In Thursday’s State of the Nation Address (Sona) — which observers have criticised as long on vision and short on steps to implement it — one thing was clear: A ‘reimagined’ industrial strategy will be a key part of President Cyril Ramaphosa’s efforts to ignite economic growth.
At the heart of these efforts sits Ebrahim Patel, Ramaphosa’s new minister of trade and industry. He will also oversee the merger of his former portfolio — economic development — back into the larger department.
In an interview with the Mail & Guardian after Sona, Patel outlined what he believes will be different about the new administration’s efforts to boost an economy that is shrinking — by 3.2% in the first quarter of this year — while unemployment rises.
As Patel sees it, the way forward can be encapsulated into two themes. The first is “vision at the top” and the importance Ramaphosa has placed on coordination, not just within government, but with the private sector as well. The second, which he bemoans as never garnering sufficient attention, is implementation.
“We search constantly for a new idea where often what is missing is the discipline to implement the ideas that we have,” Patel said.
He gave the example of locomotives procurement by Transnet as an example of how the mismatch between policy and implementation can lead to failure. Despite requirements to promote localisation, Transnet’s now infamous procurement of over 1 000 train engines saw the complete flouting of policy in the interests of funnelling billions to businesses and entities linked to the politically connected Gupta family.
“We’ve got great policies and they were breached significantly when the train procurement was done,” Patel said. “If we can remove the mismatch [between policy and implementation]… if we just begin to get that right, already it marks a revolution in the state.”
Ramaphosa’s call for return of the state’s national development plan (NDP) its place at the centre of economic policy direction has been pointed to as a sign of a step in the right direction.
One leg in the effort to rebuild the economy will be a revitalised industrial strategy, which Ramaphosa said would take the successes of the automotive sector and replicate these in other priority sectors, like clothing and textiles, gas, chemicals and plastics, renewables, and steel and metal fabrication.
“An important observation that was made in Sona is not only that industrial strategy is at the centre of our thinking about strengthening economic performance, but that we want to build on our own experience,” Patel said.
Key lessons from the vehicle manufacturing sector have been the importance of “evidence-led policy”, said Patel, as well as commitments to a stable policy framework, that enables companies to commit large chunks of capital over a period of time.
South Africa’s vehicle manufacturing sector has been characterised by industrial support programmes like the Motor Industry Development Programme, which was replaced in 2013 by the Automotive Production Development Programme (APDP), which is in turn expected to be replaced by the South African Automotive Masterplan (SAAM) in 2020. These programmes support roughly 100 000 jobs — split between motor vehicle assembly (roughly 30 000) and components manufacturing (around 70 000).
But critics of these policies have in the past argued that this amounts to corporate welfare, and comes at a significant cost to the fiscus. According to the 2019 budget review, the tax foregone on various automotive support programmes amounted to almost R100-billion between the 2013/14 and 2016/17 financial years.
Patel did, however, say that a renewed emphasis on industrial policy did not mean simply throwing “public resources in unending quantities” into the hands of private players. “In a constrained environment we’ve got to think of smart policy.” He also added that at the heart of smart policy is partnership.
He is clearly tired of what he calls “false dichotomies”, that position the state against the private sector. “Smart industrial policy is about stimulating private investment,” he said.
“The bulk of sectors industrial policy is aimed at are private sector driven — whether its plastics or chemicals or clothing or steel.”
While Patel grapples with the task of implementing policy, he must also contend with merging his two departments. The creation, ten years ago, of a standalone economic development department was met with scepticism from the private sector. It was seen as the creation of another economic policy centre within government that was intended to muddy the waters on policy development, and undermine the treasury.
Although there have been “a lot of views and takes” on the creation of the department, Patel said in the last ten years it has enabled a greater focus on competition policy and industrial funding, which was not getting the necessary attention before.
But thanks to a history of co-operation between the economic development department and the department of trade and industry, he expected the merger would be “a relatively seamless process”. He did not however want to give further details — saying more would be provided in his upcoming budget vote speech, due to be delivered next week. He similarly refrained from providing more detail on the roles of his two deputy ministers
Patel has two seconds appointed to his portfolio — Fikile Majola and Nomalungelo Gina – but no announcement on the delineation of their roles has been made. In a statement last week elaborating on the restructuring of the cabinet, Ramaphosa outlined a number of deputy ministerial functions. But announcements relating to the ministries of international relations and cooperation and trade and industry were deferred to a later date.