7TH ANNUAL INDUSTRIAL POLICY ACTION PLAN ITERATION
MINISTER of Trade and Industry Rob Davies says, “South Africa needs to make a huge, concerted push to diversify its industrial base and break out of its over-dependence on resource exports”.
According to the Minister, there are two clear, inter-linked ways to reduce resource dependence: 1. Develop economic capabilities in a range of value adding, labour-intensive and technologically sophisticated spill-over sectors; 2. Ensure that growing domestic demand underpins efforts to re-industrialise.
“What this speaks to”, says Minister Davies, “is that the strengthening of the manufacturing sector must be relentlessly pursued as the necessary platform for achieving South Africa’s broader vision of inclusive development.”
Policy certainty, targeted support – but no blank cheques
“How do we make sure that the manufacturing sector recovers confidence, rebounds, deepens and diversifies?
“Our contribution, as government, is to provide coherent, consistent and predictable support measures to manufacturing companies, so that they are able to develop new capabilities and grow South Africa’s exports.”
“But government assistance cannot be a blank cheque. The quid pro quo from the businesses we assist must be strong compliance with the conditions we have designed to ensure increasing firm-level and sectoral competitiveness – which in turn builds our companies’ ability to compete effectively in export markets.”
Minister Davies notes that the architecture of government’s industrial policy interventions is clear, established and unambiguous. “It’s all about painstakingly crafting and refining the structures and measures that deliver policy certainty”, he says.
“The IPAP does not reflect uncertain, ad hoc changes to the policy framework – as some commentators like to suggest – but rather the need to consolidate, adapt intelligently and adjust as we ‘learn by doing’,” says the Minister.
“This is not an easy process, given the wide range of external and internal constraints against which IPAP has had to row in recent years.
“There is no point in either denying or endlessly lamenting the tough times that the economy – and the manufacturing sector in particular – have been facing since the great global recession.
We still find ourselves in the lingering aftermath of 2008, marked by continuing global slowdown – including in China – acute instability in the Eurozone, the petering out of the commodities super-cycle and an array of stubborn domestic constraints; not least of which, of course, is the electricity crisis.”
“But”, the Minister insists, “just because times are tough doesn’t mean that we have to be blind to what has been achieved in South Africa – and what can be better achieved – against all these headwinds.”
“The positive facts are that the overall diversity of the economy – and many of its critical industrial capabilities – have been retained intact; while at the same time a range of strong and viable policy platforms and programmes have been built and/or strengthened.”
Acting together – building trust
“We need to work on these right now, strengthening and deepening them with all our combined energies. To achieve coherent, coordinated, sustainable reindustrialisation, we must act, and act together.”
“Absolutely vital to this goal”, says Davies, “is to develop deep and principled forms of cooperation between government, state-owned companies (SOCs), the private sector and labour.
“The goal must be to work together in an integrated, solutions-based manner that accommodates and reconciles different and competing interests to the greatest possible extent.
“We must put grandstanding behind us in the quest for pragmatic, workable compromises, trade-offs and hardfought agreements that can progressively nurture longterm trust between all the key stakeholders.
“This is the nitty-gritty of grown-up, democratic nationbuilding.”
As part of the task of creating space for such partnerships, IPAP 2015 identifies three key focus areas: Public and private procurement; Leveraging
South
Africa’s resource endowment; Support for manufactured exports.
Public and private procurement
Given the depressed and volatile global environment, it is critical that the impact of government, SOC and private procurement is laser-focussed on deepening localisation across the manufacturing sector. The IPAP presents a threepronged strategy to achieve this objective.
Firstly, there will be a strong focus on increasing compliance with public sector procurement prescripts, including making compliance an audit requirement.
Secondly, by training and capacity-building for institutions that lead public procurement and strategic sourcing.
Thirdly, by building the capability to monitor and support existing fleet procurements so that their impact is optimised.
As part of this approach a further important focus of the IPAP is to leverage the infrastructure roll-out to accelerate the industrialisation process.
Investment in infrastructure that can unlock the growth of high potential industrial sectors is critical.
For example, the Operation Phakisa initiative, driven by the Presidency, is focusing on a collaborative effort between government, Transnet and the private sector to unlock investment in marine engineering-related infrastructure.
Leveraging South Africa’s resource endowment
a The mining sector remains core part of the South African economy, responsible for around 9 percent of GDP and 38 percent of exports.
While it is recognised that many key players in the sector have globalised their operations, it remains critical that the opportunities provided by the linkages and multipliers that exist between mining and manufacturing are maximised in order to extract full value from South Africa’s enormous resource endowment.
Linking mining with industrial engineering.
This applies not only to upstream mining opportunities and downstream beneficiation projects, but also to the very significant work that has already been undertaken with respect to renewables and future gas-based
IPAP 2015 therefore sets particular store on continuing efforts to build working relationships with large mining companies that can potentially contribute to the realisation of South Africa’s industrial ambitions.
The revised empowerment codes, which unambiguously provide incentives for both small business and supplier development, create a foundation for working with mining companies towards building worldclass engineering companies in the mining supply chain.
This includes collaboration between government and mining companies on the development of new technologies to beneficiate mineral wealth inside South Africa. (For example, platinum-based catalytic converters, jewelry and static fuel cell power plants).
Support exports
for
industrialisation.
manufactured
Special emphasis is put on building world-class manufactured product exporters, by working with and supporting leading and dynamic companies with a proven track record as winners in their respective sectors – with a particular emphasis on labour intensive agro-processing and advanced manufacturing – in carefully identified niche production areas closely related to South Africa’s core competitive advantages.
OEMs, value chains, local supplier development
Ramping-up export competitiveness will increasingly be achieved, not only via conditional incentives, but by working closely with global Original Equipment Manufacturers (OEMs) which have a strong competence in identifying and nurturing high potential local companies: enterprises with the ability both to enter into global OEM supply chains and creatively innovate around and beyond them.
A second, linked strategy for increasing exports is to build and strengthen a system of industrial financing incentives and other assistance measures to support proven winners in the manufacturing sector.
In this regard support for domestic OEMs is vital, since these dynamic South African companies provide the fundamental baseload of demand for component manufacturers located in South Africa – and are consequently critical to our overall export effort.
The IPAP will thus be energetically helping existing and aspirant South African OEMs to develop products specifically tailored for priority export markets.
Growing into Africa – with Africa
A third strategy for boosting exports is to grow South African exports to the Africa region and support regional industrial integration.
Expectations of growth in many African countries remain high, powered by resource exploitation, infrastructure investment and a growing middle class.
But this growth will remain fragile, vulnerable and reversible as long as it depends overwhelmingly on resource exports, import of capital and consumer goods and unskilled minimal-wage labour.
“To realise the massive potential benefits of a concerted ‘turn to Africa’”, says Minister Davies, “will require a sustained focus on building up cross-border infrastructure, rapid elimination of red tape and bureaucratic barriers to trade, cooperation on energy supply, technology and skills sharing, innovation and value chain integration.”
“A critical element of our future lies across our borders and into the continent. We need Africa and Africa needs us.
“It’s an obvious economic fact; but it’s also about reconstructing our collective dignity, mutual respect and place in the world.”