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Review of South Africa’s industrial
policy and implications for SACU
by Ron Sandrey
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www.tralac.orgReaders are encouraged to quote and reproduce this material for educational, non
acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of WO
RK
ING
PA
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R
Review of South Africa’s industrial
policy and implications for SACU
Ron Sandrey
tralac
No.
���� Please consider the environment before printing this publication
www.tralac.org | info@tralac.org | Twitter @tradelawcentre encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is
acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of
Working Paper
Review of South Africa’s industrial
policy and implications for SACU
tralac Working Paper
No. D12WP05/2012
May 2012
Please consider the environment before printing this publication
Twitter @tradelawcentre | Copyright © tralac, 2012.
profit purposes, provided the source is
acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Working Paper
Copyright © tralac, 2012.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes,
provided the source is acknowledged. All views and opinions expressed remain solely those of the
authors and do not purport to reflect the views of tralac
This publication should be cited as: Sandrey, R. 2012.
Review of South Africa’s industrial policy and implications for SACU. Stellenbosch: tralac.
tralac gratefully acknowledges the financial support of the Danish International Development
Assistance (Danida) for the publication of this Working Paper.
www.tralac.org | info@tralac.org | Twitter @tradelawcentre
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes,
provided the source is acknowledged. All views and opinions expressed remain solely those of the authors
and do not purport to reflect the views of tralac.
Review of South Africa’s industrial policy and implications for SACU
1. Introduction
South Africa is currently reviewing and formulating its industrial policy. The objective of this
not so much to present an examination of the South African Industrial Policy
assess its industrial policy in a wider sense as to how it relates to and integrates and interacts with
other policies that may or may not be thought of as industrial policy proper.
A comprehensive understanding of South Africa’s approach t
context of the Tripartite Free Trade Agreement (T
and Southern Africa (COMESA), the East African Community (EAC) and the Southern African
Development Community (SADC) for at
makers have been of the belief that there are important synergies between the country’s industrial
policy and its policy for the region, and this has led to South Africa actively championing the T
agenda. Second, industrial development is to be a central focus of the T
Africa’s economic weight within the T
way into any forthcoming regional industrial developmen
The starting point in the assessment undertaken in this
Sectors and Employment Cluster
2010. This document was supplemented and updated in February 2011 by the
and Industry (dti) in what may be regarded as a ‘progress report’ since it contains little or nothing in
the way of policy.
Many of the ‘and’ policies are rather obviously part of industrial
conditions, trade policies, infrastructural development (in the wider sense), for example, are evident
ones. Others, for example environmental policies, are perhaps not so obvious, although these issues
are becoming more ingrained into industrial policies globally. Importantly, the 2010 IPAP sets the
framework for this analysis, as it examines many of the “ands” in detail. The IPAP starts from the
basic premise that profitability is a prerequisite and that factors inhibiting t
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
1
Review of South Africa’s industrial policy and implications for SACU
Ron Sandrey
South Africa is currently reviewing and formulating its industrial policy. The objective of this
not so much to present an examination of the South African Industrial Policy
assess its industrial policy in a wider sense as to how it relates to and integrates and interacts with
other policies that may or may not be thought of as industrial policy proper.
A comprehensive understanding of South Africa’s approach to industrial policy is important in the
context of the Tripartite Free Trade Agreement (T-FTA) between the Common Market for Eastern
and Southern Africa (COMESA), the East African Community (EAC) and the Southern African
Development Community (SADC) for at least two reasons. The first is that South African policy
makers have been of the belief that there are important synergies between the country’s industrial
policy and its policy for the region, and this has led to South Africa actively championing the T
agenda. Second, industrial development is to be a central focus of the T-
Africa’s economic weight within the T-FTA region, its industrial policy goals are likely to find their
way into any forthcoming regional industrial development plan promoted under the T
The starting point in the assessment undertaken in this paper will be the South African
Sectors and Employment Cluster 2010/11 – 2012/13 Industrial Policy Action Plan
lemented and updated in February 2011 by the
dti) in what may be regarded as a ‘progress report’ since it contains little or nothing in
Many of the ‘and’ policies are rather obviously part of industrial policy: wage and employment
conditions, trade policies, infrastructural development (in the wider sense), for example, are evident
ones. Others, for example environmental policies, are perhaps not so obvious, although these issues
ined into industrial policies globally. Importantly, the 2010 IPAP sets the
framework for this analysis, as it examines many of the “ands” in detail. The IPAP starts from the
profitability is a prerequisite and that factors inhibiting this profitability include an
Review of South Africa’s industrial policy and implications for SACU
Review of South Africa’s industrial policy and implications for SACU
South Africa is currently reviewing and formulating its industrial policy. The objective of this paper is
not so much to present an examination of the South African Industrial Policy per se but rather to
assess its industrial policy in a wider sense as to how it relates to and integrates and interacts with
o industrial policy is important in the
FTA) between the Common Market for Eastern
and Southern Africa (COMESA), the East African Community (EAC) and the Southern African
least two reasons. The first is that South African policy
makers have been of the belief that there are important synergies between the country’s industrial
policy and its policy for the region, and this has led to South Africa actively championing the T-FTA
-FTA, and given South
FTA region, its industrial policy goals are likely to find their
t plan promoted under the T-FTA.
will be the South African Economic
2012/13 Industrial Policy Action Plan (IPAP) of February
lemented and updated in February 2011 by the Department of Trade
dti) in what may be regarded as a ‘progress report’ since it contains little or nothing in
policy: wage and employment
conditions, trade policies, infrastructural development (in the wider sense), for example, are evident
ones. Others, for example environmental policies, are perhaps not so obvious, although these issues
ined into industrial policies globally. Importantly, the 2010 IPAP sets the
framework for this analysis, as it examines many of the “ands” in detail. The IPAP starts from the
his profitability include an
exchange rate which is volatile and generally overvalued, the cost and allocation of capital to labour
intensive and value-adding sectors of the economy, a failure to address government procurement
policies and opportunities, monopolistic provision and pricing in many sectors, a relatively weak skills
set in South Africa, and a damming report on infrastructural problems (including electricity supply).
In general, the IPAP sees the seven areas of linkages between macro
investment and finance priorities; procurement; trade policies; competition and regulation policies;
skills and innovation development; and the coordination of all these policies to strengthen the
industrial sector as formulating the ne
Recognising the need for a broader approach the South African government also published the 2011
National Development Plan – Vision for 2030
taking South Africa into the future. Her
standards, infrastructure, the reliance on an unsustainable resource extraction economy, the quality
of the public sector and associated corruption, and inequity and division in society are all recognised
These challenges are an essential part of the overarching problems addressed in the IPAP, and as
such they provide a strong linkage to the IPAP and industrial policy. In particular, the National
Development Plan recognises that labour
exports are essential if South Africa is going to combine growth and jobs in the future.
The IPAP represents an impressive platform for industrial growth, and this is complemented by the
National Development plan. The obj
and, as outlined above, the dti seems on course for publishing annual ‘progress reports’ as noted by
the dti 2011 report. This coordination is essential.
The background setting
In searching for examples where industrial policy has powered nations to dramatic economic growth
one needs to look no further than East Asia, home of the so
immortalised by the World Bank Report ’The East Asian Miracle’ of 1993 that pr
(although not undisputed) account of how
what seemed to be standard policy instruments. The general thesis of the report is that growth was
associated with carefully limited govern
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
2
exchange rate which is volatile and generally overvalued, the cost and allocation of capital to labour
adding sectors of the economy, a failure to address government procurement
onopolistic provision and pricing in many sectors, a relatively weak skills
set in South Africa, and a damming report on infrastructural problems (including electricity supply).
In general, the IPAP sees the seven areas of linkages between macro- and micr
investment and finance priorities; procurement; trade policies; competition and regulation policies;
skills and innovation development; and the coordination of all these policies to strengthen the
industrial sector as formulating the new industrial policy.
Recognising the need for a broader approach the South African government also published the 2011
Vision for 2030, a report that comprehensively lays a blueprint for
taking South Africa into the future. Here the central challenges of unemployment, education
standards, infrastructure, the reliance on an unsustainable resource extraction economy, the quality
of the public sector and associated corruption, and inequity and division in society are all recognised
These challenges are an essential part of the overarching problems addressed in the IPAP, and as
such they provide a strong linkage to the IPAP and industrial policy. In particular, the National
Development Plan recognises that labour-intensive manufacturing and medium
exports are essential if South Africa is going to combine growth and jobs in the future.
The IPAP represents an impressive platform for industrial growth, and this is complemented by the
National Development plan. The objective of this study is to examine and build upon that platform,
and, as outlined above, the dti seems on course for publishing annual ‘progress reports’ as noted by
the dti 2011 report. This coordination is essential.
or examples where industrial policy has powered nations to dramatic economic growth
one needs to look no further than East Asia, home of the so-called East Asian miracle, a
immortalised by the World Bank Report ’The East Asian Miracle’ of 1993 that pr
(although not undisputed) account of how many economies in East Asia achieved rapid growth using
what seemed to be standard policy instruments. The general thesis of the report is that growth was
associated with carefully limited government activism, an overall ‘market friendly’ approach focused
Review of South Africa’s industrial policy and implications for SACU
exchange rate which is volatile and generally overvalued, the cost and allocation of capital to labour-
adding sectors of the economy, a failure to address government procurement
onopolistic provision and pricing in many sectors, a relatively weak skills
set in South Africa, and a damming report on infrastructural problems (including electricity supply).
and microeconomic policies;
investment and finance priorities; procurement; trade policies; competition and regulation policies;
skills and innovation development; and the coordination of all these policies to strengthen the
Recognising the need for a broader approach the South African government also published the 2011
, a report that comprehensively lays a blueprint for
e the central challenges of unemployment, education
standards, infrastructure, the reliance on an unsustainable resource extraction economy, the quality
of the public sector and associated corruption, and inequity and division in society are all recognised.
These challenges are an essential part of the overarching problems addressed in the IPAP, and as
such they provide a strong linkage to the IPAP and industrial policy. In particular, the National
uring and medium-skilled services
exports are essential if South Africa is going to combine growth and jobs in the future.
The IPAP represents an impressive platform for industrial growth, and this is complemented by the
ective of this study is to examine and build upon that platform,
and, as outlined above, the dti seems on course for publishing annual ‘progress reports’ as noted by
or examples where industrial policy has powered nations to dramatic economic growth
called East Asian miracle, a term
immortalised by the World Bank Report ’The East Asian Miracle’ of 1993 that provided a definitive
many economies in East Asia achieved rapid growth using
what seemed to be standard policy instruments. The general thesis of the report is that growth was
ment activism, an overall ‘market friendly’ approach focused
on getting the fundamentals right and emphasising education
trade policies2 and stable macroeconomic policies
role of selective intervention in some sectors of most economies, but argues that these interventions
were carefully targeted and, more importantly, performance monitored to the extent that they were
‘allowed to fail’ in the more open
‘fundamental’ ones and ‘selective interventions’ such as the low interest rate policies and directed
investment along with selected industrial promotion and trade policies promoting exports. For the
latter, it stressed that ‘pragmatic flexibility’ or the capacity and willingness to change policies was as
much a hallmark of the landscape as any single policy instrument.
Moving on from the original World Bank (1993) report, the updated paper by John Weiss from t
Asian Development Bank (ADB) in 2005 examined the role of export growth and industrial policy in
economic development (with industrial policy defined broadly, as we have done, to cover a range of
interventions) to change the structure and raise the grow
general agreement on the standard package for export growth. This package is based on a
combination of appropriate price incentives, access to imported inputs at world prices, a sound base
of physical and social infrastructure, and adequate finance for export production. However, the main
thesis from Weiss is that the international environment has changed, although we would argue that
the empirical evidence from China’s astonishing growth may refute this. In any cas
Weiss that the globalisation of trade flows and investment is now much stronger, and that in
particular the rules-based World Trade Organisation (WTO) inhibits domestic policy space.
