Industrial policy key to change — finance minister
• Finance minister emphasises fundamental transformation of the economy
The state of SA’s economy, with its slow growth in productivity and high unemployment, is unsustainable and needs structural transformation, with industrial policy at the centre of this process, finance minister Enoch Godongwana says. The minister addressed a webinar to launch a book on structural transformation in SA, noting that real GDP growth had declined since 2015, productivity growth appeared to be slowing down and unemployment had reached a record high of 34.4%.
The state of SA’s economy, with its slow growth in productivity and high unemployment, is unsustainable and needs structural transformation, with industrial policy at the centre of this process, says finance minister Enoch Godongwana.
The minister addressed a webinar to launch a book on structural transformation in SA, noting that real GDP growth had declined since 2015, productivity growth appeared to be slowing down further and unemployment had reached a record high of 34.4%.
Godongwana said industrialisation was one of the pillars of the government’s economic reconstruction and recovery plan announced by President Cyril Ramaphosa in October last year.
“Through this pillar we are intervening decisively to drive strategic localisation, repurpose SA’s manufacturing as well as strengthen regional and global trade,” he said. “Ultimately, our goal is to significantly increase SA’s manufacturing output, reduce the proportion of imported intermediary and finished goods and expand the capacity of local suppliers.”
The minister said the manufacturing sector required continuing attention.
Companies in the sector had been struggling to build their productive capabilities, diversify production activities, embrace new technology and develop domestic supply chains. This had made them uncompetitive and unable to participate in global value chains.
Industrial policy and the quest for industrialisation through growth in manufacturing had to be at the centre of the development agenda to achieve faster levels of economic growth. The minister said that SA had seen significant deindustrialisation and the decimation of its industrial base over the years.
From a high of about 22% of GDP in the late 1980s to the early 1990s, manufacturing now contributed about 12% of GDP. In addition, the manufacturing sector’s capital base had shrunk — from R677.7bn in 2008 to the current R545.9bn in real terms.
The economy’s structure had to be transformed fundamentally to move from low growth, low labour sectors to sectors with high growth, high productivity and greater labour absorption.
The director of the UN Conference on Trade and Development’s (Unctad’s) globalisation and development strategies division, Richard Kozul-Wright, emphasised that industrial policy is a critical component of any balanced development strategy. After decades of being dismissed, industrial policy is now back in fashion, he said.
The editors of the book, “Structural Transformation in SA: The Challenges of Inclusive Industrial Development in a Middle Income Country”, Antonia Andreoni, Pamela Mondliwa, Simon Roberts and Fiona Tregenna, also emphasised that successful structural transformation of the economy requires a proactive industrial policy.
They noted that despite SA having opened up and integrating with the global economy as well as liberalising its trade and financial markets, it remained stuck in lower productivity activities with weak diversification of exports.
They define structural transformation as the move from low to high productivity and complexity, and the upgrade to higher value added activities within sectors.
“The structural transformation that has occurred has been discontinuous and uneven,” the editors said.
“Over the course of its democratic history since 1994, SA has not undergone sustained and thoroughgoing structural transformation. Despite some areas of partial success, there has been premature deindustrialisation, lack of sufficient development of the local production system
THE STRUCTURAL TRANSFORMATION THAT HAS OCCURRED HAS BEEN DISCONTINUOUS AND UNEVEN
alongside weak integration into global value chains and persistent cross-cutting challenges of inclusiveness and sustainability.
“SA’s poor performance overall is evident when compared to its peer group of uppermiddle income countries. While overall in upper-middle income countries, industry value-added led GDP growth over the period 1994-2019 in SA industry, growth lagged.”
Manufacturing had failed to diversify and there had also been a lack of diversification of exports, they said.
The editors highlighted that new global drivers of change — digital industrialisation, global value chain consolidation and sustainable management — are reshaping structural transformation dynamics across middle-income countries such as SA.