[Letter] Master plans drive up costs

A form of nontariff barrier (defined as any obstacle or impediment to trade that is not an import or export duty), under- or nonperforming rail networks and ports impose delays, increase the costs of goods, materials and components, inhibit services and serve as a macro cap on a country’s economic growth potential.

Another aspect of the country’s trade infrastructure and policy space that Patel and his colleagues should consider is that of government support (subsidies, higher duties on imports and other forms of protection or support).

The latest examples of such support are the various localisation master plans. The substantive downside risk of these is that uncompetitive players and industries are protected from market forces, costs are artificially driven higher, and competitive imports are discouraged (to the detriment of the consumer and local businesses).

A wider risk to localisation lies with the fiscus. Should the rail and ports problems highlighted by the minister persist, all the localisation plans and other forms of subsidies in the world will not paper over said problems. All manufacturers, farmers, construction companies, importers, exporters and so on are saddled with higher costs that result from unreliable and dysfunctional ports and rail.

Subsidies will at best help keep some (of the bigger) players afloat, but in truth the deeper issues that inhibit market entry of new participants will remain unaddressed. In a couple of years’ time all that will be done is for new, larger localisation and subsidy plans to be introduced — if government can even afford to do so given the country’s current low-growth trajectory.

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