A more recent picture affirms the views of Weiss in that updating to the present time we can
highlight the role that the well
manufacturing. We contend that not only are Chinese imports dominating
manufacturing in almost all small industries but they are simultaneously making it extremely difficult
for those African countries that do have some industrial capacity to export both within Africa and
globally. The clothing sector is a c
1 This included rapid technological catch-
2 We must qualify and perhaps dispute this particular claim, as most of these economies had (and still have) high
protection levels on many imports such as agricultural imports. 3 This included careful control over exchange rates to ensure that these rates
undervalued exchange rates).
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
3
on getting the fundamentals right and emphasising education1, an investment friendly regime, open
and stable macroeconomic policies3. The report does also, however, acknowledge t
role of selective intervention in some sectors of most economies, but argues that these interventions
were carefully targeted and, more importantly, performance monitored to the extent that they were
‘allowed to fail’ in the more open-market sense. The World Bank categorised policies as the broader
‘fundamental’ ones and ‘selective interventions’ such as the low interest rate policies and directed
investment along with selected industrial promotion and trade policies promoting exports. For the
stressed that ‘pragmatic flexibility’ or the capacity and willingness to change policies was as
much a hallmark of the landscape as any single policy instrument.
Moving on from the original World Bank (1993) report, the updated paper by John Weiss from t
Asian Development Bank (ADB) in 2005 examined the role of export growth and industrial policy in
economic development (with industrial policy defined broadly, as we have done, to cover a range of
interventions) to change the structure and raise the growth of exports. He considers that there is
general agreement on the standard package for export growth. This package is based on a
combination of appropriate price incentives, access to imported inputs at world prices, a sound base
frastructure, and adequate finance for export production. However, the main
thesis from Weiss is that the international environment has changed, although we would argue that
the empirical evidence from China’s astonishing growth may refute this. In any cas
Weiss that the globalisation of trade flows and investment is now much stronger, and that in
based World Trade Organisation (WTO) inhibits domestic policy space.
A more recent picture affirms the views of Weiss in that updating to the present time we can
highlight the role that the well-known Chinese manufacturing export growth plays in African
manufacturing. We contend that not only are Chinese imports dominating
manufacturing in almost all small industries but they are simultaneously making it extremely difficult
for those African countries that do have some industrial capacity to export both within Africa and
globally. The clothing sector is a case in point, but the argument equally applies to the multitude of
-up.
We must qualify and perhaps dispute this particular claim, as most of these economies had (and still have) high
protection levels on many imports such as agricultural imports.
This included careful control over exchange rates to ensure that these rates remained at a level to assist exports (i.e.,
Review of South Africa’s industrial policy and implications for SACU
, an investment friendly regime, open
. The report does also, however, acknowledge the
role of selective intervention in some sectors of most economies, but argues that these interventions
were carefully targeted and, more importantly, performance monitored to the extent that they were
World Bank categorised policies as the broader
‘fundamental’ ones and ‘selective interventions’ such as the low interest rate policies and directed
investment along with selected industrial promotion and trade policies promoting exports. For the
stressed that ‘pragmatic flexibility’ or the capacity and willingness to change policies was as
Moving on from the original World Bank (1993) report, the updated paper by John Weiss from the
Asian Development Bank (ADB) in 2005 examined the role of export growth and industrial policy in
economic development (with industrial policy defined broadly, as we have done, to cover a range of
th of exports. He considers that there is
general agreement on the standard package for export growth. This package is based on a
combination of appropriate price incentives, access to imported inputs at world prices, a sound base
frastructure, and adequate finance for export production. However, the main
thesis from Weiss is that the international environment has changed, although we would argue that
the empirical evidence from China’s astonishing growth may refute this. In any case, we agree with
Weiss that the globalisation of trade flows and investment is now much stronger, and that in
based World Trade Organisation (WTO) inhibits domestic policy space.
A more recent picture affirms the views of Weiss in that updating to the present time we can
known Chinese manufacturing export growth plays in African
manufacturing. We contend that not only are Chinese imports dominating African domestic
manufacturing in almost all small industries but they are simultaneously making it extremely difficult
for those African countries that do have some industrial capacity to export both within Africa and
ase in point, but the argument equally applies to the multitude of
We must qualify and perhaps dispute this particular claim, as most of these economies had (and still have) high
remained at a level to assist exports (i.e.,
goods stamped ‘made in China’ that are sold by street vendors throughout the continent. We
furthermore contend that South Africa has in fact ‘missed the bus’ in that when emerging from the
troubled years of the early 1990s it eschewed a low
instead of capitalising upon its undoubted industrial capacity of the time ended up with more of a
‘no wage’ economy as the high unemployment rates attest. Meanwh
US market for industrial goods is both saturated with Chinese products and, in the face of economic
problems that include a burgeoning trade deficit, is losing some of its powers that fuelled Asian
growth. Furthermore, Europe has been the traditional market for Africa in general and South Africa
in particular, and that continent is facing even deeper economic woes.
This general pattern for manufacturing in Africa is confirmed by
show that while a succession of Asian countries have exhibited dramatic growth over the last thirty
to fifty years, African manufacturing has largely stagnated. The Asian expansion has been driven on
the demand side by manufacturing exports to the US in particular over a pr
US was sucking in huge imports, and enabled on the supply side through an overall constructive
policy package that opened markets, implemented favourable trade and exchange rate policies, and
provided a sound and stable government t
Conversely, Africa has been unable to put a comprehensive package in place, and this has resulted in
a manufacturing sector whose contribution to both Gross Domestic Product (GDP) and export shares
is significantly below the continent’s developing country peers. Growth in natural resource
developing countries in general has lagged behind those with a manufacturing focus, and this is
especially the case in Africa with its poor linkages into unskilled
seeking activities. A key recommendation from Sandrey and Edinger is that the linkages between
tariff and trade policies on the one side, and industrial policies on the other, both essential parts of
the ‘umbrella’ of the full policy package, need to be considered in tandem. But in some instances,
and South Africa is an outstanding example, a combination of earlier unilateral liberalisation and
bilateral, regional and multilateral agreements means that the necessary policy s
industrial development has been lost. This will be examined in more detail in this
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
4
goods stamped ‘made in China’ that are sold by street vendors throughout the continent. We
furthermore contend that South Africa has in fact ‘missed the bus’ in that when emerging from the
troubled years of the early 1990s it eschewed a low-wage Asian approach to manufacturing and
instead of capitalising upon its undoubted industrial capacity of the time ended up with more of a
‘no wage’ economy as the high unemployment rates attest. Meanwhile, the growth magnet of the
US market for industrial goods is both saturated with Chinese products and, in the face of economic
problems that include a burgeoning trade deficit, is losing some of its powers that fuelled Asian
has been the traditional market for Africa in general and South Africa
in particular, and that continent is facing even deeper economic woes.
This general pattern for manufacturing in Africa is confirmed by Sandrey and Edinger (2009) who
succession of Asian countries have exhibited dramatic growth over the last thirty
to fifty years, African manufacturing has largely stagnated. The Asian expansion has been driven on
the demand side by manufacturing exports to the US in particular over a prolonged period when the
US was sucking in huge imports, and enabled on the supply side through an overall constructive
policy package that opened markets, implemented favourable trade and exchange rate policies, and
provided a sound and stable government that inspired investment and secured property rights.
Conversely, Africa has been unable to put a comprehensive package in place, and this has resulted in
a manufacturing sector whose contribution to both Gross Domestic Product (GDP) and export shares
gnificantly below the continent’s developing country peers. Growth in natural resource
developing countries in general has lagged behind those with a manufacturing focus, and this is
especially the case in Africa with its poor linkages into unskilled labour and its appetite for rent
seeking activities. A key recommendation from Sandrey and Edinger is that the linkages between
tariff and trade policies on the one side, and industrial policies on the other, both essential parts of
ull policy package, need to be considered in tandem. But in some instances,
and South Africa is an outstanding example, a combination of earlier unilateral liberalisation and
bilateral, regional and multilateral agreements means that the necessary policy s
industrial development has been lost. This will be examined in more detail in this
Review of South Africa’s industrial policy and implications for SACU
goods stamped ‘made in China’ that are sold by street vendors throughout the continent. We
furthermore contend that South Africa has in fact ‘missed the bus’ in that when emerging from the
wage Asian approach to manufacturing and
instead of capitalising upon its undoubted industrial capacity of the time ended up with more of a
ile, the growth magnet of the
US market for industrial goods is both saturated with Chinese products and, in the face of economic
problems that include a burgeoning trade deficit, is losing some of its powers that fuelled Asian
has been the traditional market for Africa in general and South Africa
Sandrey and Edinger (2009) who
succession of Asian countries have exhibited dramatic growth over the last thirty
to fifty years, African manufacturing has largely stagnated. The Asian expansion has been driven on
olonged period when the
US was sucking in huge imports, and enabled on the supply side through an overall constructive
policy package that opened markets, implemented favourable trade and exchange rate policies, and
hat inspired investment and secured property rights.
Conversely, Africa has been unable to put a comprehensive package in place, and this has resulted in
a manufacturing sector whose contribution to both Gross Domestic Product (GDP) and export shares
gnificantly below the continent’s developing country peers. Growth in natural resource-rich
developing countries in general has lagged behind those with a manufacturing focus, and this is
labour and its appetite for rent-
seeking activities. A key recommendation from Sandrey and Edinger is that the linkages between
tariff and trade policies on the one side, and industrial policies on the other, both essential parts of
ull policy package, need to be considered in tandem. But in some instances,
and South Africa is an outstanding example, a combination of earlier unilateral liberalisation and
bilateral, regional and multilateral agreements means that the necessary policy space to nurture
industrial development has been lost. This will be examined in more detail in this paper.
Policy space
One theme that emerges from the discussion above is that with the advent of the WTO in particular
and regional trade policies in gener
Africa in the sense that the rules
successful in the past. These strictures apply to the supports and tariffs associated with trade
per se as well as a raft of other areas that are associated with the WTO such as the restrictions on
direct assistance to the manufacturing sector. In addition, there are several other factors that limit
the abilities of the South African (or any
these include the globalisation of the world’s production and trade and, as outlined above, the
dominant position of China as the competitor.
The linkages between the WTO and industrial policies is
that the context of industrial policies has changed since the classic East Asian ‘miracle’ as the global
economy is very different from what is was during the ‘miracle’ period. Indeed, the term ‘industrial
policy’ is not well defined, and they cite a working definition from the World Bank that considers
industrial policy as being ‘government efforts to alter industrial structure to promote productivity
based growth’. Especially relevant to South Africa, they also
should not neglect the processing of agricultural and mining products and the role of services in
providing support in a ‘flanking’ role. Their conclusions are that in general the case for direct
government supports is weak, and that the new WTO disciplines on subsidies (including export
subsidies), the new provisions on patents and copyright under Trade
Property Rights (TRIPS), local content and other measures is indeed restricting the u
of policies. However, the effect of these rules is positive in that it shifts the emphasis of government
to the supply side and more generic policies that concentrate upon infrastructure, human capital
formation, innovation, technology and c
In a more recent update Shelia Page (2007) also examines the extent to which the WTO is preventing
development by restricting policy space. While South Africa is a developing country in the WTO
sense, it does have many of the characte
somewhat uncomfortable with analysing the country in this less restrictive context. Certainly, the
WTO imposes constraints on tariff levels, but it must be emphasised that these restrictions apply
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
5
One theme that emerges from the discussion above is that with the advent of the WTO in particular
and regional trade policies in general through the 1990s there may be limited ‘policy space’ for South
Africa in the sense that the rules-based environment limits many policies that may have been
successful in the past. These strictures apply to the supports and tariffs associated with trade
as well as a raft of other areas that are associated with the WTO such as the restrictions on
direct assistance to the manufacturing sector. In addition, there are several other factors that limit
the abilities of the South African (or any other) government to enable industrial production, and
these include the globalisation of the world’s production and trade and, as outlined above, the
dominant position of China as the competitor.
