The trade and industry department has unveiled its new industrial policy at last — it is the most ambitious state-driven job-creation initiative since the Reconstruction and Development Programme.
The policy centrally involves the targeting of selected industrial sectors for state support, including financing.
The first comprehensive industrial policy to be endorsed formally by the Cabinet, it is seen on the left as a key sign of President Thabo Mbeki’s shift to a more interventionist stance.
However, the ‘picking of winners†approach — by which the state identifies enterprises that should receive state backing and which is intended to stimulate new manufacturing activity and boost growth, exports, work creation and black economic empowerment — is controversial.
The treasury is known to be deeply skeptical, seeing it as a potential threat to South Africa’s competitiveness. Spokesperson Thoraya Pandy said this week that, as the department of trade and industry was leading the process, the treasury would not comment.
Some analysts also question the ability of the department and other state agencies to adjudicate enterprises for state backing on a large scale and to subject them to continuous evaluation.
The department’s framework document itself concedes that in the past decade ‘capacity to formulate and implement high-quality industrial policy interventions has been uneven, particularly within the department of trade and industryâ€.
It points out that implementation will cut across several departments and all tiers of government. It proposes that the economic investment and employment ministry cluster should coordinate, but says it ‘lacks analytical, planning and decision-making capacity†and needs a permanent secretariat.
The policy is conceived as running in tandem with the three-year budget cycle.
Under wraps since it was approved by the Cabinet lekgotla in January, the framework was launched finally on Thursday by Trade and Industry Minister Mandisi Mpahlwa in Pretoria. Also unveiled was an ‘action planâ€, endorsed by this month’s lekgotla, detailing the sectors targeted for support (see accompanying box).
Mbeki said at Sunday’s post-lekgotla briefing that South African manufacturing suffered from ‘low investment, low output and poor export and employment performance, particularly in low- and medium-skill sectorsâ€. In particular he emphasised the need to improve the balance of payments by spurring exports.
The department of trade and industry’s concept document tips its cap to treasury doubters by acknowledging that macroeconomic stability and a business-friendly environment are preconditions for successful industrial policy.
But it argues that countries that have uncritically endorsed the Washington Consensus, with its overweening emphasis on macroeconomic stabilisation and trade liberalisation, ‘have shown disappointing growth and developmentâ€. Newly industrialised countries, such as Taiwan and South Korea, following a more interventionist path, had done better.
The department of trade and industry firmly sets industrial policy in the context of the government’s targets of 6% GDP growth from 2010 and the halving of poverty and joblessness by 2014.
Its rationale is that manufacturing growth has failed to offset the decline of traditional sectors, such as mining and agriculture, and that recent GDP growth, driven by consumer spending, is unsustainable.
It calls for diversification into new manufactures, particularly through downstream value-addition.
Central to the policy are customised ‘key action plans†for different sectors, rather than generic subsidies, to identify opportunities and constraints after a process of sectoral ‘self-discoveryâ€. Involving employers, workers and other interests, the latter idea is in line with the sectoral summits driven by Cosatu since the early 2000s.
Financing would be conditional on companies’ growth and employment prospects and their achievement of measurable benchmarks, with regular reviews and sunset clauses built into financing agreements.
The department’s industrial policy director, Nimrod Zalk, emphasised that the starting premise was that manufacturing growth was not automatic. Certain sectors might need financial support — without the Motor Industry Development Programme, for example, ‘South Africa would not have a motor industry†— but regulatory and other obstacles also might hamper development.
‘Does the government have capacity? Absolutely,†he said. ‘We’re not starting from scratch.†The department of trade and industry had substantial infrastructure in place for the administration of incentive schemes. The Industrial Development Corporation, in addition, was well run, with scope to raise lending, he said.
One reservation, voiced by Peter Draper of the South African Institute of International Relations, was that the ministerial cluster on investment could expect to hit opposition in Cabinet. ‘The reality of government everywhere is that no bureaucrat or politician likes to have their prerogatives second-guessed or taken away from them,†Draper said.
Zalk replied that there were ‘obviously challenges†in policy coordination, but added: ‘The policy is Cabinet-endorsed — the Cabinet has to align around its objectives.†He said the implementation of the call centres programme was a successful example of such coordination.
