclude that a “product’s proximity to existing areas of comparative
advantage is one of the most significant determinant of whether a country will develop an
advantage in that product over time.”
As the global economy moves towards being “more green”, policymakers are interested in
knowing which green sectors offer the greatest diversification and potential for growth in their
economies. The Product Space, pioneered by Hidalgo and Hausmann, can be used to identify
these sectors and products a country is in the best position to possibly export.
The following images show a black square over the node that has a RCA greater than one,
therefore by exaiming the images over time we can see the concept of proximity and areas of
possible RCA at play. Figure 2 is the entire Product Space image for the years 1994 and 2010.
Once South Africa obtained a RCA in a prodcut, RCA>1, the node accossicated with that
product is covered by a black square.
278
Figure 52 How RCA has changed over time, 1994 to 2010
We can now take snap shots of particular clusters that represent particular products.
Figure 53 How RCA has changed for cereal type goods and tyres
In the image above we see a green as well as a yellow node being covered by a black square,
meaning South Africa gained comparative advanatge in these products. Specifically these
prodcuts are cigarettes (containing tabbacco ) and other sugars. There surrounding products in
which a RCA already existed is hypochloriets and insecticides. Possibly because these products
are similar in inputs and factor conditions, South Africa is able to expand into the nearby
goods. The lower blue node thatis covered by a squarein 1994 is motorcar tyres, and the very
Critical Analysis for the Integrated National Export Strategy
279
nearby product that South Africa then gained comparative advantage in is other tyres,
retreaded. This is possible as these products are very similar by production process.
Figure 54 Changes in RCA for motor vehicles
In figure 4, we see RCA gained in prodcuts such as helicopter components, areoplane
components and fitted engines. The RCA that existed in 1994 was in motor vehicles. Once
again, because of the proximities bewteen these products, it would be realtively easy to shift
labour from the prodcution of one good to another that is similar in production skills. The
closers the prodcuts are the greater the possible spill over effects of skills tranfers and learning
by doing could be. Also, these production prcesses may use similar infrastructure such as
assembly plants, making it easier to swing bewtween products.
Figure 55 RCA gained in the fishing sector
The image above is a snapshot of the fishing sector where RCA already exists. As the Product
Space becomes more dense for this sector it may become easier to gain RCA in similarly
related actvities. South Africa had RCA in frozen fish, shown by the first covered node, it was
then easy to transfer and use similar inputs and skills to gain RCA in fresh fish (dead or alive).
280
Figure 56 Garment sector
Figure 6 shows the garments sector for the years 1994 and 2010. The cluster is very dense and
all products are very similar to produce, however if there exists no RCA within this cluster, no
RCA canbe used and expaned to the similar products. From the above image we see no RCA
gained nor lost in the garment sector, and this may be cause for concern considering the
immense protection this sector enjoys.
Figure 57 RCA gained in metal sector
In figure 7 we zoom in on the metals sector. RCA existed in products such as flat-rolled iron
and non-alloys and train way track construction materials (iron and steel). This then expanded
into other flat-rolled products including stainless steel, shown by the dark blue nodes that
become covered by a black square.
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The light blue node, that later gained RCA is ships, boats and other vessels. This product is
close to iron and other construction materials that already had RCA and therefore materials
and skills can be transferred between the two production processes.
However, we must consider that gains in RCA can be due to two actions, either South Africa
has become more competitive in producing these products or the rest of the word have
moved away from producing these products
7.4.5 Implications of the RCA and Areas of Comparative Advantage
It is important to exploit all possible areas that South Africa can in order to achieve its goal of
11 million jobs set out in the NDP. It is therefore important to identify both the drivers and
obstacles. Part of the drivers are discussed analysed looking at South Africa’s incentive
framework.
7.5 Incentive Framework
Economic incentive frameworks, if set up and utilised to their full potential can have drastic
effects on exporters to perform. These motivations come in the form of transport
compensation, tax rebates and other export promoting incentives. Taking note of the results
the incentives have on behaviour in terms of cooperation and competition within larger
institutional structures. Ultimately, incentives aim to provide value for money and contribute
to organisational success. Particularly with export promotion we will be concerned with
remuneration incentives as well as moral incentives; however remuneration incentives are
known to have a greater effect on the producers and exporters.
It is important to take note of disincentive in play within the economy, especially those
disincentives that exporters may face. We investigate anti-export bias and ERP as
disincentives, which can discourage local producers from trading with the rest of the world.
7.5.1 the dti’s Incentives
The dti provides financial support to qualifying companies in various sectors of the economy.
Financial support is offered for various economic activities, including manufacturing, business
competitiveness, export development and market access, as well as FDI.
Export Marketing and Investment Assistance (EMIA)
The purpose of assistance under the EMIA scheme is to partially compensate exporters for
costs incurred in respect of activities aimed at developing export markets for South African
products and services abroad, and to recruit new FDI and potential customers into South
Africa. This partial compensation is towards marketing costs and other similar export-related
costs. Other incentive schemes, that may be sector specific are available to also compensate
towards logistic costs ect. However, these schemes need to be re-evaluated and brought up to
speed with current costs of doing business and exporting. Any assistance provided under the
EMIA schemes is at the absolute discretion of the Deputy Director-General of TISA whose
decision will be final.
282
EMIA is broadly divided into two types, individual participation schemes and group schemes.
Individual Participation Incentive Schemes administered by TISA include:
Individual Exhibitions (lE) and In-Store Promotions (lP)
Primary Market Research (PMR) and FDI
Individual Inward-Bound Missions (IIBM)
Group Participation Incentive Schemes administered by TISA include:
Group Inward Buying Trade Missions (IBM)
Group Inward Investment Missions (IIM)
National Pavilions (NP)
Outward Selling Trade Missions (OSM) and Outward Investment Recruitment
Missions(OIM)
Sector-specific assistance (SSAS)
Capital Projects Feasibility Programme
The Capital Projects Feasibility Programme (CPFP) is a cost-sharing programme that
contributes to the cost of feasibility studies likely to lead to projects outside South Africa that
will increase local exports and stimulate the market for South African capital goods and
services. All South African enterprises are eligible, as long as the study is undertaken by local
companies.
Sector-specific assistance scheme
The SSAS is a reimbursable 80:20 cost-sharing grant offering financial support to export
councils, joint action groups and industry associations. The scheme has a sub-programme
specially designed to assist emerging exporters. Eligible enterprises are non-profit business
organisations in sectors and sub- sectors of the industry prioritised by the dti.
Other dti programmes include:
Aquaculture Development and Enhancement Programme ( ADEP)
Business Process Services (BPS)
Capital Projects Feasibility Programme (CPFP)
Clothing and Textile Competitiveness Improvement Programme (CTCIP)
Critical Infrastructure Programme (CIP)
People-carrier Automotive Investment Scheme (P-AIS)
Production Incentive (PI)
Sector-Specific Assistance Scheme (SSAS)
SEDA Technology Programme (STP)
Support Programme for Industrial Innovation (SPII)
Technology and Human Resources for Industry Programme (THRIP)
The Manufacturing Competitiveness Enhancement Programme (MCEP)
Tourism Support Programme (TSP)
Advanced Manufacturing Technology Strategy
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283
8.7.1 Incentives role in reducing the anti-export bias
EIMA only compensates partially for marketing and some investment costs of exporters;
however this scheme and schemes like it do not fully remove the disincentive effects of anti-
export bias and high rates of effective protection.
8.7.2 The Industrial Development Corporation
The IDC makes financing available at reduced rates for selected expansion schemes that are
expected to result in increased foreign exchange earnings. Financing of credit for exporters of
capital goods is also available through the IDC or private sector merchant banks at reduced
rates.
8.7.3 The Export Credit Insurance Corporation
The Export Credit Insurance Corporation (ECIC) provides export credit and foreign investment
insurance cover on behalf of the government. It aims to facilitate and encourage South African
export trade by underwriting export credit loans and investments outside the country to
enable South African contractors to win capital goods and services' contracts in other
countries.
7.5.2 Customs and Excise
Duty refunds
Provision is made in the Customs and Excise Act for general refunds, as well as a large number
of specific drawbacks and refunds of customs and excise duties, to exporters. These
concessions are available to manufacturers as well as to merchants who import goods for re-
export.
Schedule 4 (more specifically 470.03) makes provision for goods cleared in terms of a
permit issued by the ITAC to be used in the manufacture, processing, finishing,
equipping or packing of goods exclusively for export.
Schedule 5 Part 1 allows for the specific drawbacks of customs duties (drawback item
501.00 -521.00), while part 2 allows for the refunds of customs duties on goods
exported in the same condition as imported (522.00, 522.02 -522.06).
The processes are complicated and are not generally known about by the exporting
community, especially new exporters. These provisions can go a long way in reducing the anti-
export-bias and should be better publicised.
TISA should also work closer with SARS and Customs and Excise (C&E) more specifically to
make the application process easier to comply with. Export promotion officials in the
provinces and metro’s should also be trained how to complete the documentation.
VAT export incentive scheme
284
Exporters may zero-rate VAT on exports regarded as a direct export. Applicable to exporters
registered as VAT vendors in South Africa. Exporters must be registered with the SARS to
export commercial goods from South Africa.
7.6 Factor Conditions
The table below shows revealed comparative advantage calculated for HS 6 digit product
categories and then ranked these products according to their RCA. For the same products
revealed factor intensities (RFI) are calculated and also ranked as to see which products South
Africa has a RCA in and in which factor are these products intensive
Table 51 RCA and Ranked Factor intensities, data source: UNCTAD “dataset of RFII”
Code and Description Trade RCA Rank RCA Human
Capital
Intensity
Human
Capital
Rank
Physical
Capital
Intensity
Physical
Capital
Rank
Land
Intensity
Land
Intensity
Rank
711039 - Rhodium in semi-manufactured
forms
403712 144.387 1 8.46421 2703 68988 2978 0.657062 795
720241 - Ferro-chromium, >4% carbon 3.30E+06 115.799 3 7.16607 3952 20811.3 4026 0.644537 856
261790 - ores and concentrates nes 120034 115.712 4 3.86801 4956 8785.85 4176 0.3564 3994
261400 - Titanium ores and concentrates 454266 107.041 5 3.03635 4999 9044.05 4174 0.520383 1920
711019 - Platinum in semi-manufactured
forms
3.50E+06 100.182 6 9.49417 1275 132488 1248 0.976557 158
720211 - Ferro-manganese, >2% carbon 490163 99.3172 7 8.79337 2295 87389.7 2507 0.888544 230
261590 - Niobium, tantalum and vanadium
ores and concentrat
126063 95.1238 8 3.07294 4998 1601.86 4214 0.288951 4536
261000 - Chromium ores and concentrates 1.10E+06 82.4928 9 8.82115 2248 29822.3 3851 0.488434 2319
710590 - Dust of precious, semi-precious
stones except diamond
16078.2 81.2476 10 8.47228 2687 72803.3 2888 0.765065 420
750610 - Plates, sheet, strip and foil, nickel,
not alloyed
176462 79.3725 11 10.1845 410 137713 1077 0.561627 1465
320120 - Wattle tanning extract 48465.2 71.5444 12 6.05636 4544 10717.7 4163 0.549405 1580
720219 - Ferro-manganese, <2% carbon 226555 70.3268 13 9.87187 715 140313 1008 0.545475 1627
261510 - Zirconium ores and concentrates 235696 69.5319 14 7.56207 3658 69454.6 2960 1.41916 48
250850 - Andalusite, kyanite and sillimanite 56302.8 68.4906 15 7.90052 3289 42085.1 3585 0.777974 394
293991 - Cocaine, ecgonine,
levometamfetamine, metamfetamine
2143.02 66.8263 17 #N/A #N/A #N/A
711031 - Rhodium unwrought or in powder
form
906140 61.0542 18 8.1427 3093 43322.5 3557 0.770565 414
720292 - Ferro-vanadium 190503 59.7937 19 8.73835 2365 97482.1 2236 0.628427 943
Critical Analysis for the Integrated National Export Strategy
285
Code and Description Trade RCA Rank RCA Human
Capital
Intensity
Human
Capital
Rank
Physical
Capital
Intensity
Physical
Capital
Rank
Land
Intensity
Land
Intensity
Rank
260200 - Manganese ores, concentrates, iron
ores >20% Manganes
1.40E+06 58.1458 20 7.07654 4024 17388.2 4084 0.581169 1267
Source: UNCTAD 2009
The above table shows Revealed Comparative advantage calculated for HS 6 digit product
categories and then ranked these products according to their RCA. For the same products RFI
are calculated and also ranked as to see which products South Africa has a RCA in and in which
factor are these products intensive.58
The revealed factor intensity indices are gathered from the UNCTAD and can be used for many
purposes. A country will mainly export the products which are intensive in the endowment, in
which the country is abundant, therefore if South Africa is exporting predominantly land
intensive products, and the country is well endowed with land then there seems to be
“revealed” land intensity. (Shirotori & Tumurchudur)
7.6.1 Incentives Alone are not Enough
Although there are many natural drivers and incentives provided by government, barriers pose
a problem to achieve South Africa’s export aspirations. There are a number of barriers erected
by the South African government. However barriers imposed by South Africa’s trading
partners and potential trading partners are important. Market access issues are discussed
below.
7.6.2 Market Access
South Africa is often criticised for having too many conditions, tariffs and non-tariff measure
which hampers trade and restrict market access; this is especially true for trade with the rest
of Africa. According to the WTO, members agree on the entry of specific goods into their
markets and each member has a schedule of concessions on goods, representing the
commitment not to apply tariffs above the agreed upon rates. Members of the WTO are
continually seeking to improve market access through negotiations such as the Doha
Conference. The Doha Development Agenda aims at improving market access for agricultural
and industrial products, particularly for developing countries. The Doha Development Agenda
has come up with possible solutions to restricted market access, as it is not a problem unique
to Africa.
Market access refers to the ability of South African providers of goods and services to sell in a
given country. The four groups of tradable item are: agricultural goods, textiles and clothing,
industrial goods, and services, in order to simplify WTO negotiations with regards to market
58 A comprehensive list is included on the accompanying CD ROM
286
access. We must note that different multilateral agreed upon rules apply to each different
group.
The WTO lists the following prominent barriers to market access:
Import tariff/duties and other price-based foreign duties: these measures successfully
restrict market access of certain products as well as raise government revenue. These
barriers are often found to be the most restrictive in terms of market access.
Non-tariff barriers: policies that implement non-tariff barriers include: quantitative
restrictions (import quotas, licenses, domestic content requirements); TBT
(regulations and standards, testing and certification procedures); lack of infrastructure
as a barrier, SPS (food, animal and plant health and safety). According to surveys, in
South Africa these barriers are not found to be extensive.
Domestic policy barriers: government policies, if not applied uniformly may restrict
market access. Policies can also create loopholes for selected producers to exploit.
These domestic policy measures can include: tax, export subsidies, competition,
investment policies; price controls and fiscal incentives.
The IMF investigates market access within developing countries and uncovered a pattern of
protection. Developing countries, including Africa, often produce the same products and wish
to protect the local industry. Therefore we have many developing countries all protecting the
same product such as agricultural products. These countries then create market access
problems by all aiming for protection of the same market. South Africa can avoid this problem
by diversifying trade and then provide Africa with the products that the African continent as a
whole would normally import from European countries for example.
In order for developing countries to diversify exports, countries need to identify priority
sectors. This is possible when market networks are widened and knowledge of new market
opportunities is shared.
Table 52: Exports and Duties faced by South Africa Exports to major trading partners and duties faced
Major markets Bilateral imports Diversification MFN AVG of Pref. Duty-free imports
in million 95% trade in no. of traded TL margin TL Value
US$ HS 2-digit
HS 6-digit
Simple Weighted Weighted in % in %
Agricultural products
1. European Union
2008 2 983 16 71 13.8 10.1 3.1 33.6 27.1
2. Botswana 2008 583 25 189 9.9 13.0 13.0 100.0 100.0
3. Namibia 2008 522 21 199 10.0 10.9 10.9 100.0 100.0
4. United States
2008 278 14 44 5.2 3.4 3.3 97.1 98.9
5. Swaziland 2007 245 27 200 9.8 7.8 7.8 100.0 100.0
Non-agricultural products
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287
Exports to major trading partners and duties faced
Major markets Bilateral imports Diversification MFN AVG of Pref. Duty-free imports
in million 95% trade in no. of traded TL margin TL Value
US$ HS 2-digit
HS 6-digit
Simple Weighted Weighted in % in %
1. European Union
2008 28 086 37 214 3.8 1.3 1.2 98.1 98.8
2. United States
2008 9 568 31 101 3.1 0.9 0.8 91.5 99.6
3. Japan 2008 8 780 10 21 1.7 0.2 0.1 86.5 95.8
4. China 2008 7 486 14 33 8.5 1.3 0.0 16.2 71.3
5. Botswana 2008 3 393 58 1 110 8.3 7.4 7.4 100.0 100.0
Source: ITC Market Access Map
95% trade in no. of: Number of HS six digit subheadings with trade flows after exclusion of 5
per cent of smallest bilateral tariff line trade flows.
TL: trade lines
From the table above, high percentages of duty-free trade between South Africa and the
United States and other African countries, this is thanks to preferential trade agreements
already in place. With respect to non-agricultural product being exported, this is where South
Africa can stand to benefit if market access can be achieved.
According to the above table, by excluding only 5% of the smallest bilateral tariff line, trade
flows are greatly improved, this is especially true for the non-agricultural sector and for trade
with other African countries. South African trade lines are typical of a developing country as
they are very high in the agricultural sector, compared to the non-agricultural sector.
288
Figure 58: Average of most favoured nation (MFN) tariffs: Agricultural59
Based on the data from South Africa, 2012 using Harmonised System Nomenclature HS Rev.2012.
Figure 59: Average of MFN tariffs: Industrial
Based on the data from South Africa, 2012 using Harmonised System Nomenclature HS Rev.2012.
Firstly, examining the agricultural sector tariffs for countries similar in exports, South Africa,
Brazil and Botswana tend to want to protect agriculture at the same level. This protection of
similar areas can create market access problems for developing countries that are similar in
exports. Kenya has extremely high protection in relation to the rest of the test group, again
showing the “market grab” in Africa. If other African countries also have high protection over
59 The preferential tariffs follow the same pattern as the graphs above, but are seen to be 2 to 3% lower
than these MFN tariffs.
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
2005 2006 2007 2008 2009 2010 2011 2012
South Africa
Botswana
Kenya
China
Brazil
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
2005 2006 2007 2008 2009 2010 2011 2012
South Africa
Botswana
Kenya
China
Brazil
Critical Analysis for the Integrated National Export Strategy
289
their local agricultural sectors, these tariff barriers will restrict market access of South African
agricultural exports to the rest of Africa. China is also seen to protect this industry above the
norm rate of developing countries.
Secondly, the protection of the Industrial sectors of Brazil and China are at very similar levels.
Again this suggests competing against each other as both countries have protected the same
industry. The African countries in the test group seem to be protecting their industrial sector
at similar levels of average tariff of 6 to 8%. First mover advantage for an Africa country here
may be beneficial and slightly higher protection of this industry may give it the boost it need to
be able to compete on an international level.
The common barrier identified above is that trade regimes in developing countries often
protect against the same products, at a cost to themselves and to their trading partners.
Note: The above weighted calculations of tariff averages, general tariffs (for non-WTO
members) and non-MFN tariffs are included, as calculated by ITC using the Market Access
Map. MFN tariffs are the tariffs applied by WTO members to goods from other WTO members.
In the case of WTO non-members, the application of these rates may be a requirement of a
bilateral trade agreement.