The linkages between the WTO and industrial policies is examined in Bora et al. (2000), who concur
that the context of industrial policies has changed since the classic East Asian ‘miracle’ as the global
economy is very different from what is was during the ‘miracle’ period. Indeed, the term ‘industrial
’ is not well defined, and they cite a working definition from the World Bank that considers
industrial policy as being ‘government efforts to alter industrial structure to promote productivity
based growth’. Especially relevant to South Africa, they also emphasise that the term ‘industrial’
should not neglect the processing of agricultural and mining products and the role of services in
providing support in a ‘flanking’ role. Their conclusions are that in general the case for direct
weak, and that the new WTO disciplines on subsidies (including export
subsidies), the new provisions on patents and copyright under Trade-Related aspects of Intellectual
Property Rights (TRIPS), local content and other measures is indeed restricting the u
of policies. However, the effect of these rules is positive in that it shifts the emphasis of government
to the supply side and more generic policies that concentrate upon infrastructure, human capital
formation, innovation, technology and competition policies.
In a more recent update Shelia Page (2007) also examines the extent to which the WTO is preventing
development by restricting policy space. While South Africa is a developing country in the WTO
sense, it does have many of the characteristics of a developed country, with the result that we are
somewhat uncomfortable with analysing the country in this less restrictive context. Certainly, the
WTO imposes constraints on tariff levels, but it must be emphasised that these restrictions apply
Review of South Africa’s industrial policy and implications for SACU
One theme that emerges from the discussion above is that with the advent of the WTO in particular
al through the 1990s there may be limited ‘policy space’ for South
based environment limits many policies that may have been
successful in the past. These strictures apply to the supports and tariffs associated with trade policies
as well as a raft of other areas that are associated with the WTO such as the restrictions on
direct assistance to the manufacturing sector. In addition, there are several other factors that limit
other) government to enable industrial production, and
these include the globalisation of the world’s production and trade and, as outlined above, the
examined in Bora et al. (2000), who concur
that the context of industrial policies has changed since the classic East Asian ‘miracle’ as the global
economy is very different from what is was during the ‘miracle’ period. Indeed, the term ‘industrial
’ is not well defined, and they cite a working definition from the World Bank that considers
industrial policy as being ‘government efforts to alter industrial structure to promote productivity
emphasise that the term ‘industrial’
should not neglect the processing of agricultural and mining products and the role of services in
providing support in a ‘flanking’ role. Their conclusions are that in general the case for direct
weak, and that the new WTO disciplines on subsidies (including export
Related aspects of Intellectual
Property Rights (TRIPS), local content and other measures is indeed restricting the use of a number
of policies. However, the effect of these rules is positive in that it shifts the emphasis of government
to the supply side and more generic policies that concentrate upon infrastructure, human capital
In a more recent update Shelia Page (2007) also examines the extent to which the WTO is preventing
development by restricting policy space. While South Africa is a developing country in the WTO
ristics of a developed country, with the result that we are
somewhat uncomfortable with analysing the country in this less restrictive context. Certainly, the
WTO imposes constraints on tariff levels, but it must be emphasised that these restrictions apply to
bound and not applied tariffs –
agreements are more constraining. Although not generally thought of as industrial policies,
agriculture-related restrictions are not often binding enough
and similarly, not binding enough for services where countries virtually ‘self declare’ their space.
TRIPS does restrict policy space, but that is what it was designed to do, while little extra in the way of
constraints was imposed on investment policies. In conclusion, Page considers that in actuality the
WTO has limited space constraints upon developing countries and moreover that bilateral and
regional agreements may be more restrictive. She even goes as far as t
policies may well be in the best interests of most countries anyway.
Again, although not strictly industrial policy, Sandrey et al. (2008) examine the degree to which
South Africa is constrained in its ability to increase agricu
The answer was that at that time some 14.1% of the imports were ‘locked’ by the WTO bound rates,
with an additional 7.5% almost at those bound rates. Another 22.9% were effectively ‘locked’ and an
additional 15.2% ‘almost locked’ by the South Africa
Agreement (TDCA) and the Southern African Development Community (SADC) Free Trade
Agreement, giving some 59.7% of total imports that were, for all practical purposes, locked
current tariff policy regime. Another 14.6% were classified as animal feed inputs, thereby raising the
caution flag that increasing these tariffs would directly pass a cost increase on to South African
poultry and meat producers. The researchers
argued that while there was policy space to increase wheat tariff rates they were staple foodstuffs;
they provided supporting analysis that showed that increasing these tariffs was welfare reducing for
South Africa. This left only 19% of all agricultural imports where there was some policy space, but
the majority of these imports are subject to WTO tariff rate quota (TRQ) obligations and thus not
totally under the control of South African trade policy au
apparent when South Africa was seeking ways to protect its clothing and textile sector that the most
common bound tariff of 45% left little extra protection from the generally applied rate of 40%.
Review of South Africa’s industrial policy and implications for SACU
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6
and, furthermore, it is often the case that bilateral and regional
agreements are more constraining. Although not generally thought of as industrial policies,
related restrictions are not often binding enough to constrain policy space on their own,
and similarly, not binding enough for services where countries virtually ‘self declare’ their space.
TRIPS does restrict policy space, but that is what it was designed to do, while little extra in the way of
aints was imposed on investment policies. In conclusion, Page considers that in actuality the
WTO has limited space constraints upon developing countries and moreover that bilateral and
regional agreements may be more restrictive. She even goes as far as to suggest that ‘locking in’
policies may well be in the best interests of most countries anyway.
Again, although not strictly industrial policy, Sandrey et al. (2008) examine the degree to which
South Africa is constrained in its ability to increase agricultural tariffs, the classic tool of trade policy.
at that time some 14.1% of the imports were ‘locked’ by the WTO bound rates,
with an additional 7.5% almost at those bound rates. Another 22.9% were effectively ‘locked’ and an
al 15.2% ‘almost locked’ by the South Africa-EU Trade, Development and Cooperation
(TDCA) and the Southern African Development Community (SADC) Free Trade
Agreement, giving some 59.7% of total imports that were, for all practical purposes, locked
current tariff policy regime. Another 14.6% were classified as animal feed inputs, thereby raising the
caution flag that increasing these tariffs would directly pass a cost increase on to South African
poultry and meat producers. The researchers isolated the imports of wheat (6.7% of the total) and
argued that while there was policy space to increase wheat tariff rates they were staple foodstuffs;
they provided supporting analysis that showed that increasing these tariffs was welfare reducing for
South Africa. This left only 19% of all agricultural imports where there was some policy space, but
the majority of these imports are subject to WTO tariff rate quota (TRQ) obligations and thus not
totally under the control of South African trade policy authorities. Similarly, it quickly became
apparent when South Africa was seeking ways to protect its clothing and textile sector that the most
common bound tariff of 45% left little extra protection from the generally applied rate of 40%.
Review of South Africa’s industrial policy and implications for SACU
and, furthermore, it is often the case that bilateral and regional
agreements are more constraining. Although not generally thought of as industrial policies,
to constrain policy space on their own,
and similarly, not binding enough for services where countries virtually ‘self declare’ their space.
TRIPS does restrict policy space, but that is what it was designed to do, while little extra in the way of
aints was imposed on investment policies. In conclusion, Page considers that in actuality the
WTO has limited space constraints upon developing countries and moreover that bilateral and
o suggest that ‘locking in’
Again, although not strictly industrial policy, Sandrey et al. (2008) examine the degree to which
ltural tariffs, the classic tool of trade policy.
at that time some 14.1% of the imports were ‘locked’ by the WTO bound rates,
with an additional 7.5% almost at those bound rates. Another 22.9% were effectively ‘locked’ and an
EU Trade, Development and Cooperation
(TDCA) and the Southern African Development Community (SADC) Free Trade
Agreement, giving some 59.7% of total imports that were, for all practical purposes, locked into the
current tariff policy regime. Another 14.6% were classified as animal feed inputs, thereby raising the
caution flag that increasing these tariffs would directly pass a cost increase on to South African
isolated the imports of wheat (6.7% of the total) and
argued that while there was policy space to increase wheat tariff rates they were staple foodstuffs;
they provided supporting analysis that showed that increasing these tariffs was welfare reducing for
South Africa. This left only 19% of all agricultural imports where there was some policy space, but
the majority of these imports are subject to WTO tariff rate quota (TRQ) obligations and thus not
thorities. Similarly, it quickly became
apparent when South Africa was seeking ways to protect its clothing and textile sector that the most
common bound tariff of 45% left little extra protection from the generally applied rate of 40%.
Examining South Africa’s industrial policy
Kaplan (2007) outlines the issue for South Africa very succinctly, and we believe that his views are
worth repeating verbatim:
The two key institutional requirements for an effective industrial policy are the professionalism
capacities of the government and the effectiveness of the strategic collaboration as between
government and business. As outlined above, both are currently very limited in South Africa.
Moreover, the limited capacities of the government are currently e
and cohesion around the objectives, content and conduct of industrial policy. In addition,
distributional conflicts make it difficult to develop institutions and practices that manage the rents
that are a constituent feature o
industrial policy, namely to enhance technological capacities and raise firm level productivity, is
severely constrained by the current scarcity of skills and the limited training being unde
broad conclusions emerge from this analysis. The first is that government should not expect too
much of industrial policy. Under current conditions, industrial policy is likely to have only a limited
impact on GDP growth. The second conclusion
fundamentally re-examined. The constraints and institutional limitations outlined above should be
factored into a consideration of the scope and content of industrial policy.
We concur with Kaplan’s statement. We believe that more recently the South African government
has taken heed of these comments and moved to develop a new plan for industrialisation that is
cognisant of these views. This is set out in the
This IPAP starts with an excelle
industrialisation. These are to diversify beyond the current South African reliance on traditional
commodities and non-tradable services to a knowledge economy that can absorb more labour (and
in particular previously disadvantaged members of society) and lead South Africa to make a greater
contribution to Africa’s wealth. The report considers that many of the ‘easy to do’ actions have been
done in recent years. These actions include strengtheni
certainty to the automotive sector and the clothing and textile sector (as both the automotive and
clothing and textile sectors are crucial components of the current industrial sector in South Africa),
attracting more investment into business process services, lowering input costs by examining tariffs
on imported inputs and helping to ameliorate the electricity supply crisis through energy efficiency.
Review of South Africa’s industrial policy and implications for SACU
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7
h Africa’s industrial policy
Kaplan (2007) outlines the issue for South Africa very succinctly, and we believe that his views are
The two key institutional requirements for an effective industrial policy are the professionalism
capacities of the government and the effectiveness of the strategic collaboration as between
government and business. As outlined above, both are currently very limited in South Africa.
