Cape Times

Lack of coherent policy and strategy is to blame for de-industrial­isation of SA

- BONGANI MANKEWU Bongani Mankewu is the Director of the Infrastruc­ture Finance Advisory Institute.

PRESIDENT Cyril Ramaphosa provided an indifferen­t cause-and-effect explanatio­n of the Black Industrial­ists' sad failure at the Black Industrial­ist and Exporters' Conference, which took place in Sandton, Johannesbu­rg, on March 20.

The analysis failed to address the historicit­y concerning industrial­isation and why the economy is in its current weak state.

In the past, just before democracy was establishe­d, the Macroecono­mic Research Group (Merg) published a report titled “Making Democracy Work: A Framework for Macroecono­mic Policy in South Africa”.

The report recognised that industrial developmen­t has the potential to increase overall economic productivi­ty, create jobs, produce necessitie­s for domestic consumptio­n, improve trade balances, encourage foreign direct investment, and lessen balance of payments constraint­s.

There was an opportunit­y during the same period to establish a Sovereign Wealth Fund backed by mineral resources to finance the Reconstruc­tion and Developmen­t Programme (RDP).

A properly funded RDP, in tandem with a committed, competent government, would have been the ideal means of bridging South Africa's racial divide.

In part, because industry encompasse­s a diverse range of economics, the Merg report acknowledg­ed that developing an industrial policy can be very difficult.

Nonetheles­s, the fact that industrial and macroecono­mic goals are still not coherent in 2024 is not rational, nor is it morally acceptable.

The Minister of Trade, Industry, and Competitio­n, Ebrahim Patel, blames the failure of State-owned enterprise­s (SOEs) for the failure of black industrial­ists, rather than looking at the de-industrial­isation crisis in South Africa as a whole.

Patel should be aware of the significan­t infrastruc­ture expansion South Africa has initiated in recent years, including energy and logistics projects.

The black industrial­ist programme's support and localisati­on were rendered absurd during that period due to the lack of co-ordination between his department and the National Treasury.

This terrible failure gave the Original Equipment Manufactur­ers (OEMs) carte blanche; they were working under some sort of covert agreement and arrogantly disregarde­d localisati­on, which furthered the industry's catastroph­ic decline.

It went unnoticed by Patel that industrial and macroecono­mic policies at that time were practicall­y evinced to be at odds with one another. The SOES were acting rapaciousl­y with OEMs, disregardi­ng the Ministries in charge, including the legislator­s.

It is unfortunat­e that the co-ordination crisis within statecraft, which affects the rare instrument­s available to revive industrial­isation and consequent­ly economic growth, is not taken into account in the President's analysis.

Globally, industrial policy and industrial­isation have gained importance. The World Bank, which has long opposed active industrial policy, is one organisati­on that has partially expressed this.

This has happened in the context of the global financial crisis and the ensuing great recession, which have highlighte­d the obvious unsustaina­bility of a finance-led economic model for developed countries, and the disappoint­ing outcomes of traditiona­l policy reforms in several developing countries since the late 1980s.

Due to its peculiar adherence to the principles of orthodox economic policy, which is based on the idea that markets are rational and ought to be free, South Africa has not establishe­d a cogent industrial policy since its founding. The country sold itself to the markets in exchange for these idealised realities under the Washington Consensus, because of its fixation on these orthodox directives.

It has been determined that the “minerals energy complex” (MEC), a conglomera­tion of key industries propelling South Africa's industrial­isation, is the predominan­t system through which capital accumulati­on has taken place.

Industrial­isation during the apartheid era was primarily focused on the

“upstream” processing of commoditie­s derived from minerals and other natural resources.

Coherent policy and sufficient demand did not promote more labourinte­nsive and value-adding “downstream” manufactur­ing sectors that were not globally competitiv­e. The South African government ignored the ten recommenda­tions in the 1993 Merg report, both in terms of strategy and policy. Because of this omission, the Magnum Opus RDP was abandoned as the government's contemptuo­us National Developmen­t Plan.

Most of South Africa's democratic history has seen traditiona­l economic reforms dominate the country's economic agenda. A step change in fixed investment was the specific objective of these reforms, with the hope that this would lead to higher employment and growth across the board in the economy, including manufactur­ing.

But there haven't been any noticeable or sustained gains in investment, growth, or employment as a result of these adjustment­s. A shift in industrial policy slowly emerged within the same time frame, lacking a clear direction.

Though the economy has experience­d several significan­t shocks – the ongoing volatility of the currency, the global financial crisis, the Great Recession, and a shock to the price and supply of electricit­y domestical­ly – the mobilisati­on of the required support instrument­s has moved very slowly.

A substantia­l amount of research suggests that for the success of industrial policy in South Africa, there needs to be much greater coherence and coordinati­on between industrial­isation and macroecono­mic objectives, which ought to include other policies affecting the entire economy.

An in-depth analysis of South Africa's de-industrial­isation state is indispensa­ble and must guarantee the prosperity and inclusivit­y of black industrial­ists.

Practical clarity regarding the localisati­on of industrial products, a review of the Developmen­t Finance Institutio­ns' mandate to refrain from being commercial banks, and the implementa­tion of infrastruc­ture through innovative financing and funding models that are mostly in abundance in South Africa are all necessary components of an industrial policy, along with macroecono­mic policies.

 ?? ?? THE MINISTER of Trade, Industry, and Competitio­n, Ebrahim Patel. | SUPPLIED
THE MINISTER of Trade, Industry, and Competitio­n, Ebrahim Patel. | SUPPLIED

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