Table 53: South Africa’s highest applied tariffs Description Average
Live animals; animal products 9.67%
Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes
12.82%
Raw hides and skins, leather, furskins and articles thereof; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silkworm gut)
13.85%
Textiles and textile articles 43.52%
Footwear, headgear, umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof; prepared feathers and articles made therewith; artificial flowers; articles of human hair
25.06%
Vehicles, aircraft, vessels and associated transport equipment 11.66%
Source: ITC:
Table 54 Ranked tariff and trade restrictiveness index (TTRI) with South Africa as exporter
Importer year TTRI Importer year TTRI Importer year TTRI
JOR 2007 0.297603 TTO 2008 0.220488 JOR 2009 0.255596
VEN 2007 0.216284 IRN 2008 0.16245 CMR 2009 0.194958
GAB 2007 0.195225 GAB 2008 0.15873 KEN 2009 0.187008
BEN 2007 0.175992 DZA 2008 0.146859 GAB 2009 0.15873
TUN 2007 0.148502 UGA 2008 0.141923 TUN 2009 0.135231
DZA 2007 0.145417 JOR 2008 0.138663 VEN 2009 0.134534
CMR 2007 0.139486 KEN 2008 0.135215 PRY 2009 0.122347
COL 2007 0.137612 MWI 2008 0.119892 COL 2009 0.115482
IND 2007 0.128004 COL 2008 0.118719 ETH 2009 0.104762
JAM 2007 0.126937 PRY 2008 0.117991 MWI 2009 0.10305
290
PRY 2007 0.12493 ETH 2008 0.104113 NGA 2009 0.101606
PAK 2007 0.118785 NGA 2008 0.100022 URY 2009 0.096792
UGA 2007 0.113576 GHA 2008 0.098024 GHA 2009 0.09489
NGA 2007 0.108272 TZA 2008 0.096109 EGY 2009 0.091533
CIV 2007 0.106227 BEN 2008 0.089934 BEN 2009 0.089934
MWI 2007 0.09879 URY 2008 0.089219 TZA 2009 0.088161
TGO 2007 0.097406 CIV 2008 0.088168 HND 2009 0.08796
GHA 2007 0.093364 EGY 2008 0.083705 CIV 2009 0.085932
ZMB 2007 0.092265 SEN 2008 0.079406 BRA 2009 0.084863 Source:UNCTAD market access indices
Table 55 Ranked RPM with ZAF as exporter, source UNCTAD market access indices
Importer year RPM Importer year RPM Importer year RPM
MDG 2007 0.077067 MDG 2008 0.074785 NAM 2009 0.072817
NAM 2007 0.072597 NAM 2008 0.070103 MDG 2009 0.05145
TZA 2007 0.048679 GRC 2008 0.036875 ZMB 2009 0.03991
MUS 2007 0.016488 MWI 2008 0.036806 MOZ 2009 0.035012
GRC 2007 0.011759 ZMB 2008 0.029941 EST 2009 0.03141
MOZ 2007 0.003687 MUS 2008 0.017467 GRC 2009 0.029112
USA 2007 0.003239 SVN 2008 0.007348 MWI 2009 0.019223
SWE 2007 0.003234 USA 2008 0.005694 IND 2009 0.010405
SVN 2007 0.003128 EST 2008 0.004505 FIN 2009 0.008159
HUN 2007 0.002268 IRL 2008 0.00372 USA 2009 0.006171
JPN 2007 0.000903 FIN 2008 0.003593 MUS 2009 0.006163
KAZ 2007 0.000389 SWE 2008 0.003322 LVA 2009 0.005716
ETH 2007 0.000219 POL 2008 0.00245 POL 2009 0.004797
TWN 2007 1.63E-05 JPN 2008 0.001046 SWE 2009 0.00451 Source ITC
The above tables show South Africa as an exporter of products and its training partners that
have the highest ranked barriers to market access. Market access is measured by two indices,
firstly TTRI and secondly RPM, relative preferential margin. The higher the index the less
market access is available to the exporter, in this case South Africa.
The TTRI are calculated in working papers by Marco Fugazza and Alessandro Nicita, using the
following formula:
∑ 𝑒𝑥𝑝𝑗𝑘,ℎ𝑠 𝜀𝑘,ℎ𝑠𝑇
𝑘,ℎ𝑠𝑗ℎ𝑠
∑ 𝑒𝑥𝑝𝑗𝑘,ℎ𝑠 ℎ𝑠 𝜀𝑘,ℎ𝑠 Equation 2
Where:
exp are exports,
Critical Analysis for the Integrated National Export Strategy
291
ε is the import demand elasticity,
T is the applied tariff and
hs are the HS six digit categories.
TTRI is therefore an index that measures the tariff restrictiveness faced by exporters, based on
Kee et al. (2008, 2009). “In the construction of this index, the aggregation across products
takes into account the fact that imports of some goods can be more responsive than others to
price changes. In aggregating across tariff lines, products where imports are less sensitive to
prices (inelastic) should be given less weight because preferential access (a lower tariff) would
have less effect on the overall volumes of trade.” In practice, this index provides the
equivalent uniform tariff that will maintain exports from country j to country k constant.
The other measure, also used by Marco Fugazza and Alessandro Nicita, is
RPM =
∑ 𝑒𝑥𝑝𝑗𝑘,ℎ𝑠 𝜀𝑘,ℎ𝑠 (𝑇𝑘,ℎ𝑠
𝑤 −𝑇𝑘,ℎ𝑠𝑗
)𝑗𝑘
∑ 𝑒𝑥𝑝𝑗𝑘,ℎ𝑠 𝜀𝑘,ℎ𝑠ℎ𝑠
With
𝑇𝑘,ℎ𝑠𝑤 =
∑ 𝑒𝑥𝑝𝑣𝑘,ℎ𝑠 𝑇𝑘,ℎ𝑠𝑣
𝑣
∑ 𝑒𝑥𝑝𝑣𝑘,ℎ𝑠𝑣
Where
exp are exports,
ε is the import demand elasticity,
T is the tariff,
hs are HS six digit categories, and
v are exporters competing with country j in exporting to country k.
And where
𝑇𝑘,ℎ𝑠𝑣 is the trade-weighted average of the tariffs applied by country k to imports
originating from each country v for each of the HS six digit products.
This margin measure can be negative or positive, depending on the advantage or disadvantage
of a given country with respect to other competing exporters. RPM therefore provides a
measure of the tariff advantage or disadvantage provided to exporters of country j in country
k, given the existing structure of tariff preferences.
Looking at these 2 indices within the interactive excel sheet we can identify products that are
being exported from South Africa that face barriers to market access. These measures can
therefore help identify which countries pose problems in terms of market access.
The images below describe the interactive excel sheet and market access results:
292
Figure 60: Snap shot of Interactive spreadsheet
We select South Africa as the exporter as well as an HS 6 product code, with accompanying
descriptions of the product. We see the results of the gravity model in terms of potential trade
gaps, and for this particular product, many of those gaps are with African countries.
Now we take a look at the world map, where we can select either TTRI or RPM market access
measures. The key being displayed shows high TTRI or RPM in purple, indicating that these are
the countries that have barriers to market access, therefore South Africa struggles to export
this good into that country, for various reasons.
Figure 61: Excel sheet snapshot, coconut oil
In the above example, we see South Africa as an exporter of coconut oil, with gaps in several
African countries; however these African countries may also be producers and exporters of
coconut oil and therefore have protective measures in place to protect their own markets,
making exporting this good to those countries very difficult.
Critical Analysis for the Integrated National Export Strategy
293
7.7 Trade Promotion Infrastructure: The Institutional Framework
The export institutional framework in South Africa is very poorly developed. Only sectoral
export councils are recognised and financially supported by government. The INES will need
the support of an institutional framework that has both geographic as well as sectoral reach.
7.7.1 Export Councils
The dti promotes the formation of industry-based export councils. An Export Council60 is a
Section 21 (non-profit) company that represents the developmental and promotional
objectives of particular industry/industries on a national level. Officials from the Directorate:
Export Sector Promotion are encouraging industry, especially those involved with cluster
formation, to include an export strategy and ultimately an export council in their future plans.
A financial assistance scheme makes provision for financial contributions to industry
associations in order to form export councils.
The export council approach allows small businesses to form a SMME Export Council that
could act as an entry point for first-time exporters. This format was adopted to allow small
businesses in any sector to access the dti support structures and become successful exporters.
As far as could be ascertained, there is no SMME Export Council.
Despite financial support, membership of the export councils has remained stagnant. The
research will attempt to determine which export councils have grown (or shrunk), in terms of
both membership and new market development, and what the causes have been.
7.7.2 Provincial and Metro Development Agencies
These have been discussed in Appendix 8.
7.7.3 Trade Point
Trade Points are trade facilitation centres where participants in foreign trade transactions are
grouped together under a single physical (i.e. an actual office) or virtual roof to provide all the
necessary services for trade transactions. There is a global network and despite the fact that
SEDA has been sponsoring their development, they remain fragile.
7.7.4 Organised Business
Organised business in South Africa is well developed but fragmented. Not all chambers give
the same services to their members, especially regarding export development.
7.7.5 Recommendations
A chain is as strong as its weakest link. The service offering must address the entire
development chain of all exporters and potential exporters. The export community is diverse
60Joint Action Groups and Industry Associations are also supported.
294
and this lack of homogeneity makes this objective difficult. The INES should ensure that there
is a comprehensive service offering.
Given that in South Africa there is considerable institutional infrastructure supporting
exporters, the dti does not have to undertake the entire spectrum of support needed. The dti
should rather focus on providing leadership. This entails ensuring that the entire spectrum of
support needed by exporters is indeed covered and then to fill the gaps. It should also ensure
that the services provided are world-class.
The “franchise approach” proposed in the NEDP should be expanded to cover the INES. The
research and stakeholder consultation will highlight areas that should be included.
The successes of any policy or strategy depend on a number of factors. One of the critical
factors is that all relevant role players “pull in the same direction.” This means that all the
relevant strategies are focused to achieving a common goal. A government-wide approach to
developing and supporting robust and inclusive economies is required and should be
facilitated through the active and dynamic alignment of various policies and the NES.
Sub-national governments have an important role to play in an economic development
especially since South Africa now espouses a “developmental state.” Sub-national
governments have resources and knowledge of their local conditions. As the global business
environment becomes more and more competitive and the need to ensure that everyone,
especially the different spheres of government, is pulling in the same direction is crucial.
The tools provided will contribute to South Africa and each the sub-national components
focusing on their respective strengths and strengthening areas with potential. The INES should
therefore ensure that all spheres of government and the associated departments have a clear
understanding of their mandate and role regarding the development of exporters.
7.8 Trade Promotion Infrastructure: Physical
The effectiveness of the INES will depend on South Africa’s trade promotion infrastructure.
Both the private and public sectors has to work together in developing this infrastructure.
Trade promotion infrastructure can be divided into hard and soft infrastructure. It usually
covers the range of incentives provided by government to address market failures as well as
government’s failures. It includes all aspects that restrict participation in global markets
including traditional exporter development and export promotion. But can also include SEZs,
sector development bodies and standard regimes.
7.8.1 Hard Infrastructure
The hard infrastructure is comprised of both physical infrastructure as well as the ITC
infrastructure.
Logistics is regarded by most as an impediment to the competitiveness of South Africa as a
country
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Logistics costs as a percentage of GDP have decreased from 13.5% in 2009 to 12.7% in 2010,
but this should be interpreted with caution. The effect of the rapid growth in South Africa’s
tertiary sector on this metric is only now becoming apparent.
The Presidential Infrastructure Coordinating Commission
The South African government has prioritised infrastructure to transform the economy and
stimulate economic growth and job creation. In September 2011, the Presidential
Infrastructure Coordinating Commission (PICC) was inaugurated, bringing key ministers,
premiers and metro into a joint forum to promote infrastructure coordination and decision
making. The commission is headed by the President and assisted by the Deputy President.
Plans for future projects and infrastructure initiatives from a large number of authorities such
as SOEs, national, provincial and local government departments, have been clustered,
sequenced and prioritised into integrated projects.
Table 56: Public-sector infrastructure expenditure estimates by sector, 2010/11—2014/15 2010/11 2011/12 2012/13 2013/14 2014/15 MTEF
Total Per cent of Total
Economic services 147 076 183 996 211 655 228 315 237 094 677 063 80.2
Energy 52 231 73 062 91 715 100 180 104 268 296 163 35.1
Water and sanitation
14 883 22 038 25 456 24 728 25 034 75 217 8.9
Transport and logistics
68 614 75 273 81 167 88 584 92 292 262 044 31.0
Other economic services
11 349 13 623 13 317 14 823 15 500 43 639 5.2
Social services 25 646 34 893 38 577 48 487 53 131 140 195 16.6
Health 6 727 7 671 8 051 13 127 14 808 35 985 4.3
Education 6 147 8 067 10 873 14 533 15 320 40 727 4.8
Community facilities
11 624 17 474 17 714 18 880 21 006 57 600 6.8
Other social services
1 149 1 681 1 939 1 946 1 996 5 882 0.7
Justice and protection services
3 007 3 223 3 392 3 542 3 713 10 647 1.3
Central government and administrative services
1 744 3 817 7 923 3 478 2 779 14 180 1.7
Financial services 325 706 719 749 921 2 388 0.3
GRAND TOTAL 177 799 226 635 262 265 284 571 297 637 844 473 100.0
GDP 2 754 275 2 995 530 3 301 374 3 622 155 3 997 026 Source: National Treasury Budget Review (2012:103)
Physical infrastructure
Physical infrastructure measures the level of development and quality of
Electricity,
Ports,
Airports,
Roads, and
Rail infrastructure.
296
Electricity
The electricity sector in South Africa is dominated by the national utility Eskom, which owns
and operates most of the national electricity generation infrastructure and supplies 95% of the
country’s electricity requirements. The balance is supplied by municipalities and redistributors
(4%), as well as private generators (1%). Electricity infrastructure comprises three sub-sectors:
Generation;
Transmission; and
Distribution.
South Africa has a very diverse electricity market. Electricity consumers vary from high energy
intensive users (units of energy consumed per unit of GDP produced) such as deep level mines,
non-ferrous smelters, ferroalloy smelters, basic iron and steel plants; to low energy intensive
users such as commercial and residential consumers. Although the economy has historically
been characterised by high energy intensity, its structure has changed over time due to the
growing contribution of the services sector to economic output.
Eskom is regulated by the National Energy Regulator of South Africa (NERSA) in accordance
with the Electricity Regulation Act (Government of RSA, 2006). The key objectives of the
Electricity Regulation Act are:
Efficient, effective, sustainable and orderly development and operation of electricity
supply infrastructure in South Africa;
Long-term sustainability of the industry;
Investment in the industry;
Universal access to electricity;
Diverse energy sources and energy efficiency;
Competitiveness and customer choice; and
Fair balance between interests of customers and end-users, licensees, investors and
the public.
Logistics infrastructure
Infrastructure development is a critical enabler to economic growth. The logistics
infrastructure of a country – which includes roads, railways, ports, pipelines and airports –
forms the backbone for this growth. The emphasis on developing and enhancing the South
African infrastructure
Ports
South Africa has eight main commercial ports: Saldanha Bay, Cape Town, Mossel Bay, Port
Elizabeth, Ngqura, East London, Durban and Richards Bay. All these ports are owned by the
National Ports Authority (NPA), a division of Transnet. Commercial ports are a complex blend
of physical infrastructure and operational services. Moreover, they function as one part of an
intricate logistics framework within a commercial and economic environment. It is often diffi
Critical Analysis for the Integrated National Export Strategy
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cult to draw a clear line between port infrastructure and that of the many port-related service
industries that are often co-located with the port.
Figure 62: Ports of South Africa by corridors served
Source: Portnet (2010)
The Port of Durban offers the most comprehensive range of infrastructure and services of all
the country’s ports. Figure 10 illustrates the layout of the port and the grouping of its facilities
into bulks (liquid and dry), container and car handling, and mixed use/break-bulk. The port has
59 active berths as well as a single buoy mooring point at Isipingo (outside the main port) for
Very Large Crude Carriers (VLCCs) to discharge crude oil. This translates into over 15 km of
quays.
Major expansion is required of the capacity of the container berthing and handling facilities.
Currently plans are to complete new ‘dig out’ port on the site of the old Durban International
Airport. This is critical to growing exports as are plans to increase container rail capacity
between Gauteng and Durban.
The dti needs to monitor these plans as well as future plans to ensure that there is sufficient
capacity.
South Africa’s newest port, Ngqura is situated 20 km northeast of Port Elizabeth and opened
for container operations in October 2009. The port is capable of serving post-Panamax dry and
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liquid bulk vessels. Container ships initially of 4500 TEU capacity are catered for, but with
design provision for subsequent deepening to accommodate new generation 6500 TEU
vessels.
In the maritime industry a port that is well connected within the global network of ports offers
supply chains greater accessibility to global markets, flexibility and reliability. The Liner
Shipping Connectivity Index (LSCI) is one metric tracked by the UNCTAD that measures
maritime connectivity on a country level. According to the LSCI, South Africa ranks 30th out of
162 coastal countries, in league with Brazil and India, and outperforms coastal SADC countries
by a big margin.
Airports
Airports Company South Africa (ACSA) operates South Africa’s country’s ten principal airports,
including O.R. Tambo International Airport (ORTIA) in Johannesburg as well as Cape Town and
Durban International Airports. ACSA is the largest airports authority in Africa.
The ORTIA Aerotropolis comprises of aviation-intensive businesses. It aims to attract industries
related to time-sensitive manufacturing, e-commerce fulfillment, telecommunication and
logistics, hotels, retail outlets, entertainment complexes and offices for business executives. It
will comprise of clusters of business parks, logistics parks, industrial parks, distribution centres,
information technology complexes and wholesalers who are located around the airport and
along transportation corridors, serving the airport. By leveraging on the largest and busiest
airport within Africa, the Aerotropolis will provide a new commercial hub for the Gauteng
Province, and support both local and international trade through Free Trade Zones and the
increased efficiencies related to clustering.
The dti should ensure that ACSA has sufficient capacity to handle South Africa’s future exports.
TISA should also take advantage of the new facilities to attract foreign investors that wish to
export as well.
Roads
The South African National Roads Agency Limited (SANRAL) is responsible for all national
roads, and over a tenth of all paved roads. National roads provide mobility, promote economic
development and stimulate exports. SANRAL’s target is to increase its inventory from 16 170
km to 38 000 km by taking over provincial roads of national importance. Provincial road
authorities, which take the form of provincial departments of transport, are responsible a third
of the total paved network. These roads primarily provide access and mobility within a region
and support a range of economic and social functions via linkages between towns that are not
situated on the national road network.
The condition of South Africa’s roads has deteriorated due to over-utilisation and under-
investment over the past few years. This will have a negative impact on exports especially
rural exports. The State of Logistics report (2012) points out that various growers in Limpopo
to Pretoria and Johannesburg suffered more damage due to gravel roads that pose a far
greater risk of damage to fruit cargoes than provincial and national roads that have a lower
Critical Analysis for the Integrated National Export Strategy
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surface roughness. Cargo damage is greater for SMMEs than larger farming concerns that can
afford insurance or have service level agreements in place. This will hamper the development
of SME agricultural exports from the province.
Figure 63: South Africa’s major road networks
Source: Department of Transport (2010)
The growth of investment in rail capacity tends to follow trends of strong economic
development rather than lead economic development. The opposite is true for investment in
paved roads where growth of investment in roads infrastructure has tended to lead GDP
growth. The flexibility and accessibility offered by road infrastructure typically facilitates the
development of a much wider range of commercial enterprises, and also allows many more
locations to engage in economic activity, than would ever be possible with rail. This impact
seems to occur despite the fact that road transport costs are generally higher than rail
transport costs.
Rail infrastructure
South Africa’s national railway network has a wide geographic spread. The orange lines
represent the core network while the green lines indicate the location of the less frequently
used branch line network. Historically South Africa’s rail network developed in support of the
growth of the mining sector and other heavy cargo industries, as well as large-scale agriculture
300
and forestry. The gold mines in particular have developed extensive private networks serving
their own local requirements. The following features of the network are significant:
The railway network connects South Africa’s 8 primary sea ports to the hinterland.
Freight and passenger services share the same tracks, at least on inter-city networks.
The rail network connects to neighbouring Namibia, Botswana, Mozambique and
Zimbabwe (and through Zimbabwe to Zambia). It also runs through Swaziland.
Figure 64: National rail network
Source: Transnet (2010)61
The operating mandate of Transnet is to grow rail transport’s share of freight on South Africa’s
primary freight transport corridors. To achieve this, Transnet is seeking to progressively
increase the carrying capacity of the network and improve the service quality offered to users;
however it faces a number of operational challenges in attempting to do so. The constraints
comprise both institution al and technical issues.
61 Transnet Limited. (2010a). Transnet National Infrastructure Plan, 2010, various presentation and report files at:
www.transnet.co.za/BusinessWithUs/TNIfraPlans.aspx Transnet, 2010
Critical Analysis for the Integrated National Export Strategy
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There are rail freight programmes on which the R56 billion will be spent over the next 5 years.
These expansions focus on coal and ores, although there are plans to invest in wagons and
locomotives for growth in container transport.
Logistics Performance Index
Logistics performance index, measured by the World Bank is the weighted average of how a
country scores in 6 key dimensions, defined as follows:
Efficiency of clearance processes by border control and customs (speed, simplicity and
having predictable formalities)
Quality of trade and transport-related infrastructure (ports, railways, roads and
information technology)
Ease of arranging competitively priced shipments
Competence and quality of logistics services such as transport operators and customs
brokers
Ability to track and trace consignments
Timeliness of shipments in reaching destination within scheduled time limits
Table 57: Logistics performance index
Overall LPI Score 3.46
Rank 28
Customs Score 3.22
Rank 31
Infrastructure Score 3.42
Rank 29
International
shipments
Score 3.26
Rank 31
Logistics competence Score 3.59
Rank 25
Tracking and tracing Score 3.73
Rank 24
Timeliness Score 3.57
Rank 57 Source: World Bank
Therefore the score calculated for each country indicates a comparative performance and
these scores are relative to comparison groups, such as SSA or Europe. The index ranges from
1 to 5, with a higher score representing better performance.
The World Bank surveys covered more than 5000 country assessments by nearly 1000
international freight forwarders. Respondents evaluate eight markets on six core dimensions
on a scale from 1 (worst) to 5 (best). The markets are chosen based on the most important
export and import markets of the respondent's country, random selection, and, for landlocked
countries, neighbouring countries that connect them with international markets.
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8.7.3.1 Ease of Doing Business and Distance-to-frontier
When compared across years, the distance-to-frontier measure shows how much the
regulatory environment for local entrepreneurs in each economy has changed over time in
absolute terms, while the ease of doing business ranking can show only relative change.
A drawback of the ease of doing business ranking is that it can measure the regulatory
performance of economies only relative to the performance of others. It does not provide
information on how the absolute quality of the regulatory environment is improving over
time. Nor does it provide information on how large the gaps are between economies at a
single point in time.