Moreover, the limited capacities of the government are currently exacerbated by a lack of focus
and cohesion around the objectives, content and conduct of industrial policy. In addition,
distributional conflicts make it difficult to develop institutions and practices that manage the rents
that are a constituent feature of active industrial policies. Finally, the principal objective of
industrial policy, namely to enhance technological capacities and raise firm level productivity, is
severely constrained by the current scarcity of skills and the limited training being unde
broad conclusions emerge from this analysis. The first is that government should not expect too
much of industrial policy. Under current conditions, industrial policy is likely to have only a limited
impact on GDP growth. The second conclusion is that the design of industrial policy needs to be
examined. The constraints and institutional limitations outlined above should be
factored into a consideration of the scope and content of industrial policy.
ement. We believe that more recently the South African government
has taken heed of these comments and moved to develop a new plan for industrialisation that is
cognisant of these views. This is set out in the 2010 IPAP.
IPAP starts with an excellent introduction setting out the objectives of the approach to
industrialisation. These are to diversify beyond the current South African reliance on traditional
tradable services to a knowledge economy that can absorb more labour (and
n particular previously disadvantaged members of society) and lead South Africa to make a greater
contribution to Africa’s wealth. The report considers that many of the ‘easy to do’ actions have been
done in recent years. These actions include strengthening competition activities, giving more
certainty to the automotive sector and the clothing and textile sector (as both the automotive and
clothing and textile sectors are crucial components of the current industrial sector in South Africa),
investment into business process services, lowering input costs by examining tariffs
on imported inputs and helping to ameliorate the electricity supply crisis through energy efficiency.
Review of South Africa’s industrial policy and implications for SACU
Kaplan (2007) outlines the issue for South Africa very succinctly, and we believe that his views are
The two key institutional requirements for an effective industrial policy are the professionalism and
capacities of the government and the effectiveness of the strategic collaboration as between
government and business. As outlined above, both are currently very limited in South Africa.
xacerbated by a lack of focus
and cohesion around the objectives, content and conduct of industrial policy. In addition,
distributional conflicts make it difficult to develop institutions and practices that manage the rents
f active industrial policies. Finally, the principal objective of
industrial policy, namely to enhance technological capacities and raise firm level productivity, is
severely constrained by the current scarcity of skills and the limited training being undertaken. Two
broad conclusions emerge from this analysis. The first is that government should not expect too
much of industrial policy. Under current conditions, industrial policy is likely to have only a limited
is that the design of industrial policy needs to be
examined. The constraints and institutional limitations outlined above should be
ement. We believe that more recently the South African government
has taken heed of these comments and moved to develop a new plan for industrialisation that is
nt introduction setting out the objectives of the approach to
industrialisation. These are to diversify beyond the current South African reliance on traditional
tradable services to a knowledge economy that can absorb more labour (and
n particular previously disadvantaged members of society) and lead South Africa to make a greater
contribution to Africa’s wealth. The report considers that many of the ‘easy to do’ actions have been
ng competition activities, giving more
certainty to the automotive sector and the clothing and textile sector (as both the automotive and
clothing and textile sectors are crucial components of the current industrial sector in South Africa),
investment into business process services, lowering input costs by examining tariffs
on imported inputs and helping to ameliorate the electricity supply crisis through energy efficiency.
While these actions are commendable, the report fully recognises tha
from the ‘easy to do’ to the much harder ‘need to do’ actions.
The problem statement outlines how South African GDP growth has lagged behind its peers in recent
years, and, even more worrying is the fact that this growth has bee
is not underpinned by growth in the productive sectors. The divergence in manufacturing growth has
seen growth in capital-intensive sectors such as natural resource sectors and the automotive
industry rather than in employme
upon the credit-driven retail sector. This is accentuated by the low profitability in manufacturing
relative to sectors such as finance (thus highlighting the high cost of capital), a weak sk
endowment, poor infrastructure that includes uncertainty in electricity supply and public
procurement that is not considered to be doing enough to support local industry.
The policy response to strengthen the productive side of the economy clearly sho
government fully appreciates both (a) the lessons from past global success stories and (b) industrial
policy in the new global economy. These seven sets of critical policies (except perhaps the need to
develop and strengthen infrastructure in t
consider that they are very comprehensive and consist of:
i. Stronger articulation between macro
ii. Industrial financing channeled to real economy sectors.
iii. Leveraging public and private procurement to raise domestic production and employment in a
range of sectors, including alignment of
and industrial development objectives, and influence over private procuremen
iv. Developmental trade policies which deploy trade measures in a selected and strategic manner,
including tariffs, enforcement and standards, quality assurance and metrology (SQAM)
measures.
v. Competition and regulation policies that lower costs for
working-class households.
vi. Skills and innovation policies that are aligned to sectoral priorities.
Review of South Africa’s industrial policy and implications for SACU
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8
While these actions are commendable, the report fully recognises that the government must move
from the ‘easy to do’ to the much harder ‘need to do’ actions.
The problem statement outlines how South African GDP growth has lagged behind its peers in recent
years, and, even more worrying is the fact that this growth has been dominated by consumption that
is not underpinned by growth in the productive sectors. The divergence in manufacturing growth has
intensive sectors such as natural resource sectors and the automotive
industry rather than in employment-intensive sectors where growth remains precariously dependent
driven retail sector. This is accentuated by the low profitability in manufacturing
relative to sectors such as finance (thus highlighting the high cost of capital), a weak sk
endowment, poor infrastructure that includes uncertainty in electricity supply and public
procurement that is not considered to be doing enough to support local industry.
The policy response to strengthen the productive side of the economy clearly sho
government fully appreciates both (a) the lessons from past global success stories and (b) industrial
policy in the new global economy. These seven sets of critical policies (except perhaps the need to
develop and strengthen infrastructure in the broadest sense) deserve to be repeated here, as we
consider that they are very comprehensive and consist of:
Stronger articulation between macro- and microeconomic policies.
Industrial financing channeled to real economy sectors.
Leveraging public and private procurement to raise domestic production and employment in a
range of sectors, including alignment of Broad Based Black Economic Empowerment
and industrial development objectives, and influence over private procuremen
Developmental trade policies which deploy trade measures in a selected and strategic manner,
including tariffs, enforcement and standards, quality assurance and metrology (SQAM)
Competition and regulation policies that lower costs for productive investments and poor and
Skills and innovation policies that are aligned to sectoral priorities.
Review of South Africa’s industrial policy and implications for SACU
t the government must move
The problem statement outlines how South African GDP growth has lagged behind its peers in recent
n dominated by consumption that
is not underpinned by growth in the productive sectors. The divergence in manufacturing growth has
intensive sectors such as natural resource sectors and the automotive
intensive sectors where growth remains precariously dependent
driven retail sector. This is accentuated by the low profitability in manufacturing
relative to sectors such as finance (thus highlighting the high cost of capital), a weak skills
endowment, poor infrastructure that includes uncertainty in electricity supply and public
procurement that is not considered to be doing enough to support local industry.
The policy response to strengthen the productive side of the economy clearly shows that the
government fully appreciates both (a) the lessons from past global success stories and (b) industrial
policy in the new global economy. These seven sets of critical policies (except perhaps the need to
he broadest sense) deserve to be repeated here, as we
Leveraging public and private procurement to raise domestic production and employment in a
Broad Based Black Economic Empowerment (B-BBEE)
and industrial development objectives, and influence over private procurement.
Developmental trade policies which deploy trade measures in a selected and strategic manner,
including tariffs, enforcement and standards, quality assurance and metrology (SQAM)
productive investments and poor and
vii. Deploying these policies in general and in relation to more ambitious sector strategies, building
on work already done.
Section 5 of the IPAP highlights the report in relation to other policies and shows how clearly the
need to integrate industrial policy with other actions of government is appreciated. The IPAP and
industrial policy are integrated into generatin
combining value-adding with employment opportunities throughout the economy. This is followed
by Section 6 which again stresses the need for coherence between macro
policies. In particular, the macroeconomic focus should be on a competitive and stable exchange
rate regime and competitive real interest rates, while microeconomic policies of importance include
competition policies, lowering the cost of inputs and promoting investment.
In the next four sections the report identifies the four key areas of industrial financing, procurement,
trade policies and competition policies as being a crucial part of industrial policy. Each of these is
discussed in turn with their opportunities and constraints
each one and closing with detailed key milestones and timetables to be reached in each area.
The section on industrial finance
the analysis given earlier in the report that shows South Africa’s cost of capital relative to major
trading partners is very high. Indeed, the 2007 data shown gives South Africa as having the second
highest real interest rate of the 18 economies given. Most of the 18 are und
only the United Kingdom (3.1%), Australia (4.4%), South Africa (4.9%) and Brazil (7.5%) being above
3.0%. The IPAP makes a case for increased use of concessional funding from the government through
the Industrial Development Corporatio
Desenvolvimento Econômico e Social (BNDES) to justify an expansion of development lending. The
problem is, of course, that while in theory such an approach seems fine, in practice the real outcome
is often an expensive failure from poor governance as such institutions become lenders of last resort.
Care must be exercised in providing concessionary finance, and the example of the BNDES does not
negate the fact that examples of global failures with concess
An issue not touched upon in the IPAP and supporting documents is the role of foreign direct
investment (FDI). In a recent publication
is strangely silent on FDI. It recognises the need to raise the rate of investment, but dedicates little
Review of South Africa’s industrial policy and implications for SACU
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9
Deploying these policies in general and in relation to more ambitious sector strategies, building
Section 5 of the IPAP highlights the report in relation to other policies and shows how clearly the
need to integrate industrial policy with other actions of government is appreciated. The IPAP and
industrial policy are integrated into generating a new growth path that has the objective of
adding with employment opportunities throughout the economy. This is followed
by Section 6 which again stresses the need for coherence between macro
he macroeconomic focus should be on a competitive and stable exchange
rate regime and competitive real interest rates, while microeconomic policies of importance include
competition policies, lowering the cost of inputs and promoting investment.
t four sections the report identifies the four key areas of industrial financing, procurement,
trade policies and competition policies as being a crucial part of industrial policy. Each of these is
discussed in turn with their opportunities and constraints followed by Key Action Plans (KAPs) for
each one and closing with detailed key milestones and timetables to be reached in each area.
industrial finance laments the low profitability of manufacturing and follows up on
rlier in the report that shows South Africa’s cost of capital relative to major
trading partners is very high. Indeed, the 2007 data shown gives South Africa as having the second
highest real interest rate of the 18 economies given. Most of the 18 are und
only the United Kingdom (3.1%), Australia (4.4%), South Africa (4.9%) and Brazil (7.5%) being above
3.0%. The IPAP makes a case for increased use of concessional funding from the government through
the Industrial Development Corporation, and uses the example of Brazil’s
Desenvolvimento Econômico e Social (BNDES) to justify an expansion of development lending. The
problem is, of course, that while in theory such an approach seems fine, in practice the real outcome
ten an expensive failure from poor governance as such institutions become lenders of last resort.
Care must be exercised in providing concessionary finance, and the example of the BNDES does not
negate the fact that examples of global failures with concessionary finance abound.
An issue not touched upon in the IPAP and supporting documents is the role of foreign direct
In a recent publication, Sandrey (2012) writes that the National Development Plan
It recognises the need to raise the rate of investment, but dedicates little
Review of South Africa’s industrial policy and implications for SACU
Deploying these policies in general and in relation to more ambitious sector strategies, building
Section 5 of the IPAP highlights the report in relation to other policies and shows how clearly the
need to integrate industrial policy with other actions of government is appreciated. The IPAP and
g a new growth path that has the objective of
adding with employment opportunities throughout the economy. This is followed
by Section 6 which again stresses the need for coherence between macro- and microeconomic
he macroeconomic focus should be on a competitive and stable exchange
rate regime and competitive real interest rates, while microeconomic policies of importance include
t four sections the report identifies the four key areas of industrial financing, procurement,
trade policies and competition policies as being a crucial part of industrial policy. Each of these is
followed by Key Action Plans (KAPs) for
each one and closing with detailed key milestones and timetables to be reached in each area.
laments the low profitability of manufacturing and follows up on
rlier in the report that shows South Africa’s cost of capital relative to major
trading partners is very high. Indeed, the 2007 data shown gives South Africa as having the second
highest real interest rate of the 18 economies given. Most of the 18 are under two percent, with
only the United Kingdom (3.1%), Australia (4.4%), South Africa (4.9%) and Brazil (7.5%) being above
3.0%. The IPAP makes a case for increased use of concessional funding from the government through
n, and uses the example of Brazil’s Banco Nacional De
Desenvolvimento Econômico e Social (BNDES) to justify an expansion of development lending. The
problem is, of course, that while in theory such an approach seems fine, in practice the real outcome
ten an expensive failure from poor governance as such institutions become lenders of last resort.
