Improve systems and predictability first; more trade will flow

South Africa has lost R1.25 billion in revenue due to lengthy customs duty investigation delays (of up to two years), according to a new XA Open Cases Report released by XA Global Trade Advisors. These delays don’t bode well for the future success of the country, says CHRIS HATTINGH.

Originating from the International Trade Administration Commission (ITAC), investigations are delayed at various stages, both in the Department of Trade, Industry, and Competition (DTIC), and with the Minister of Finance. These delays increase the risks facing potential new business and investments, and discourage the undertaking of new enterprises for fear of interminable delays and wastage.

“Predictability matters to investors and traders, and duties have become very unpredictable indeed. Whatever the rules of the game are, you should know them before you begin, and they should remain constant. Most importantly, everyone should have equal access to the rules, and no one should be able to influence the drafting of the rule book in secret,” says CEO of XA Global Trade Advisors, Donald MacKay, when describing the current situation.

The report finds that tariff investigations should take between four and six months; of the 43 tariff investigations and three anti-dumping investigations which are currently open, 27 are overdue (58%). The problem is not that the ITAC is failing to complete their investigations; the delays sit with the respective ministers, their staff, and their offices.

In terms of the most urgently needed changes, the report proposes that all cases already open for more than 18 months should be given three months to be finalised, after which they should be terminated. It adds that there should be an 18-month time limit on tariff investigations, to force these into completion and in turn remove the uncertainty that is currently so pervasive.

One of the report’s final recommendations is that the outcome of current privately settled cases be published, and that templates of reciprocal agreements be made freely available before firms apply for duty changes. This should at the very least provide the market with information and data that it sorely lacks at the moment. Doing this would also send the right signal: that current systems will be changed and that the serious shortcomings and concerns of the moment are acknowledged and taken seriously.

One of the central aims of the Africa Continental Free Trade Area (AfCFTA) is to promote and facilitate the freer (and hopefully easier and cheaper) flow of components, materials, and goods across borders throughout the continent. African countries have many barriers that increase trade costs, in terms of both legislation and border inefficiencies. One of the best paths to realise the goals of the AfCFTA is to improve the very basics of tariff systems to bring in more predictability and transparency. By improving these processes, the movement of goods and materials should necessarily see increased volumes and, down the line, improve citizens’ quality of life.

The lofty goals of the AfCFTA are unlikely to ever be achieved if governments and governmental institutions and organisations ignore the hard work that needs to be done to simplify trade systems and infrastructure. Many will be tempted to extract as much revenue as possible from businesses, but choosing this route will increase uncertainty, impose higher operational costs, and in turn impact negatively on consumers. Bilateral agreements and other high-level changes between states would be a great step in the right direction. But a lot of good can be achieved by focusing on improving what is already in place. It may not be the most attractive work on the surface, but getting the basics right would have hugely positive effects in coming months and years.

In a post-Covid world, one thing that South Africa should absolutely pursue is predictability in the areas of policy and regulatory reforms. Many local and foreign businesses and investors are constrained by a tight global economic climate, but will always seek to start or expand operations where the policy climate is transparent and easy to understand. Both the government’s fiscus and general economic activity can benefit from simple and cost-conscious reforms that increase the ease of doing business as well as adding a real, measurable level of predictability.