The distance-to-frontier measure is designed to address both shortcomings, complementing
the ease of doing business ranking. This measure illustrates the distance of an economy to the
“frontier,” and the change in the measure over time shows the extent to which the economy
has closed this gap. The frontier is a score derived from the most efficient practice or highest
score achieved on each of the component indicators
Table 58: South Africa’s distance-to-frontier
Source Own calculation based on http://www.doingbusiness.org/data/distance-to-frontier
Table 59: Trading Across Borders: Costs & Time Delays – BRICs and South Africa (2012)
Country Rank (185)
Documents to export (number)
Time to export (days)
Cost to export (US$ per container)
Documents to import (number)
Time to import (days)
Cost to import (US$ per container)
Brazil 123 7 13 2,215 8 17 2,275 Russia 162 8 21 2,820 11 36 2,920 India 127 9 16 1,120 11 20 1,200 China 68 8 21 580 5 24 615 South Africa
115 6 16 1,620 7 23 1,940
Source: World Bank Doing Business Survey http://www.doingbusiness.org/ExploreTopics/TradingAcrossBorders/ [Accessed 16 November 2012
Critical Analysis for the Integrated National Export Strategy
303
8.7.3.2 ICT
Telecommunications is dominated by the private sector, although government exercises
significant influence over this sector through national policy and regulation.,
The South African telecommunications sector is in a decisive stage of broadband evolution.
Aside from the incumbent fixed-line provider (Telkom), which has been developing its network
for several decades, all telecommunications operators in the country are presently investing
heavily in new infrastructure. The mobile networks, in particular, are unable to keep up with
the demand for their services.
ICT is interpreted as the extent to which an economy uses information and communications
technology to improve efficiency, and productivity as well as to reduce transaction costs. It
contains indicators on the availability, use, absorption, and government prioritisation of ICT.
ITC in Africa
The World Bank reports that “in just the past 5 years, Africa’s mobile phone market has rapidly
expanded to become larger than either the EU or the United States with some 650 million
subscribers. At the same time, Internet bandwidth has grown 20-fold as hundreds of
thousands of kilometers of new cables have been laid cross the continent to serve an
increasing number of its 1 billion citizens”
ICT is transforming the development landscape in Africa, injecting new dynamism in key
sectors. This makes it easier to work with African countries and develop trading relationships.
Kenya and Senegal are implementing ICT-enabled trade facilitation initiatives and outlines the
key role that Africa’s Regional Economic Communities can play in supporting greater regional
integration for boosting economic growth and reducing costs.
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Figure 65: ITC in Africa
Source:http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/ 0,,contentMDK:23325885~pagePK:210058~piPK:210062~theSitePK:282823,00.html
7.8.2 Soft Infrastructure
Border and transport efficiency
Border and transport efficiency aims at quantifying the level of efficiency of customs and
domestic transport that is reflected in the time, cost, and number of documents necessary for
export and import procedures.
Business and regulatory environment
Business and regulatory environment measures the level of development of regulations and
transparency. It is built on indicators of irregular payments, favouritism, government
transparency, and measures to combat corruption.
Enterprise expertise building
A country’s success in exporting will depend on its enterprises. More specifically how well
enterprises can penetrate and sell their products. However in today’s competitive world
market, enterprises need to acquire up-to-date expertise and knowledge in operating in
overseas markets.
Financial infrastructure
A competitive local financial infrastructure has to exist to offer suitable and price competitive
trade financial tools to exporters. Trade financing is often described as the lubricant of
Critical Analysis for the Integrated National Export Strategy
305
international trade. One of the key export constraints faced in South Africa is the cost
competitive trade finance. Although the South African financial sector is well developed and
covers a large geography spread, the system does not always provide financial products
competitively.
Government has set up the ECIC, IDC, NEF and SEFA to address various market failures.
Unfortunately the products they provide do not address the needs of all exporters. ECIC for
example only provides assistance for long-term capital products. Although the IDC, NEF and
SEFA do provide funding to exporters or to expand production facilities to increase exports, it
is incidental to their activities.
Logistics Performance Index
Map 1: Logistics performance index
Source World Bank
The above map provided by the World Bank shows LPI for the world. The darker the colour
blue, the higher the LPI index is for that country. As we can see South Africa is the best
performer on the African continent, and above average compared to the rest of the world.
South Africa is ranked number 28 out of 155 countries for which the LPI was calculated
The following table shows the BRICS countries ranked according to their LPI. The only county
to be better in terms of logistics is China, which could explain the difference in trade between
the countries. Russia and India are below average, which makes trade with these countries
difficult. Lack of logistics and logistics infrastructure can be a deterrent to trade and therefore
efficient customs processes, capable infrastructure and overall competence need to be in
place for a country to trade successfully.
306
Table 60: Logistic Performance Index Country LPI Customs Infrastructu
re International shipments
Logistics competence
Tracking & tracing
Timeliness
China 3.49 3.16 3.54 3.31 3.49 3.55 3.91
South Africa 3.46 3.22 3.42 3.26 3.59 3.73 3.57
Brazil 3.2 2.37 3.1 2.91 3.3 3.42 4.14
India 3.12 2.7 2.91 3.13 3.16 3.14 3.61
Russian Federation 2.61 2.15 2.38 2.72 2.51 2.6 3.23
Source: World Bank
Recommendations
The stock trade promotion infrastructure is a result of investment in “hard” infrastructure
(highways, railroads, ports, etc.) and in “soft” infrastructure (transparency, customs efficiency,
institutional reforms, etc.). The soft infrastructure will also include exporter development,
information, enterprise development, the promotion and services (financial and logistics). TISA
has to ensure that both hard and soft infrastructure are adequately servicing the needs of
exporters and potential exporters.
Large investments in physical infrastructure projects to improve infrastructure quality alone do
not necessarily lead to lower transport prices. It is important that bottlenecks are identified
and that the related soft services contribute to lower costs. Complementary regulatory
reforms are fundamental. The lack of competition along the different segments in the trade
logistics chain, for example, can result in high mark-ups favouring cartels among logistics
service firms. In South Africa, SOEs do not have a developmental role and operate as
monopolists maximising profits by reducing services and increasing prices. In a more
competitive environment, measures to improve physical infrastructure are likely to produce
better results.
7.9 Conclusion
This section has examined South Africa’s competitiveness and especially factors that impact on
the country’s exports. It looked at the incentive framework identified both drivers and also the
obstacles. Policy-induced obstacles such as those that increase the anti-export bias were
measured and policies measures that would rectify this, including the dti’s financial support.
Globally competitive products were identified using the RCA. Product Space was then used to
identify products in which South Africa could have a comparative advantage but do not
currently export most of the detailed information is included in the accompanying CD ROM
and only screen shots were used to demonstrate how the research can be used to identify
competitive products that give an idea of where South Africa and its provinces should focus.
The factor conditions contributing to South Africa’s competitiveness is also included.
Critical Analysis for the Integrated National Export Strategy
307
The dti and other economic development agencies should focus on strengthening factors that
contribute to South Africa’s competitiveness. There are a number of restrictions that South
Africa’s trading partners has placed on her products.
South Africa’s trade performance infrastructure was also analysed to ensure that trade and
especially future exports are not hampered.
The IMD World Competitiveness Yearbook (WCY)62
The IMD WCY is reputed as being the worldwide reference point on the competitiveness of
nations, ranking and analysing how an economy manages the totality of its resources and
competencies to increase the prosperity of its population.
It has been published since 1989 and is the world's most renowned study comparing the
competitiveness of 60 economies on the basis of over 300 criteria. Focusing primarily on hard
facts taken from international and regional organizations and private institutes, the statistics
are complemented with results from an annual Executive Opinion Survey.
The collaboration with 55 Partner Institutes63 worldwide helps ensure that the data is as
reliable and up-to-date as possible.
The IMD’s ten Golden Rules of Competitiveness:
1. Create a stable and predictable legislative and administrative environment.
2. Ensure speed, transparency and accountability in the administration, as well as the
ease of doing business.
3. Invest continually in developing and maintaining infrastructure both economic (road,
air, telecom, etc.) and social (health, education, pension, etc.).
4. Strengthen the middle class: a key source of prosperity and long-term stability.
5. Develop privately-owned medium-sized enterprises: a key element of diversity in an
economy.
6. Maintain a balanced relationship between wage levels, productivity and taxation.
7. Develop a local market by promoting private savings and domestic investments.
8. Balance aggressiveness on international markets with attractiveness for added-value
activities.
9. Counterweight the advantages of globalisation with the imperatives of proximity to
preserve social cohesion and value systems.
10. Always return the tangible signs of successful competitiveness to the people by
providing a higher level of prosperity for all.
Methodology
62 http://www.imd.org/wcc/ 63 The South African partner is Productivity SA.
308
1. The WCY analyses and ranks the ability of nations to create and maintain an environment
which sustains the competitiveness of enterprises.
2. It means that we assume that wealth creation takes place primarily at enterprise level
(whether private or state-owned) - this fi eld of research is called: "competitiveness of
enterprises".
3. However, enterprises operate in a national environment which enhances or hinders their
ability to compete domestically or internationally - this field of research is called:
“competitiveness of nations” and is covered by the WCY.
4. Based on analysis made by leading scholars and by our own research and experience, the
methodology of the WCY thus divides the national environment into four main factors:
i. Economic Performance
ii. Government Efficiency
iii. Business Efficiency
iv. Infrastructure
5. In turn, each of these factors is divided into five sub-factors which highlight every facet of
the areas analysed. Altogether, the WCY features 20 such sub-factors.
6. These 20 sub-factors comprise more than 300 criteria, although each sub-factor does not
necessarily have the same number of criteria (for example, it takes more criteria to assess
Education than to evaluate Prices).
7. Each sub-factor, independently of the number of criteria it contains, has the same weight in
the overall consolidation of results that is 5% (20x5 =100).
8. Criteria can be hard data, which analyse competitiveness as it can be measured (e.g. GDP)
or soft data, which analyse competitiveness as it can be perceived (e.g. Availability of
competent managers). Hard criteria represent a weight of 2/3 in the overall ranking whereas
the survey data represent a weight of 1/3.
9. In addition, some criteria are for background information only, which means that they are
not used in calculating the overall competitiveness ranking (e.g. Population under 15).
10. Finally, aggregating the results of the 20 sub-factors makes the total consolidation, which
leads to the overall ranking of the WCY.
Table 61: South Africa - Overall Performance
2009 2010 2011 2012 2013
Overall Competitiveness Rank 48 44 52 50 53
Economic Performance Rank 56 56 54 57 57
Government Efficiency Rank 26 21 32 29 32
Business Efficiency Rank 30 31 40 37 43
Infrastructure Rank 54 51 56 54 58
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Figure 66: Competitiveness Landscape https://www.worldcompetitiveness.com/OnLine/App/Index.htm
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Appendix 8. Review of Training Programmes Provided by South African Service Providers
8.1 Introduction
The importance of export training is recognised in all relevant literature as well as by the five
‘best practice’ export development organisations researched. What is also recognised is that
training on its own is usually not sufficient and needs to be augmented by in-company
application of theory, either during the training process (completion of company-based
assignments) or through subsequent mentoring – or both.
Currently, in South Africa, there is an apparent wide selection of service providers offering
export training in one form of another. This section looks at these.
8.2 Non-universities:
8.2.1 IMM Graduate School of Marketing – Advanced Diploma in Export
Management
The IMM Graduate School of Marketing (GSM) offers a national one year Certificate in Export
Management and a three-year Advanced Diploma in Export Management, both as distance-
learning programmes. The Diploma covers all aspects of exporting. In addition, the IMM GSM
offers short one- to three-day training workshops on exporting during the course of the year.
In-company training is offered, tailored to suit a company’s specific requirements. The IMM is
accredited by the Council on Higher Education (CHE).
8.2.2 ITRISA - Diploma in Export Management
ITRISA provides formal (one year Certificate, two-year Advanced Certificate and three-year
Diploma) and informal (short courses) training in all aspects of exporting. ITRISA's formal
programmes are available via distance learning, public short courses are conducted on a
regular basis in Johannesburg. In-company training is offered in all provinces and can be
tailored to suit clients' specific needs. ITRISA is fully accredited in South Africa by the CHE and
internationally by the IATTO.
8.2.3 Damelin
Damelin offers the IMM Graduate School of Marketing Diploma in Marketing (not to be
confused with the Advanced Diploma in Export Management).
8.2.4 Freight Training (Pty) Ltd
Freight Training specialises in training in export and freight/logistics related matters. In-
company training tailored to specific problem areas is also offered.
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8.2.5 Platinum Mile Consultants (Pty) Ltd
Run by Ms Linda Holtes, another of the community of experienced South Africa export
consultants and trainers, this company offers training in various aspects of exporting.
8.2.6 Chamber of Commerce and Industry -Johannesburg (NafcocJCCI)
Johannesburg Chamber of Commerce and Industry (JCCI) offers regular export-related
workshops and training programmes covering aspects of the exporting process. JCCI also hosts
the dti’s EMIA workshops in the Gauteng region.
8.2.7 SA Agri Academy
Run by Ms Lina Keyter, an experienced export trainer and a qualified UN/ITC trade tutor, the
Agri Academy specialises on the agricultural industry; it has a very good reputation and offers
a variety of export-related training programmes for the sector.
8.2.8 School of Shipping
School of Shipping Head Office is located in the centre of Cape Town, with branches in
Johannesburg, Durban and Port Elizabeth. Accredited Courses have been developed according
to the rigorous demands of the South African Transport Education and Training Authority
(TETA) and therefore carry the applicable accreditation for import, export and customs
clearing and freight forwarding related subjects. National certificate: Freight Forwarding and
Customs Compliance: South African Qualifications Authority (SAQA) 59365.
8.2.9 Ann Moore Cc
Ann Moore is one of South Africa's most experienced international trade consultants. She
offers consulting services to exporters and is an accredited trainer for the SEDA national
Export Orientation Course, and presents on-demand export courses through intermediary
organisations, such as Wesgro, Cape Town Regional Chamber of Commerce and Industry and
IMM Graduate School of Marketing.
8.2.10 Productivity SA
Productivity SA specialises on productivity and competitiveness.
8.2.11 Export Marketing & Management Consultants
Nora Hill of Export Marketing and Management Consultants was regional manager of SAFTO
for five years and holds diplomas in Export Management and Marketing Administration, and is
a registered UN?ITC Trade Tutor.
8.2.12 Durban Chamber of Commerce (DCC)
The Durban Chamber runs regular seminars on various aspects of exporting.
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8.2.13 DSD Freight Management
Primarily a software development organisation that focuses on developing software for the
freight and forwarding industry in South Africa, DSD also provides exporter and freight-related
courses on Incoterms, export administration, export logistics, dangerous cargoes, etc.
8.2.14 SA Electro-technical Export Council (SAEEC)
SAEEC is a Section 21 (not-for-gain) organisation and public-private partnership between
South African business and the dti to drive export initiatives from the following sectors:
electrical engineering, electronics, ICT and business services. It also offers a number of export
training courses and workshops
8.2.15 SA Maritime School and Transport College
SA Maritime School and Transport College in Durban has been offering learnerships and skills
programmes since 1986. The College offers certificates and diplomas in international trade,
specialising in either shipping practice, ports and distribution, customs clearing and
forwarding.
8.2.16 Institute for Quality
The Institute for Quality (IQ) is registered with the Department of Education and accredited
with the TETA for six full qualifications in this sector. Qualifications are: International Trade
(level2), Freight Forwarding and Customs Compliance (level 3 and 4), Shipping (level 4), Freight
Handling (level 3) and the Logistics Diploma (level 5).
IQ is an accredited assessment centre and therefore qualified to offer Recognition of Prior
Learning (PL) on all its courses. IQ Currently offers an opportunity to be RPL’ed towards the
International Federation of Freight Forwarders Associations (FIATA) Diploma. Skills
programmes offered are registered and meet industry requirements.
The mode of delivery is flexible and includes e-learning, blended learning, face-to-face and
distance learning.
8.2.17 Metro Minds
Metro Minds provides training covering letters of credit, basic and advanced import and
export procedures and Incoterms. All programmes are aligned to SAQA unit standards.
8.2.18 Tradewize International CC
This company, run by Melinda du Preez, provides training and consultancy services in export
logistics. The company works with SEDA and the IMM Graduate School of Marketing.
Critical Analysis for the Integrated National Export Strategy
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8.2.19 Skills Development Specialists (SDS)
SDS was established in 1997 and offers training and consultancy in all aspects of customs
clearing and forwarding training. SDS offers courses in Durban, Johannesburg, Cape Town, Port
Elizabeth and Musina. The company also offers a variety of correspondence courses to other
centres countrywide.
8.2.20 Flight Safety Training SA
Flight Safety Training's cargo and dangerous goods programmes offer a variety of courses to
provide aviation and air cargo professionals with a solid foundation in accepting, handling and
shipping all types of goods by air.
8.7.4 Hazardous Goods Training (Hazpak)
Hazpak has been in operation since 1995 and provides training and consultancy services in the
dangerous goods industry within South Africa.
8.2.21 Dangerous Goods Training and Assessing Services - Dantran
Dantran provides technical expertise to assist exporters in meeting compliance deadlines and
managing projects on time and within budget.
8.2.22 Y2K Customs Academy
The Y2K Customs Academy offers a full-time/part-time diploma in International trade and
transport as well as programmes in shipping practice, international airfreight procedures,
customs clearing and forwarding and compu-clearing outsourcing.
8.2.23 ECLogistics
Specialists in dangerous goods, they offer training and seminars.
8.2.24 AstroTech
AstroTech, a SETA accredited training provider, draws from a wide pool of experts to offer
export-related courses and consultancy services.
8.2.25 Logtrain International
Logtrain International offers skills training, e-learning, courses and workshops in the following
fields: supply chain management, logistics, air, sea, road & rail freight, transport, shipping,
importing, exporting, Incoterms, customs, bond store, warehousing, marine cargo insurance,
MIDP.
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8.3 Tertiary Institutes
International trade education has many cross-cutting courses including marketing,
communications, economics, business administration, law, and supply chain management.
These courses are not in the same departments or even the same facilities. Some universities
have tried to establish Institutes or Units. For example the University of Pretoria established
the Investment and Trade Policy Centre (ITPC) and the University of Stellenbosch established
the Trade Law Centre for Southern Africa (TRALAC). However, these centres focus mainly on
research, although they do offer short courses.
Below are lists of South African universities (from a web search) indicating their involvement in
international trade.
8.3.1 Universities with a Stronger Focus on Trade/Exporting/international
Marketing/business:
University of Cape Town (E)
North-West University
University of South Africa
University of Stellenbosch (E)
University of Johannesburg
University of the Free State
University of Fort Hare (E)
University of Zululand (E)
Monash
(E)=in economics, e.g. International trade and finance
8.3.2 Universities That Have Limited Coverage - a Module or Two in a Formal
Degree or Diploma:
Nelson Mandela Metropolitan University
University of Pretoria
University of the Western Cape
University of Venda (E)
8.3.3 Universities That are not Offering Anything According to Their
Websites:
Walter Sisulu University
Cape Peninsula University of Technology
Tshwane University of Technology
Vaal University of Technology
Rhodes University
Durban University of Technology
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Central University of Technology
University of KwaZulu-Natal
University of the Witwatersrand
Mangosuthu University of Technology
University of Limpopo
8.3.4 Business Schools
CIDA City Campus
Gordon Institute of Business Science (GIBS), University of Pretoria
Graduate School of Business, University of KwaZulu-Natal
Henley Management College, South Africa, Henley Management College
Management College of Southern Africa
Milpark Business School
Nelson Mandela Metropolitan University Business School, Nelson Mandela
Metropolitan University
Graduate School of Business and Government Leadership, North-West University
Potchefstroom Business School, North-West University
Regenesys Business School
Regent Business School
Rhodes Investec Business School (RIBS), Rhodes University
Southern Business School
School of Business Leadership (SBL), University of South Africa
Tshwane University of Technology Business School, Tshwane University of Technology
Turfloop Graduate School of Leadership, University of Limpopo
UCT Graduate School of Business (GSB), University of Cape Town
University of Stellenbosch Business School (USB), Stellenbosch University
University of the Free State Business School, University of the Free State
Varsity College School of Business and Technology (VC SoBT), The Independent
Institute of Education
Wits Business School (WBS), University of the Witwatersrand
8.3.5 University of South Africa (UNISA)
UNISA’s Centre for Business Management provides a one year Programme in International
Marketing that is aimed at equipping learners to deal with the challenges of international
marketing.
8.3.6 The Trade Law Centre (TRALAC)
TRALAC, based in Stellenbosch, is a not-for-profit organisation, building trade law capacity in
the southern Africa region; in governments, the private sector and civil society. TRALAC’s
mission is to build trade law capacity in southern Africa so that countries in the region can
participate effectively in the global economy and negotiate trade agreements that will support
316
their development objectives, and so that they can implement the agreements to ensure that
they realise the potential benefits of international trade. In partnership with the Graduate
School of Business of the University of Cape Town, TRALAC offers a Master of Commerce in
Management Practice (Trade Law and Policy).
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Appendix 9. Export Councils, Industry associations and Joint action group64
9.1 Export Councils
9.1.1 Automotive Industry Export Council (AIEC)
The AIEC was established in 1999 as the official private sector export promotion body for the
automotive industry in South Africa. Products covered include passenger cars, trucks and
buses, original equipment components, aftermarket parts and accessories.
The AIEC works closely with the dti’s TISA in the following main activities:
General promotion of South African automotive manufacturing capability.
Trade missions of South African companies to potential export markets.
Investigations and research into new markets and additional opportunities in existing
markets.
In addition, the AIEC provides information on a wide range of markets and export-related
subjects through continually updated research and databases, as well as assisting with training
programmes. Much of the information on the website is restricted to members of the AIEC.