Care must be exercised in providing concessionary finance, and the example of the BNDES does not
ionary finance abound.
An issue not touched upon in the IPAP and supporting documents is the role of foreign direct
the National Development Plan
It recognises the need to raise the rate of investment, but dedicates little
over one page discussing how this is to be achieved and what the benefits are of doing so. It sees this
increased investment being sourced from (1) higher levels of public
with an emphasis on infrastructure building, (2) more private sector investment, and (3) foreign
investment. The plan considers that, ‘over time, a larger share of investment should be funded
domestically, but this will depend on
productivity, incomes and employment’. It is almost as though foreign investment is seen as a failure
of South Africans to be able to fund their own development with the grudging admission that foreign
investment is needed. Perhaps this view is based upon the analysis of Sandrey (2012) that the
manufacturing sector is not the most significant recipient of FDI into South Africa; it has received
around one-quarter to one-third of the total in recent years
mining and (b) business and financial services.
Government procurement is highlighted as an essential element in the IPAP, and detailed proposals
are outlined to ensure that more local content is used in major
between B-BBEE and industrial policy have not been adequately articulated to date and the IPAP
emphasises that more needs to be done in this area. Several KAPs are outlined to advance domestic
procurement, but as always when sourcing from the second
that the discretionary margins do not impose costs elsewhere in the economy. Globally, t
Agreement on Government Procurement is a legally binding agreement in the WTO focusing on the
subject of government procurement, with its present version having entered into force on
1 January 1996. However, South Africa is neither a signatory nor an observer to this agreement so it
is therefore not bound by its provisions. Were South Africa a signato
accord to the products, services and suppliers of any other Party to the Agreement treatment “no
less favourable” than they give to their domestic products, services and suppliers’ under the terms of
the agreement. Perhaps it is appropriate to add a quote from the dti (2011): ’Parts of South Africa’s
agro-processing sector have an unfortunate history of engaging in anti
contributing to the high prices of basic food products’.
The IPAP next moves to examine
report is on fertile ground, as there are numerous aspects of trade policy that directly or indirectly
impact upon domestic production. The first and most obvious one is tariff poli
report recognises that multilateral, regional and bilateral trade agreements are putting pressure on
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
10
over one page discussing how this is to be achieved and what the benefits are of doing so. It sees this
increased investment being sourced from (1) higher levels of public-sector fixed capital formation
with an emphasis on infrastructure building, (2) more private sector investment, and (3) foreign
investment. The plan considers that, ‘over time, a larger share of investment should be funded
domestically, but this will depend on how well resources are used in the short term to raise
productivity, incomes and employment’. It is almost as though foreign investment is seen as a failure
of South Africans to be able to fund their own development with the grudging admission that foreign
investment is needed. Perhaps this view is based upon the analysis of Sandrey (2012) that the
manufacturing sector is not the most significant recipient of FDI into South Africa; it has received
third of the total in recent years, a figure very similar to that of both (a)
mining and (b) business and financial services.
is highlighted as an essential element in the IPAP, and detailed proposals
are outlined to ensure that more local content is used in major projects. In addition, linkages
BBEE and industrial policy have not been adequately articulated to date and the IPAP
emphasises that more needs to be done in this area. Several KAPs are outlined to advance domestic
en sourcing from the second-best provider caution must be exercised
that the discretionary margins do not impose costs elsewhere in the economy. Globally, t
Agreement on Government Procurement is a legally binding agreement in the WTO focusing on the
ject of government procurement, with its present version having entered into force on
1996. However, South Africa is neither a signatory nor an observer to this agreement so it
is therefore not bound by its provisions. Were South Africa a signatory, it would be obliged ‘to
accord to the products, services and suppliers of any other Party to the Agreement treatment “no
less favourable” than they give to their domestic products, services and suppliers’ under the terms of
appropriate to add a quote from the dti (2011): ’Parts of South Africa’s
processing sector have an unfortunate history of engaging in anti-competitive conduct, thereby
contributing to the high prices of basic food products’.
examine trade policies and their linkage to industrial policies. Here the
report is on fertile ground, as there are numerous aspects of trade policy that directly or indirectly
impact upon domestic production. The first and most obvious one is tariff poli
report recognises that multilateral, regional and bilateral trade agreements are putting pressure on
Review of South Africa’s industrial policy and implications for SACU
over one page discussing how this is to be achieved and what the benefits are of doing so. It sees this
r fixed capital formation
with an emphasis on infrastructure building, (2) more private sector investment, and (3) foreign
investment. The plan considers that, ‘over time, a larger share of investment should be funded
how well resources are used in the short term to raise
productivity, incomes and employment’. It is almost as though foreign investment is seen as a failure
of South Africans to be able to fund their own development with the grudging admission that foreign
investment is needed. Perhaps this view is based upon the analysis of Sandrey (2012) that the
manufacturing sector is not the most significant recipient of FDI into South Africa; it has received
, a figure very similar to that of both (a)
is highlighted as an essential element in the IPAP, and detailed proposals
projects. In addition, linkages
BBEE and industrial policy have not been adequately articulated to date and the IPAP
emphasises that more needs to be done in this area. Several KAPs are outlined to advance domestic
best provider caution must be exercised
that the discretionary margins do not impose costs elsewhere in the economy. Globally, the
Agreement on Government Procurement is a legally binding agreement in the WTO focusing on the
ject of government procurement, with its present version having entered into force on
1996. However, South Africa is neither a signatory nor an observer to this agreement so it
ry, it would be obliged ‘to
accord to the products, services and suppliers of any other Party to the Agreement treatment “no
less favourable” than they give to their domestic products, services and suppliers’ under the terms of
appropriate to add a quote from the dti (2011): ’Parts of South Africa’s
competitive conduct, thereby
and their linkage to industrial policies. Here the
report is on fertile ground, as there are numerous aspects of trade policy that directly or indirectly
impact upon domestic production. The first and most obvious one is tariff policy, and here the
report recognises that multilateral, regional and bilateral trade agreements are putting pressure on
tariffs as a strategic instrument. The converse, of course, is that these same agreements also open
preferential access for South Africa.
limited the ‘policy space’ for agricultural protection through the use of tariffs has become, and how
the WTO allowed South Africa to raise tariffs on clothing and textile imports from their
rates to the WTO bound maximum of 45% as the experiment in placing quotas on Chinese clothing
and textile imports proved to be ineffectual (Van Eeden and Sandrey, 2007). A detailed examination
is needed to assess the so-called ‘water’ between W
other trade agreements product by product to assess just how much protection there potentially is.
It is also relevant to point out that a tax on imports is, all other things considered, a tax on
consumers who are obliged to pay more for goods by either increased prices on imports or purchase
domestically made goods that were originally unable to compete with imports of these goods.
Similarly, the IPAP is acutely aware of the role that technical barriers to
barriers (NTBs) to trade play in restricting global trade. While generally thought of as barriers to
exports, the IPAP moves beyond this misconception and discusses how addressing TBTs and NTBs
can assist local producers. For example, internal transport costs in South Africa and southern Africa
are high and on occasions perversely make it cheaper to use imported merchandise within the
region. Special emphasis is given to technical standards and how strengthening these are likely
give flow-on benefits. This is a major responsibility for government, and several KAPs outline
proposed steps to take. Here one must add that the IPAP is fully aware of some of the ‘new’ barriers
becoming important in international trade. These includ
geographical indicators, both areas on which South African technology and historical trade items
should be able to capitalise.
Next, considerable attention is given to the area of
smuggling and under-invoicing. This is closely associated with corruption, and this corruption is
generally perceived as being a disincentive to development in South Africa; the World Bank ranks
South Africa at 101 out of the 210 countries it survey
we must note that it ranks just one place behind Malaysia and two above Brazil, both of which are
considered to be among the new ‘tigers’, suggesting that corruption may not necessarily be a barrier
4 This, of course, ignores the generally accepted end result that tariffs hurt the imposing country and not the target.
5At http://info.worldbank.org/governance/wgi/resources.htm.
Review of South Africa’s industrial policy and implications for SACU
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11
tariffs as a strategic instrument. The converse, of course, is that these same agreements also open
preferential access for South Africa. Earlier in this paper we outlined tralac research that shows how
limited the ‘policy space’ for agricultural protection through the use of tariffs has become, and how
the WTO allowed South Africa to raise tariffs on clothing and textile imports from their
rates to the WTO bound maximum of 45% as the experiment in placing quotas on Chinese clothing
and textile imports proved to be ineffectual (Van Eeden and Sandrey, 2007). A detailed examination
called ‘water’ between WTO bound and applied rates and the influence of
other trade agreements product by product to assess just how much protection there potentially is.
It is also relevant to point out that a tax on imports is, all other things considered, a tax on
ho are obliged to pay more for goods by either increased prices on imports or purchase
domestically made goods that were originally unable to compete with imports of these goods.
Similarly, the IPAP is acutely aware of the role that technical barriers to trade (TBTs) and non
barriers (NTBs) to trade play in restricting global trade. While generally thought of as barriers to
exports, the IPAP moves beyond this misconception and discusses how addressing TBTs and NTBs
xample, internal transport costs in South Africa and southern Africa
are high and on occasions perversely make it cheaper to use imported merchandise within the
region. Special emphasis is given to technical standards and how strengthening these are likely
on benefits. This is a major responsibility for government, and several KAPs outline
proposed steps to take. Here one must add that the IPAP is fully aware of some of the ‘new’ barriers
becoming important in international trade. These include the use of carbon tax regulations and
geographical indicators, both areas on which South African technology and historical trade items
Next, considerable attention is given to the area of customs fraud and illegal imports
invoicing. This is closely associated with corruption, and this corruption is
generally perceived as being a disincentive to development in South Africa; the World Bank ranks
South Africa at 101 out of the 210 countries it surveyed in 2010.5 While this is not a good place to be,
we must note that it ranks just one place behind Malaysia and two above Brazil, both of which are
considered to be among the new ‘tigers’, suggesting that corruption may not necessarily be a barrier
This, of course, ignores the generally accepted end result that tariffs hurt the imposing country and not the target.
At http://info.worldbank.org/governance/wgi/resources.htm.
