Teigue Payne
THE new director general of trade and industry, Dr Zav Rustomjee, has given an exposition of his vision of how industry works and how it should be encouraged to be more competitive. The vision involves identifying pipelines, or forward and backward linkages, and nurturing these to greater competitiveness through tariffs, assistance and incentives.
According to this approach, industries would be viewed integrally. For instance, raw material producers in minerals or agriculture would be viewed integrally with the metals industry or the food processing industry. This would be in contrast to the past when industry statistics and strategy was generally viewed independently.
Rustomjee was speaking at an International Executive Communications conference on agriculture in Sandton. His exposition — and statements by his boss, Trade and Industry Minister Trevor Manuel — resonate with the thinking of Harvard competitiveness guru Michael Porter. Porter founded the Monitor Company, which is currently working for the National Economic Forum and has allegedly identified various competitive clusters (which differ somewhat from pipelines) in South African industry.
Rustomjee quoted research indicating that about two thirds of agricultural output is used in further processing. The rest is sold direct.
There is thus a strong forward linkage between agriculture and food processing. Agriculture also gets half of its inputs from the manufacturing sector, but the total manufacturing sector gets only a small percentage of its inputs from agriculture. There is thus generally a weak backward linkage.
While agriculture generally contributes less than six percent of South Africa’s GDP, the agro-food industry contributes well over 20 percent of the GDP, employment and capital stock. Agro-industry’s contribution to these is on a distinct rise; agriculture’s contribution has been trending downwards, though it is variable. Viewed this way, the agriculture-food industry is South Africa’s largest manufacturing industry — though, of course, if other industries are linked up, they would also be enlarged.
Worldwide, says Rustomjee, agro-processing has been taking a bigger share of total agricultural raw materials. However, this pattern differs greatly between different commodities and the trend downwards for fibre agricultural commodities (like wood pulp) is more distinct than for food-agricultural commodities.
The variations between subsectors and pipelines means that differing arrangements will have to be made in incentivising competitiveness. Generally, and as expected because of weather, there is much less variation in world exports of processed agricultural goods than for agricultural raw materials — another reason why South Africa should be encouraging export of processed agricultural goods, said Rustomjee.
He said the process of reducing tariff lines from about 12 000 to 6 000 would be achieved in the “very near future”. The tariffication of agricultural and other goods in terms of GATT would tend to prevent protection on demand. With tariffs fixed, dumping would be a major problem, and a more efficient anti-dumping procedure was a priority.
On extensions of the Southern African Customs Union, Rustomjee said discussions were taking place with Zimbabwe.
Industries which were not competitive with Zimbabwean industries had to face up squarely to why this was so. A shift of investment northwards could be expected in some industries, though South Africa would always have the advantage of advanced infrastructure.