9.1.2 Built Environment Professions Export Council (BEPEC)
BEPEC is a section 21 company in a Public Private Partnership (PPP) with the dti, which jointly
supports export-ready firms to export their built environment services internationally. PEBEC
provides the following export-related benefits:
Advocacy: BEPEC is in a PPP with the dti because the Built Environment has been
incorporated in a Customised Sector Programme allowing for collaboration in the
pursuit of increased exports. BEPEC assists its members with information on in-country
professional registration, working requirements, will assist in resolving disputes,
liaising with Government and other industry bodies on contractual and legislative
issues.
Market Access:
BEPEC initiates the creation of various export groupings that give access to
opportunities in a collaborative and coordinated manner. These export groupings
include cover SADC, East Africa the Lobito Corridor and the Bas-Congo Corridor, the
Arabian Gulf.
BEPEC stages and participates in a number of trade missions to Africa and beyond with
political and organisational support from the South African government.
BEPEC hosts local and international events/briefings/ workshops throughout the year
where significant networking and learning opportunities are prevalent.
64 The Department of Trade and Investment has commissioned a study to investigate the Export council model. This section therefore be read together
with that study.
318
Funding Access: BEPEC facilitates access to the dti financial incentives including the
EMIA Scheme and the Capital Projects Feasibility Programme (CPFP).
Networking and Knowledge Sharing.
BEPEC was created by the following Built Environment Professional bodies: Consulting
Engineers South Africa (CESA), South African Institute of Architects (SAIA), Association
of South African Quantity Surveyors (ASAQS), The Institute for Landscape Architects in
South Africa (ILASA), and the Association of Construction Project Managers (ACPM).
9.1.3 Capital Equipment Export Council
SACEEC is the voice of the sector to government and the rest of the industry on export
matters. Its services include:
It facilitates collaboration between members, between sectors It provides critical and
timely information to enhance members ability to make sound business and
management decisions.
It facilitates national pavilions, individual participation in an exhibition, outward selling
missions and inward buying missions in a focused manner, to targeted customers.
It has an effective public policy program and acts as an advocate on behalf of its
members on issues unique to the mining, agriculture, construction, beneficiation and
utilities sectors within the exporting context.
It provides its members with leads and market information.
It assists individual companies to restructure or upgrade in order to ensure that they
adhere to international best practice.
It provides a unique platform for members to network and develop multi-company
marketing and implementation strategies all along the value chain.
9.1.4 Fresh Produce Exporters' Forum (FPEF) / Fruit South Africa
FPEF is a non-profit industry organisation, whose membership is voluntary and open to all
companies that export fresh fruit from South Africa. The organisation has introduced strict
accreditation criteria to ensure that only competent and reliable marketing agents and
grower-exporters are admitted to the Forum.
The FPEF's mission is to create, within free-market principles and a deregulated environment,
a prosperous but disciplined fruit export sector. It was established primarily to provide
leadership and services to its members and the international buying community.
FPEF has a number of developmental programmes, which – while not export specific – have a
direct impact on members’ export capabilities.
Enabling emerging farmers: Training, mentorship and linking farmers to strategic
partners in commercial exports, support the emerging farmer sector. Since needs vary
from province to province, training courses and support initiatives are modified
accordingly.
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The Top of the Class (TOC) programme provides the opportunity for workers on farms
and in packhouses to gain confidence, knowledge and skills in the entire fresh fruit
value chain – from harvest to home. It links to the assistance given to emerging
farmers.
Trade channel manuals are handbooks offering a bird’s eye view on industry processes
for the fruit export industry. Two additional manuals were completed in 2009:
advanced trade chain manuals by fruit kind for the citrus and pome fruit industries.
Trade Shows: Together with the dti, the FPEF hosts two international trade fairs every
year – Fruit Logistica Berlin, and Fruit Logistica Hong Kong, which happen in the
months of February and September respectively.
9.1.5 Farmed Abalone Export Council
The website does not give any indication of the activities of this council. But we suspect that
exports are demand-pulled rather than supply-driven.
9.1.6 South African Boat Builders Export Council (SABBEX)
SABBEX has implemented a strategic plan to promote the boatbuilding industry by
means of export promotion, export development and market prioritisation. The
organisation has a number of objectives, including:
Effectively motivate international importers, designers and end-users to favour South
African boats wherever competitively feasible.
Promote new investment and job creation in the boat building industry through
(technology transfer and the encouragement of SMMEs to become involved).
Assist members (on an aggregated but not on an individual basis) with identified needs
in such fields as foreign sales, education, training, marketing and promotion,
technology and general.
Promote the boat building industry (as represented by members) in foreign markets.
Provide up-to-date information or intelligence that could lead to foreign sales.
9.1.7 Cosmetic Export Council of South Africa (CECOSA)
CECOSA is a Section 21 organisation, which has a PPP with the dti. It works in conjunction with
the dti and South African Embassies/Economic Offices abroad to create an exporting
environment that will promote increased business for South African companies.
Key objectives are to strengthen industry growth within the cosmetic sector to increase export
growth for its members and to encourage enterprise development of the smaller
entrepreneurial manufacturer through guidance and mentoring. Among its range of activities
CECOSA, sets out to acquire and disseminate updated and accurate information where
possible relating to import duties, trade agreements and non-tariff barriers to trade and
variations of regulations/standards in different countries.
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9.1.8 South African Electro-technical Export Council (SAEEC)
SAEEC is a not-for-gain organisation established as a PPP between South African business and
the dti to facilitate the export growth and internationalisation of its members.
SAEEC aims to provide a value-added and cost-effective service to our members to increase
their international business; to provide a gateway to companies wishing to identify South
African suppliers and partners, and to facilitate effective and sustainable local and
international partnerships.
In addition to training programmes, SAEEC handles outgoing and incoming missions and
international trade shows.
9.1.9 South African Flower Export Council (SAFEC)
SAFEC is a section 21 company supported by the four main producer organisations in South
Africa, SA Flower Growers Association (SAFGA), KwaZulu-Natal Flower Growers Association
(KZNFGA), SA Protea Producers and Exporters (SAPPEX) and Protea Producers of South Africa
(PPSA).
The Council's main objective is to enhance the floricultural and horticultural industry by means
of exports and building export capacity through investment into the industry.
Members of the affiliated associations can partake in international flower shows organised by
the dti, either through national pavilions or on an individual basis. SAFEC attends and exhibits
at various flori- and agricultural shows both locally and internationally. The organisation
facilitates members’ access to EMIA funding.
9.1.10 South African Footwear and Leather Export Council (SAFLEC)
SAFLEC represents approximately 122 companies spread across the country. SAFLEC is
involved in a wide range of activities from training facilitation, industry trade shows and can
offer guidance and information to its members on export-related enquiries:
SAFLEC is involved in facilitating machinist training and other skills development
projects. This activity forms part of the greater strategic plan for the industry.
Export trade statistics analysis is conducted on a quarterly basis and distributed to
members with the view to assessing product and destination country strengths which
provides the building blocks for product and market diversification.
SAFLEC participates in selected trade shows with the view to promoting the products
of South African footwear industry with the intention to expand this activity to include
allied industries.
Guidance for inexperienced exporters is provided for aspects such as government
incentives, SARS registration procedures, certificates of origin requirements and tariff
classifications.
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321
9.1.11South African International Steel Fabricators (ISF)
South African International Steel Fabricators is a joint-venture marketing company
representing the leading South African structural steel fabricators whose objective is to
increase their export sales by pooling their resources. The website refers to IFS being part of
Team Exports South Africa (TESA) and benefitting from TISA activities.
9.1.12 South African Textile Industry Export Council (SATIEC)
SATIEC was established with the dti as the voice of the textile sector to government and other
institutions on export matters.
It offers the following:
Assistance to members to access EMIA schemes.
Leads and market information.
A platform for members to network and develop input for industry sector strategies.
Facilitates export market entry for members, between sectors and all along the value
chain.
It is a sustainable platform for SMME, BEE and WE development and promotion.
9.1.13 South African Wire Business Council (SAWA)
SAWA is the officially recognised representative body for the Wire Industry in South Africa. Its
website is not informative and is out of date.
9.1.14 Wines of South Africa (WOSA)
WOSA represents all South African producers of wine who export their products. Its mandate
is to promote the export of all South African wines in key traditional and new international
markets. WOSA is funded by a levy per litre is raised on all bottled natural and sparkling wines
exported.
WOSA activities include:
Exhibits at major wine shows including ProWein in Germany, the London Wine Trade
Fair and Vinordic in Stockholm.
Cooperation with the tourism authorities to advance Cape wine tourism.
Regular marketing seminars for members, bringing international wine buyers and
marketers to the country to communicate changing international market needs,
demands and opportunities.
Bringing wine and lifestyle journalists to the Cape on an ongoing basis.
The biennial Cape Wine trade exhibition.
Exporters Manual available online and as a download.
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9.1.15 Steel Tube Export Council
Established in 1983 and represents the welded carbon steel tube and pipe manufacturers in
South Africa and includes the promotion of exports among its aims. A major focus is on the
promotion of value-added exports and the development of downstream customers.
The Association works closely with the dti in trade missions, market research, trade
agreements and trade shows. During October 2011, members of STEASA participated at the
TUBOTECH 2011 Trade show in Brazil and will be exhibiting at the leading trade show for tube
in Dusseldorf, early in 2012.
To promote downstream development the opportunity to showcase their products under the
STEASA platform will minimise the marketing cost and maximise exposure to international
buyers.
9.1.16 South African Equine Trade Council
Based in KwaZulu-Natal the Council’s objectives are to promote South African bloodstock, to
facilitate trade and to grow FDI in the sector. The website gives no further details.
9.1.17 South African Fruit and Vegetable Canners' Export Council
The key objective of the South African Fruit and Vegetable Canners' Export Council is to
protect and maintain the existing export industry and to generate future export growth by:
Improving competitiveness and profitability.
Developing new products and markets.
Improving market access.
Implementing ongoing promotional and marketing activity.
The Export Council coordinates the following activities of its members:
Liaising with and assisting the dti and the Department of Agriculture in matters
relating to international trade such as market access, tariffs and non-tariff barriers.
Facilitating members’ participation and/or representing members at selected
international trade fairs and trade missions.
Representing and serving the interests of its members on various forums relating to
export and international trade matters.
Addressing technical matters concerning exports such as product quality, food safety,
regulations relating to packing, labelling and grading of canned fruit and vegetable
products, can/tin plate specifications, etc.
Coordinating export studies and market related research.
Providing an administration service in respect of industry/export-related initiatives.
Critical Analysis for the Integrated National Export Strategy
323
9.2 Industry Associations
9.2.1 South African Ostrich Business Chamber (SAOBC)
The SAOBC serves as a coordinating body for the ostrich industry to benefit both the
producers and the processors of ostriches and ostrich products. Its mission is to promote a
sustainable, economically viable ostrich industry through cooperation between stakeholders.
It has a number of objectives concerning the industry as a whole, one of which is to create an
international environment suitable for export.
9.2.2 Aluminium Federation of South Africa (AFSA)
The purpose of AFSA is to promote the use and growth of aluminium usage, to promote the
Southern African aluminium industry, both regionally and internationally, and assist members
in matters where joint action is believed to achieve benefits greater than that of individual
members and/or companies.
9.2.3 South African Iron and Steel Institute (SAISI)
SAISI promotes the interests of the primary steel industry. Included in its strategic objectives is
to stimulate growth in the use of local steel by promoting downstream development and to
monitor strategic trade development issues such as dumping and free trade agreements and
decide on appropriate action. SAISI functions by means of interaction between representatives
of SAISI's member companies within structured council and committee meetings with the
support of the secretariat. One of SAISI’s committees is on international trade. Further details
are not given on the website.
9.2.4 South African Stainless Steel Development Association (SASSDA)
SASSDA provides a platform for SASSDA members to collectively promote the sustainable
growth and development of the industry with the main emphasis on stainless steel converted
within the South African economy. SASSDA also provides a comprehensive list of services to its
member base including technical information and advice, education, training and skills
upgrading, a range of publications and marketing, industry and business development support.
Export promotion is not shown as a specific function.
9.3 Joint Action Groups
9.3.1 Jewellery Council of South Africa
The Jewellery Council of South Africa is the umbrella body of three constituent bodies:
Jewellery Council of SA (representing wholesalers), the Jewellery Manufacturers Association of
SA (representing manufacturers) and the Jewellers Association of South Africa (representing
retail jewellers).
The Council, situated in Johannesburg, plays a diverse role in representing the interests of
wholesalers, manufacturers and retailers. Activities are specific to the three sectors
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represented and include marketing (local and international), representation to Government,
organisation of local and international trade fairs, seminars and training courses, the operation
of an internationally recognised Diamond Certification Laboratory, and the dissemination of
information to the industry.
Critical Analysis for the Integrated National Export Strategy
325
Appendix 10. Export Potential
Until recently, the export promotion policies in South Africa have been based on historical
export performance trends with little attention been devoted to:
New export opportunities in unexploited markets; or
Opportunities for new products in existing markets.
Growing South Africa’s exports is important from a competitiveness viewpoint. It is important
to prioritise export promotion activities in a manner that will yield a high return on investment
of the scarce resources, while increasing the success rate of South African
The research will identify a suit of potential tools that can used by both policy makers and
exporters. It will also identify how the tools can be made available to relevant role players.
10.1 Introduction
There are many countries in the world, each with their own unique characteristics. Investing
resources and time in each market is impossible and priority markets must be identified
effectively and efficiently. Market selection methods, of which a vast number exist, are critical
tools in exporter’s decision making and government’s policy, planning and budgeting
processes. This section is to determine the international market selection methods best-suited
to the identification of potential export opportunities for South Africa. It will also show how to
determine realistic export opportunities (market-product combinations).
There are various techniques that can be used to do this. The dti has (as far as can be
ascertained) acquired three models to do this (two DSMs and a Gravity Model). In the mid-
1990s Cassim and Kuyper developed a DSM based on weightings, while the School of
Economics of the North-West University developed a model which uses consecutive filters
through which realistic export opportunities are identified and less interesting market
opportunities are filtered out. The University of Pretoria developed a Gravity Model. The
International Trade Centre has also provided a number of tools including the web-based
Interactive TradeMap® which is itself a decision-support tool to assess national and product-
specific trade performance, to reveal comparative and competitive advantage, and to identify
market diversification potential. The ITC has developed TradeSim®, an econometric model
with the specific objective of estimating bilateral trade potential between developing and
transition economies, and any of their partner countries. The model further differentiates the
potential by major industrial sectors.
10.1.1 Gravity
The gravity model of trade was not something that was endogenous to economics. The idea was first coined by
the famous physicist, Sir Isaac Newton. The idea he put forward is that the attraction between two objects
depended on the size of the objects respectively and on the distance between them. In economics, we do not
deal with forces we deal with trade, and we do not deal with objects we deal with countries. Hence in economics,
the gravity model is the concept that larger countries will trade more and countries that are close together will
trade more.
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The idea of proximity is not only a physical one however. Countries that share a common
heritage, language or other cultural aspects are said to be ‘closer’ to each other in a ‘cultural’
sense. We would expect English speaking countries to trade more with other English speaking
countries, for example. Colonies will also trade more with their previous colonial rulers than
with other countries because they will share certain common aspects. An example is South
Africa and the United Kingdom, where South Africa has inherited some Common Law aspects
of the United Kingdom’s legal system.
10.1.2 Gravity: What We Hope to Achieve.
From the gravity we hope to identify market gaps for South African exports. We intend to use
the model to analyse South African exports and to understand what drives exports in which
sectors and products. Is it proximity alone, or a combination of proximity and time? A good
example is that we would theorize that large bulky exports, like steel, would not be affected by
long waits at the point of entry in a foreign country. Fruits however, are perishable and we
would expect time to play a strong negative role here. Thus we would like to understand how
severely time affects them, or if it even affects them at all.
Gravity is mainly a demand-side tool, and hence once we have a series of Ordinary Least
Squares equations set up, we hope to create estimates for what trade ought to be with each
country given the profile of that country and the regression equations. From these estimates
we hope to find gaps for South African products abroad. In other words, what products do we
‘under export’ and to which countries? This will be used as a diagnostic tool to tell the relevant
parties where the gaps are, so that they may investigate as to why the gaps exist. Do we not
produce the product? Do we face strong tariffs in the export market? Is there a bottleneck
with costs, times and bureaucracy at the points of exit? In other words, demand-side tools
must be matched with supply-side tools to have any specific meaning.
10.2 The Model
Two gravity models have been estimated. The total trade gravity model reports the gaps for
aggregated trade per country. The sectoral trade gravity model uses disaggregated trade data
(approximately 5 500 products) using Comtrade’s HS data at six digits. These are reported
below.
10.2.1 The Total Trade Model
In our analysis we found the gaps advocated by a World versus World model to be very similar
to those advocated by a South Africa versus world model.We have thus chosen the latter for
the total trade analysis. The model for total trade for our purposes was specified as follows:
Equation 3
Where
Tij is the exports from country i to country j.
Critical Analysis for the Integrated National Export Strategy
327
It is dependent on the distance between i and j as well as the GDP of the destination j. A
further dummy variable is included. The continuous variables of T, D and GDP have been
logged in our case to allow the coefficients to be interpreted as elasticities. In other words, a
one percent rise in the distance between country i and j will have a result of a change in the
trade value between i and j.
Before we move on to the results we should also explain what effect we expect the dependent
variables to have on trade. In theory, we would expect the distance between the countries to
have a negative impact, based on the idea that the farther away countries are the more
expensive trade between them is. Furthermore, we would expect South Africa to trade more
with countries where the destination market is large, as measured by GDP. The comlang
dummy we expect to have a positive effect on trade, with the basis that if two countries share
a common language that they would be culturally close, similar in tastes and business
relationships would thus be easier to form as well as the simple concept that communication
is both cheaper and easier. Thus we could say that the common language dummy measures
‘cultural proximity’ as opposed to a physical one.
Furthermore, we do not expect serial correlation in this cross sectional dataset and tests for
this confirmed it was not present. Furthermore, we would expect heteroscedasticity to be
present and tests do indeed confirm this. Hence we choose to run a robust regression, thus
eliminating the problem of heterscedasticity
10.2.2 The Sectoral Trade Gravity Model
The gravity model constructed was specified as follows for sectoral data:
+
Where the subscripts i and j denote the originating and destination countries respectively,
while the superscript v indicates the product in which we are trading. The variable ‘Trade’ is
simply the value of the goods of that category sent from country i to country j. Dist is the
distance between the largest cities in i and j, while GDP of country i and j respectively Col
records whether or not there is a colonial relationship between the countries, I.E one country
was a colony of the partner at some point in time. Contig simply records whether or not the
countries share a common land border. The export and import costs are the logarithms of the
cost per container at the exiting and entering point in the domestic and foreign country
respectively. The time variable records the number of days it requires to cross the border at
the point of exit and point of entry again in the respective domestic and foreign countries.
Lang is a dummy variable that indicates whether or not the countries share a common
language, and is 1 if they do and 0 if they do not. Taking logarithms of all the continuous
variables allows the changes to be interpreted elasticities, or in other words percentages.
328
Before proceeding we again lay out our expectations for the relationship of this model. We
expect distance to have a negative impact with the justification being the same as for the total
trade model. We would expect the GDP of the destination country to again have a positive
impact, just as in the total trade model. The GDP of the originating country we would expect to
have a positive relationship because a country that produces more would have more to sell in
international markets and this effect would be captured in export value. As far as a Colonial
relationship goes we expect this relationship to be positive as colonial relationships often
leave behind traits in the colonised country that facilitate trade between the colonial power
and the colonised country. An example would be the legal system and cultural tastes. South
Africans like marmite, this dates back to the British era in South African history, as does the
common law component of our legal system. The same applies to the Roman-Dutch part of
our legal system that we would have gotten from the Netherlands. Regarding both import and
export costs we expect both to have a negative impact on trade as home-produced products
may become cheaper compared to those purchased abroad leading to a substitution of
imports for domestic products. We expect the time to import and time to export variables to
have negative effects in some sectors while not having much of an effect in others. The reason
is some goods are sensitive to the time they spend at the border. An example is “Just in time”
inventory stocking where a smooth transition through the border is crucial. If the border
causes delays the supply chain will frequently come to a halt. The problem with this is that
firms using South Africa may choose to operate elsewhere if the South African border takes
too long to clear things. Lastly, the language dummy is another way of measuring ‘cultural
distance’. Those that share a common language are more likely to be close ‘culturally’. Think of
trade with the United States compared to that with China. If all other things were constant,
South Africans would be expected to trade more with those that have similar preferences.
10.3 The Products (HS6)
The intuition for this model is the same as the above two and it was constructed as follows:
𝐿𝑛(𝑇𝑟𝑎𝑑𝑒𝑖𝑗𝑥 ) = 𝛽0 + 𝛽1𝐿𝑛(𝐷𝑖𝑠𝑡𝑖𝑗) + 𝛽2𝐿𝑛(𝐺𝐷𝑃𝑖) + 𝛽3𝐿𝑛(𝐺𝐷𝑃𝑗) + 𝛽4𝐿𝑛(𝐼𝑚𝑝𝑜𝑟𝑡 𝐶𝑜𝑠𝑡𝑠)
+ 𝛽5𝐿𝑛(𝐸𝑥𝑝𝑜𝑟𝑡 𝐶𝑜𝑠𝑡𝑠) + 𝛽6𝐶𝑜𝑛𝑜𝑙𝑦 + 𝛽7𝐶𝑜𝑛𝑡𝑖𝑔 + 𝛽8𝐶𝑜𝑚𝑙𝑎𝑛𝑔
Here we have Trade specified as the trade between country I and country J in product x. The
distance and GDP variables are defined as above. Import costs were taken as the cost in $1000
dollars per container to enter into the country of destination while the export costs was the
cost in $1000 dollars to exit the exporting country. The colony and common language
dummies are there to indicate whether or not we a country may share some cultural
‘proximity’ as explained above. Furthermore the contiguity variable is included to see whether
or not the fact that two countries are neighbours effects their trade flows at all.