Review of South Africa’s industrial policy and implications for SACU
tariffs as a strategic instrument. The converse, of course, is that these same agreements also open
we outlined tralac research that shows how
limited the ‘policy space’ for agricultural protection through the use of tariffs has become, and how
the WTO allowed South Africa to raise tariffs on clothing and textile imports from their 40% applied
rates to the WTO bound maximum of 45% as the experiment in placing quotas on Chinese clothing
and textile imports proved to be ineffectual (Van Eeden and Sandrey, 2007). A detailed examination
TO bound and applied rates and the influence of
other trade agreements product by product to assess just how much protection there potentially is.4
It is also relevant to point out that a tax on imports is, all other things considered, a tax on
ho are obliged to pay more for goods by either increased prices on imports or purchase
domestically made goods that were originally unable to compete with imports of these goods.
trade (TBTs) and non-tariff
barriers (NTBs) to trade play in restricting global trade. While generally thought of as barriers to
exports, the IPAP moves beyond this misconception and discusses how addressing TBTs and NTBs
xample, internal transport costs in South Africa and southern Africa
are high and on occasions perversely make it cheaper to use imported merchandise within the
region. Special emphasis is given to technical standards and how strengthening these are likely to
on benefits. This is a major responsibility for government, and several KAPs outline
proposed steps to take. Here one must add that the IPAP is fully aware of some of the ‘new’ barriers
e the use of carbon tax regulations and
geographical indicators, both areas on which South African technology and historical trade items
customs fraud and illegal imports such as
invoicing. This is closely associated with corruption, and this corruption is
generally perceived as being a disincentive to development in South Africa; the World Bank ranks
While this is not a good place to be,
we must note that it ranks just one place behind Malaysia and two above Brazil, both of which are
considered to be among the new ‘tigers’, suggesting that corruption may not necessarily be a barrier
This, of course, ignores the generally accepted end result that tariffs hurt the imposing country and not the target.
to development. tralac research has examined two aspects relating to this. The first was the clothing
imports from China, where detailed analysis of both the South African SARS import data and the
Chinese Ministry of Customs export data highlights that the
Africa was only at 80 per cent of the value of the exports from China to South Africa in recent years,
and for volume data average prices for imports were at a lower
and Sandrey, 2007). The second was an examination of informal trade in southern African
agricultural products that concluded this to be a very minor problem in South Africa but much more
prevalent in neighbouring countries (Sandrey and Jensen, 2010). The set of KAPs outlined i
clearly indicate that these border problems are recognised and are being addressed.
Competition policy is examined in a separate section, and rightly so. This is an important area where
South Africa has both strong legislation in place and an increasing appetite to enforce this legislation.
Section 11 then changes focus and lists the 13 sectors that have
singled out for consideration in the IPAP. These sectors, as listed, are:
Cluster 1 – Qualitatively new areas of focus
• Realising the potential of the metal fabrication, capital and transport equipment sectors,
particularly arising from large public investments
• ‘Green’ and energy-saving industries
• Agro-processing, linked to food security and food pricing imperatives
Cluster 2 – Scale up and broaden interventions in existing IPAP sectors
• Automotives, components, m
• Plastics, pharmaceuticals and chemicals
• Clothing, textiles, footwear and leather
• Biofuels
• Forestry, paper, pulp and furniture
• Strengthening linkages between cultural industries and tourism
• Business process servicing
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
12
elopment. tralac research has examined two aspects relating to this. The first was the clothing
imports from China, where detailed analysis of both the South African SARS import data and the
Chinese Ministry of Customs export data highlights that the value of imports from China into South
Africa was only at 80 per cent of the value of the exports from China to South Africa in recent years,
data average prices for imports were at a lower unit value than exports (Van Eeden
he second was an examination of informal trade in southern African
agricultural products that concluded this to be a very minor problem in South Africa but much more
prevalent in neighbouring countries (Sandrey and Jensen, 2010). The set of KAPs outlined i
clearly indicate that these border problems are recognised and are being addressed.
is examined in a separate section, and rightly so. This is an important area where
South Africa has both strong legislation in place and an increasing appetite to enforce this legislation.
Section 11 then changes focus and lists the 13 sectors that have been grouped into ‘clusters’ and
singled out for consideration in the IPAP. These sectors, as listed, are:
Qualitatively new areas of focus
Realising the potential of the metal fabrication, capital and transport equipment sectors,
particularly arising from large public investments
saving industries
processing, linked to food security and food pricing imperatives
Scale up and broaden interventions in existing IPAP sectors
Automotives, components, medium and heavy commercial vehicles
Plastics, pharmaceuticals and chemicals
Clothing, textiles, footwear and leather
Forestry, paper, pulp and furniture
Strengthening linkages between cultural industries and tourism
Review of South Africa’s industrial policy and implications for SACU
elopment. tralac research has examined two aspects relating to this. The first was the clothing
imports from China, where detailed analysis of both the South African SARS import data and the
of imports from China into South
Africa was only at 80 per cent of the value of the exports from China to South Africa in recent years,
than exports (Van Eeden
he second was an examination of informal trade in southern African
agricultural products that concluded this to be a very minor problem in South Africa but much more
prevalent in neighbouring countries (Sandrey and Jensen, 2010). The set of KAPs outlined in the IPAP
clearly indicate that these border problems are recognised and are being addressed.
is examined in a separate section, and rightly so. This is an important area where
South Africa has both strong legislation in place and an increasing appetite to enforce this legislation.
been grouped into ‘clusters’ and
Realising the potential of the metal fabrication, capital and transport equipment sectors,
Cluster 3 – Sectors with potential for long
• Nuclear
• Advanced materials
• Aerospace
Of special mention are the automotive sector, the textile/clothing/footwear
sectors, cultural industries and the tourism and business
show how comprehensive the IPAP is insofar that it reaches into areas that traditionally would be
simply regarded as services. The business processing sector is one that has demonstrated rapid
growth in Asian economies such as India, Malaysia and the Philippines, and it is a welcome entry to
an industry plan.
The challenges of the TCF sector have been the focus of considerable attention in recent years as the
importation of Chinese clothing and textiles have ma
manufacturing capacity. It is an important sector as it provides employment opportunities for many
who have limited alternatives, but the sector has been in trouble in recent times. Chaddha et al.
(2009) from the Harvard Porter project provide an excellent background to the sector in a
framework that perfectly complements the IPAP report. In particular, they outline that labour cost in
South Africa is much higher than that of the competitors and that the sector is losin
competition to cheaper imports with declining employment. They develop a future direction similar
to that outlined in the IPAP that concentrates on p
manufacturing for mainly export and
products’ for new niche market in value
opportunity is to recapture domestic market share by improving competitiveness through a range of
interventions. These include a focus on product, process and delivery efficiencies and harnessing
proximity to local retailers’. After a futile attempt to protect the sector by imposing Chinese import
quotas the government raised tariffs to the WTO bound maximum and then
problem, sensibly adopted an encompassing plan to improve skills and hence productivity.
this will be enough to return the bolting horse to the stable is a moot point.
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
13
Sectors with potential for long-term advanced capabilities
Of special mention are the automotive sector, the textile/clothing/footwear
sectors, cultural industries and the tourism and business-processing sectors. The latter three sectors
show how comprehensive the IPAP is insofar that it reaches into areas that traditionally would be
simply regarded as services. The business processing sector is one that has demonstrated rapid
onomies such as India, Malaysia and the Philippines, and it is a welcome entry to
The challenges of the TCF sector have been the focus of considerable attention in recent years as the
importation of Chinese clothing and textiles have made serious inroads into South African
manufacturing capacity. It is an important sector as it provides employment opportunities for many
who have limited alternatives, but the sector has been in trouble in recent times. Chaddha et al.
rd Porter project provide an excellent background to the sector in a
framework that perfectly complements the IPAP report. In particular, they outline that labour cost in
South Africa is much higher than that of the competitors and that the sector is losin
competition to cheaper imports with declining employment. They develop a future direction similar
to that outlined in the IPAP that concentrates on price competition for low
manufacturing for mainly export and an emphasis on what they call ‘diversify to value
new niche market in value-added unique products. As recognised by IPAP ‘t
opportunity is to recapture domestic market share by improving competitiveness through a range of
These include a focus on product, process and delivery efficiencies and harnessing
After a futile attempt to protect the sector by imposing Chinese import
quotas the government raised tariffs to the WTO bound maximum and then
problem, sensibly adopted an encompassing plan to improve skills and hence productivity.
this will be enough to return the bolting horse to the stable is a moot point.
Review of South Africa’s industrial policy and implications for SACU
Of special mention are the automotive sector, the textile/clothing/footwear (TCF) and leather
processing sectors. The latter three sectors
show how comprehensive the IPAP is insofar that it reaches into areas that traditionally would be
simply regarded as services. The business processing sector is one that has demonstrated rapid
onomies such as India, Malaysia and the Philippines, and it is a welcome entry to
The challenges of the TCF sector have been the focus of considerable attention in recent years as the
de serious inroads into South African
manufacturing capacity. It is an important sector as it provides employment opportunities for many
who have limited alternatives, but the sector has been in trouble in recent times. Chaddha et al.
rd Porter project provide an excellent background to the sector in a
framework that perfectly complements the IPAP report. In particular, they outline that labour cost in
South Africa is much higher than that of the competitors and that the sector is losing in the price
competition to cheaper imports with declining employment. They develop a future direction similar
low-end firms, high-end
iversify to value-added
added unique products. As recognised by IPAP ‘the key
opportunity is to recapture domestic market share by improving competitiveness through a range of
These include a focus on product, process and delivery efficiencies and harnessing
After a futile attempt to protect the sector by imposing Chinese import
quotas the government raised tariffs to the WTO bound maximum and then, recognising the basic
problem, sensibly adopted an encompassing plan to improve skills and hence productivity. Whether
The automotive sector is both the major and the most con
sectors. It is undoubtedly a sector that is technically efficient by international standards. But analysts
such as Frank Flatters6 are concerned about the economic efficiency of the sector and, despite the
protection afforded the sector, South Africa is a net importer of vehicles. In a global environment
that is extremely distorted despite WTO rules against industrial subsidies, the importance of the
sector to South Africa is outlined in the IPAP. The Automotive Produ
Programme (APDP) aims to strengthen, broaden and deepen the automotive, components and
medium and heavy commercial vehicles sector to keep the sector a cornerstone of South African
industry. Tariff reviews are mentioned as part of the
the EU may well limit policy space. As above with the TCF sector, will the IPAP actions be enough?
Productivity
If there is one term that encapsulates the objectives of the policies discussed in this
‘productivity’. Sandrey and Jensen (2012) discuss how
production or total output, and this is a function of the land, labour and capital inputs used. This
total output can be increased by (a) increasing
these inputs are combined; and this latter, in its simplest form, is productivity. Earlier in this
we discussed how industrial policies have sequentially powered the East Asian growth economies
over the last half century: the base factor in this growth has been productivity. Sandrey and Jensen
emphasise that the total factor productivity (TFP) in both
other countries analysed, and that these countries are similarly forecast to have significantly higher
growth rates than the rest of the world through to 2020. They then proceed to use the widely
accepted Global Trade Analysis Project (GTAP) computer model to simulate how increasing the TFP
rates in South Africa to levels that are still below the best Asian benchmarks can dramatically power
GDP growth in South Africa. They do
the model) and re-running simulations to ascertain the impacts on both growth rates and trade
performance. They find that keeping everything else constant and increasing the TFP in South Africa
to an average annual increase of 0.6%
increases South African GDP by an additional 4.0% (i.e. to 7.8%) over and above the baseline.
6 See Frank Flatter’s home page at http://qed.econ.queensu.ca/faculty/flatters/
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
14
The automotive sector is both the major and the most controversial of South Africa’s industrial
sectors. It is undoubtedly a sector that is technically efficient by international standards. But analysts
are concerned about the economic efficiency of the sector and, despite the
afforded the sector, South Africa is a net importer of vehicles. In a global environment
that is extremely distorted despite WTO rules against industrial subsidies, the importance of the
sector to South Africa is outlined in the IPAP. The Automotive Production and Development
Programme (APDP) aims to strengthen, broaden and deepen the automotive, components and
medium and heavy commercial vehicles sector to keep the sector a cornerstone of South African
industry. Tariff reviews are mentioned as part of the possible policy package, but here the TDCA with
the EU may well limit policy space. As above with the TCF sector, will the IPAP actions be enough?
