WORLDVIEW: SA missed globalisation wave. What’s next?

The wave of globalisation that started in the 1980s has just about run its course. After years of increasingly globalised flows of goods, services, people, and capital, times are changing. By most measures, the global trade in goods is in decline. Non-tariff barriers (NTBs) are springing up – the WTO reports a steady rise in NTBs since 2007 (see chart) – and the prospects for growth are bleak. With trade slowing and globalisation under siege, how can an emerging market like South Africa thrive?.Winners and losers.Many Asian countries benefited greatly from the wave of globalisation that began in the mid-1980s, most notably China. China and its Asian peers took advantage of rich countries' lowering of trade barriers in the 1980s and 1990s to develop huge manufacturing sectors, producing cheap factory goods for Western markets..___STEADY_PAYWALL___.In doing so, they managed to achieve dramatic economic growth. China is the paradigm case here, growing at around 10% a year for about 40 years, but other countries like Malaysia, Thailand, and South Korea also managed to grow their economies rapidly..South Africa, however, missed out..In the 1980s, SA was mired in political struggle and the process of democratisation absorbed a lot of political attention in the 1990s. Instead of jumping on the manufacturing bandwagon and becoming a low-cost destination, South Africa, like many other emerging markets in Africa and Latin America, focussed on commodities exports, doing well out of China's huge appetite for copper, coal, and other raw materials. This was good for growth, but it meant we missed out on the chance to get in on the more lucrative, value-adding manufacturing side of things..Where to next?.What's done is done and it's no good crying over spilt milk. The economic opportunities presented by the opening up of trade 40 years ago will not be repeated. What SA needs to do is figure out how it's going to cope with what comes next – deglobalisation and the raising of economic, social, and financial drawbridges..There is plenty of evidence for rising deglobalisation since the 2007 crisis. For example, trade growth has been slower than global GDP growth after decades of exceeding it. Foreign direct investment into emerging markets has fallen to its lowest level in decades. Trade barriers have increased. More recently, the UK and US, two leaders of the globalisation wave, have begun to pull back from the world stage. The UK is leaving the European Union political and free trade project, and the US is engaged in a multi-front trade war and actively undermining the WTO..Given all this, there will likely be fewer global opportunities for trade, capital flows, and exports in the future than there have been in the past. The rich world drawbridges are going up..In an environment where markets raise protective barriers, small, open economies generally do badly (well, all economies do badly, but small, open ones do worse). A big, diversified, competitive market like the US can live without trade, which forms a pretty small part of its total economic activity. America can feed itself, clothe itself, and make all the stuff it needs – albeit more expensively and less efficiently than China can. But a small economy like SA, dependent on foreign oil and foreign goods, faces a more challenging picture..All is not, however, lost..One approach SA could pursue is to focus on the fact that part of the reason for the decline in trade is that many emerging markets are now becoming net consumers themselves. China is once again the main example here – its economy is in the process of transitioning from export-led to domestic consumption-led growth. This means that, even as the US and UK withdraw from free trade, there are opportunities to shift exports to richer emerging markets..Another approach would be to go for a bloc. Right now, the world has three main economic poles – the US, the EU, and China. SA could align itself with one of these actors and hope to become an indispensable part of a smaller economic universe. The EU looks like the best bet, as the US has turned away from free trade and China does not share SA's democratic values..A third approach would be regional. Africa is the only part of the world with a youthful, growing population, not to mention its extensive natural resources. SA could concentrate on building partnerships with other African nations, perhaps working towards an EU-style African bloc that could leverage the demographic dividend of its young population to deliver growth and prosperity. Unfortunately, relations with our African peers are a low point thanks to xenophobic violence, which would make this diplomatically challenging..There are many options available. What matter is that SA must articulate a clear plan in the face of a decisively changing global environment. In the face of deglobalisation, we cannot hope to follow the path to prosperity that China took. We need to forge a new one.

WORLDVIEW: SA missed globalisation wave. What’s next?

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