Critical Analysis for the Integrated National Export Strategy
329
10.4 The Results
These two gravity models’ estimates are reported below. The total trade gravity model reports
the estimated trade gaps for aggregated trade per country. The sectoral trade gravity model
reports part of the results.
Given the volume of data, the results are only partially reported. The detailed results are
included on the CD ROM disk.
10.4.1 Results of the Total Trade Model
The statistical tests, the actual gaps in trade expected and their interpretation are given below.
10.4.2 The Regression Coefficients
Below are the critical statistics from the regression used to calculate the gaps. Important to
note is that all of the regression coefficients comply with our expectations as laid out above,
and they are all statistically significant at the 1% level. The coefficients can be interpreted as
elasticity’s, as indicated above. In other words, a one per cent rise in the distance between
South Africa and the foreign country will lead to a 2.5% drop in trade between those countries.
Furthermore, a one per cent rise in the GDP of the destination country will result in a one per
cent rise in trade between South Africa and the country at hand. The R-Square shows that 72%
of the variation in South African trade is explained by this regression set up, after adjustments
for heteroscedasticity were made.
(Regression Eq used to estimate the gaps. Adjusted for heteroscedasticity)
Table 62: Results of regression
R_sq b_logdist t_logdist b_log_gdp_d t_log_gdp_d b_comlang_off t_comlang_off
0.725473 -2.45681 -20.8557 1.074347 43.55769 1.101856 8.420473
The gaps themselves
Below are the countries for which the largest gaps are advocated. An interesting thing to note
is that the largest gap is advocated with Brasil, a fellow BRICS member. We should also note
that Russia and India are also both in the top 5. A further interesting point to note is how
many African countries appear. Nigeria, Algona, Tunisia, Cameroon and Sudan to name but a
few. A further pattern that emerges is that there are several developing countries in the top
gaps, however the spread seems to be quite even overall.
(Table showing top gaps. Brazil is 1st, Nigeria 2nd, India 3rd etc)
330
Table 63: Countries with the highest potential
Brazil Canada Greece Iraq Tunisia Chile
Nigeria Angola Argentina Kazakhstan Uganda Ukraine
India Ethiopia Philippines Equatorial Guinea Belarus Chad
France Qatar Rwanda Slovak Republic Croatia Lebanon
Australia Egypt, Arab Rep. Austria Colombia Congo, Rep. Malta
Russia Pakistan Ireland Azerbaijan Uzbekistan Trinidad and Tobago
Saudi Arabia Cameroon Kuwait Sudan Venezuela, RB Oman
10.4.3 Results of the Sectoral Model
While the results are preliminary, an extract of them is included here.
Here we show an extract of the regressions provided by the Sectoral model. A full table will be
available in the appendix to this document.
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331
Table 64: Result of model
Source:
productdescription R_sq b_logdist t_logdist p_logdist b_log_gdp_d t_log_gdp_d p_log_gdp_d b_log_cost_imp t_log_cost_imp p_log_cost_imp
Building and repairing of ships and 0.330377221 -2.592098713 -3.261806965 0.001856876 0.686850905 3.90707016 0.000246679 -0.558196068 -0.754323602 0.453706741
Dressing and dyeing of fur; manufac 0.463978022 -1.122224927 -2.163805008 0.034404926 0.740077734 6.214631557 5.07846E-08 0.345616698 0.682658255 0.497407228
Extraction and agglomeration of pea 0.19008036 -1.95952189 -0.650787473 0.543901265 -0.780228376 -0.778413534 0.47153759 -0.520031273 -0.342277676 0.746060431
Extraction of crude petroleum and n 0.430734366 -1.604690671 -0.555300415 0.588117838 1.508623838 1.513354778 0.154116213 1.172528386 0.753537059 0.464556813
Farming of animals 0.230565161 -3.028449535 -3.908612013 0.00014579 0.83590436 5.435065269 2.45708E-07 -1.256430268 -2.290504456 0.023530429
Fishing, operation of fish hatcheri 0.537602484 -3.883415222 -2.556926012 0.014795202 1.175021648 4.558663845 5.46482E-05 -1.809955239 -2.09072566 0.043478716
Forestry, logging and related servi 0.206054166 -2.359399557 -3.786431313 0.000280509 0.420715392 3.266850471 0.001557229 -0.50908637 -1.065903783 0.289416313
Growing of crops; market gardening; 0.128001273 -1.543771744 -2.240607023 0.026454674 0.549506724 3.768502474 0.000231962 -0.186939552 -0.312150121 0.755340636
Manufacture of accumulators, primar 0.356790006 -2.72486043 -3.931241989 0.000143585 0.42922461 2.664287329 0.00880389 0.54870671 1.060517788 0.291093469
Manufacture of aircraft and spacecr 0.191227585 -0.391588628 -0.531001568 0.596337855 0.530609906 3.688777924 0.000331876 1.052741766 2.26047039 0.025480907
Manufacture of basic chemicals 0.279350668 -2.196504593 -3.472486019 0.000672849 0.814533293 5.665030956 7.21964E-08 -0.798573613 -1.719430447 0.087585092
Manufacture of basic iron and steel 0.562786937 -3.513471842 -5.97944212 2.77616E-08 1.245069146 9.764527321 1.25004E-16 -0.740546644 -1.410461187 0.161199793
Manufacture of basic precious and n 0.633158147 -2.458610296 -4.306601524 4.0698E-05 1.501456499 12.2994051 2.75214E-21 -0.777485192 -1.538897991 0.127188772
Manufacture of beverages 0.388470381 -1.930917263 -3.302760124 0.001248738 0.570570469 6.377133846 3.17796E-09 -0.32533142 -0.703511596 0.48304534
Manufacture of bodies (coachwork) f 0.211363181 -1.75451839 -3.128954411 0.002310986 0.560823202 3.823949575 0.000230961 0.109681845 0.174093232 0.862151325
Manufacture of coke oven products 0.30183515 -2.914860964 -1.133727908 0.300166428 1.545055389 1.67587316 0.144780099 3.093967915 1.358632565 0.223118633
Manufacture of dairy products 0.282251149 -3.898488522 -3.143614054 0.002668618 0.44331342 1.583733082 0.11888618 0.090730205 0.098835111 0.921622157
Manufacture of domestic appliances 0.283447087 -2.374702215 -4.291320801 3.1709E-05 0.115021452 0.936615407 0.35046196 0.162134856 0.378085226 0.705901802
Manufacture of electric lamps and l 0.333367795 -2.752727509 -5.760912418 4.33062E-08 0.366594523 3.066681147 0.002552078 0.0951178 0.232474834 0.816473961
Manufacture of electric motors, gen 0.252352804 -2.422424078 -5.08278656 9.53686E-07 0.362584352 3.283764124 0.001238301 -0.019667568 -0.056099854 0.955326617
Manufacture of electricity distribu 0.416201591 -3.404252529 -6.228581429 9.66295E-09 0.782023907 5.83109808 6.02519E-08 0.032605879 0.065280125 0.948073924
Manufacture of electronic valves an 0.20761849 -1.708320379 -3.543820858 0.000519738 0.36794588 3.045022964 0.002729234 0.290968299 0.792618334 0.429196298
Manufacture of footwear 0.318886101 -2.480208635 -3.26467967 0.001496569 0.408954561 2.651528358 0.009305035 -0.041100748 -0.074886285 0.940453291
Manufacture of furniture 0.380904973 -3.297030926 -7.112133026 2.56325E-11 0.555601954 5.485369205 1.37399E-07 0.571109176 1.661054373 0.098433718
Manufacture of gas; distribution of 0.855990648 1.909329891 0.442913771 0.680726647 -0.94693464 -1.719790816 0.160589337 3.966257572 1.811703205 0.144261345
332
From the table provided on the previous page, the labels starting with a b_ are those of the
coefficients. Those of the continuous variables are all logged and may then be interpreted as
elasticities. Regarding the first line, a one per cent rise in GDP will lead to a 2.5% decline in trade.
Note that not all the coefficients are included here as the presentation in one table would not be
possible. These are merely to illustrate the results that we have obtained.
10.4.4 Sectors Identified by the Gravity Model
Table 65: Sectors identified by the Gravity Model
Source:
By just looking at the top trade gaps, without having sorted or filtered through them in any manner
we can notice that chemicals, manufacturing and crops feature prominently. These may well be
good potential targets for a South African export strategy, and they may tie in well with other
domestic policies such as industrial policy. Ultimately, the gaps identified here are just that:
potential trade gaps based on structural data that should be exploited only once further analysis has
been done.
10.4.5 Gaps with African Markets
Table 66: Gaps with African Markets
Critical Analysis for the Integrated National Export Strategy
333
What we can note from the above is interestingly that the top gaps with Africa are frequently in
Manufacturing. A possible explanation for this may be that other African countries are in a similar
predicament to South Africa and attempt to use protectionism in international trade to shield their
domestic manufacturing sectors, which are in turn labour intensive. This is however just one possible
explanation and here it is again important to emphasise that the demand-side analysis delivered by
the gravity model must be coupled with a supply-side measure in order for it to make any sense.
10.4.6 Interesting Sectors
Table 67: Interesting Sectors
Linking in with the above, we can note that there is a very large gap with Canada in crop growing.
This may seem normal at first but upon closer investigation we may identify a seasonality effect. In
other words, as the northern summer starts and the southern hemisphere moves into winter, we
may find that the growing of crops are difficult for us and during this time of the year, we cannot
compete with other crop-exporting countries from the northern hemisphere. When the seasons
change however, we might indeed be able to fulfil Canadian demands for crops. Thus we may be
able to conclude that the gap is over-estimated in this particular product with this particular
destination, as we can only fulfil demand for half the year. This example in particular would highlight
why it is important to look at the supply side and other factors which the supply side may not explain
when interpreting gaps advocated by the gravity model. Under no circumstance should the gravity
model ever be the basis of an export-promotion decision on its own.
10.4.7 The Products (HS6)
Broadly speaking the results of the regressions in terms of the beta coefficients conformed to our
expectations. GDP in both countries had a positive impact, distance had a negative impact, while
import and export costs had a negative impact. As for the dummy variables, they all had a positive
impact as is to be expected from theory.
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10.4.8 The Regressions
Below is an extract from the 5,500 individual model-regressions that were run. They will all be
available in a larger appendix to this document. This is meant as an illustrative example that will
enable the reader to approach the data and draw his/her own conclusions.
As with the sectoral model, the beta coefficients are denoted by a b_variable. The T statistics are
indicated by a prefix of t_ and the probabilities that the coefficients themselves are not significant in
determining trade are indicated by p_. The closer to 0 the probability, the more likely it is that this
variable is important.
The continuous variables mare be interpreted as elasticities as is done above in the sectoral and
total trade model.
Critical Analysis for the Integrated National Export Strategy
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hs6 b_logdist t_logdist p_logdist b_log_gdp_ot_log_gdp_op_log_gdp_ob_log_gdp_dt_log_gdp_dp_log_gdp_db_log_imp_costt_log_imp_costp_log_imp_cost
710812 -0.25638 -2.02447 0.043213 0.186377 2.84015 0.00461 0.412118 6.143286 1.21E-09 -0.68888 -2.06156 0.039533
270112 0.662426 3.840521 0.000138 0.075146 0.736307 0.461886 0.431304 4.6872 3.57E-06 -0.65148 -1.51046 0.131552
710231 0.122695 0.344786 0.730512 0.214251 2.728421 0.006763 -0.02874 -0.29837 0.765639 -1.58604 -2.94501 0.003499
711011 -0.3596 -1.92274 0.055248 0.615553 5.320461 1.76E-07 0.86889 7.733349 9.21E-14 0.444305 0.948928 0.343251
720241 0.237561 2.173076 0.030184 -0.02182 -0.40799 0.683436 0.392306 5.103988 4.53E-07 1.041557 3.83577 0.000139
870323 -0.71533 -15.9755 0 0.808312 40.1684 0 0.431534 22.58584 0 -0.24551 -2.72306 0.006492
260111 0.108726 0.57839 0.563268 0.009269 0.095756 0.923754 0.429346 3.842184 0.000138 -1.69262 -4.45385 1.05E-05
711019 -0.48799 -4.0366 6.13E-05 0.592445 7.3242 7.84E-13 0.65948 9.239367 4.33E-19 -0.72174 -2.2583 0.024288
842139 -0.86469 -23.8562 0 0.89364 41.60958 0 0.757661 44.08029 0 -0.18594 -2.57822 0.009966
260200 0.676027 4.399566 1.36E-05 -0.14768 -2.23851 0.025677 0.337628 4.66679 4.04E-06 0.188293 0.57041 0.568685
260112 0.044488 0.132393 0.894788 -0.17911 -1.01483 0.311242 0.483574 3.046134 0.002586 -0.94118 -1.38602 0.167072
710239 -0.09243 -0.83958 0.401328 0.372338 7.527376 1.09E-13 0.475968 9.334432 5.59E-20 -0.9974 -4.21105 2.75E-05
711031 0.283116 1.27986 0.202041 0.478308 3.123838 0.002043 0.675588 4.80853 2.94E-06 -1.00325 -1.81722 0.070643
750110 1.357676 3.016266 0.003466 -0.54429 -2.27105 0.025938 -0.3689 -1.25511 0.213233 -0.79824 -0.95459 0.342771
270119 0.001073 0.005774 0.995395 0.265561 2.842983 0.004658 0.442525 4.960875 9.73E-07 -1.00831 -2.34843 0.019254
760110 -0.25548 -2.61879 0.008942 -0.01425 -0.28431 0.776228 0.408948 7.686876 3.25E-14 -0.97888 -4.3787 1.3E-05
870322 -0.86164 -14.1058 0 0.745629 26.59339 0 0.419572 17.29904 0 -0.24046 -2.04442 0.040996
711021 -0.26367 -1.32547 0.185928 0.395634 2.905199 0.003917 0.862023 7.769511 1E-13 0.483908 1.031698 0.302967
261000 -0.1101 -0.7716 0.440802 -0.17726 -2.45138 0.014652 0.38408 4.798593 2.25E-06 0.038812 0.120185 0.904396
271000 -1.15529 -21.6478 0 0.539706 21.75709 0 0.485826 23.7218 0 -0.28477 -2.76854 0.005649
870421 -0.36431 -6.34663 2.53E-10 0.594902 22.30376 0 0.317126 14.10167 0 -0.04009 -0.36592 0.714453
284410 0.135383 0.311319 0.755933 0.044931 0.264018 0.79208 0.770748 4.73325 4.58E-06 0.099764 0.192217 0.847798
80510 -0.45149 -5.50934 4.29E-08 0.439757 10.81073 3.3E-26 0.383097 10.88568 1.55E-26 -0.20303 -1.21519 0.224499
80610 -0.52318 -6.65992 3.94E-11 0.562998 14.24682 0 0.440136 12.79974 1.55E-35 -0.65013 -3.96163 7.82E-05
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10.4.9 The Gaps
Below are the largest gaps found by the HS6 model. These are total gaps and are obtained by summing up
the individual gaps we face with individual countries.
Table 68: The largest gaps found by the HS6 gravity model
hs6 short description
710812 Gold in unwrought forms non-monetary
270112 Bituminous coal, not agglomerated
710231 Diamonds (jewellery) unworked or simply sawn, cleaved
711011 Platinum unwrought or in powder form
720241 Ferro-chromium, >4% carbon
870323 Automobiles, spark ignition engine of 1500-3000 cc
260111 Iron ore, concentrate, not iron pyrites,unagglomerate
711019 Platinum in semi-manufactured forms
842139 Filtering or purifying machinery for gases nes
260200 Manganese ores, concentrates, iron ores >20% Manganes
260112 Iron ore, concentrate, not iron pyrites, agglomerated
710239 Diamonds (jewellery) worked but not mounted or set
711031 Rhodium unwrought or in powder form
750110 Nickel mattes
270119 Coal except anthracite or bituminous, not agglomerate
760110 Aluminium unwrought, not alloyed
870322 Automobiles, spark ignition engine of 1000-1500 cc
711021 Palladium unwrought or in powder form
261000 Chromium ores and concentrates
271000 Oils petroleum, bituminous, distillates, except crude
870421 Diesel powered trucks weighing < 5 tonnes
284410 Natural uranium, its compounds, mixtures
80510 Oranges, fresh or dried
80610 Grapes, fresh
490700 Documents of title (bonds etc), unused stamps etc
220421 Grape wines nes, fortified wine or must, pack < 2l
261690 Precious metal ores and concentrates except silver
470200 Chemical wood pulp, dissolving grades
870332 Automobiles, diesel engine of 1500-2500 cc
10.4.10Critical Observations
From our regression coefficients we note:
Reduction in documents (domestically and abroad) to export will increase trade.
Reduction in domestic and foreign container costs will boost trade.
Regarding gaps:
Demand-side identification.
Must be matched with supply-side identification to be meaningful.
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10.4.11Barriers to Trade
Table 69: Trading Across Borders: Costs & Time Delays – BRICs and South Africa (2012)
Country Rank (185)
Documents to export (number)
Time to export (days)
Cost to export (US$ per container)
Documents to import (number)
Time to import (days)
Cost to import (US$ per container)
Brazil 123 7 13 2 215 8 17 2 275
Russia 162 8 21 2 820 11 36 2 920
India 127 9 16 1 120 11 20 1 200
China 68 8 21 580 5 24 615
South Africa 115 6 16 1 620 7 23 1 940
Source: World Bank Doing Business Survey
http://www.doingbusiness.org/ExploreTopics/TradingAcrossBorders/ [Accessed 16 November 2012
10.5 Decision Support Systems
Decision support systems use computer processing power to help reduce huge amounts of data into smaller
manageable amounts that humans can comprehend. The theoretical studies of organizational decision
making done at the Carnegie Institute of Technology during the late 1950s and early 1960s, and the technical
work on Technology]] in the 1960s. It is considered that the concept of DSS became an area of research of its
own in the middle of the 1970s, before gaining in intensity during the 1980s. Beginning in about 1990, data
warehousing and online analytical processing (OLAP) began broadening the realm of DSS. As the turn of the
millennium approached, new Web-based analytical applications were introduced.
Two decision support systems that have been used in South Africa are report below:
Global Economic Strategy System
The Decision Support Model
10.5.1 Global Economic Strategy System
In 1996, the dti undertook a project with the objective to provide a practical strategic and analytical tool for
identifying growing markets to which South African firms could export. The Global Export Strategy Project
(GESP), as it was called, was useful in conceptualising and prioritising South Africa’s foreign economic
relations. It gave a static indication of where DTI was to channel its overseas resources to as well as its
domestic marketing skills. From its conceptualisation, it was always recognised that for the GESP to be a
valuable long-term tool, it must continuously revisit, revise and reinforce itself. DTI now wishes to updated
the techniques and develop a system that can generate the information contained in the report on an
ongoing basis.
The 1996 GESP report is mechanical and static and the underlying analytical reports, can, as part of a new
GESS, be generated on a recurring basis, perhaps yearly. In addition, the new GESS is proposed to be set up
in a more flexible way in that it must contain menu driven facilities in which the weights and even some of
the scores of economic and political criteria can be chosen by the user, with the GESS automatically updating
338
the country rankings. The principal trade datasets to be utilised will be sourced from the World Trade
Analyser (WTA system of Statistics Canada), World Bank Development Indicators, the ITC and the EIU.
The overall objective of this study is therefore to further develop the GESP initiated in 1996 into a live system
that will allow data manipulation for the purpose of determining changing trade trends, and strengthen its
role as a strategic tool to be used as a basis for analysing growing global markets for South African exports.
The system developed helped the dti in determining the allocation of foreign offices and domestic marketing
resources.
Table 70: Global Economic Strategy System
8.7.5 The Decision Support Model
The DSM of Cuyvers et al. (1995:173-186) and Cuyvers (2004:255-278) was chosen by the as an international
market selection method and was applied to South Africa to provide the dti with a tool to justify export
promotion activities more subjectively.
Filters
The DSM consists of a sequential filtering process using a number of filters to eliminate countries with lower
export potential.
The first filter considers the macroeconomic environment of the trading partner. Indicators such as country
risk ratings; GDP (GDP per capita); and GDP growth (GDP per capita growth) play a role in the selection
process.
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In filter two, import market growth in the short- and long-term, and relative market size, were considered for
each country-product combination.
In filter three, the Herfindahl-Hirschmann Index65 gives an indication of the market concentration of the
importing countries and barriers to entry.
In filter four, realistic export opportunities identified in the previous filters are classified.
Figure 67: DSM filters
This classification was done by calculating South Africa’s relative market importance for each country-
product combination and combining this with the categorisation in filter two.
DSM Dashboard
Classification of realistic export opportunities (REOs)
65 Herfindahl-Hirschman-index
HHIij
= ∑ (Xkij
/ Mtot,ij
)
2
Xkij
the exports of country k to country i for product category j.
