Four lead sectors to drive industrial policyGovernment's recently released National Industrial Policy Framework (NIPF) is an "active" one requiring "some level of state involvement", says Rob Davies, Deputy Minister of Trade and Industry (dti) and member of the SACP Central Committee.
In which way does this policy break new ground?The NIPF is not entirely new.
For example, whilst we can debate the content of the Motor Industry Development Programme (MIDP), without it we would not have an auto sector, which has ensured the stabilisation of employment and increased investment in the sector.
Lessons from our own experience tell us that we need an active industrial policy. A number of the constraints to industrialisation do require some level of state involvement.
What is new is a number of the principles that now shape industrial policy.
Firstly, differently from East Asia, we are not saying state officials will determine the direction of each sector.
There needs to be a ‘self-discovery’ process in each sector… inclusive of labour. More successful attempts have had labour involvement.
Out of these processes sectors must develop key action plans and these would be the basis of industrial policy strategy.
We have to be active across a fairly broad range – there is no part of industry that we would let go. We are building the ability to act on a larger scale but we will get there progressively.
We have to ensure that where we intervene we can make a strategic difference. We must be willing to make resources available against defined behaviour by private capital.
Changes must not just be to back existing activities but must lead to new directions and be based on greater conditionalities. For example, if there is no visible action by private capital then we must be able to withdraw state support in the concerned sector.
Have you identified key sectors?We have identified four lead sectors even though there are activities across a range of other sectors.
The first lead sector focuses on capital and transport goods (linked to infrastructure investment). In the procurement of large capital goods, we want to ensure that a significant proportion is produced in SA, not just minor parts or assembly.
Work is proceeding to identify where this will be done (parastatals and dti are doing this work). The preferred model is for partnerships between foreign providers of capital goods with local suppliers.
For example in the case of power stations, international suppliers are not interested in smaller contracts. This will address a weakness in the SA economy whereby we will be developing local means of production.
This will create conditions to supply these means of production to Africa and thereby boost infrastructure development. The second lead sector is the motor industry.
We are retaining and developing the MIDP. We are refining the MIDP to focus on retaining and increasing capacity for finished motor vehicle production, but also placing a stronger emphasis on component manufacturing focusing on small-scale and more downstream development.
The third sector is chemicals. We are looking at downstream chemicals, in particular plastics, to be used in the motor industry and other sectors. We want to emphasise less capital-intensive and more value-added products.
The fourth sector is forestry projects in the Eastern Cape and KwaZulu-Natal, linked to furniture production.
There is further work being done on agro-processing and we have some focus on a stabilisation programme for the clothing industry.
Why the emphasis on downstream?This is where there are more labour-intensive activities.
But we have to address the monopolistic nature of several upstream industries. Take the recent ruling by the Competition Tribunal against Mittal Steel.
Users of steel products face a 30 per cent price disadvantage compared to China. There will be changes in competition law by the end of the year to enable deeper inquiries in cases of super-dominant companies in terms of their pricing policies.
This is aimed at addressing problems such as import-parity pricing (where steel prices for SA consumers are based on the cost of importing steel). Others are cement and chemical feed stock.
How viable is the NIPF in the light of a conservative treasury that controls the purse strings?In the debates around industrial policy, the Treasury was an active player.
The NIPF is a government policy agreed to by cabinet as a whole. Looking at the infrastructure programmes, not all investment is from the fiscus.
Most, in fact, comes from the balance sheets of parastatals. Industrial financing is going to become increasingly important as we build capacity, and more significant industrial financing is going to be required.
We will have to go back to the Treasury to present motivations for additional funding. But that will not be the only source.
We have to look at the Industrial Development Corporation (IDC) as the key source of industrial financing. In this regard, there is a need for changing some of the IDC financing. Not all of industrial financing has to come from the budget.
Key points of the NIPF
4 lead sectors: capital and transport goods motor industry chemicals forestry projects consultation processes with all stakeholders must drive progress in these sectors emphasis on down-stream, more labour intensive sectors too soon to say if there will be new state owned enterprises (SOEs) more work to be done on agro-industries and regional industrial development to try and decentralise development away from Gauteng, Durban-Pietermaritzburg, Western Cape and in to the former Bantustans and rural areas
How viable is the NIPF in the light of a conservative treasury that controls the purse strings?In the debates around industrial policy, the Treasury was an active player.
