Import+boom+leaves+poor+in+the+dust,+Makgetla,+Business+Day

Business Day, Johannesburg, 14 July 2006
=Car import boom leaves poor choking in the dust=


 * Neva Makgetla**

IN THE past two years, SA has been a bit like the family where the patriarch mortgaged the house to buy a two-seater convertible.

Even those who can’t come along for the ride may end up paying for it.

Developments in the motor industry are a telling illustration. As soaring mineral prices combine with an influx of short-run investments to push up the rand, the floodgates have opened on imports. Meanwhile, the economy has become more vulnerable to a fall in world commodity prices, which are notoriously unstable.

The motor industry is often presented as an economic success story because of its export growth. In the 10 years to 2005, SA’s foreign sales of transport equipment rose tenfold in nominal terms, to just more than R30bn. Their share in total exports climbed from 3% in 1995 to 10%.

Until 2003, the only problem with this picture was the limited effect on employment. The motor industry employs about 100000 people. Despite major capital formation and government support, that number has not grown much in the past 10 years. Jobs in components production rose about as fast as the formal sector as a whole, and assembly plants downsized.

The past two years have raised additional concerns, even though motor exports remain relatively robust. In particular, fully imported cars have flooded the local market, reducing the scope for local products while bulking up the trade deficit.

The driving force behind this trend has been the rand’s high level in the context of harsh income inequalities.

Imports of fully assembled new cars doubled in value between 2003 and last year alone. In contrast, imports of components for local assembly plants increased only 25%. As a result, where fully assembled vehicles made up just 30% of motor imports in 2003, by last year they had risen to 43%.

The influx of imported cars aggravated the soaring trade deficit. Between 2002 and 2005, total imports increased 13% a year in rand terms — but imports of cars soared 50% a year, rising from 3% to 7% of total imports.

Some economists argue that this is all to the good, as it brings cheap cars to the people. But how many South Africans can afford to buy their own car, even one of the relatively cheap new imports? The black middle class remains more a fable for media pundits than a reality, as income inequality in SA remains among the worst in the world. Growth in the past three years has helped only slightly.

In September last year, half of all employed Africans earned less than R1500 a month — not much more than the payment for even a small new car. If we factor in unemployment, incomes look even worse. In September 2004, two-thirds of households spent less than R800 a month in total. They could hardly add a car to their bills.

In short, the consumer benefits of the import boom have gone mostly to the prosperous. Luxuries may be defined as goods and services that most of the population can never afford. A car is almost a necessity in some richer countries and in SA’s leafy suburbs. But for most South Africans it lies beyond their wildest dreams.

Meanwhile, the import boom hurts the poor directly and through opportunity costs. It displaces local production, making it harder to address the unemployment crisis. In contrast, if the rise in imports came from a surge in capital goods and equipment, it might fuel long-term growth in the economy and ultimately employment.

And how does SA pay for the new imports of consumer goods? The way it has for the past 100 years: through the sale of minerals. Last year, minerals comprised 56% of SA’s total exports, up from a low of 42% in 2000.

But we cannot expect high mineral prices to last forever. In the past, when commodity booms like this one swept over SA, they brought prosperity mostly to the rich. When mineral prices fell, they left behind junkyards full of imported toys, a weakened industrial base, and soaring joblessness. We need creative ways to leverage a more sustainable outcome from today’s high mineral prices.

Makgetla is a Congress of South African Trade Unions economist.


 * From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A232607**

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