21 February 2017

South Africa: Interview With Rob Davies, South African Trade Minister

interview

The head of South Africa's Department for Trade and Industry speaks about his country's post-Brexit trading relationship with the UK and how it is responding to global economic changes. This interview was conducted during the speaker's visit to Chatham House for an expert roundtable on 23 January 2017.

What do you see as the trajectory for the historical and strategic trade and investment relationship between South Africa and the UK post-Brexit?

Our trade with the UK over the last three years has expanded, and there's a small surplus in our favour. Of course there are opportunities to move further, but I think our first priority is to make sure there is no interruption. I think that the way our conversations have gone so far[... ] is that the Economic Partnership Agreement (EPA) that we have signed recently with the EU ought to be the basis on which we continue our relationship [with the UK], at least in the immediate future. Within that EPA we have a number of quotas which apply across the EU, so we need to decide how that's going to work in relation to a partner arrangement with the UK only.

Critics have described South Africa as seeing its neighbours as simply a 'marketplace for exports'. As neighbours' trade deficits with South Africa widen, what is your response to such criticism and what is South Africa doing to strengthen bilateral trade with its neighbours?

It is not the case that we are trying to just use our neighbours as undifferentiated markets for our products. Southern Africa and indeed the continent is a major marketplace for value added products from South Africa, but we have been supporting the industrialization of the African continent and we are major champions of the programme of regional integration. We want to see the development of value chains on a regional basis, in SADC [the Southern African Development Community] in the first instance, but also elsewhere on the continent. We see ourselves repositioning as other countries begin to develop more significant and serious manufacturing sectors themselves. We always had a large trade deficit with our neighbours; in some places that trade deficit has reduced over the years.

How is South Africa prepared to react to changes in the global economy? And what is South Africa doing to diversify its trade relations?

We are learning from what is happening in the large emerging economies. China has recognized that, even though it achieved a significant boost to its own industrialization from access to the US market, it has to move to its own domestic consumption. But it's got a large population and large internal market. The African integration effort is partly predicated on the understanding that we need a large regional market on the continent that will support diversification, not just in South Africa but in other countries as well. It's a very important part of our efforts to support industrialization.

We are looking to promote value added products. That also means higher quality agricultural products. Regional integration on the African continent is very important to us, and probably our first priority. But we are also looking to consolidate and strengthen relations with markets in the developed world and open up new markets. Some of the new markets that are opening up for us are in the Gulf for example, and Russia. China is our largest individual trading partner and India is number six. But in both cases we are looking to move our export basket from one largely concentrated around primary products and primary mineral commodities, to more value-added products.

The world economy is seeing radical changes in methods of production. What does this mean for South Africa?

We need to understand what is happening in terms of technological changes, what is called the fourth industrial revolution: the advance of robotics and 3D printing; new technologies and digitized technologies. I think that we can already see that beginning to shape production processes in industry and manufacturing. Where we have increase in output in manufacturing, not just in South Africa but across the world, we don't have corresponding growth in employment because these technologies are less labour intensive than before.

People are talking about disruptive change. This is major revolutionary change in production, not just in manufacturing but many service sectors are going to be radically different. In South Africa we have the ability to be able to manage those processes. Our workers can operate those processes, but they do have social consequences that have been felt by established people who are in employment, more so in the developed world.

Young people in our country who are aspiring to get into decent work are finding that there are new requirements, new skills, new qualifications that are required to enter production. So I think that not just on the national scale but on the global scale we've got to think much more boldly about the social models that go along with this. If there is a move to a world where much of the routine human labour is going to be replaced by artificial intelligence-driven or robotic processes, that has the potential, within an inclusive growth model, to raise living standards and improve human welfare. But if it happens in a model that is winner-takes-all and 'devil takes the hindmost' then we could have increasing polarization and increasing instability. We need much more bold thinking about the social measures that are required to go along with that.

The ANC (African National Congress) is holding a National Conference at the end of 2017 to elect a leader to lead the party in the national election in 2019. Many observers, including businesses, are viewing these as big political risks. As the politics of party and national elections play out, especially in the context of alleged deep factionalism within the ruling party, what guarantees are there that there will be policy consistency, certainty and clarity from key economic ministries and the government overall?

The current president is not eligible to be president of the country after 2019. We have a two-term constitutional limit. So there will be a new president in 2019 and the ANC's position is that the president of the ANC is its candidate for president of the country. So there will be a new ANC president by the end of the year.

There will be a contested process. It has not started formally, but we already know that people are throwing their hats into the ring, so there will be a lively discussion. I think that we've got institutions in the country which are strong and stable, we've got a clear understanding of the imperatives that are before us, and I don't think this is going to lead in the direction of policy changes that are going to be unforeseen or unforeseeable by people outside. The greater uncertainty arises on the world scale rather than from the South African domestic scale.

Chris Vandome

Research Assistant, Africa Programme

South Africa

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