Industrial policy is all the rage these days with Trade and Industry Minister Rob Davies planning to create 2.5-million new jobs in the coming years.
One commentator was even moved to write that the only such policy we have had in the past was to hand out electricity on the cheap whereas now we will have a whole bag of tools for the purpose. But this seems to be selective memory.
We have made all kinds of policy interventions in the past, quite often with deleterious results. One example is the decision to allow Sasol to use a spare pipeline to send product to the coast, protecting its market dominance in the industrial heartland of the country and necessitating the building of a R15-billion pipeline to bring fuel to Gauteng.
This deal is good for Sasol, but bad for the economy and the taxpayer. The company, which was printing money when oil was trading at $150 a barrel, produced less than stellar results this week. It said that some kind of undisclosed financial assistance from government would be needed for it to build Mafutha, its new 80 000-barrels-a-day coal-toliquids plant in Limpopo. You can see why.
When I last looked, the costs of building and running such a plant were reckoned to be about $100 a barrel. With oil languishing at $80 at present, private investors will be reluctant to invest. If government does come to the party, my guess is the deal will be under an ‘industrial policy” rubric.
Another deal in the news right now is the government-backed sweetheart deal which saw Arcelor-Mittal signing contracts with Kumba to buy iron ore at cost plus 3%. The deal was brokered by former industrial policy supremo Alec Erwin.
The thinking was that ArcelorMittal would supply steel at very attractive prices to the domestic market, boosting manufacturing and jobs. This deal was so good that, in recent times, ArcelorMittal has reportedly been getting its iron ore at $26 a ton, while the spot price internationally has been $122 a ton.
Did ArcelorMittal sell its steel into the South African market at cost plus 3%?
Of course not. Its pricing has been highly controversial, leading to ArcelorMittal being slapped with a R700-million fine by the competition authorities. The fine is now under legal review.
Government has been watching with exasperation: we give you cheap ore, you give us pricey steel. The motor industry takes centre stage in our industrial policy aspirations.
The way this works is that treasury foregoes about R20-billion annually in customs duties on vehicle imports as a way of incentivising the industry to make and export cars.
The system is also inextricably snarled up with historical arrangements with our Southern African Customs Union partners, Lesotho, Swaziland, Botswana and Namibia, where booming car imports have seen us writing larger and larger cheques (R28-billion last year) for our very grateful neighbours.
It would be nice at this point in the story to hold up the private sector as a model of how things should be done, but it continues to be a case of another week, another cartel bust. This time the spotlight was on the bitumen industry, which is accused by the competition authorities of having run a cosy cartel for at least 10 years, until 2009.
Between the tenderpreneurs and the cartelpreneurs there’s not much room for the rest of us.
Davies’s full aspirations are contained in a document which rejoices in the unlikely name of Ipap, Industrial Policy Action Plan.
What hope is there for an industrial strategy which can only come up with this as its acronym?
I fully expected to open the document and find this as the first action point: find a better acronym than Ipap. Where the Malaysians have Vision 20-20 we have Ipap.
Ipap does contain good, if obvious, strategies such as government preferring locally made products in its procurement purchases, but too much of it seems the tired old stuff which has been tried and failed.
Where there is new stuff, such as green jobs, which everybody thinks are a good idea, the old tired stuff is already killing the green shoots as fast as they sprout.
One example is Eskom’s dismal solar water heating subsidy which has been so ineptly set up and managed that you’d think the programme was run by an electricity cartel designed to make sure that renewable energy is paid lip service at best.
So we have plenty of wind and an abundunce of sun, excellent technologies and skills and our entrepreneurship cup runneth over. We also have huge demands for energy but there is no way to connect these energy dots.
In my own case I would like to sell solar electricity, but I’d have to have enough panels to cover the whole neighbourhood to generate the minimum one megawatt required before I could sell to the grid. Even then it is not clear how I would connect, whom I would contract with and who’d pay for my power.