SA will be left out in the cold if it imposes import duties on digital transmissions

The World Trade Organization’s (WTO) 13th Ministerial Conference (MC13) in Abu Dhabi, United Arab Emirates (UAE), has just wrapped up and South Africa’s stance on one development at MC13 gives me cause for concern.

South Africa submitted a communiqué to the conference noting their desire to, among others, “agree to terminate the moratorium on the imposition of customs duties on electronic transmissions”.

Indonesia, who’ve already created tariff codes to cover electronic transmissions, supported the submission. Indonesia’s duty rates are, for now, still at zero. By the end of the conference the moratorium still remains in place for another two years, but the stresses are showing.

Although I think it’s a bad idea to impose import duties on electronic transmissions, the idea is not irrational. Many electronic goods compete with physical goods (e-books and physical books) and so it’s logical to want to protect domestic production, but the reality is that more goods compete with their electronic equivalent and that simply is the price of progress.

Trying to shut down online retailers during Covid because they competed “unfairly” with brick-and-mortar township businesses was a terrible idea.

This protectionist instinct may stem from a good place, but its long-term outlook is very damaging, particularly given how sticky import duties already are. Ninety-three percent of all tariff codes which currently attract a duty, and which had imports flow through them in 2023, were last reviewed more than 20 years ago. Such extremely long-term protection makes for uncompetitive industries, and if we extend it to electronic services, we will simply see uncompetitive domestic services.

In 2020, Deputy Minister of Communications Pinky Kekana lobbied in Parliament to have TV licences payable for such services as Netflix. Kekana said “(b)ut we are not only limiting it to TV. We also have other platforms where people consume content and in all of those areas, that is where we should look at how we are able to get SABC licence fees from those gadgets.”

The instinct to protect moribund industries is strong, and I have no doubt that if customs duties are ever imposed on electronic transmissions, SABC will be at the front of the queue.

Digitally delivered services account for 54% of global services exports and increased by an average of 8.1% annually between 2005 to 2022, nearly twice the rate for goods exports. Developing economies’ relative share of global services exports jumped from 24% to 34% between 2005 and 2022.

Bangladesh’s exports of computer services grew 31% from 2019 to 2022. South Africa, by comparison, has seen its share of global services exports decline from 0.37% in 2010 to 0.15% in 2021 and global services imports decline from 0.51% to 0.24% for the same period.

While the rest of the world is engaging more, we are disengaging. Imposing import duties on digital transmissions will serve only to increase this level of disengagement.

Now consider another condition from the same communiqué, seemingly cut almost perfectly from South Africa’s many tomes of industrial policies.

A recently completed market inquiry into a broad range of online intermediation platforms by the Competition Commission of South Africa noted that all leading platforms must promote greater levels of participation and promotion of historically disadvantaged small, medium enterprises on digital infrastructure through among others, funding via fee rebates for onboarding and subscription, and ad credits or targeted promotions and to improve the visibility of developing countries including least developed countries apps through a local app curation and provision of ad credits, as well as though promoting technology transfer.

It also noted all the leading platforms, except Private Property, must introduce a Historically Disadvantaged Persons (HDP) programme.

For Property24, that programme must, at no cost, provide personalised training including site design and support, branded listings, five value-added services per month, access to the market intelligence report, and, for new HDP agents, 12 months free standard listing subscription.

The conditions inserted by the Commission are not because those companies are behaving in an anti-competitive way. These are what are called “public interest” conditions and according to the Department of Trade and Industry’s Annual Performance Plan 2023-24, another 50 mergers and acquisitions are targeted for public interest interventions.

The government’s move to insert itself into the minutiae of every business decision will not yield good outcomes, but it will see investors disengaging from South Africa. You can’t grow an economy by punishing the successful.

We need lots of cheap bandwidth, yet the cost of data is perversely high for those who can least afford it.

As we saw with Elon Musk’s Starlink, when the South African government insisted on a 30% shareholding by historically disadvantaged groups in Starlink, before it would be allowed to operate in South Africa, Musk simply said, “no”, and we found ourselves without the service (legally at least, for now).

The economic benefits of the service to the whole country is sacrificed in the interests of a potential future shareholder. This is not in the public interest.

If South Africa moves forward and eventually imposes import duties on electronic transmissions, no matter the noble objectives, the people who will pay the price will not be the huge multinationals. It will be every small company using the internet to be more competitive. The value transferred to the shareholders of Google or Amazon are a fraction of the value they create for their users.

Yes, there is a digital divide, but the way to close that divide is to fix the fundamentals. The hurdle to developing a vibrant online business sector is not competition from abroad.

It is fixing the medieval levels of education most kids are put through, with only half even finishing high school. Coding is difficult. It requires strong mathematical and problem-solving skills.

We will not have more highly skilled developers if we remove competition from the market. We will not develop by trying to force large foreign competitors to give things to us. Growth does not come from handouts, even when extracted for the best possible reasons.

Donald MacKay is the founder and CEO of XA Global Trade Advisors. He has been advising both local and foreign companies on global trade issues for over two decades. X handle: XA_advisors; email: donald@xagta.com; website: xagta.com

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