After several years of tinkering at the margins, the government is now contemplating robust interventions in what it believes are crucial sectors of the “real economy”: a dramatically expanded regime of subsidies for some industries, more support for strategic clusters and a tougher crackdown on the pricing of basic inputs such as steel, telecommunications and chemicals.
The Industrial Development Corporation is also likely to see its role expanded as the government seeks to push resources toward targeted areas of the economy.
Officials are reluctant to discuss the details of progress in policy development, saying that Deputy President Phumzile Mlambo-Ngcuka is leading work in this area. But, a recent speech by Trade and Industry Minister Mandisi Mpahlwa to the Congress of South African Trade Unions (Cosatu) central committee, and discussions in the African National Congress’s economic transformation committee, provide some striking indications of the direction that a revamped industrial strategy, based on an effort to balance market forces and state activism, is likely to take.
Mpahlwa suggested a combination of “getting the prices wrong” — offering subsidies and other forms of support for some sectors — and “getting the prices right” — moving more boldly to cut the enormous profits that dominant firms are able to extract from their effective monopolies.
The focus on input costs is not new. Telkom has long been a target of the Department of Trade and Industry and the Presidency in this regard, although they have had little success in bringing the partially privatised company to heel. And Mittal Steel and Sasol’s chemicals arm, which use import parity models to determine the local prices of their products, are already the subject of scrutiny.
The recent announcement of a R1-billion rescue package for the state-owned arms manufacturer Denel, which had been approaching insolvency, is evidence of the government’s will to support companies that can help create what Mpahlwa calls “an increasingly sophisticated set of industrial capabilities”. Denel is seen as a platform for the development of a local aerospace industry and much of its restructuring will take place with that objective in mind.
The motor industry already benefits from a package of incentives that may now provide a model for support in other sectors — notably the beneficiation of minerals and agricutural products — according to people familiar with discussions taking place within the government.
Subsidies are anathema to many liberal economists, who believe they protect inefficient industries and poorly managed companies from the discipline of the market, and store up problems for the future. And, until recently, they have largely been rejected by policymakers at the National Treasury.
Sanlam’s chief economist Jac Laubscher, for example, says that while he has no objections to the state nudging tardy industries along, it should do so with a light hand and not attempt to pick winners.
“They should rather focus, as they have been doing, on improving the general business climate and the competitiveness of the economy,” he argues.
Mphalwa attempts to address these concerns by proposing the creation of “reciprocal control mechanisms” that “impose monitorable performance standards on firms in exchange for subsidies … and withdraw or even claw back subsidies under circumstances where [they] have not been met”.
The speech got little media attention amid the recriminations surrounding Cosatu’s call for the reinstatement of Jacob Zuma, but these remarks suggest it was calibrated to address the union federation’s longstanding complaint that official economic policy, since the implementation of growth, employment and redistribution (Gear) in 1996, has failed to address sectoral issues and employment.
A Cosatu document presented at the ANC’s economic transformation committee (ETC) a fortnight ago sets out in detail what the federation identifies as the government’s persistent orientation toward export competition and technology intensive industries: “the present industrial strategy remains a compromise, containing both competitiveness and a rather confused structural approach. Unless greater attention is giving to ensuring job-creating growth, it may fail to deliver jobs or equity,” it argues.
Mphalwa seems to concede some of this, saying that “in deference to conventional wisdom, programmes have shied away from sector-specific support and to some extent been dissipated by being spread too thinly [and they] may not have been of sufficient size to achieve the ‘massification’ necessary for structural change”.
One ANC official who attended the ETC meeting and is sympathetic to the union’s critique of Gear told the Mail & Guardian that he believed the positions of the government and Cosatu were now beginning to converge, largely as a result of President Thabo Mbeki’s push for a stronger developmental agenda.
But Mpahlwa charts some persistent faultlines, including the debate within the government over whether to spend money in the cities, where it is more efficiently put to work, or in marginal areas, which have lower rates of economic activity. And he lays down clear markers about South Africa’s position in an intensely competitive global economy, governed by the rules of the international trading system: “Our new industrial policy … must be bold in the sense that it should aim to achieve a real step change in the growth and employment trajectory of our manufacturing and services economy.”
That may not be enough for Cosatu, but it will hardly charm big business either as officials search for ways to bring what Mpahlwa called “the more dynamic and developmental industries and firms” into the foreground. A whole new round of battles looms.