Stinging broadside at naive SA

SOUTH Africa was stupid and naive to have withdrawn support for its productive sector in the 1990s in line with international policy guidelines, because the country paid a price and had to play catch-up, Department of Trade and Industry director-general Lionel October said in an interview at the weekend.

October was commenting on a World Bank report on South Africa released last week in Johannesburg.

The bank recommended the government redirect its tax incentives to labour-intensive industries such as agriculture and manufacturing to boost growth and job creation, saying that the social returns in manufacturing were greater than for mining.

October said the department welcomed the report: “Our view is we mustn’t withdraw support for mining – we must increase support to manufacturing, agriculture and tourism.

“Mining is important, but it’s just the production of raw materials. We must add value to those raw materials.”

The government wants to provide grant-based incentives for agriculture and tourism similar to those offered by the US, the EU and Japan to support key sectors. This is the kind of support South Africa withdrew in the 1990s.

“That was the biggest mistake we made as a country. We’re the only country in the world that doesn’t have support for agriculture. So, we’re at an absolute disadvantage,” October said.

The IMF, the World Bank and the Washington Consensus had encouraged disincentivising productive sectors, even though there were countries that had contradicted this.

“We [were] naive and paid attention to the World Bank and all its ideas, whereas other countries don’t do that. They pay lip service to it [the World Bank] and support their sectors.

“The global financial crisis brought about some change. Even right-wing conservatives support manufacturing.”

South Africa was slowly clawing back and some sectors were making progress, he said.

“Since 2007 and 2008, the department has been pushing to develop an industrial policy to reverse withdrawal of support.”

The clothing and textiles sector was almost decimated, but the department introduced an incentive scheme six years ago that resulted in the creation of 6 500 jobs.

The automotive sector incentive has been in force for 20 years and about R150-billion worth of exports leave South Africa every year. A R1billion incentive scheme has been devised for downstream agroprocessing such as poultry, red meat and fruit.

In addition, funds to the agriculture would be increased incrementally.

October said manufacturing received a tax incentive of about 30% – about R15 000 per job created in the sector. To date, the manufacturing sector had generated investment of R64.8-billion.

The World Bank has highlighted South Africa’s growth rate as being too low to lift citizens out of poverty and joblessness.

It recommends that the country lift its economic growth by rebalancing its imports to stimulate domestic product consumption.

World Bank senior economist Marek Hanusch said the country’s economy was more capital intensive than its emerging market peers.

“Investment tax incentives may have contributed to capital moving to less productive sectors,” Hanusch said.

The World Bank said the five sectors generally most responsive to tax incentive schemes were those with the largest employment multipliers – agriculture, trade and hospitality, community and social services, construction, and manufacturing.— BDLive sector