Answering objections that the scheme would prompt intense lobbying and potential ‘state capture†by special interests and that the government would find it difficult to pull the rug from under failed projects, Zalk said that the department routinely reviewed its programmes and that the vast majority were not extended.
‘Some people say industrial policy is too complex to implement. You could use the same argument against monetary policy,†Zalk said.
On state regulation of industry, the department of trade and industry’s framework document appears to pull in contrary directions, urging tougher controls over input producers, especially Eskom, Telkom and Mittal Steel, and a more relaxed dispensation for labour-intensive downstream manufacturers reliant on them.
Zalk said that in regulated sectors, such as telecommunications, the department’s purpose was to urge the oversight ministries to ensure more effective price regulation.
In the unregulated steel sector the department of trade and industry had tried to use ‘moral suasion†to prevail on Mittal to change its anti-competitive pricing policies, but to no avail. The department was now moving to strengthen the competition regime.
On whether downstream deregulation implied greater labour market flexibility — one of Cosatu’s bugbears — Zalk said this was a complex issue that needed detailed assessment.
Plan of action
Capital and transport equipment, metal fabrication
GDP contribution: 2%
Employment: 216 000 people
Constraints: Raw material costs, underspending on public infrastructure and lack of mining investment.
Goals: Upgrading to take advantage of public spending on transport and energy and mining and minerals processing boom.
Automotives and components
GDP contribution: 7,4% Employment: 108 000 Constraints: Insufficient local content in components, need for export and domestic sales growth, no BEE plan.
Goals: Doubling of production to 1,2-million units, development of component manufacturing.
Chemicals, plastic fabrication, pharmaceuticals
GDP contribution: 2,8%
Employment: 113 000
Constraints: Coordination of large-scale projects, uncompetitive input prices, low import penetration, regulatory challenges. Goals: Expanded fluoro-chemicals industry, leveraging of state ARV tender, increased polypropylene output for auto industry.
Forestry, Pulp and Paper, Furniture
Employment: 170 000
Constraints: Water and afforestation licences, transport infrastructure, access to land.
Goals: More processing by small operators, expansion of furniture industry.
Business Process Outsourcing and Offshoring (to be developed)
Potential GDP contribution: R8bn by 2009
Potential employment: 100 000 by 2014
Constraints: High telecomms costs, poor skills base, competition for foreign investment.
Goals: Sector pricing agreement with Telkom, marketing to lure investors, training, quality standards development.
Tourism
GDP contribution: 8,8%
Employment: 8% of total
Constraints: Marketing of local destinations, tourist transportation, skills base, tourist safety.
Goals: Finalise tourism skills plan, design incentives, implement tourist safety strategy, 2 500 small accommodation establishments, accelerate grading of establishments, fast-track BEE.
Biofuels (in its infancy)
Potential GDP contribution: R2-billion a year
Potential employment: 55 000
Goals: develop regulatory framework and support mechanisms.
Clothing and textiles
Employment: 127 000
GDP contribution: 0,6%
Constraints: Low-cost imports, particularly from China, plummeting exports, low investment in skills and processes.
Goals: Arrest decline and conserve jobs by facilitating recapture of domestic market, upgrading skills, implementing country of origin labelling.Long-term goal: full competitiveness.
Diamond beneficiation (to be developed), jewellery
GDP contribution: $2,5-billion, half from rough exports
Employment: 14 000, including miners
Constraints: Skilled labour shortage, lack of access to capital, lack of manufacturing investment, cutting and polishing costs.
Goals: Implement beneficiation legislation, establish and expand cutting centres.
Agro-processing
GDP contribution: 10%
Employment: 183 000
Constraints: Global tariffs, heavily subsidised international competition, inadequate R&D spending, rising input costs, inadequate infrastructure.
Goals: Improve exports through National Food Control Agency, review tariffs on agricultural products, promote beneficiation for rooibos and honeybush exports, boost profitability of South African fruit canning, promote Makathini sugar processing.
Film and television
Employment: 20 000
Constraints: Lack of access to financing, distribution and exhibition facilities, insufficient audience development, few training opportunities, few export opportunities.
Goals: Launch revised rebate to increase local production, enterprise development for emerging production firms, five pilot programmes to expand distribution, infrastructure, local content and audiences.