President Jacob Zuma in his State of the Nation address outlined an ambitious programme to support and attract industry to South Africa to reduce the country’s high 25% rate of unemployment.
What he outlined is a massive subsidy. He provided tax breaks that could total up to R20-billion. For a new project to qualify, the minimum investment must be R200-million, and R20-million for expansion and upgrades.
New investors would be allowed up to R900-million in tax deductions and up to R550-million for upgrades and expansions. Zuma also unveiled a R9-billion jobs fund over the next three years and said the Industrial Development Corporation had set aside R10-billion over the next five years for investment in economic activities with high jobs potential.
The new growth path document prepared by the government has outlined six key areas for job creation — infrastructure, agriculture, mining and beneficiation, manufacturing, the green economy and tourism.
At least two of these should be of direct concern to those setting industrial policy in Botswana, where the blight of unemployment, estimated at 17,5%, is also very much a problem.
The first is manufacturing because Botswana and South Africa are part of the Southern African Customs Union (Sacu) and hence subsidies provided for firms to locate to South Africa or expand there are all the more reason for them not to locate to Botswana or other Sacu countries. There are already very few exporting manufacturers in the country and what South Africa is proposing will only make matters much worse.
Botswana has many advantages. It has a generous taxation system — company taxes much lower than those of our neighbours. We have a stable government and only limited crime and security issues.
Subsidies
We have wage levels for unskilled workers that are roughly a quarter of those of South Africa and yet we have almost no export-oriented manufacturing industry located here. Although being landlocked is part of the problem, another is that the ANC, like its predecessors, is willing to provide massive subsidies to industry that the other smaller and much poorer members of Sacu cannot possibly afford to match.
A second part of Zuma’s speech that should also be of concern to Botswana policymakers is the drive to beneficiation in South Africa. He said: “One of government’s priorities this year is to finalise and adopt the beneficiation strategy as the official policy of government so that we can start reaping the full benefits of our commodities.”
Botswana also had a beneficiation policy for our minerals that, although it nominally still exists in policy documents, only really holds in the diamond sector. If Zuma is going to provide subsidies for beneficiation then what will stop industry in South Africa from importing ever more of Botswana’s raw commodities to process? The prospect of Botswana beneficiating any of its massive deposits of copper and silver in the north and west of the country will be greatly diminished.
But what Zuma outlined is only the tip of the iceberg of a structure of subsidies and support programmes draining South Africa’s neighbours of any reasonable hope of industrial development. Last October Rob Davies, South Africa’s minister of trade, outlined another programme of industrial subsidies worth R13-billion, another of many other such programmes, which will entice our producers to locate to the other side of the Notwane River.
No sane and sensible person in Botswana would wish our neighbours anything other than peace and prosperity, for that is in Botswana’s interests. But Zuma must realise that his country is part of a customs union and that his policies should not be undertaken at the expense of Botswana and other Sacu countries.
At this time Sacu officials, no doubt with the support of the South African treasury, are telling Botswana that Sacu is unfair to South Africa, which desperately needs R8-billion from our share of Sacu customs and excise receipts — presumably so they can pay for the subsidies to industry. In the light of these and Zuma’s speech, his treasury officials’ pleas of poverty and the need for resources for health and education sound a tad empty.
The issue of massive subsidies must be raised at the coming Sacu summit to make sure that the customs union is strengthened and that our neighbours realise that the old days of Sacu being a winner-takes-all game — where the only winner in terms of production is South Africa — must come to an end.
Professor Roman Grynberg is senior research fellow at the Botswana Institute for Development Policy Analysis. The views expressed are his own.