Mtot,ij
country i’s total imports of product category j.
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Table 71: DSM dashboard
Market share of South Africa relatively small
Market share of South Africa intermediately small
Market share of South Africa intermediately high
Market share of South Africa relatively high
Large product market Cell 1 Cell 6 Cell 11 Cell 16
Growing product market (ST+LT) Cell 2 Cell 7 Cell 12 Cell 17
Large and growing product market (ST) Cell 3 Cell 8 Cell 13 Cell 18
Large and growing product market (LT) Cell 4 Cell 9 Cell 14 Cell 19
Large and growing product market (ST+LT) Cell 5 Cell 10 Cell 15 Cell 20
10.6 Geographical Distribution of Potential Value of Export Opportunities
Figure 68: Geographical distribution of potential value of export opportunities
10.7 Conclusion
The main criticism of the gravity model previously was that its theoretical foundations were weak, but recent
work has rectified this to the point where in 1997, Frankel, Stein and Wei claim the gravity model has ‘gone
from an embarrassing poverty of theoretical foundations to an embarrassment of riches!’
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Decision support models are very useful in that they synthesis a lot of information and can help make
complex problem solving more manageable. The main weakness of decision support models is that they rely
on subjective methodologies rather than objective criteria dictated by the gravity model. Even though the
DSM seems to integrate quantitative (and qualitative variables such as risk) through a analytic hierarchy
process and decision model gains in predictive accuracy through the use of qualitative attributes, it is not
robust and predictions depend on, not only the choice of variable, bit also sequencing.
Even with sophisticated tools, it is important to use “common sense” and sound economic theory when
evaluating the outcomes of these models.
10.8 Areas of Possible Comparative Advantage
The “Product Space” techniques will be used to identify possible areas of comparative advantage. The
Product Space is a network that formalises the idea of relatedness between products traded in the global
economy.
According to the theory of possible comparative advantage, if a country has a comparative advantage in one
good, then the country could possibly have a comparative advantage in other goods with similar factor
conditions, this concept is also known as proximity. Using this proximity and RCA’s of product we can create
a Product Space Map, as seen below for the year 2000.
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Figure 69” South African Product Space for 2000
Source: Own calculations based on Comtrade and
Table 72 Leamer Classification of Nodes
Red Petroleum Yellow Tropical Agriculture Green Labour intensive
Orange Raw Materials Pink Animal Agriculture Blue Capital intensive
Light orange Forest Products Light green Cereals Light blue Machinery
Purple Chemicals
To analyse South Africa’s Product Space we use Hidalgo et al. (2007), we plan to examine how the Product
Space has changed over the period 2000 to 2011. The Product Space can also be used to explain the network
Critical Analysis for the Integrated National Export Strategy
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of relatedness between products, taking into account the similarities in inputs. From this we can then discuss
growth and diversification opportunities.
In order to understand the Product Space, the following observations can be made: the size of the product
node is proportional to its share in world exports and the colour of the node identifies the class of product.
Products from similar groups lie close together to form clusters, often using similar factor conditions.
From the 2000 Product Space we see South Africa exports many unsophisticated goods which are not very
well connected. Products that are close together on the product map have similar characteristics to those
products already being exported, giving rise to the use of areas of possible comparative advantage. A country
wants to achieve large nodes which would indicate a large share in the world market and dense clusters of
products, meaning that the country is using the existing comparative advantage to product and export those
products with similar input requirements. Interesting areas in the above Product Space Map are; garments,
motor vehicles and electronics as these are very dense areas. The product groups with the largest nodes are
raw materials and petroleum indicating large global market participation.
When countries want to diversify their product mix of exports, they tend to add products that are closely
related to the products in which they currently have an RCA. Hausmann and Klinger (2006, 2007) found that
the Product Space of South Africa is highly heterogeneous, meaning there are dense parts of the Product
Space with highly inter-connected products as well as very sparse parts. They conclude that a “product’s
proximity to existing areas of comparative advantage is one of the most significant determinant of whether a
country will develop an advantage in that product over time.”
As the global economy moves towards being “more green”, policymakers are interested in knowing which
green sectors offer the greatest diversification and potential for growth in their economies. The Product
Space, pioneered by Hidalgo and Hausmann, can be used to identify these sectors and products a country is
in the best position to possibly export.
10.9 Integrating IPAP and Potential Trade
The notion that exports and trade more generally are conducive to economic growth has been a long-
standing feature of economics. Achieving export-led growth is essentially about finding ways to increase the
ability to sell domestically produced goods and services on global markets. This ability to export is what has
often been understood as “export competitiveness.” In this thinking, exports become the target and ultimate
goal of economic policy. Under IPAP (and other programmes) there are a number of incentive schemes
available to South African manufacturers. These schemes attempt to promote competitiveness by increasing
efficiency and innovation. These schemes should include an export component. In other words preference
should be given to firms that export a large percentage of their produce.
A spread sheet (on the accompanying CD ROM) has partially mapped the priority IPAP-sectors and the export
councils. These need to be integrated with products that show the biggest trade gaps and areas in which
South Africa has unexploited comparative advantage.
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10.10Findings and Recommendations
All three models reviewed have their strengths and weaknesses. The gravity model has sound theoretical
foundations and has proven to be statistically robust. The two decision support system models are easier to
understand but rely on the factors included; their relative weightings; and sequencing. The gravity model is
more objective with a stronger scientific foundation while the two decision support system models are
subjective and are more intuitive.
The dti should use all three models. The state of trade is relatively stable and therefore the models need only
be updated (alternatively) every three years. Training in the use of the models is critical. The models should
be rolled out to the provinces. This will ensure that there is greater alignment between the various
departments and spheres of government.
The dti needs to ensure that there is sufficient capacity developed across the country among trade
promotion officials to use the tools effectively and also understand their strengths and weaknesses. The
accompanying CD ROM will be useful in this regard.
The dti (both TISA and IDD) needs to integrate products that show the biggest trade gaps and areas in which
South Africa has unexploited comparative advantage with IPAP priority sectors and develop interventions
(including attracting FDI) to exploit these opportunities.
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Appendix 11. Survey of Past, Potential and Current Exporters
11.1 Survey of existing exporters
An essential element in this project is extensive consultation with all stakeholders at each stage. In order to
broaden the spread of consultation a survey was undertaken of present, past and potential exporters to test,
among other things, their reasons for exporting or not exporting, the problems they face, and their
experience of the various export services available to them. The survey covered companies in most
manufacturing sectors, as well as some representation of the agricultural and mining sectors.
The findings from the survey provided a great deal of information and although these are provided here in
great detail, it is not possible to include all the information that was collected. However, all the relevant
information is included, as well as the recommendations arising from the findings. The survey included:
Exporters;
Past Exporters; and
Potential Exporters.
11.2 Introduction
The purpose of the survey was to solicit the opinions of exporters and to find out what products they were
exporting, where they were exporting to, what drivers and barriers they were experiencing, etc.
Initially (in terms of the initial proposal) only existing exporters were to be surveyed. However, it was felt
that the opinions of non-exporters would be different to those of exporters. Non-exporters had perceived
problems and had not necessarily experienced the actual problems that current exporters have. In terms of
the “REN-approach”, it was also necessary to try and find out why exporters exited. Therefore a separate
survey was also prepared for past exporters.
There is no comprehensive exporter directory in South Africa. With the kind assistance of Neels Bothma (of
ExportHelp) and UNISA over 2000 exporters were identified. The following email was sent to them:
Dear Exporter
One of the strategies that the South African government has adopted to reduce the very high
unemployment rate and to grow the economy is to increase exports. The dti has appointed TIPS
to review and revise the current National Export Strategy. Part of this review includes getting
the views of both current and past exporters as well as potential exporters. It is important to
understand both the drivers and the obstacles that exporters face.
The National Export Strategy will cover the next 20 years (although only the next five years will
be spelt out in detail). The scope is national and therefore deals with all factors that will have
an impact on South Africa’s exports. It is not limited to the dti’s functions but also includes, but
is not limited to, finance and logistics. The goal is to advise government on ways to change
policies that hinder private establishments like yours and to develop new policies and programs
that support productivity growth and competitiveness. The results of the survey and other
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research could lead to substantial changes that may affect your company and industry. Your
opinion and participation in this survey is vitally important.
It will be appreciated if you would complete one of the three surveys. Whether you are currently
exporting, have exported, or do not export, your opinions are important. Besides the questions,
you will also have an opportunity to give your views on any aspects that you feel are important
to help grow South Africa’s exports. The questionnaires are online. Please click on the
appropriate questionnaire:
Have never exporter (https://www.surveymonkey.com/s/nonexporter1 )
Have exported but not on the past year
(https://www.surveymonkey.com/s/Pastexporter1 )
Currently exporting (https://www.surveymonkey.com/s/NES_Current1 )
The completed questionnaires will be treated as confidential and only the TIPS researchers will
have access to your answers. Any comments that you give will not be attributable to you. You
are therefore encouraged to be absolutely honest and highlight any aspects that hamper your
role in exporting.
In addition to this database, requests were also sent to organised business and to the Export Councils, who in
turn were requested to forward the email to their members. (It is possible that opinions regarding the
effectiveness of Export Councils could be skewed.)
DTI’s own database was also used. This included exporters who had used the export marketing assistance
scheme or had been part of a capacity-building programme. (It is possible that the opinions of exporters that
had benefited from various government incentives would also skew the survey results.)
11.3 Responses to the Survey of Current Exporters
A total of 374 exporters participated in the survey.
As would be expected most of the exporters came from Gauteng, followed by the Western Cape, KwaZulu-
Natal and the Eastern Cape. As can be seen from the table below responses from the other provinces were
rather dismal.
Table 73: Origin of responses - exporters
Province Responses
Eastern Cape 32
Free State 3
Gauteng 144
Kwazulu-Natal 37
Limpopo 8
Mpumalanga 7
North-West 4
Northern Cape 2
Western Cape 94
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11.3.1 Size of Respondent Companies
There was a good spread of exporters when ranked according to size. Almost a quarter of the respondents
had more than 200 employees. This is important since these exporters are responsible for the bulk of
manufactured exports. Nevertheless, there was a good representation from very small- small-, and medium-
sized (SMME) exporters.
Figure 70: Total number of full time paid employees
Figure 71: Exporter size turnover
less than 5
6 - 10
11 -50
51 - 100
101 - 200
More than 200
Less than R4million
Between R4
million and R10 million
Between R10
million and R40 million
Between R40
million and R100
million
Between R100
million and R500
million
More than R500
million
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11.3.2 Sectors Represented by Respondent’s Companies
Figure 72: Classification of exporters
11.3.3 Exporters’ Experience
Manufacturers were well represented among the respondents. Nevertheless they were also respondents
from agriculture, mining, and the services sectors.
Most of the firm’s that responded have been in business for a considerable length of time. And indeed most
of the respondents had been exporting for more than 10 years. This cohort may therefore be
overrepresented and the results could be skewed since experienced exporters have overcome many of the
problems that new or less experienced exporters are still battling with.
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Figure 73: Firms experience
Is important to note therefore that, when looking at the results, the problems that small emerging exporters
and novice exporters face will not be ranked prominently. In this regard, it is important also to refer to the
survey, undertaken for the “NEDP” to ensure that all problems that exporters face are addressed and not
only larger or experienced exporters.
11.3.4 Reasons for Exporting
For a long time the “exporter stages” models in international business and marketing research have for
decades distinguished unsolicited/reactive (passive) from proactive (active) exporters. Geishecker et al
(2012)claim that unsolicited exports occur only infrequently, are often discontinued and that only a fraction
of the potential customers in a foreign destination will place unsolicited orders. From the survey of South
African exporters, a few of the companies commented on the potential growth opportunities that they saw
for their products in foreign markets. One commented that “There are better opportunities in overseas
market, for black own wine brands” and another, “Growth strategy due to demand for our products
internationally”. Less experienced exporters, however, started exporting as a result of unsolicited enquiries.
Exporters made the following comments:
“Had unsolicited enquiries for many years but recently decided to export because of slowdown in
local markets. Have always exported to SADC countries.” and
350
“Enquiries from cross border for our products that their local industries could not supply or could not
supply competitively.”
Figure 74: Reasons for exporting
Just over 16% of the exporters (with more than 100 employees) exported because they were part of
multinational companies. In addition to this, almost 40% of the larger exporters considered exporting to be
part of their original strategy. (This was partly driven by the small South African market as one respondent
put it - “original strategy and spare capacity”.) This obviously implies increased capacity and one respondent
said; “Demand from abroad for citrus combined with increased production locally” was their motivation for
exporting.
A further 18% of these larger exporters wanted to reduce their dependence on the South African market.
Although some larger companies see South Africa as a major market, they want to diversify. They indicated
the traditional stages of internationalisation, starting with exports and eventually establishing foreign
manufacturing facilities. Africa seems to be the logical destination but others include Australia.
Twenty six per cent of smaller exporters (with less than 100 employees) established their companies to
export, with an additional 16% including exports as part of their original strategy. Twenty per cent had
unique products that they felt would have global appeal. Smaller companies did not see reducing their
Critical Analysis for the Integrated National Export Strategy
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dependence on the South African market as being as important as did larger companies. Companies with
between 11 and 50 employees started exporting as a result of unsolicited orders.
Hardly any of the exporters saw the value of the South African Rand as a potential driver. A few companies
(3%) with more than 200 employees however did see an undervalued currency as an advantage. Incentives
were important to one exporter of automotive equipment and they stated that “MIDP duty relief incentive
scheme” was a contributory factor in their decision to start exporting.
AGOA was also given as a driver to start exporting by a respondent.
For many companies, innovation was an important consideration to start exporting. More than 15% of
exporters indicated that this was their prime motivation. It was a very important consideration for firms that
had been exporting for less than a year and accounted for more than 30% of those exporters.
More experienced companies indicated that inward buying missions were a contributory factor to their
export efforts. One exporter indicated that it started exporting as a result of participation in the Design
Indaba, Cape Town 2009 and 2012, where it made contact with EU importers. Less experienced exporters on
the other hand relied more on participation in foreign trade missions and foreign travel. This indicates that:
More resources should be given to inward buying missions as the investment is more sustainable;
and
More efforts should be put into developing local networks where foreign buyers can meet with
South African suppliers.
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Figure 75: Reasons for exporting
Comments
Foreign clients come hunting and we process animal trophies and then export the finished product
back to client
We specialise in ecotourism products
Selling South Africa to overseas tourists is just the greatest.
11.3.5 Benefits Exporters Have Enjoyed Through Exporting
According to Gouws (2004) most South African manufacturing companies tend to move into exports to grow
and increase sales. They are often motivated by adverse home market conditions, such as shrinking market
share because of foreign competition. The benefits that exporting brings to the individual company, include
the following:
Commercial advantages
increased sales;
increased profits;
reduced risk;
lower unit costs;
economies of scale;
reduced seasonal fluctuations in sales;
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353
extended product life cycle.
Financial
Organisational
The survey of exporters confirmed many of these reasons. Many exporters cited numerous advantages that
they have enjoyed because of their export efforts. One established exporter stated that exports:
Created a sustainable platform for local industry;
Maintained our market position in established markets;
Continued growth in emerging/new markets;
Exports have assisted manufacturers to maintain/grow production levels, preserve jobs and create
employment opportunities.
The other exporters’ comments are discussed under the headings listed below.
Increased production and turnover
Most of the established exporters cited increased turnover as a major advantage. This obviously led to
increased profits. In other cases it gave exporters the “ability to turn excess capacity to exports when
domestic demand is down and hence not putting workers on short time and or having to retrench any staff.”
Increased exports also led to a “reduction of overall unit costs” which in turn contributed to “increased
margins.” Again this improved exporters’ profitability.
The “increased sales and better volumes” also “improved cash flow.” New exporters and exporters with less
know-how have had contradictory experiences.
Profits
As has been pointed out in the section on increased production and turnover, exporting has contributed to
increased profitability of South African firms as well as their employees. One of the respondents pointed out
that his earnings were higher largely because of commissions he received on export sales.
Incentives
The South African government’s incentives also contributed to firms’ profitability and thus their benefits
from exporting (DTI Government Incentives and the MIDP)
Diversification of markets and risks
Exporters either have a defensive or offensive diversification strategy. Most South African exporters had
defensive reasons for diversification in order to spread the risk of market contraction. A few were forced to
diversify when the South African market conditions no longer offered opportunities for growth. A few South
African exporters took offensive positions and tried to conquer new markets and to take opportunities that
offered greater profitability than local expansion opportunities.
A few exporters indicated that the slowdown in the global market has affected them and that more effort
was required in exporting in this environment. The 2008/09 recession was global, however, and practically all
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global markets were affected. Therefore the slowdown experienced in South Africa was similar to that felt in
other trading countries. Nevertheless, for a few South African companies, exporting “has enabled us to
survive, because South African manufacturing seems to be shrinking. [We have been] keeping our volume
high and therefore being competitive in local market.”
Exporters highlighted the positive effects that “exposure to global markets” gave them and their companies.
They were exposed to global trends that had positive consequences for their South African operations.
Many of the exporters pointed to the reduced risk that the “diversification of customer base” brought.
“Additional customers and purchase orders” spread the risks. Domestic risks, such as labour disputes that
resulted in undesirable market conditions, were offset through “more export sales, and being able to have
sales while the mining industry in SA is on strike.” (This relates to companies supplying the mining sector in
South Africa.)Another commented that “We stayed a viable concern that employs 85 people full time and
between 100 and 600 contract labours depending on the export successes.”
8.7.5.1 Enterprise Development
Enterprise development is critical to South Africa’s growth and development and is even included as a
component in the Broad-based Black Economic Empowerment (BBEEE) score cards. Because of exporting a
firm “assisted others to export.”
8.7.5.2 Economies of Scale
Economies of scale are the cost advantages that enterprises obtain as a result of expansion – the producer’s
average cost per unit falls as the scale of output is increased. Economies of scale gave South African
exporters the ability “to secure business locally and internationally.” One exporter said that the “additional
revenue stream to support local overhead structure” and the contribution to “better utilisation of capacity”
allowed them to “increased turnover and profit.” The economies of scale created by global markets gave one
exporter the “ability to invest in CAPEX.” Its “expansion allowed it to create employment opportunities for
South Africans”.
8.7.5.3 Seasonality
A few exporters that produced or sold seasonable products found that they could balance the seasons by
selling to the northern hemisphere when appropriate. Their “domestic turnover during South Africa’s winter
months dwindled and export turnover increased for the northern hemisphere's summer.” “Our export sales
to northern hemisphere during South Africa's winter boost sales in these quiet months.”
8.7.5.4 Technology and Innovation
Exposure to foreign markets exposes manufacturers to new technologies, innovation and other useful
information that they may not have acquired without this exposure. Although innovation may play a more
important role in the firm’s decision to start exporting, successful exporting drives the process of innovation
and technology acquisition.
One exporter highlighted the importance of “networking with other exporters and importers. Our export
customers have given us excellent input with range planners and these are invaluable in understanding
Critical Analysis for the Integrated National Export Strategy
355
individual countries and their customer trends.” Another saw their “income in strong currency” as being
important, but their “exposure to technology” was equally so.
Another exporter pointed to the role exporting had in “developing and growing engineering expertise in
South Africa”. This was augmented by “learning about and understanding the requirements for the
international market.” They also “enjoyed being part of the "international" team.”
Export spillover, broadly defined as the positive externalities arising from a firm’s interaction with firms of
other nations, is linked to productivity. According to this theory, the improvement in domestic firms‘ export
performance is the consequence or result of export spillovers from other exporters or multinational
corporations.
Foreign exchange
Even though the exchange rate in the past couple of years has not been favourable to South African
exporters, about a dozen experienced exporters (with more than 10 years) cited this as an advantage they
have derived from exporting. Although a few did indicate the negative influences, most claimed it was
positive. One exporter put it: “At times when the Rand/Dollar exchange rate was very high, we were able to
survive in difficult economic times. We have a worldwide customer base.” Many were able to buy machinery
and other inputs such as raw materials when the South African Rand was strong which made them more
competitive when the currency weakened.
They did however indicate that the risks associated with currency fluctuation had to be managed.
International and domestic recognition
“Export quality” has a ring of endorsement. Domestic consumers feel that if it is good enough for foreign
markets, it should be superior to goods that are sold only in the South African market. One exporter cited
“Proof that our products are 'world-class’.”
Selling to international markets enhanced the brand “especially by becoming an international brand” and
winning the “loyalty from export customers.”
Exporters felt that they “become a better business by understanding the level of product quality and service
required to be a business of international standing.”
A few South African provinces award “an exporter of the year” to recognise the achievements of their local
businesses. These awards are well publicised and winners get suitable recognition.
Social benefits
People are social creatures and like to meet new friends. Exporting allows them to do this and, as one
exporter put it, “we have met numerous interesting people and have become good friends with some of
them. We have experienced many different cultures. I feel that it has benefited the country too, to have the
foreign currency coming in.” Another developed “valuable partnerships with different companies in different
countries.”
Social responsibility
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Although most of the exporters focused on economic and other commercial reasons for exporting, social
responsibility was also considered. One of the companies with less than five years’ exporting experience said
: “We have managed to uplift our community by employing more people, supplying skills development and
training, keeping abreast of worldwide food trends; meeting exporters, importers, distributors and
Supermarket chains; foreign investment for South Africa; sharing our uniquely South African products;
becoming a Fair Trade partner!” Another exporter, focusing on green issues, stated that it had “opened new
materials for recycling, improved cash flow and increased sales”.
