One of the main reasons that developing economies make use of import tariffs and duties is to protect the local manufacturing industry from unfair competition and to encourage it to diversify into areas that may be otherwise not profitable. In South Africa, tariffs are wide ranging and cover such areas as automotive components, clothing and textiles and even window glass.
In the automotive industry the government must be given credit for recognising the downsides of outright protection and the current MIPD scheme where exports can be offset against imports has set a marked recovery in the local industry. The problem is that inept understanding of the categories listed as 'subject to tariffs' results in duties being applied to goods that never were, and never will, be made locally. Where these are input materials for the local manufacturing industry, the government is indirectly contributing to making that non-competitive.
With a war in the Gulf imminent, and with the revived military interest in providing protection against biological and chemical warfare, it is interesting to note that the specialist textile required in the manufacture of protective suits is subject to a horrendous tariff, making local make-up of such suits for the SANDF prohibitively expensive. When it comes to the electronics industry, one of the critical areas that is under threat is the small but thriving PCB industry (see for example feature articles in Dataweek on Bosco, 14 March 2001; TraX, 6 June 2001; and Central Circuits, 27 February 2002). Here, many items used in the production of boards has an import duty ranging from between 10 and 20% - the emphasis being on the higher tariff ranges from 17 to 20%. These materials are imported from our industry's competition, namely the Far East and Europe, and companies there that make printed circuit boards are able to source their material input less this duty, while at the same time benefiting from their own governments' incentives to export the final PCB products to South Africa.
A major problem of course, is the interpretation of the tariff headings. Obviously, South Africa manufactures drill bits for every possible application from household use to massive drills for mining. The gap in local technology however, is the specialist drills used in the PCB industry. No local manufacturer attempts to manufacture these high-precision tools that have diameters down to 300 microns. These drill bits are - once again - specifically made for this industry in the Far East and Europe. Add 20% to the cost of these already-expensive items which break under the slightest misuse, and it becomes an expensive input cost in dollars that so-called 'cheap labour' will not balance out.
The list of items required by the industry that are dutiable is endless, but includes UV curing lamps (classified along with light bulbs), and special plating tapes - the latter classified under a heading that captures all the 'sellotape and insulating tape' type products. In fact these tapes are again highly specific to the industry and are designed to withstand pressures, temperatures and chemicals used in the PCB process. Even without its 10% duty it is highly unlikely that this expensive product will compete with the office brand-name tapes sold by your local newsagent.
Another example is 'release-sheet' that is used in the bonding process. As far as Customs and Excise is concerned, this is just a very expensive greaseproof paper. For the PCB industry however, this material must be used to withstand the heat and pressure used in the bonding process and it also has an extremely high purity. A final example is the 'pre-preg' whose sole application is for the multilayer bonding of PCBs. Here the duty is an incredible 20%!
According to Donovan Jeffrey of Central Circuits in Pretoria, made-up boards are imported into this country from the Far East without duty. Local electronics companies then add value through board population and building these into electronic devices that are then exported or sold in the local market. This value-added export is obviously good for this country's economy but it would be much better if value addition began at a lower level where the local PCB industry could compete on a more level playing field. The foreign companies pay no duties on their input material, which they are often able to source at cost, while they often benefit from government incentives.
While these duties were imposed to protect local industry and even to encourage exports, they are now having exactly the opposite effect in a highly value-added sector of our industry. While the PCB business is a highly competitive one, it is still thriving in this country employing hundreds of skilled and semi-skilled people. This is despite the negative impact of the import duties and other advantages enjoyed by overseas suppliers. These include better tax write-off options, lower interest rates on essential capital investments and the fact that foreign manufacturers can operate with virtually zero inventory as a supplier is always just around the corner.
While the opportunities for making South Africa more attractive for the manufacturing industry is being addressed by the Department of Trade and Industry with a longer term holistic approach, surely something could be done in the short term to revise antiquated tariff codes and to exempt items used in production that were not intended to be dutiable in the first place?
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