Background to the build-up of the expected invasion of our domestic market.
 

THE 1960s. Hendrik Verwoerd, dubbed 'the architect of apartheid', leads South Africa out of the Commonwealth. In the new Republic, a government obsessed by race tightens the screws of apartheid. Most members of the world community impose sanctions. The South African minority government increases the severity of its inhumane, racially based laws. In a frenzy of rooi gevaar  paranoia, the Republic's rulers see communists under every bed ... in every closet. To whip up white support, they propagate the myth of 'total onslaught'.


AND SANCTIONS BEGIN TO BITE

 Meanwhile, somewhere in the backwoods of the Eastern Cape an amateur potter - let's call her Daphne - decides to turn professional.

She installs a couple of potter's wheels in her garden tool shed, invests in some clay and begins to produce a limited number of cups and saucers. Their quality? Let's be charitable and call it amateurish. Her prices? Way above those of better finished imports.

Her business seems set to fail. Then she talks to her lawyer. He suggests that she speak to the Member of Parliament who represents her constituency. The "oom " lends a sympathetic ear. He agrees that  "uitlanders ", who make better products and sell them cheaper, are competing unfairly with Daphne. He speaks to someone with clout in the Cabinet.

Later that year the government slaps a punitive duty on imported cups and saucers.

Daphne laughs. All the way to the bank. Her business, like many others in South Africa, prospers behind a barrier of protective tariffs. They have a captive consumer market - a market with severely limited choices.


BUT THINGS HAVE CHANGED

Following South Africa's re-entry into the international arena as a fully-fledged democracy, the days of invoking government protection to keep "uitlanders " on the outside looking in are numbered.

Although it's dangerous to generalise, South African business people aren't idiots. We know what's potting. Many of us acknowledge the growing threat of foreign invasion. Yet our defensive positions remain ill-prepared.

Why?

One reason is ...


COMPLACENCY BORN OF LONG PROTECTION

There are others. And their roots go deeper.  Asked by The Economist  (March 20, 1993) to describe the state of the South African economy, former Minister of Finance Derek Keys uttered one word:

 'Buggered'.


A TASTE FOR PROTECTIONISM

In the same issue, the magazine's international editor, Peter David, elaborated - more eloquently, perhaps - on the sorry state of the Republic's economy.

 'A taste for protectionism set South Africa on its long journey into the economic doldrums ...

'In the 1960s, a programme of import substitution was intended to make the country self-sufficient and less dependent on mineral exports. Instead it nurtured inefficient industries and entrenched them behind high tariff walls.'

From 1975, real GDP on a per-person basis slumped. Productivity - never high - dived in sympathy.


AND SANCTIONS BIT DEEPER

South Africa's main export was capital. Billions in funk money sought refuge in foreign banks.

During the 1980s, tight foreign exchange controls, designed to keep the money at home, aggravated the country's economic woes.

Companies barred from spending their profits overseas bought up domestic competitors. Ever-fewer hands controlled business power.

Some economists believed that this over-concentration plus taxes structured to favour wealth over income stifled the spirit of entrepreneurship.

'The post-apartheid administration,' David concluded, 'will inherit an economy prostrate after decades of incompetent management, over-government and the subordination of economic goals to political ones.'

But as a hit song of yesteryear proclaims: 'Every cloud has a silver lining.'


POTENTIAL FOR GROWTH

One of those who saw the light was Meyer Kahn, head of The South African Breweries. He told The Economist  that the economy can grow by as much as 5% a year if conditions are right.

What conditions?

Kahn mentioned two.

  1. Socio-political stability.

  2. Good financial management.

Azar Jammine, of Econometrix in Johannesburg, saw the silver lining from another perspective. That of the ANC.

He believed the organisation's proposed social upliftment programme would generate economic opportunities through the large-scale construction of low-cost homes and schools as well as the provision of water reticulation, sewerage and electricity services

But ...


IS THE RDP VIABLE?

Jammine was referring to the Government of National Unity's Reconstruction and Development Programme (RDP).

Some experts doubt its viability. George Ayittey, for example. He reckons the programme will cost at least $22- billion to implement.

So what makes Ayittey an expert?

His impressive credentials, perhaps.

For a start, he's Professor of Economics at the American University in Washington. He's also a consultant to the World Bank and International Monetary Fund and an advisor to the United States Department of Commerce.

Ayittey points out that $22-billion is a lot of cash, and that President Nelson Mandela's chances of raising even half the amount are remote. Even with the $5-billion in promised grants and loans.

With the much-vaunted but cash-strapped RDP generating promised reforms slower than a snail's pace, those who voted the ANC into power in April 1994 have become more than merely restless.

They've become downright angry. And they show it by embarking on a seemingly endless series of strikes and protest marches.

Meanwhile, the economy staggers from one crisis to another through a minefield of political bickering, ad hoc work stoppages, a rising tide of crime and growing unemployment.

A pretty sight South Africa isn't.

And yet it's ...


STILL AN ATTRACTIVE MARKET

Foreign-based manufacturers continue to see South Africa as an attractive market. Ayittey points out in World Trade  (July 1994): 'The country changed its form of government and leadership without the usual bloody civil war. Mandela has shown remarkable magnanimity towards his former opponents, which bodes well for the retention of all the non-black technologists and professionals needed to advance South Africa.'


THE YANKS ARE COMING

The professor is apparently ignorant of the number of South African 'non-black technologists and professionals' currently boosting economic activity in Australia, Canada and New Zealand - or the number still vying to get in. Nevertheless, he sees opportunities for joint ventures by American business in the 'First World segment' of the South African economy and the 'Third World element'. The latter consists of small entrepreneurs who belong to associations that can steer American business people to 'capable partners'.