11.3.6 How Exporters are Currently Exporting
Most exporters sold directly to the end-user (either B2C66 or B2B67). Most larger exporters (that employed
more than 200 people) sold directly to businesses. Smaller exporters (employing less than 100 people) sold
marginally more to consumers. In addition to this, a few of the respondents sold directly to their foreign
parent company or to a branch or a subsidiary.
Foreign import agents or distributors were the second most preferred channel to use. This channel was
marginally preferred by smaller exporters (with less than 50 employees).
A few exporters used South African export agents. Although both large and small exporters used South
African agents, smaller exporters proportionately preferred this channel.
International trading houses are of various types and forms. They exist in a number of countries and their
activities and organisation vary according to the historical background and the scenario in which they
operate as well as national priorities and government policies. They are known by different names in
different countries:
Trading Houses in Canada and Hong Kong,
Sogo Shosha (general Trading House) in Japan,
Semen(by product) in Japan,
Comercializadoras in Latin America,
OSCI (Opérateur Spécialisé en Commerce Extérieur) in France,
EMC (Export Management Company) and ETC (Export Trading Company) in the USA,
Export House in India,
International traders in South Arica.
They procure locally and sell internationally, they procure internationally and sell locally and they also
procure internationally and sell internationally. They have the flexibility and the agility to work in many
markets with many products simultaneously as international marketing is their core business. They serve as
commercial intermediaries between suppliers and buyers located in different countries. To this end they
adopt the role of merchants, consortia managers and trade facilitators of various sorts. As merchants they
buy and sell on their own account and earn a margin.
66 Business to Consumer 67 Business to Business
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Given the history of South Africa as a trading nation, and the importance of trading houses generally across
the world, it is rather surprising that so few of the established exporters surveyed are using this channel to
sell products internationally. The country certainly has a strong body of international traders and agents.
Figure 76: Current export channels
11.3.7 Use of the Internet in Exporting
Very few exporters actually used the Internet to sell their products or services using e-commerce. Smaller
companies (with less than 50 employees) will be most likely to use e-commerce as a tool to sell globally.
Some 25% of these companies used e-commerce, compared to only 3% of the large companies using e-
commerce extensively. Almost 50% of the companies surveyed (small, medium-and large) did not use e-
commerce at all.
The majority of firms that use online sources do so for export market research and to acquire foreign market
intelligence. Smaller companies tend to make use of the Internet extensively while large companies use it
somewhat. Of concern is that just over 30% of all respondents across all sizes of companies use the web only
on a limited basis, if at all. Nearly 10% of large companies did not use the Internet for export research and
intelligence.
A similar picture emerges for the use of the Internet to promote a company’s products and services globally.
Almost 40% of all the respondents did use this tool extensively, while 30% used it on a limited basis, if at all.
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11.3.8 Comparative and Competitive Advantage
Firms export because they have some attribute that gives them some form of advantage in foreign markets.
These attributes have been debated and researched extensively. It is important to understand what actually
drives exports so that these drivers can be strengthened to stimulate new exporters or for exporters to
export more (either through new products, new markets or simply selling more in existing markets).
Figure 77: Comparative and competitive advantage
Existing contacts in export market
As any business, relationships are critically important. Similarly, exporters considered the existing contacts in
the export market to be very important. More than three-quarters of the companies surveyed with 100 or
more employees rank the existing contacts in export markets is being critical. In fact, 42% of companies (that
had between 100 and 200 employees) felt that they would not be able to export without the network of
international contacts.
Smaller firms also ranked the international interactions as important, but not as important as the larger
companies.
Trust is imperative when doing business across borders. There are often communication problems that
hamper the initial negotiations, but other aspects such as cultural and legal obstacles can scuttle lucrative
deals. Therefore, once networks have been established, exporters tend to spend a lot of time and resources
in maintaining them. Even with modern communication technology, which undoubtedly has made
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international trade easier, personal contact is necessary. Face-to-face negotiations, together with social
interaction, strengthen commercial links.
Figure 78: Existing contacts in export market
Firms in the transport, storage and communication sector, especially, relied on personal communication.
Two-thirds of the companies responded that they would not conduct international business if it were not for
personal contact. The remainder considered personal relationships to be very important. Exporters of
services also tended to rate personal contact to be very important. In the construction industry, 25% of
respondents replied that it was critical while the remainder felt it was very important.
Exporters of textiles, clothing, leather goods, and footwear did not rate this aspect as important as other
manufacturing sectors did. This is rather surprising and bears further investigation. Exporters of transport
equipment valued personal contacts slightly lower than the apparel and footwear exporters but this can be
explained by the fact that most automotive exporters deal directly with the parent company or subsidiaries.
In this sector decisions are often made overseas and not in South Africa.
Innovative products
Innovation is an important driver of productivity and economic growth and contributes to sustainable
economic development. Schumpeter ascribed much of economic development to what he termed “creative
destruction”. This implies that new creative or innovative products replace existing products in the either the
local or the global marketplace. It is therefore not surprising that many South African exporters attributed
the success to having innovative products.
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Figure 79: Innovative products
Manufacturers, in particular the food and fabricated metals sectors, relied on having innovative products.
However, exporters of services also relied on the innovative abilities to export. Established sectors such as
construction and mining did not rely on innovation to gain or retain their market share.
Firms employing between 11 and 50 people relied on innovation the most. Thirty per cent of these
respondents claimed that having innovative products was critical for their export efforts and 80% of them
held that it was critical, very important or important. In this group 36% of the respondents claimed that
having their own R&D facilities was critical to the export efforts, while a further 49% said it was either
important or very important.
Large firms (with more than 200 employees) also attributed their export success to having innovative
products. However, only 10% of these firms claimed that it was critical. The majority of firms that have been
in business for longer than 10 years also recognised the importance of innovation. More than a quarter of
these firms would not export had it not been for their innovative products. Practically, the entire group of
these firms considered innovative products to be at least important to their exporting.
Very small firms with less than five employees, relied on innovative products. Forty per cent of these
respondents claimed that innovative products were either critical or very important to their export drive.
Generally firms with less experience (five years or less) did not, however, recognise the importance of
innovative products.
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Of all the firms that considered having innovative products critical to the export efforts, 42% had their own
R&D departments and also considered that without this they would not be in a position to export. A further
25% considered their R&D departments to be very important.
Innovative firms experienced the following barriers to expanding into foreign markets:
Limited financial resources/ restricted access to finance (37%)
High cost of imported inputs required for export purposes (53%)
The high cost of undertaking marketing activities abroad (78%)
High transport costs (67%)
Lack of knowledge as to where to find practical advice or assistance (23%)
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to that
which is required to produce it (inputs). The measure of productivity is defined as a total output per one unit
of a total input. Although these definitions are very general and are insufficient to make the phenomenon of
productivity understandable, they are a starting point to understanding the cost drivers in export
competitiveness.
The majority of all firms, irrespective of their size, considered productivity to at least be important in their
export activities. Larger firms (with more than 200 employees) tended to view productivity as slightly more
important than did smaller firms (73% of these firms view productivity as either critical or very important).
Just over 50% of firms employing less than five people view productivity as being critical or very important to
their export ventures.
Exporters that were part of multinational corporations, in particular, viewed productivity as important to the
export drive. However, the group that started in exporting due to meeting with foreign visitors all agreed
that productivity was important, with almost 90% considering it either critical or at least very important to
export success.
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Figure 80: Productivity
11.3.9 Inputs
Labour, capital, raw materials and energy inputs are required in the production process. When looking at the
aggregate results according to the various sectors, there is very little difference either between the
components or the sectors.
Raw materials
All sectors reported that the cost of raw material was critical, very important or important to their export
drive. A number of exporters of food products, beverages and tobacco products, however, did not rate it as
important at all. A large proportion of exporters of basic metals, fabricated metal products and machinery
found raw material cost critical, the remainder finding it to be important to their export drive.
Exporters of raw or intermediate materials charge foreign buyers less than South African exporters. Foreign
manufacturers then have a competitive advantage over South African producers because they can acquire
the raw materials at lower prices. The upstream benefits of competitive prices are not translated into
cheaper inputs for downstream industries, which tend to be labour-intensive.
This is generally refered to as “Import-parity pricing” and it is a problem in that it that pushes up the cost of
production in South Africa. Import-parity pricing can be defined either as “A price charged for a domestically
produced good that is set equal to the domestic price of an equivalent imported good -- thus the world price
plus transport cost plus tariff.” Or “the price that a purchaser pays or can expect to pay for an imported
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good, thus the c.i.f. import price plus tariff plus transport cost to the purchaser's location. This and the
export parity price together define a range of the possible equilibrium prices for equivalent domestically
produced goods”68.
Figure 81: Raw materials
In addition to the problem of import-parity pricing, South African manufacturers often have to import their
components and raw materials. South Africa’s geographic position puts it at a cost disadvantage vis-à-vis its
competitors. Manufacturers, particularly manufacturers of fabricated metal products, and agricultural
exporters felt that it was critical that they had competitively priced raw materials.
Labour costs
Labour costs are an important input for all economic activities and especially manufacturing processes.
However, it is not the cost of each worker that is important when looking at global competitiveness, but
rather the relative unit labour costs. The relative unit labour cost includes both the wage rate and other
aspects such as productivity. Both of these aspects are important.
Respondents made the following comments:
South African labour is incredibly expensive compared to the rest of the world. Our labour laws are
the most prohibitive thing regarding exporting.
68 http://www-personal.umich.edu/~alandear/glossary/i.html
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A lot of the points above are very important but are extremely challenging when competing in the
world market. South Africa needs skills, technology and a dramatically improved work ethic to
improve efficiency in order to justify the increasing labour rates; these used to be our competitive
advantage but this no longer exists. When comparing our labour rates to productivity we are no
longer competitive. The only way to regain an advantage is through improved skills and
infrastructure to compete with other similar manufacturing nations.
On the positive side, one of the respondents claimed that the success of their export efforts was due to a
“well educated, motivated and experienced staff.”
Figure 82: Labour cost
Energy cost
Energy is important for all manufacturing activities. In South Africa, electricity (generated using coal-fired
power stations) is almost the only form of energy used in industry. During the past three years the price of
energy in South Africa has risen dramatically. The national power utility, Eskom, has increased electricity
prices by 24.8%, 25.8% and 16% over the past three years. Over the last seven years, South Africa has had
the highest increase in electricity prices in the world – double that of the second highest country. The NERSA
will determine the price increases for the next three years early in 2013.69
69 http://www.fin24.com/Economy/Electricity-prices-chasing-jobs-away-20121207
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Entities such as the Energy Intensive User Group say the price increases are too high and question Eskom’s
assumptions. It says that the cost of electricity will threaten the competitiveness of South Africa’s primary
industries.
One of the respondents provided the following comment:
“Cheap inputs should all contribute to our ability to compete, but unfortunately South Africa
does not have cheap labour, nor energy, nor capital. These are actually inhibitors to our
competitiveness. I would have preferred to see your survey range from: Positive to Negative
Factors around competitiveness as opposed to Importance.”
Figure 83: Energy cost
Cost of capital
In capital-intensive sectors, the cost of capital is obviously more important than in labour-intensive sectors.
The cost of capital is determined largely by the interest rate, the tax rates, and depreciation allowances. In
addition, manufacturers obtain various incentives from the dti and lower interest rates from the Industrial
Development Corporation.
Agriculture (and Agro-processing) has become more capital intensive over the past few years and therefore it
is not unexpected to see cost of capital as critical, or at least very important, to the sector.
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Fabricated metal products is also very capital intensive, and factories are usually equipped with expensive,
heavy machinery that needs to be financed. But generally the manufacturing sector as a whole is capital
intensive and relies on lower cost of capital.
Figure 84: Cost of capital
Economies of scale
This is the Increase in Efficiency of Production As the Number of Goods Being Produced Increases. A
Company That Achieves Economies of Scale Lowers the Average Cost Per Unit Through Increased Production,
Since Fixed Costs are Shared Over an Increased Number of Units, Contributing to Improved Competitiveness
in Both Domestic and Foreign Markets.
Intuitively, it will be assumed that large companies would attribute competitiveness to economies of scale
and this was the case for 30% of firms employing more than 200 people who claimed that economies of scale
were critical to their export efforts. Without economies of scale, these firms would not have exported. A
total of 70% of large firms indicated that economies of scale were either critical or very important. Less than
2% indicated that economies of scale were not important.
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Figure 85: Economies of scale according to the number of employees
All the firms that employ between the hundred and 200 people felt that economies of scale were important,
but only 15% felt they were critical to their export endeavours.
Most of the manufacturing sectors felt that economies of scale were important to success in international
markets. There were a few exceptions, however, such as the textile, clothing, leather goods, and footwear
sector, in which, only 9% of respondents considered economies of scale to be critical.
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Figure 86: Economies of scale according to sector
None of the manufacturers of products of wood felt economies of scale were critical, but 40% of the
respondents ranked them to be very important, while another 40% felt they were important. All the
manufacturers of chemicals and non-metallic mineral products felt that economies of scale were very
important (none of them felt it was critical). Generally, exporters of mining products, business services, and
other services did not feel economies of scale were particularly relevant to their export marketing efforts.
The ability to produce short runs competitively
Since the South African market is not very large, firms do not always enjoy the benefits of economies of
scale. It is hypothesised that South African firms should use their ability to exploit smaller market segments.
This is often referred to as niche marketing. Niche marketing often requires manufacturers to have the ability
to produce short runs competitively. It also requires a lot more market research to understand the client’s
needs better and to tailor a solution to meet those needs.
Approximately 40% of all firms of all sizes felt that this attribute was either critical or very important to their
ability to compete. More medium-sized firms (employing between 50 and 100 employees) and
manufacturers felt that this was important aspect of the competitive advantage.
8.7.5.5 Proximity to the Market
Although South Africa is located on major sea routes, it is geographically far from the world’s major markets.
Transport costs and the time to get goods to the markets has been a negative factor in South Africa‘s export
promotion efforts over the years. South African exporters have adapted to this.
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Only 15% of large firms (employing more than 200 people) and very small companies (employing less than
five people) considered the proximity to markets to be critical. This tends to indicate that exports to South
Africa’s neighbours and SADC in general are being undertaken by small emerging enterprises or large
established firms.
This trend should change as trade with African countries and especially South Africa’s neighbours increases.
Both the small emerging enterprises and the large established firms will have an important role to play in this
regard.
Figure 87: Proximity to markets
The transport, storage and communications sector expressed the need to be close to their markets, with half
the respondents indicating that proximity was critical to their export efforts. Thirty per cent of furniture
manufacturers felt that it was critical to be close to their markets.
Although transport equipment is expensive to export, only 15% of respondents in this sector felt that
proximity to the market was either critical or very important. The role of multinational corporations and
GVCs is perhaps an important driving force.
Similar taste
The Linder hypothesis explains that international trade patterns are due to the similarity of the demand
structures of the various countries. Countries that have similar tastes will produce products that are the
same or similar and therefore could trade. The similarities could be determined by the levels of income,
culture, or even aspects such as the weather.
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Only 42% of the companies that responded considered this aspect to be critical or very important. Sixty per
cent of very small companies (with less than five employees) considered this to be critical or very important.
There was no discernible trend for companies that had been in business for long periods of time compared
to those that had recently started out.
Figure 88: Similarity of tastes
11.3.10Government Grants or Export Incentives
Most government grants or export incentives have been prohibited by the WTO. Subsidies available to South
African firms are limited. In the past the Category A and Category B Schemes and subsequently the GEIS,
provided generous support to exporters, especially manufacturers.
Most South African exporters included in the survey have therefore not had export specific incentives
(except for EMIA), although many would like to have these schemes reintroduced. It is therefore not
surprising that the number of respondents that indicated that government grants or export incentives were
critical to the export operations was relatively small.
Very small enterprises (that employed less than five people) tended to rely on government grants
proportionately more. Most of the firms in this category are emerging exporters and therefore have access
to various grants (other than GEIS-type schemes).
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“SA incentives do not cover market dislocation costs coupled with SA becoming aggressively uncompetitive
on a number of fronts (labour flexibility, labour working hours, poor productivity, basic infrastructure,
ongoing port shipment delay issues, no energy plan for LPG and sustained supply).”
Figure 89: Government grants
11.3.11Value Chains
Most products are “made in the world’ and goods or services are therefore seldom produced in one country
and then exported to a final consumer. Production today involves an increasingly complex process with
intermediate inputs and supporting activities sourced globally from wherever it is most efficient to do so.
This process is known as a GVC, and is often defined as:
“A global value chain describes the full range of activities undertaken to bring a product or
service from its conception to its end use and how these activities are distributed over
geographic space and across international borders.70
South African firms are generally not well integrated into international GVCs. Approximately 20% of the large
companies that responded, however, did feel it was critical to their international competitiveness, while
more than two-thirds felt it was very important and 95% felt it was important.
70 www.globalvaluechains.org
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Figure 90: Value chains
From Of the small companies that responded, almost a third felt it was critical to their competitiveness. This
is proportionally higher than any of the other sizes of companies. It could be presumed therefore that these
small firms have integrated into GVCs through firms located in South Africa (either foreign-owned or
domestic companies).
11.3.12Growth
Most of the respondents indicated that they intended increasing their export revenue over the coming year.
This intention was across-the-board and growth did not depend on either the size, experience, or in which
sector the exporters operated. A few exporters had already concluded export orders for the coming year,
while others were in the process of negotiations, and yet others were simply looking for new markets. Most
of the respondents were positive, but others indicated that there were challenges that had to be overcome
before they could increase their exports.
Many of the exporters indicated that their growth perspectives were strategic. One exporter, for example,
had “a 20% growth target for the next five years” and another stated “growth of at least 50% per year”.
Many exporters had focused on developing their global networks and were in the process of appointing new
agents and distributors. In some cases this was as a result of participating in foreign trade missions or
exhibitions.
A few respondents intended to increase their exports because of competition in the South African market.
Other respondents indicated that the domestic market was saturated for their product and that exports
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were the only way for them to grow. Some exporters had increased their productive capacity: “increased
capacity installed during 2012, could potentially double our exports”, “Increased production from 50k to 80k
over the next year. Similarly increase in export numbers”, “will have extra plant capacity”.
Figure 91: Expectations to increase exports
Many of the respondents indicated that their plans were to diversify into Africa or to increase their presence
on the continent. Some were looking at neighbouring countries (Botswana, Lesotho, Swaziland and Namibia)
and other SADC countries. One exporter saw the upgrading of the rail networks in the DRC (Democratic
Republic of the Congo) and Kenya as an opportunity to increase their export sales to the continent.
11.3.13Product Development
One of the goals of the National Export Strategy is to diversify South Africa’s current basket of goods. In most
instances this would imply attracting new exporters that have the capacity to produce new products to
venture into global markets.
Approximately two-thirds of the respondents indicated different products that they would diversify into. In
most cases, the diversification was into new product lines related to the sector that they are currently in.
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Figure 92: Assistance needed to diversify
Many of the respondents complained about the cost of developing new products or new markets. A few felt
that the government was not supporting development issues sufficiently. There were also a few complaints
about labour and BBEEE legislation.
Most companies indicated that they needed information and foreign market intelligence if they were going
to export new products. Although information is difficult and expensive to acquire, the marginal cost of
providing it to exporters and potential exporters is relatively cheap. Together with the market intelligence,
respondents felt that market research grants would contribute to their export diversification efforts. Skilled
staff was also a prerequisite for many firms to increase their export turnover.
Although many firms highlighted the importance of pre-and post-shipment finance, it was not generally as
highly regarded as something that would help sell potential new products. Similarly, firms to do not seem to
require assistance when it came to developing products.
Challenge to expand in foreign markets
High cost of undertaking marketing activities abroad
High transport/transport-related costs, e.g. port dues, surcharges, etc.
High cost of labour relative to output
Productivity
Limited financial resources/restricted access to finance
Infrastructural/institutional bottlenecks in South Africa, e.g. port congestion, customs delays, etc.
High cost of imported inputs required for export purposes
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Assistance to develop the product
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Shortage of available personnel skilled in imports/exports
Lack of time to devote to a more active export drive
Difficulty in locating individuals/entities that are qualified to offer practical advice and/or assistance
High expense associated with obtaining practical advice and/or assistance
Poor quality assistance from existing sources
National export website (portal)
11.3.14Barriers to Market Entry
The learning curve for new exporters is very steep. They have to learn what is required of them in foreign
markets and then design and implement strategies to overcome obstacles. It is therefore not strange to see
all the obstacles that were identified getting similar ratings from the exporters.
The legal and regulatory obstacles, as well as ensuring sufficient financial resources were available to
implement export marketing plans, ranked highly. Tariff barriers and access to accurate foreign market
information were seen as similar obstacles.
Figure 93: Barriers to market entry
8.7.5.6 Resources (financial)
Any enterprise, whether exporting not, needs adequate resources. These resources vary from human capital,
property, to finance. Finance seems to be the most important hurdle that exporters have to face when
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developing new markets. The vast majority of exporters saw limited finance as a significant obstacle that had
to be overcome.
Figure 94: Resources (financial)
As would be expected, firms that had a higher turnover did not generally see access to finance as a
significant problem. Medium-sized firms with a turnover of between ZAR40 million and ZAR100 million
considered access to finance as either a significant or at best a moderate problem. This can probably be
attributed to the fact that these firms are in a growth phase and do not have sufficient capital reserves to
undertake the projects that are needed. Small firms, with a turnover of less than ZAR4 million, also found
access to finance a significant or moderate problem.