The NIPF is a government policy agreed to by cabinet as a whole. Looking at the infrastructure programmes, not all investment is from the fiscus.
Most, in fact, comes from the balance sheets of parastatals. Industrial financing is going to become increasingly important as we build capacity, and more significant industrial financing is going to be required.
We will have to go back to the Treasury to present motivations for additional funding. But that will not be the only source.
We have to look at the Industrial Development Corporation (IDC) as the key source of industrial financing.
In this regard, there is a need for changing some of the IDC financing. Not all of industrial financing has to come from the budget.
Surely the black economic empowerment (BEE) strategy, as it is being implemented, contradicts an industrial strategy that seeks to diversify the economy, with its orientation towards diversifying equity ownership?Broad-based BEE (BBBEE) is an economic necessity.
The Codes of Good Practice give much more coherence to BBBEE. Industrial policy and BBBEE are both important. But they should not be overloaded by expecting each set of policies to advance the objectives of the other in all instances.
What we want to see is both being considered in procurement decisions.
This is where the industrial policy objective of much greater local production is important. At the same time, there does not need to be a contradiction between BEE and local procurement.
In this way, BEE does not have to undermine the industrial policy thrust. And industrial policy objectives can also advance certain BEE objectives.
South African capital has been reluctant to make significant investments in the productive sector – does the real economy require a more confrontational stance towards capital?
The level of investment by private capital has gone up a bit, but not enough. Prospects are looking better than they were.
It is going to be a process of leadership and incentives. The responsibility to lead is on the state. We want to lead a process that plans a direction where everybody has a say.
In return, the state can expect certain behaviour. If that expected behaviour is not forthcoming, then we have to be able to withdraw support and go somewhere else.
Where there is impact in sectors, like the MIDP, private capital has invested.
This is going back to old debates about what governments should do to raise levels of investment by private capital: is it a matter of introducing apparently ‘investor friendly’ policies and providing incentives, or is it a matter of creating conditions in the real economy that shape a favourable investment climate?
Many countries have introduced all kinds of ‘investor friendly’ policies and generated incentives but have not necessarily seen additional investment.
Other countries with impressive growth performances, like China, have attracted investment despite policies or incentive regimes which may ordinarily not be considered as conducive.
The lesson, I believe, is that real economy conditions are critical.What about the state becoming a direct player in the economy through ownership of enterprises?
The approach is on a case-by-case basis. State-owned enterprises (SOEs) are now major drivers of infrastructure development programmes. We are not looking for outside investors now.
Whether there will be new SOEs is premature to say at this stage. How will the industrial policy prioritise rural development given the underdevelopment of most parts of the former Bantustans and the relative difficulty in stimulating agricultural development in these areas? Land reform is not really covered by the NIPF.
There are, however, two things to highlight related to the NIPF. First, a likely future focus will be on agro-industries but this work is not concluded.
For the food canning sector, there has been an industrial sector plan which has been launched and funded.
We need to go much more broadly into agro-industry where there are serious possibilities for job creation.
This needs to be linked to land reform and agriculture.We are also producing a strategy on regional industrial development.
Eighty-five per cent of our GDP comes from Gauteng, the Western Cape and the Durban–Pietermaritzburg regions. How do we identify potential in other areas? Not every area is a candidate for motor plants etc.
What is the potential for particular areas? How do we develop a set of proposals on Industrial Development Zones and incentive programmes to facilitate industrial decentralisation?
This debate is also informed by the National Spatial Development Framework driven by the Presidency.
This framework asks: What do you do when some areas do not have economic potential? For such areas, we have constitutional obligations to provide services but we cannot avoid these hard questions.
We are aiming to achieve a degree of decentralisation of economic activity but migration complicates this.
For example, Gauteng has massive economic activity but it simultaneously has concentrations of poverty due to migration. So Gauteng remains an area to be prioritised.
What is an industrial policy?A detailed plan which sets out how the industrial sector of an economy is to expand. Such a plan addresses many areas which affect industrial development.
It can include:* what types of goods and services should be produced* which technologies should be used* what level of education and training should take place in the industry* what support government should give through incentives, subsidies and taxation* tariffs or other types of protection from imported goods or services* what kinds of wages and working condition policies* how much should be invested in research and development of new products and services* relationship between the industrial sector, the national economy and the world economy.
This article originally appeared in Amandla! No 2, September 2007, a left-wing magazine
Source
Numsa News