Because of the enormous need for basic housing, Ayittey suggests potential American investors investigate the viability of climbing into bed with local building contractors and those who project-manage low-cost housing schemes.

He also cites commercial agriculture as a viable sector for investment.

'Up until 100 years ago,' he claims, 'black South Africans operated large, successful commercial farms. They can do it again with the requisite investment in agricultural machinery.'


... SO IS EVERYONE ELSE

The Yanks aren't the only ones who are likely to come poaching on your turf. Offensives will also be launched with growing strength from the United Kingdom and Continental Europe.

But that's not the worst of it.

Expect the most serious assaults to come from the fast- growing economies of the Pacific Rim.

As I noted earlier, South Africa is a country with a bagful of unresolved problems. Many won't be resolved for years, if at all.

So what makes the country so attractive to foreign business?

  1. Over-developed industrial production capacities in their countries.

  2. Their own shrinking domestic markets.

Most industrialised states produce more than they can consume. South Africa looks like a good place to dump excess production, particularly in view of a statement made by Jeffrey Barten, United States Under Secretary of Commerce in International Trade.


AMONG THE TOP 10

Barten places South Africa in the world's top 10 'emerging markets'. That's a label officials in Washington give to nations that offer the best new opportunities for American suppliers.

Note the phrase the best new opportunities for American suppliers. If you're supplying someone with something right now, you could be replaced by a Yank.

The other nine countries on Barten's hit parade are China, Indonesia, India, South Korea, Mexico, Argentina, Brazil, Poland and Turkey.

'Taken together,' he predicts, 'they could account for more than half the world's trade over the next 20 years.

'Nearly 75% of the growth in world trade during the next two decades will take place in developing countries,' he says in World Trade. 'The emerging markets are likely to double their share of world GDP in that time to 20% from today's 10%. By the year 2010, their share of world imports is likely to exceed that of Japan and the European Union combined.'

So we're one of the world's top 10 emerging markets. At first glance it sounds great. At least we're in the world's top 10 of something. But when you read between the lines to get the real drift, alarm bells begin to sound.

What it means is that we must expect to face a level of competition we've never before encountered.


MUTED PROTESTS

Although South African businessmen have long opposed protectionism as unwarranted governmental meddling in free market forces, their protests have been muted. And when a benevolent government imposed high import tariffs on foreign goods that competed with theirs, the protests grew so muted they became inaudible.

I'll be blunt about this: South African businesses on the receiving end of 'import relief' have grown inefficient, lazy and greedy.

Fortune  (September 19, 1994) reports: 'A careful recent survey of some 500 academic and business economists found nearly three-quarters agree with the statement: "Tariffs and import quotas reduce general economic welfare".'

By implementing the RDP, South Africa has begun to shift from the failed import substitution policies of the past to embrace the rigours of global competition. The partial removal (at the time of writing) of protective tariff barriers on automotive and textile imports is a clear signpost to future policy decisions.

Protectionism is out as we ...


GO FOR GATT

South Africa endorsed a world trade accord ratified in Geneva on December 13, 1993. To promote world economic growth, the General Agreement on Tariffs and Trade (GATT) will slash duties on 8 000 categories of manufactured goods.

Many of the products in these categories may well be  yours.

If they are, are you in a position to resist when foreigners ignite the fires of competition ... when offshore marauders prise open every niche formerly dominated by protected South African industries?

According to international competitiveness ratings the answer is no.


BRINGING UP THE REAR

South Africa is ranked 35th out of 41 countries in the latest 600-page World Competitiveness Report. Published in September 1994 by IMD, a Swiss business school, and the Swiss Economic Forum, a business research institute, the report measures 381 criteria to assess competitiveness. Key factors include:

  • public sector deficits and debts;

  • tax rates;

  • farming subsidies;

  • labour legislation;

  • price controls;

  • business leaders' perceptions of their country's strengths and weaknesses;

  • the degree of success achieved in blending public sector national and private sector management policies to create wealth from natural resources;

  • the infrastructure;

  • worker skills;

  • worker training, and

  • levels of productivity.

According to the report, the world's five most competitive countries are the United States, Singapore, Japan, Hong Kong and Germany. Significantly, the winning nations boast strong economies, are big in international trade and have little direct government meddling in free market forces.

With South Africa bring up the near-rear in competitiveness, transition to a new, free global market order promises to be brutal, forcing wrenching changes in stone-age corporate structures that, until now, had little motivation to change. Government protection coupled to restrictive labour legislation and repressive social laws held back innovation and stunted growth.


THE DAY OF RECKONING APPROACHES.

But are South African companies prepared for it? The response from 170 local businesses - large, medium and small - was far from reassuring. Indeed, it was downright scary.

Prev   Next

  Authors Note
    Introduction
     
1. Protection Gets the Bullet
     
2. Perceive the Threat
     
3. Define the 'Get In' Strategy
     
4. A Quick Backward Glance-1
     
5. The Importance of Pricing
     
6. Vital Ingredients: Products and Productivity
     
7. Customer Service: On the Backburner
     
8. A Quick Backward Glance-2
     
9. Preventative Strategies: Price and Service Quality
     
10. Preventative Strategies: The Ramparts of Distribution
     
11. Preventative Strategies: Management - to restructure?
     
12. Preventative Strategies: Market Aggressively to Win
     
13. A Quick Backward Glance-3
     
14. In Conclusion
     
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