In the comments that were made there are three some problems:
1. Access to finance
2. Cost of finance
3. Credit insurance
Access to finance
Foreign buyers rarely want to pay cash in advance or even cash against documents for imported goods and
services. Exporters therefore have to provide credit to the importer. The credit (30 days or 90 days) is
provided by the exporter when the goods are received by the importer. The exporter therefore has to carry
the cost of finance, while the goods are transit.
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Although numerous trade finance methods and instruments have been developed to meet the needs of
traders throughout the trade cycle, these are not always readily available to all exporters, especially
emerging exporters or very small exporters.
Preshipment financing is for the period prior to the shipment of goods, to support pre-export activities such
as wages, raw material purchases and overhead costs needed as inputs for the production of the goods that
are going to be exported. Preshipment finance is especially important to small enterprises because the
international sales cycle is usually longer than the domestic sales cycle. Preshipment finance can take the
form of short-term loans, overdrafts or cash credits.
Exporters that responded made the following comments:
Capital / funding is useful to take advantage of established positions to grow our brands to be
significant leaders and shareholders in export markets. South Africa has a wonderful opportunity to
do this but lack of funding limits our possibilities.
Capital tied up during manufacture.
Lack of funds to develop larger supply base.
Not enough funding available and not prepared to accept personal surety.
Capital tied up during manufacture.
Post-shipment finance, on the other hand, is for the period following the shipment of the goods. The
competitiveness of exporters often depends on the ability to provide buyers with attractive credit terms as
described above. Post-shipment finance ensures the liquidity of the exporter until the purchaser receives the
products and the exporter receives payment. Post-shipment finance is usually short term.
Cost of finance
The cost of finance, or the interest rate, varies across countries. Often, it is higher in South Africa than in
many of our trading partners. This puts South African exporters as a disadvantage.
This is a major problem with Small, Micro and Medium Enterprises’s in the wine industry; our sector
does not cater specially for BEE businesses in the wine industry and access to funding has too much
red tape.
Difficulty obtaining trade finance.
The costs to a small company are horrendous.
The payment terms of large mining companies are not supplier friendly and dictate substantial levels
of working capital.
Although the South African commercial banks are well positioned to provide all the necessary services to
established South African exporters, they did not always appreciate the developmental aspects. It is
therefore important that the developmental financial institutions play a big role in assisting emerging
exporters develop new markets.
DTI assists with some relief, but IDC does not recognise an export marketing service as being worthy
of assistance! Black empowered entities are completely bereft of funds and banks will not assist.
378
We were working in Mozambique for a very big South African client who did not believe in SMEs.
This made me realise that large companies speak the SME speak but do not want them as they cut
the rates in the market. We needed bridging finance so that we did not have to ask the client for
quick payment turnaround, which in turn gave him knowledge on our cash flow, which was a major
disadvantage to us.
Credit insurance
It is more risky providing credit to foreign buyers, than it is to South African buyers. Legal systems across the
world are different and expensive to use. Besides a commercial risk, there is also political and transfer risk
when dealing across borders. Credit insurance is an insurance policy and a risk management product offered
by private insurance companies and governmental export credit agencies to business entities wishing to
protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or
bankruptcy.
Respondents felt that the cover offered to South African exporters was not comparable to that available to
the foreign competitors:
Limited Credit Insurance companies, conservative risk policies.
Credit guarantee not available on exports to Zimbabwe. Development of the market for our brands
requires terms that are a burden.
11.3.15Foreign Market Information
Most of the exporters need accurate market intelligence. Approximately three-quarters of the exporters
surveyed indicated that obtaining this foreign market information was either a significant or moderate
problem.
Larger exporters tended to use these services proportionately more than smaller exporters. Again a concern
is that very small enterprises (was a turnover less than ZAR4 million) are unaware of the services offered
locally.
Critical Analysis for the Integrated National Export Strategy
379
Figure 95:Product quality control
Packaging design
Packaging (and labelling) serves a twofold purpose: first, to protect the product from the time it leaves the
production facility until it reaches the final destination; and secondly a marketing function. Similarly, labelling
provides important (often compulsory) information, but also serves a promotional or marketing function.
Packaging is the science, art, and technology of enclosing or protecting products for distribution, storage,
sale, and use. Packaging also refers to the process of design, evaluation, and production of packages.
Packaging can be described as a coordinated system of preparing goods for transport, warehousing, logistics,
sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells. In many countries it
is fully integrated into government, business, institutional, industrial, and personal use (Soroka 2002).
To be accurate, packing is the term used to describe the outer protective cover, such as a crate or carton, in
which the product is transported to its destination. Packaging is the protection immediately surrounding the
product and which has a strong promotional function.
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Figure 96: Packaging design
Again this service is widely used by larger exporters. Less experienced exporters and small enterprises
tended to be unaware that packaging design services were available. Surprisingly, almost 10% of firms that
had exported for 10 years or more were also unaware that the services were offered. It could be that they
have been advised on packaging requirements by their foreign clients and have the necessary technical skills
in-house.
Marketing Research (Including Information on Product and Packaging Specifications, and Tariff Rates)
Market research involves finding out about how to do business in foreign countries and includes aspects that
exporters must know such as import duties, regulations, distribution channels, market size and growth,
competition, demographics and local production. Without this information, it is impossible or very difficult
for exporters to assess foreign market opportunities and the costs of exploiting them. Gathering this
information is usually straightforward and helps exporters understand how a market operates.
The gathering of information is relatively basic and is often done in-house by the exporters themselves.
There is a lot of information available on the Internet and in published sources that exporters (who know-
how to access this information) can acquire relatively cheaply and without too much effort. Foreign
Economic Representatives also play a valuable role in this regard. However, it is necessary that the exporter
knows what information is required before embarking on this research.
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Critical Analysis for the Integrated National Export Strategy
381
Larger exporters (with more than 200 employees) used marketing research consultants proportionately
more regularly than the smaller exporters. These larger exporters also tended to be less satisfied with the
services that were offered.
11.3.16Transport (Sea, Air, Road, Rail)
Figure 97: Transport (sea, air, road, rail)
Freight forwarding and logistics management
The freight forwarding and customs compliance industry provides for the distribution and carriage of goods,
cargo and freight internationally. According to SAQA it has been estimated that logistics as a whole
constitute at least 14% of the costs of the goods in South Africa, which is at least 50% above the global norm.
A large proportion of this overspend is attributed to inefficiencies caused by lack of competence. In order to
become world competitive, South Africa needs to deliver its goods on time, at the right place and at an
acceptable cost. To do this requires the establishment and maintenance of world-class supply chains.
Despite the high costs of logistics in South Africa most of the exporters that responded to the survey
indicated that they were satisfied with the services provided by freight forwarders. In South Africa there are
a large number of freight forwarders ranging from multinational corporations with extensive networks in all
major markets to very small companies. Competition in the sector is very healthy and exporters have a wide
range of companies from which to choose.
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SARS ensures that all freight forwarders meet certain minimum standards and therefore it is not unsurprising
that exporters seem to be satisfied with the services provided by the freight forwarding industry.
Figure 98: Freight forwarding and logistics management
Other services that may be provided by freight forwarders:
Dangerous goods:
Accept and process dangerous goods for transportation by air.
Facilitate the forwarding and clearing of dangerous goods for transportation.
Handle dangerous goods during warehousing and storage.
Identify and classify dangerous goods for transportation.
Identify, pack, mark and label dangerous goods for transportation by air.
Load/unload dangerous goods for transportation by road.
Pack, mark, document and handle export dangerous goods by surface.
Package dangerous goods for transportation.
Finance:
Generate shipment cost estimates.
Perform international trade calculations.
Customs:
Analyse and solve Customs tariff classification problems.
Certify Obtain certified certificates of origin and other commercial documents.
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Critical Analysis for the Integrated National Export Strategy
383
Insurance:
Comply with procedures in respect of lost, discrepant and damaged cargo.
Apply the law of contract to insurance.
Arrange and administer insurance of goods in transit.
Product inspection
Importers cannot be sure that what they have purchased meets the requirements specified in their contract
until they take possession of the goods and can inspect them. This has caused problems over the centuries
and various solutions have been adopted and become industry norms or standards.
Product inspection can be undertaken by government agencies or by the private sector. Société Générale de
Surveillance (SGS), one of the better known product inspection companies, is a multinational company
headquartered in Geneva, Switzerland, which provides inspection, verification, testing and certification
services. It has around 75,000 employees and operates over 1,350 offices and laboratories worldwide. SGS
provides inspection and verification of the quantity, weight and quality of traded goods, the testing of
product quality and performance against various health, safety and regulatory standards, and to make sure
that products, systems or services meet the requirements of standards set by governments, standardisation
bodies or by SGS customers. While SGS is probably the best-known inspection company, there are a number
of others, some offering highly specialised, commodity- or product-specific services.
The South African Department of Agriculture Forestry and Fishery also tests products destined for foreign
markets in terms of the various international agreements to which South Africa is a signatory. The most
prominent of these have been signed under the auspices of the WTO:
Technical Barriers to Trade Agreement
Sanitary and Phytosanitary Agreement
These technical regulations generally make provision for the protection of human or animal life, to protect
plants or even to protect the interests of the country.
Most of the respondents indicated that they use various product inspection services regularly and are
satisfied with the services that these companies provide.
384
Figure 99: Product inspection
There are a few sectors that use product inspection services regularly. These include:
Food products;
Textile and clothing;
Wood and wood products;
Chemicals; and
Wholesalers and retailers.
It is surprising that in other sectors, particularly agriculture, the awareness of product inspection services is
so low.
Product classification (for customs purposes)
Historically countries have used duties to raise import revenues. Some products attracted a higher rate of
duty than others. Over time the tariff rates became more and more complicated and countries developed
systems to classify products. Different countries had different systems and this complicated international
trade considerably. The Harmonised Commodity Description and Coding System (HS) of tariff nomenclature
is an internationally standardised system of names and numbers for classifying traded products; it was
developed and is maintained by the World Customs Organisation (WCO), an independent intergovernmental
organisation with over 170 member countries based in Brussels, Belgium.
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Critical Analysis for the Integrated National Export Strategy
385
Figure 100: Product classification (for customs purposes)
It is important for exporters to get the classification of their products correct. The first six digits of the HS are
the same for all countries using the coding system. Incorrect tariff classifications could lead to incorrect
duties being paid. Customs officials are also entitled to impose fines when incorrect codes have been used. In
South Africa this occurs both for imported and exported products.
In most cases, freight forwarders classify the products for the exporter; this is usually done as part of the
logistics services they provide. The importer or the exporter, however, remains ultimately responsible.
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Documentation acquisition and completion
Figure 101: Documentation acquisition and completion
Customs clearance
Customs brokerage is a profession that involves the "clearing" of goods through customs controls at border
posts for importers. This involves the preparation of documents and/or electronic submissions, the
calculation and payment of taxes, duties and excises, and facilitating communication between government
authorities and importers.
Although it is possible for companies or even individuals to clear their goods through customs, the processes
are generally complicated and importers require assistance. Some larger companies have “in-house” customs
brokers that perform the necessary processes and pay the necessary fees on behalf of their companies.
As with freight forwarders (the same company often performs freight forwarding and customs clearing
functions) there is a lot of competition. Importers therefore have a wide choice and can change whenever
they are not satisfied with the services that have been delivered.
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Critical Analysis for the Integrated National Export Strategy
387
Figure 102: Marine (cargo) insurance
Warehousing
Warehousing in international trade is essential. A warehouse is a commercial building for the storage of
goods, usually equipped with loading docks to load and unload goods from trucks. Sometimes warehouses
are designed for the loading and unloading of goods directly from railways, airports, or seaports. They often
have cranes and forklifts for moving goods, the goods usually being placed on ISO standard pallets loaded
into pallet racks. Stored goods can include any raw materials, packing materials, spare parts, components, or
finished goods associated with agriculture, manufacturing and production.
Large exporters often use warehouses as distribution points for developing retail outlets in a particular
region or country. This reduces the end cost to the consumer and enhances the production sale ratio. “Just In
Time” (JIT) production and distribution techniques promote product delivery directly from supplier to
consumer without the use of warehouses. However, with the gradual implementation of offshore
outsourcing, the distance between the manufacturer and the retailer (or the parts manufacturer and the
industrial plant) has grown considerably and requires warehousing.
E-commerce is expanding as the communication infrastructure improves, payment methods become more
sophisticated and reliable, and consumers more confident. Internet-based stores do not require physical
retail space, but still require warehouses to store goods. This kind of warehouse fills many small orders
directly from end customers rather than fewer orders of many items from stores.
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Figure 103: Finance for production expansion
Surprisingly few of the firms that were surveyed had accessed finance to expand production facilities. Those
that had done so were generally larger firms, or firms that had been exporting for some time. A large number
of the respondents did, however, indicate that, even though they had not accessed finance for production
expansion previously, they would consider it in the future. There are also a number of firms that were
unaware that finance was available.
Payment processing and/or guarantees (banks)
All international commercial transactions require the transfer of money from one jurisdiction to another.
This invariably requires the services of a financial institution such as a bank. The funds may be transferred
using “documentary credits”, also known as letters of credit or L/Cs. A documentary credit is a written
undertaking by a bank (the issuing bank), at the request of an importer/buyer (the applicant), in favour of an
exporter/seller (the beneficiary), whereby the bank agrees to pay against bills of exchange (drafts) and/or
commercial documents that comply with the terms and conditions of the documentary credit. The
International Chamber of Commerce Uniform Customs and Practice for Documentary Credits (UCP 600 being
the latest version) usually governs the process. Most letters of credit are irrevocable, i.e., cannot be
amended or cancelled without the consent of the beneficiary and the issuing bank. Furthermore L/Cs may be
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Critical Analysis for the Integrated National Export Strategy
389
confirmed by a third bank in another country, possibly South Africa, to provide greater security to the
exporter.
However, payment by L/C can be costly, and is not the preferred method in many countries (e.g. the United
States). Other payment methods are widely used. In ‘bank collections’, the banking system is used purely as a
channel for the transfer of documents and payments, without the level of involvement required by the L/C
process. In ‘open account’ payments, which are usually the preferred method of payment between
multinational branches and affiliates and exporters and buyers with long-established relationships, the
banking system is used only to route the movement of money.
Figure 104: Payment processing and/or guarantees
Credit insurance
Export Credit Insurance is an Insurance and Risk Management Product Offered by Private Insurance
Companies and Governmental Export Credit Agencies to Exporters Wishing to Protect Their Accounts
Receivable from Loss Due to Credit Risks Such As Protracted Default, Insolvency or Bankruptcy from
Importers. Exporters Can Also Be Covered for Transfer and Political Risks.
Credits may be short term (up to two years), medium term (two to five years) or long term (five to ten years).
They are usually supplier's credits, extended to the exporter, but they may be buyer's credits, extended to
the importer. The risk on these credits, as well as on guarantees and insurance, is often borne by the
sponsoring government.
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Figure 105: Credit insurance
Foreign exchange risk management (incl. forward cover)
There are several techniques exporters can use to minimise foreign exchange risks. The one used most
commonly is known as forward cover, whereby an exporter with a known foreign exchange risk (i.e. A
confirmed order due to be paid in foreign currency within a certain period) can obtain from its bank a fixed
exchange rate. There is a cost involved, but it can be considerably lower than the amount of a foreign
exchange loss if the rand strengthens before payment is received.
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Critical Analysis for the Integrated National Export Strategy
391
Figure 106: Foreign exchange risk management
E-commerce Facilitation
Electronic commerce, or e-commerce, is the buying and selling of products or services over electronic
systems such as the Internet and other computer networks. Since the Internet does not respect international
borders, consumers from all over the world can access products from practically any location they wish.
Electronic commerce draws on such technologies as electronic funds transfer, supply chain management,
Internet marketing, online transaction processing, EDI, inventory management systems, and automated data
collection systems. Electronic commerce is generally considered to be the sales aspect of e-business. It also
consists of the exchange of data to facilitate the financing and payment aspects of business transactions. E-
commerce can be divided into:
E-tailing or "virtual storefronts" on Web sites with online catalogues, sometimes gathered into a
"virtual mall".
The gathering and use of demographic data through Web contacts and social media.
EDI, the business-to-business exchange of data.
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Email and fax and their use as media for reaching prospects and established customers (for example,
with newsletters).
Business-to-business buying and selling.
The security of business transactions.
Although most South African exporters have access to Internet facilities, most are using these to do research
or to promote their products in global markets. There are few exporters that are trading via the Internet.
Proportionately it seems that more new firms, with less than a year’s experience of trading globally, have
embraced the technology than the more experienced exporters..
Figure 107: E-commerce facilitation
Consultancy related to customs duty refunds and drawbacks
In terms of the Customs and Excise Act 1964, there are three provisions under which importers can be
exempt from paying, or be entitled to claim back, customs duty:
1. Drawbacks;
2. Rebates; and
3. Refunds.
The purpose is sustainable economic growth and development that requires the improvement of the
international competitiveness of the industrial and agricultural sectors, and consequently competitive inputs.
A ‘drawback’ of customs duties may be applied in respect of imported inputs used in the manufacture,
processing and packaging of products that are then exported. A ‘rebate’ of customs duties provides for the
suspension of customs duty on imported inputs used in the manufacture of products for export and/or
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Critical Analysis for the Integrated National Export Strategy
393
domestic consumption, subject to compliance with the rebate item’s prescribed condition or conditions. A
‘refund’ is obtained in respect of the overpayment of customs duties or where products and product inputs
were exported in the same condition as they were imported.
Figure 108: Consultancy related to customs duty refunds and drawbacks
Consultancy related to accessing trade agreements
In addition, in terms of the Customs and Excise Act 1964, there are a number of agreements or protocols that
may favour exporters:
Agreement on Trade, Development and Cooperation between the European Community Member
States and the Republic of South Africa.
Treaty of the South African Development Community and Protocols concluded under the provisions
of Article 22 of the Treaty.
Agreement between the Government of the Republic of South Africa and the Government of the
United States of America regarding Mutual Assistance between their Customs Administrations.
South African Customs Agreement between the Governments of the Republic of Botswana, the
Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of
Swaziland.
Memorandum of Understanding between the Government of the Republic of South Africa and the
Government of the People’s Republic of China on promoting Bilateral Trade and Economic
Cooperation.
Free Trade Agreement between the European Free Trade Association (EFTA) States and the SACU
States.
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Figure 109: Consultancy related to accessing trade agreements
Legal services
Different countries have different cultures and norms and have therefore over time developed their own
unique jurisprudence and legal systems. These differences complicated international trade considerably.
While there have been attempts to develop international law (consisting of rules and principles governing
relationships and dealings of nations with each other) international commerce is still fraught with dangers.
Exporters face challenges from the time they negotiate and formulate contracts through to the resolution of
disputes and court actions. They also face problems protecting intellectual property such as patents and
trademarks. As exporters develop, they also need assistance in setting up foreign branches and subsidiaries.
Although exporters have access to South African lawyers, they still need legal assistance in foreign countries.
Some of the larger South African firms have established relationships in many other countries in which South
African’s have traditionally done business and can therefore assist exporters with legal advice.
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We never use but could in future We never use and never will
Unaware this service offered
Critical Analysis for the Integrated National Export Strategy
395
Figure 110: Assistance with contract formulation
Figure 111: Patent or trademark registration
Figure 112: Legal services - Dispute resolution
Figure 113: Assistance in establishing an offshore presence
A few South African firms use legal services in the formulation of their contracts. In most cases, the exporters
will experience very few if any problems. However as new markets open up and new challenges arise, it is
surprising that so few exporters are consulting experts in drafting their contracts.
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Use service regularly and satisfied Use but NOT satisfied
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396
South African firms lag behind their international competitors when it comes to intellectual property. Local
firms do not use patents to protect their inventions on the grounds that, if infringement occurs, it is
expensive and very difficult to prove. South Africa is also very small market and therefore local trademarks
are not well known globally. This could explain why South African exporters tend not to use legal services to
register patents or trademarks, etc.
Advertising, public relations, etc.
Most medium-sized and large enterprises regularly use both advertising agencies and public relations
consultants domestically. However it seems as though large enterprises have a higher propensity to use
these services when doing business internationally.
Figure 114: Advertising, public relations
Identifying appropriate foreign market distribution channels and selling techniques
There are a number of modes from which exporters and potential exporters can choose when entering
foreign markets. Indirect exporting is the easiest and least risky. However with direct exporting the risks and
challenges become greater. Distribution channels in foreign countries often differ. Some channels are longer
while others are shorter. This has a direct bearing on the cost to the final user of the product since there are
markups at each stage along the distribution channel. Choosing the wrong distribution channel can therefore
price the goods out of the market and make them uncompetitive.
Very few South African exporters seem to use consultants to assist them in this regard. Those that have used
consultants to assist them in identifying appropriate foreign market distribution channels have also not been
satisfied.
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Use service regularly and satisfied Use but NOT satisfied We never use but could in future
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Critical Analysis for the Integrated National Export Strategy
397
Figure 115: Identifying appropriate foreign market distribution channels
Information on investment/joint-venture opportunities (local and foreign)
Exporting is only one channel that an enterprise can use to internationalise. In many cases, firms could set up
joint ventures in their attempts to expand.
Not many South African firms have used either consultants or information on investment in joint-venture
opportunities either locally or in foreign markets. Many of those who have, indicated that they were not
satisfied with information or services that were provided.
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Use service regularly and satisfied Use but NOT satisfied We never use but could in future
We never use and never will Unaware this service offered