SOUTH Africans love making things harder for themselves, or
so it seems to me: if a school has no textbooks, we burn the school down and
when inflation is low, we want a weaker rand and interest rate cuts.
So, the South African irony is that these actions are
irreconcilable with their objectives.
This month saw inflation rise marginally to 5% (up from
4.9%) as well as no change in the interest rate – a good move, I feel, by the
However, I do not want to discuss the interest rate but
rather the impact of the road freight sector strike on already high transport
costs and the spillover of this into inflation and South African
competitiveness in global markets.
Total logistics costs are, to a large extent, a factor of
In South Africa, the latter constitutes 50% of the total
(considerably higher than the world average of 39%).
The demanded 12% (7% above inflation) increase in wages for
the road freight sector workers, therefore, feeds directly into total logistics
Since all goods need to be transported from where they are
produced to where they are consumed, the rise in total logistics costs
ultimately means the consumer will have to pay more.
In other words, the road freight sector strike will
contribute to rising inflation. Exacerbating this fact are the numerous phases
of production goods go through before finally being consumed and at each phase,
transportation comes into play.
Notwithstanding this strike, the mining sector strike and
the likely cascade into other sectors, South Africa's leading indicator of
business activity went up (albeit by only 0.6%) in July for the first time in
five months, pointing to a scenario in which inflation will start to rise
Should this occur, the Reserve Bank will consider increasing
interest rates – exactly what the majority of South Africans do not want.
Therefore, in order to stem the chances of an interest rate
hike, the road freight unions should consider very carefully the magnitude of
their demanded increase.
In addition, rising logistics costs negatively impact the
competitiveness of South African goods in the global market through increasing
the purchase price for the end consumer.
South African exports are already underperforming because of
the global slowdown, evidenced by our second-quarter trade deficit of R75.5bn
(2.4% of gross domestic product).
With this being the largest quarterly nominal trade deficit
on record, we do not need to exacerbate the situation.
My previous columns have mentioned technical regulations and
their importance but as each of our 13 agreements with European Union member
states is cancelled as they come up for renewal, we need to refocus now more
than ever if we are to improve the current trade deficit.
In the week of September 16-22, Brazil notified the World
Trade Organisation (WTO) of six technical regulations, two of which related to
fruit juices (orange and grape specifically).
As an export market that has grown by an annual average of
810% since 2003, South African exporters must be aware of Brazil's proposed
regulations so that 1) exporters can comment and possibly prevent the
regulations from inhibiting their exports and 2) exporters can align their
exports to the new regulations, if need be.
The burning of bridges resolves nothing and oftentimes
results in a worse situation.
That being said, as one door closes another opens but to
enter the new door, exporters must know what is required of them in order to do
The WTO Technical Barriers to Trade Enquiry Point of the
South African Bureau of Standards informs exporters of these requirements, and
also informs of any changes to the requirements.
As such, the enquiry point is the key you need to open the
* Geoffrey Chapman is a guest columnist and trade policy
expert at the SABS.
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