How bureaucratic delays led to the collapse of South Africa's R2.5bn groundnut roasting industry - Donald MacKay

A customs tariff increase application on roasted groundnut imports classifiable under subheadings 2008.11.20 and 2008.11.90 from 0.99c/kg (0.033% ad valorem equivalent) to 20% was withdrawn by the South African Groundnuts Forum because they have closed their nut roasting business.

The investigation was initiated on January 15, 2021 and lingered without a decision for 50 months (yes, seriously) with no decision. The application had been filed on February 24, 2020. It should take six months to complete an investigation.

According to the International Trade Administration Commission (Itac), the applicant withdrew their application because “[of] a range of operational and other factors, including but not limited to the prolonged uncertainty surrounding the decision on the amendment of the customs duty. The applicant alleges that such uncertainty has affected the viability of their business model”.

Pause for a moment and take that in. The investigation should have wrapped up around the middle of 2021. Let’s be generous and say by the end of 2021, because you know, Covid and stuff. In the three years from 2022 to 2024, 1 490 tonnes of roasted groundnuts (value of R392 million) were imported and that as they say, was that. No more roasted groundnut production in South Africa.

The cost of not taking decisions is severe, as demonstrated by what happened here. Proper attention needs to be given to clearing the backlog of tariff applications which have simply not been adjudicated for years. There are more versions of this waiting to happen if tariff cases are not rapidly adjudicated. At the time of applying, the applicants had already lost 15% of their staff.

As is now the norm, they were squeezed to sign a reciprocal agreement, which appears to have been locked in by the time of their application (this might help explain why it took almost a year from application to initiation).

Here is some of what they projected should they receive the protection requested:

⦁ 44% increase in production volume

⦁ 21% increase in investment

⦁ 45% increase in employment

They were asked, “How do you support or plan to support the participation in manufacturing and related activities by small businesses, black-owned or black-managed enterprises and Common Customs Area supply chains?” It’s not obvious why this is relevant to whether they are worthy of protection or not. They provided their boilerplate commitment to transformation (who after all will say anything else).

They explain that there are high tariffs on raw/blanched nuts and very low duties on roasted nuts. This of course, is an incentive to import the roasted nuts, rather than the raw nuts, which is exactly what happened.

Darkly ironically, the roast nut producers have to regularly import raw/blanched nuts because, “[i]n most seasons South Africa has a short local crop and needs to augment the shortfall with imports. The problem with low current import tariffs on competing roasted peanuts versus the higher tariff duties on raw/blanched input nut imports, is that a roasted peanut producer has to purchase the imported raw peanuts at higher prices due to the duty applied which provides the importer of roasted peanuts with an advantage.”

The applicant clearly warns of job losses if the protection is not granted, “To date [the applicant] has made every effort to retain processing jobs. If the current import pricing dynamic remains, combined with dire national economic conditions, there will logically have to be a reduction in the staff complement. The company has already commenced with retrenchments in other divisions of the company that provide support services to the processing factory”.

They are asked (and signed) a developmental plan “[The applicant] has participated in the compilation of a groundnut sector wide development and restructuring plan. This plan is attached: ‘SA groundnut industry principles of transformation; reciprocity and initiatives relating to Itac development plan & applications for tariff investigation and adjustment’”.

The July 2019 Bureau for Food and Agricultural Policy report explains that, “The South African groundnut industry continues to find itself at a crossroad - just this time around with the possibility of more extensive and irreversible consequences for the future of this R2.5 billion industry.”

Given that the various agreements had been secured prior to the application being filed with Itac, why did it take 50 months to take a decision? We don’t know (and likely will never know) and that is not acceptable. We watch in horror as thousands potentially lose their jobs at ArcelorMittal’s Newcastle operation due in large part to bad policies, yet here goes another industry with barely a whisper. The jobs lost here are a direct result of an inability to take a tariff decision.

If you detect a note of frustration, that’s because I’m very frustrated. All of our policies and meetings and working groups are not worth a cup of cold sick if no one is accountable to actually implement the policies we have. Promises made need to be kept.

Donald MacKay is founder and chief executive of XA Global Trade Advisors. MacKay has been advising local and foreign companies on global trade issues for more than two decades. X handle: XA_advisors; email: donald@ xagta.com; website: xagta.com.

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