If there is one term that encapsulates the objectives of the policies discussed in this
‘productivity’. Sandrey and Jensen (2012) discuss how in its classical form an economy is driven by
production or total output, and this is a function of the land, labour and capital inputs used. This
total output can be increased by (a) increasing the inputs or (b) increasing the efficiency with which
these inputs are combined; and this latter, in its simplest form, is productivity. Earlier in this
we discussed how industrial policies have sequentially powered the East Asian growth economies
over the last half century: the base factor in this growth has been productivity. Sandrey and Jensen
emphasise that the total factor productivity (TFP) in both China and India is significantly superior to
other countries analysed, and that these countries are similarly forecast to have significantly higher
growth rates than the rest of the world through to 2020. They then proceed to use the widely
Trade Analysis Project (GTAP) computer model to simulate how increasing the TFP
rates in South Africa to levels that are still below the best Asian benchmarks can dramatically power
GDP growth in South Africa. They do this by treating TFP as exogenous (i.e. adjusted from outside
running simulations to ascertain the impacts on both growth rates and trade
eeping everything else constant and increasing the TFP in South Africa
to an average annual increase of 0.6% over the period from its currently forecast rate of 0.2%
increases South African GDP by an additional 4.0% (i.e. to 7.8%) over and above the baseline.
http://qed.econ.queensu.ca/faculty/flatters/.
Review of South Africa’s industrial policy and implications for SACU
troversial of South Africa’s industrial
sectors. It is undoubtedly a sector that is technically efficient by international standards. But analysts
are concerned about the economic efficiency of the sector and, despite the
afforded the sector, South Africa is a net importer of vehicles. In a global environment
that is extremely distorted despite WTO rules against industrial subsidies, the importance of the
ction and Development
Programme (APDP) aims to strengthen, broaden and deepen the automotive, components and
medium and heavy commercial vehicles sector to keep the sector a cornerstone of South African
possible policy package, but here the TDCA with
the EU may well limit policy space. As above with the TCF sector, will the IPAP actions be enough?
If there is one term that encapsulates the objectives of the policies discussed in this paper, it is
in its classical form an economy is driven by
production or total output, and this is a function of the land, labour and capital inputs used. This
the inputs or (b) increasing the efficiency with which
these inputs are combined; and this latter, in its simplest form, is productivity. Earlier in this paper
we discussed how industrial policies have sequentially powered the East Asian growth economies
over the last half century: the base factor in this growth has been productivity. Sandrey and Jensen
China and India is significantly superior to
other countries analysed, and that these countries are similarly forecast to have significantly higher
growth rates than the rest of the world through to 2020. They then proceed to use the widely
Trade Analysis Project (GTAP) computer model to simulate how increasing the TFP
rates in South Africa to levels that are still below the best Asian benchmarks can dramatically power
e. adjusted from outside
running simulations to ascertain the impacts on both growth rates and trade
eeping everything else constant and increasing the TFP in South Africa
over the period from its currently forecast rate of 0.2%
increases South African GDP by an additional 4.0% (i.e. to 7.8%) over and above the baseline.
One factor driving this GDP increase is changes in global capital flows, where South Africa and its
neighbours benefit at the marginal expense of others.
summarises the long-term welfare consequences of changes in the stock of capital due to changes in
net investment. Rising income will increase demand for produced go
and thus attracting more investments. Generally, economies with the highest growth will be
prepared to pay the largest rate of return to capital, and will obtain most of the new investments.
Therefore we will tend to see that
the short-term welfare gains deriving from allocative efficiency and terms of trade.
Reinforcing the relevance of the IPAP shows that the baseline projection for South Africa with
continued TFP at 0.2% annually is not sufficient to change current unemployment rates from their
23%. South Africa must increase TFP to 0.6% which will reduce unemployment to 17%, while an even
larger increase to the current 1.0% TFP levels of China and India will ha
South African unemployment is forecast to reduce to 12% in this scenario. The policy implication is
clear: TFP holds the key for growth and employment. South Africa’s aggregate welfare would be
around US$250bn higher over the per
even 0.6%. The main contributions to this increase in order of importance are from increased capital
flows, the TFP changes directly, allocative efficiency gains and labour market gains as more pe
enter the workforce. This in turn increases both output and trade, consistent with the objectives of
the IPAP. In support of this we can do no better than repeat an excerpt from Kaplan’s citation:
‘Finally, the principal objective of industrial polic
and raise firm level productivity…’ (Kaplan 2007).
Regional integration and coordination
In considering South African industrial policy and perhaps more specifically tariffs, it is well worth
noting that South Africa does not have a tariff schedule
considerations such as the views of Botswana, Lesotho, Namibia and Swaziland (BLNS), and in
particular revenue implications from SACU tariffs for these countries
production in South Africa will have a downside for the BLNS in that these revenues will be reduced
as this production displaces imports into South Africa, and, perhaps more importantly given the free
flow of goods from South Africa t
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
15
One factor driving this GDP increase is changes in global capital flows, where South Africa and its
ighbours benefit at the marginal expense of others. Capital accumulation
term welfare consequences of changes in the stock of capital due to changes in
net investment. Rising income will increase demand for produced goods, pushing up factor returns
and thus attracting more investments. Generally, economies with the highest growth will be
prepared to pay the largest rate of return to capital, and will obtain most of the new investments.
Therefore we will tend to see that the long-term welfare gains from capital accumulation reinforce
term welfare gains deriving from allocative efficiency and terms of trade.
Reinforcing the relevance of the IPAP shows that the baseline projection for South Africa with
FP at 0.2% annually is not sufficient to change current unemployment rates from their
23%. South Africa must increase TFP to 0.6% which will reduce unemployment to 17%, while an even
larger increase to the current 1.0% TFP levels of China and India will have a spectacular result as
South African unemployment is forecast to reduce to 12% in this scenario. The policy implication is
clear: TFP holds the key for growth and employment. South Africa’s aggregate welfare would be
around US$250bn higher over the period to 2020 from a 2007 base should the TFP be increased to
even 0.6%. The main contributions to this increase in order of importance are from increased capital
flows, the TFP changes directly, allocative efficiency gains and labour market gains as more pe
enter the workforce. This in turn increases both output and trade, consistent with the objectives of
the IPAP. In support of this we can do no better than repeat an excerpt from Kaplan’s citation:
Finally, the principal objective of industrial policy (is) namely to enhance technological capacities
and raise firm level productivity…’ (Kaplan 2007).
Regional integration and coordination
In considering South African industrial policy and perhaps more specifically tariffs, it is well worth
uth Africa does not have a tariff schedule – SACU does. Therefore there are wider
considerations such as the views of Botswana, Lesotho, Namibia and Swaziland (BLNS), and in
particular revenue implications from SACU tariffs for these countries (CIE, 2010)
production in South Africa will have a downside for the BLNS in that these revenues will be reduced
as this production displaces imports into South Africa, and, perhaps more importantly given the free
flow of goods from South Africa to the BLNS countries, make industrialisation even more difficult in
Review of South Africa’s industrial policy and implications for SACU
One factor driving this GDP increase is changes in global capital flows, where South Africa and its
Capital accumulation in the GTAP model
term welfare consequences of changes in the stock of capital due to changes in
ods, pushing up factor returns
and thus attracting more investments. Generally, economies with the highest growth will be
prepared to pay the largest rate of return to capital, and will obtain most of the new investments.
term welfare gains from capital accumulation reinforce
term welfare gains deriving from allocative efficiency and terms of trade.
Reinforcing the relevance of the IPAP shows that the baseline projection for South Africa with
FP at 0.2% annually is not sufficient to change current unemployment rates from their
23%. South Africa must increase TFP to 0.6% which will reduce unemployment to 17%, while an even
ve a spectacular result as
South African unemployment is forecast to reduce to 12% in this scenario. The policy implication is
clear: TFP holds the key for growth and employment. South Africa’s aggregate welfare would be
iod to 2020 from a 2007 base should the TFP be increased to
even 0.6%. The main contributions to this increase in order of importance are from increased capital
flows, the TFP changes directly, allocative efficiency gains and labour market gains as more people
enter the workforce. This in turn increases both output and trade, consistent with the objectives of
the IPAP. In support of this we can do no better than repeat an excerpt from Kaplan’s citation:
y (is) namely to enhance technological capacities
In considering South African industrial policy and perhaps more specifically tariffs, it is well worth
SACU does. Therefore there are wider
considerations such as the views of Botswana, Lesotho, Namibia and Swaziland (BLNS), and in
(CIE, 2010). Enhanced industrial
production in South Africa will have a downside for the BLNS in that these revenues will be reduced
as this production displaces imports into South Africa, and, perhaps more importantly given the free-
o the BLNS countries, make industrialisation even more difficult in
these BLNS countries themselves.
2002 SACU Agreement states on Industrial Development Policy
importance of balanced industrial development of the Common Customs Area as an important
objective for economic development, and Member States agree to develop common policies and
strategies with respect to industrial dev
overall development strategies for the BLNS we are able to report on Lesotho and Swaziland and
give a preliminary report on Namibia.
Namibia’s Industrial Policy is anchored in the Vision 2030 st
goals for the nation through to that time, and the need to align these two documents is stressed.
Rosendahl (2010) provides a very good ‘warts and all’ background report on Namibia and considers
that while many good things are taking place more needs to be done to activate this Vision 2030.
Earlier, Kadhikwa and Hdalikokule (2007) in assessing the potential for the manufacturing sector in
Namibia identified a number of constraints facing the sector. These included high inp
particularly electricity, transport and harbour charges, the limited availability of quotas for the
fishing industry, limited economies of scale in the meat
South African companies, and again limited e
This is accentuated by low levels of labour productivity and the impact of the HIV/AIDS pandemic on
the workforce, the lack of domestic shelf space for Namibian manufacturers in supermarkets, and
the low level of branding and marketing of Namibian products. They also lamented the availability of
highly skilled professionals and suggested that technology and entrepreneurship centres be set up
for local industry to address this problem.
Although we are unable to cite the draft document from the Namibian Ministry of Trade and
Industry, Namibia’s Industrial Policy, newspaper reports suggest that Rosendahl in particular may
have been heeded. However, a cautionary flag is raised by Duddy (2011a) who quoting fr
draft states that ‘Government is aware that opening the economy too much or too quickly might
come with additional regulation and control, which may, in turn, result in undesirable investment
and unintended consequences that may thwart and negate lo
initiatives’. Infant and strategic industries will therefore, from time to time, be protected by
government. Namibia’s industrial policy will not be based on a ‘one
may be targeted and clear framework documents will highlight priority areas. The policy will be
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
16
these BLNS countries themselves. Importantly, with respect to industrial policy,
2002 SACU Agreement states on Industrial Development Policy that ’Member States recognise the
importance of balanced industrial development of the Common Customs Area as an important
objective for economic development, and Member States agree to develop common policies and
strategies with respect to industrial development’. In examining reports on industrial policies and
overall development strategies for the BLNS we are able to report on Lesotho and Swaziland and
give a preliminary report on Namibia.
Industrial Policy is anchored in the Vision 2030 statement which sets out development
goals for the nation through to that time, and the need to align these two documents is stressed.
Rosendahl (2010) provides a very good ‘warts and all’ background report on Namibia and considers
s are taking place more needs to be done to activate this Vision 2030.
Kadhikwa and Hdalikokule (2007) in assessing the potential for the manufacturing sector in
Namibia identified a number of constraints facing the sector. These included high inp
particularly electricity, transport and harbour charges, the limited availability of quotas for the
fishing industry, limited economies of scale in the meat-processing industry, unfair competition from
South African companies, and again limited economies of scale in the manufacturing sector overall.
