Sameera Casmod | sameerac@radioislam.co.za
13 September 2023 | 11:05am SAST
1-min read

Picture: CDE

A recent report from the Centre for Development and Enterprise (CDE) has raised concerns about the South African government’s localisation strategy and its negative impact on the country’s economic prospects. In an interview on Radio Islam International, Stefan Schirmer, research director at CDE, discussed the detrimental effects of these policies and the necessity of re-evaluating the government’s approach.

Schirmer explained that while localisation policies may appear well-intentioned, they come with unintended consequences that harm the economy. He outlined three key aspects of these policies that are causing concern.

The localisation strategy is contributing to higher electricity costs in a country already grappling with frequent power shortages. Schirmer pointed out that South Africa should prioritise more efficient and cost-effective electricity generation, rather than adopting policies that exacerbate the issue.

Schirmer noted that the policy also leads to increased government spending on goods and services. Given the precarious state of the country’s finances, where expenditures outstrip revenues, this additional spending is unsustainable. Schirmer stressed the urgency of making necessary budget cuts rather than expanding expenditures.

Localisation policies, particularly through tariff protection and master plans, have resulted in higher consumer prices for various goods, including essentials like chicken meat, explained Schirmer. In a context of rising poverty and double-digit food inflation, these price hikes place an additional burden on already struggling households.

Schirmer said that the policy focuses on protecting local businesses against foreign competition, even when local goods are more expensive. He said a shift in economic strategy towards lowering the cost of doing business is necessary, which, in turn, would support local enterprises more effectively.

Schirmer also highlighted the problem of political rhetoric that portrays localisation as an unequivocally positive endeavour without addressing the associated costs. He emphasised the need for a more comprehensive assessment of the policy’s impact on the country’s economy and its appropriateness in the current circumstances.

When asked about potential solutions, Schirmer acknowledged the difficulties but stressed the importance of persistently pushing for change. He expressed hope that mounting pressure from the public and the economic strains caused by the policy might lead to a reconsideration of these strategies, especially as South Africa enters an election year.

Listen to the full interview on Sabaahul Muslim with Moulana Sulaimaan Ravat here.