There’s no rhyme or reason behind Ebrahim Patel’s capricious trade policy. He appears as clueless as he is.
I sometimes imagine Ebrahim Patel’s office as some sort of retro-futuristic process control room for a complicated simulation game, with screens showing trade figures and urgent messages from well-heeled vested interests, and a perplexed minister pressing buttons just to see what changes.
A bit like this image, created with Stable Diffusion XL 1.0, the latest generative artificial intelligence:
‘The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design,’ wrote Friedrich A. Hayek in his 1988 book, The Fatal Conceit.
In the book, Hayek, with William W. Bartley III, argues that purposefully designed changes in an economy do more harm than good, and socialist planning can never encompass the tacit and dispersed knowledge required to calculate which interventions in an economy can improve it.
And there sits Patel, playing his trade simulator, brimming with the conceit that he knows what he is doing and knows what is best for the economy.
His own actions, however, show that he doesn’t.
Astronomical tariffs
With effect 1 August 2023, Patel re-imposed suspended ‘anti-dumping’ tariffs on imported chicken. The biggest tariff reserved for the biggest source of imports, the trade barriers amount to a staggering 265%, 158.4%, 96.9%, 85.8%, and 67.4%, on chicken imported from Brazil, Ireland, Poland, Spain, and Denmark, respectively.
A year ago, those duties were suspended, ostensibly in an effort to combat rising food price inflation. I wrote about it under the headline Ebrahim Patel faces economic reality over chicken prices.
The reality he faced, of course, is that protecting inefficient domestic industries by means of import tariffs hurts consumers. By limiting competition from foreign rivals, the domestic industry is able to charge higher prices than they otherwise would be able to get away with.
Chicken accounts for 60% of all meat consumed in South Africa, because it is less expensive than red meats. Therefore, it is a primary source of protein for the poor, and import tariffs hurt the poor the hardest.
Although food inflation has cooled a little, to 11%, since its 25-year-high of 14% in March, it remains very high. It is only fractionally lower than it was in August 2022, when Patel suspended the special chicken tariffs.
Notably, chicken price inflation remains sky-high. Fresh whole chicken prices are up between 20% and 30%, year-on-year, and fresh chicken portions cost between 10% and 20% more.
This is because chicken prices are not determined solely by tariffs and import parity pricing, but also by input costs such as feed, which accounts for 70% of the cost of raising a bird, and which is among the foodstuffs blockaded by Russia in the Black Sea.
If chicken prices are this high without astronomical anti-dumping tariffs, imagine what chicken will cost now that they’re back. Even the South Africa Poultry Association, which (needless to say) supports the anti-dumping tariffs, admits that it will increase the retail prices of chicken products (paywalled link).
Snack basket
Patel’s apparent concern for the prices consumers pay for their food was evidently short-lived.
It’s almost as if he picks a policy depending on which special interest most recently sent him a lovely snack basket with a message to say they need protection from the big bad people overseas.
That Patel doesn’t know what he is doing ought to be evident from his job before President Cyril Ramaphosa appointed him Minister of Trade, Industry, and Competition in 2019. An ex-trade union leader, Patel was Minister of Economic Development under the villainous jail-dodger, Jacob Zuma, between 2009 and 2019.
Before Patel got that job, GDP per capita in current US dollars rose from $2 708 in 2002 to $8 737 by 2011. He let it slide to $5 735 in 2016, after which it recovered only slightly to $6 688 – a more than 23% decline from its peak – by the time Patel he left that office.
Likewise, gross fixed capital formation rose sharply from 14% of GDP in 2002 to 22% of GDP in 2008, after which it plummeted again to 15% of GDP by the time Patel left office in 2019.
Unemployment was 20.5% when Patel became Minister of Economic Development and rose to 25.5% in the ten years he held that office. Economic growth slipped from 3% to 0.3% during his term of office.
Trade as a percentage of GDP fell from 66% in 2008 to 54% by the time Patel was done playing with his economic development joystick.
Nobody bothers to count poverty rates very often in South Africa, but it also stopped a sharp decline and started increasing again on Patel’s watch.
By virtually every indicator of economic development, Patel’s stint at the controls was an unmitigated disaster.
Lack of skill
Now, he is bringing his trademark lack of skill to the DTIC, which he has turned into the Department of Trade Barriers, Deindustrialisation, and Anti-Competition.
I shouldn’t be too hard on Patel. In principle – as Hayek pointed out – nobody could have sufficient knowledge to micro-manage the economy in the way Patel is trying to do.
But he is also a socialist, and hence per definition ignorant of economic matters. And he’s a nationalist protectionist to boot. These things make it far worse.
His ideological instincts as a unionist really ought to be anti-corporate, but as a socialist he protects corporate cronies, not only at the expense of foreign rivals, but at the expense of consumers.
Every intervention unbalances the supply-and-demand equation. The self-correcting price mechanism, which continually seeks more efficient ways to satisfy the wants and needs of society, is broken by the kind of price manipulation that Patel so rashly engages in.
It makes markets less efficient, less innovative and less competitive, and makes their products more expensive than they need to be.
To Patel, running around like a headless chicken pressing trade buttons might be an exciting game, but the people of South Africa, and the poor in particular, will have less to eat as a result.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, support the Daily Friend
Image by Xuân Tuấn Anh Đặng from Pixabay