This is accentuated by low levels of labour productivity and the impact of the HIV/AIDS pandemic on
the workforce, the lack of domestic shelf space for Namibian manufacturers in supermarkets, and
ow level of branding and marketing of Namibian products. They also lamented the availability of
highly skilled professionals and suggested that technology and entrepreneurship centres be set up
for local industry to address this problem.
able to cite the draft document from the Namibian Ministry of Trade and
Industry, Namibia’s Industrial Policy, newspaper reports suggest that Rosendahl in particular may
have been heeded. However, a cautionary flag is raised by Duddy (2011a) who quoting fr
draft states that ‘Government is aware that opening the economy too much or too quickly might
come with additional regulation and control, which may, in turn, result in undesirable investment
and unintended consequences that may thwart and negate local industrialisation efforts and
initiatives’. Infant and strategic industries will therefore, from time to time, be protected by
government. Namibia’s industrial policy will not be based on a ‘one-size-fits-all’ approach. As such, it
clear framework documents will highlight priority areas. The policy will be
Review of South Africa’s industrial policy and implications for SACU
Importantly, with respect to industrial policy, Article 38 of the
that ’Member States recognise the
importance of balanced industrial development of the Common Customs Area as an important
objective for economic development, and Member States agree to develop common policies and
elopment’. In examining reports on industrial policies and
overall development strategies for the BLNS we are able to report on Lesotho and Swaziland and
atement which sets out development
goals for the nation through to that time, and the need to align these two documents is stressed.
Rosendahl (2010) provides a very good ‘warts and all’ background report on Namibia and considers
s are taking place more needs to be done to activate this Vision 2030.
Kadhikwa and Hdalikokule (2007) in assessing the potential for the manufacturing sector in
Namibia identified a number of constraints facing the sector. These included high input costs,
particularly electricity, transport and harbour charges, the limited availability of quotas for the
processing industry, unfair competition from
conomies of scale in the manufacturing sector overall.
This is accentuated by low levels of labour productivity and the impact of the HIV/AIDS pandemic on
the workforce, the lack of domestic shelf space for Namibian manufacturers in supermarkets, and
ow level of branding and marketing of Namibian products. They also lamented the availability of
highly skilled professionals and suggested that technology and entrepreneurship centres be set up
able to cite the draft document from the Namibian Ministry of Trade and
Industry, Namibia’s Industrial Policy, newspaper reports suggest that Rosendahl in particular may
have been heeded. However, a cautionary flag is raised by Duddy (2011a) who quoting from the
draft states that ‘Government is aware that opening the economy too much or too quickly might
come with additional regulation and control, which may, in turn, result in undesirable investment
cal industrialisation efforts and
initiatives’. Infant and strategic industries will therefore, from time to time, be protected by
all’ approach. As such, it
clear framework documents will highlight priority areas. The policy will be
integrated, building on market integration, infrastructural development, and industrial development.
In his response, Duddy (2011b) reports that the Namibian Government is aware
inefficient governance can seriously hamper economic development", and will therefore only
intervene where necessary. In addition, interference will be "based on the principle of sustainable
and prudent economic management”.
Heita (2011) reports that the draft proposes pragmatic reforms to allow competitiveness and
productivity, calling for a review of the labour environment seen as too rigid. It suggests flexibility to
enhance productivity without taking away workers' rights. The ro
clearly defined as ’pro-developmental’, where the state sets the course of economic direction, and
does not leave it to market forces to dictate. The private sector is asked to take ownership and
increase its contribution to skills development, because ultimately it is the private sector that
benefits from a skilled pool. State treasury is requested to consider spending a significant portion of
funds on innovation, research and development in social areas where Namibia face
challenges, such as housing, health issues and access to financing.
Heita (2011) also states that the discussions and the industrial policy draft come at a time when
SACU and the entire southern Africa region is seized with domestic regulation r
competitiveness along with regional integration. We consider that both South Africa and Namibia
need to carefully consider the SACU Agreement as discussed earlier. We consider that there are two
important aspects of regional plans that
industrialisation, while the second is the crucial need for coordination coupled with constant
monitoring and evaluation. In these respects the Namibian programme must be aligned with the
South African approach as discussed in this study.
Lesotho has also released a draft National Strategic Development Plan that parallels the plans from
both South Africa and Namibia. This plan recognises up
growth in Lesotho are an uncompetitive business environment, poor infrastructure, low productivity
and limited institutional capacity. In order to achieve high, sustained and job
Lesotho needs to transform its economy by undertaking structural reforms t
constraints.
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
17
integrated, building on market integration, infrastructural development, and industrial development.
In his response, Duddy (2011b) reports that the Namibian Government is aware
inefficient governance can seriously hamper economic development", and will therefore only
intervene where necessary. In addition, interference will be "based on the principle of sustainable
and prudent economic management”.
2011) reports that the draft proposes pragmatic reforms to allow competitiveness and
productivity, calling for a review of the labour environment seen as too rigid. It suggests flexibility to
enhance productivity without taking away workers' rights. The role of the state in the economy is
developmental’, where the state sets the course of economic direction, and
does not leave it to market forces to dictate. The private sector is asked to take ownership and
to skills development, because ultimately it is the private sector that
benefits from a skilled pool. State treasury is requested to consider spending a significant portion of
funds on innovation, research and development in social areas where Namibia face
challenges, such as housing, health issues and access to financing.
Heita (2011) also states that the discussions and the industrial policy draft come at a time when
SACU and the entire southern Africa region is seized with domestic regulation r
competitiveness along with regional integration. We consider that both South Africa and Namibia
need to carefully consider the SACU Agreement as discussed earlier. We consider that there are two
important aspects of regional plans that must be considered. The first is regional integration and
industrialisation, while the second is the crucial need for coordination coupled with constant
monitoring and evaluation. In these respects the Namibian programme must be aligned with the
can approach as discussed in this study.
has also released a draft National Strategic Development Plan that parallels the plans from
This plan recognises up-front that the most binding constraints to
ho are an uncompetitive business environment, poor infrastructure, low productivity
and limited institutional capacity. In order to achieve high, sustained and job
Lesotho needs to transform its economy by undertaking structural reforms t
Review of South Africa’s industrial policy and implications for SACU
integrated, building on market integration, infrastructural development, and industrial development.
In his response, Duddy (2011b) reports that the Namibian Government is aware that "ineffective and
inefficient governance can seriously hamper economic development", and will therefore only
intervene where necessary. In addition, interference will be "based on the principle of sustainable
2011) reports that the draft proposes pragmatic reforms to allow competitiveness and
productivity, calling for a review of the labour environment seen as too rigid. It suggests flexibility to
le of the state in the economy is
developmental’, where the state sets the course of economic direction, and
does not leave it to market forces to dictate. The private sector is asked to take ownership and
to skills development, because ultimately it is the private sector that
benefits from a skilled pool. State treasury is requested to consider spending a significant portion of
funds on innovation, research and development in social areas where Namibia faces serious
Heita (2011) also states that the discussions and the industrial policy draft come at a time when
SACU and the entire southern Africa region is seized with domestic regulation reforms that promote
competitiveness along with regional integration. We consider that both South Africa and Namibia
need to carefully consider the SACU Agreement as discussed earlier. We consider that there are two
must be considered. The first is regional integration and
industrialisation, while the second is the crucial need for coordination coupled with constant
monitoring and evaluation. In these respects the Namibian programme must be aligned with the
has also released a draft National Strategic Development Plan that parallels the plans from
front that the most binding constraints to
ho are an uncompetitive business environment, poor infrastructure, low productivity
and limited institutional capacity. In order to achieve high, sustained and job-creating growth,
Lesotho needs to transform its economy by undertaking structural reforms to address these
Again, the Lesotho plan closely parallels South Africa’s IPAP in its comprehensiveness relating to all
the ‘flanking policies’ rather than industrial policy per se. It also
potential to expand export-led growth in labour
SACU/SADC market, and given that the only manufacturing capability in Lesotho is TCF we presume
it would have to be this sector. An interesting aspect of regional industrial development is that there
currently seems to be limited linkages between the TCF sector in Lesotho, a sector that exists almost
entirely due to its ability to capitalise on the combination of cheap local labour,
managerial expertise, and access through tariff preferences to the US market. On the one hand and
the domestic market in South Africa that has been under siege from mostly Chinese imports that
face 40% (now 45%) tariff walls. This should
industrial development for Lesotho in particular.
Finally, the linkages between industrial and trade policies in
(Zizhou, 2009). The study considers that trade policy has larg
policy considerations as there has been a ceding of the latter to South Africa in recent years. This has
been accentuated by the dominance of diamonds in Botswana’s economy and trade, and although
the country has targeted industrialisation as a strategy, this has not yielded positive results for
manufacturing and manufacturing exports in particular. Most exports rely on preferential access to
markets to survive, and the policy of empowering citizens through local prefere
Botswana runs counter to SACU free trade principles.
Summary
In summary, the IPAP and its update in dti (2011) carefully outline strategies that recognise the
challenges of industrial policy in the modern era. These policies are about st
operating environment (‘flanking policies’) rather than any direct supports. In particular, the IPAP is
to be commended for its forward
approach is superbly complemented by the
which widens the operating environment to cover every conceivable aspect. This includes the entire
physical infrastructure of South Africa, the need to comprehensively upgrade skills, and the need to
comprehensively involve more previously disadvantaged people in the economy. Perhaps it is overly
ambitious and unrealistic, but then many Asian economies have shown how to achieve such levels of
Review of South Africa’s industrial policy and implications for SACU
tralac Working Paper | D12WP05/2012
18
Again, the Lesotho plan closely parallels South Africa’s IPAP in its comprehensiveness relating to all
the ‘flanking policies’ rather than industrial policy per se. It also considers that there is considerable
led growth in labour-intensive manufacturing and assembly for the
SACU/SADC market, and given that the only manufacturing capability in Lesotho is TCF we presume
n interesting aspect of regional industrial development is that there
currently seems to be limited linkages between the TCF sector in Lesotho, a sector that exists almost
entirely due to its ability to capitalise on the combination of cheap local labour,
managerial expertise, and access through tariff preferences to the US market. On the one hand and
the domestic market in South Africa that has been under siege from mostly Chinese imports that
face 40% (now 45%) tariff walls. This should be an opportunity for regional cooperation and
industrial development for Lesotho in particular.
Finally, the linkages between industrial and trade policies in Botswana have also been studied
(Zizhou, 2009). The study considers that trade policy has largely been disengaged from industrial
policy considerations as there has been a ceding of the latter to South Africa in recent years. This has
been accentuated by the dominance of diamonds in Botswana’s economy and trade, and although
d industrialisation as a strategy, this has not yielded positive results for
manufacturing and manufacturing exports in particular. Most exports rely on preferential access to
markets to survive, and the policy of empowering citizens through local prefere
Botswana runs counter to SACU free trade principles.
In summary, the IPAP and its update in dti (2011) carefully outline strategies that recognise the
challenges of industrial policy in the modern era. These policies are about st
operating environment (‘flanking policies’) rather than any direct supports. In particular, the IPAP is
to be commended for its forward-looking approach to where South Africa needs to be. This
approach is superbly complemented by the 2011 National Development Plan
which widens the operating environment to cover every conceivable aspect. This includes the entire
physical infrastructure of South Africa, the need to comprehensively upgrade skills, and the need to
hensively involve more previously disadvantaged people in the economy. Perhaps it is overly
ambitious and unrealistic, but then many Asian economies have shown how to achieve such levels of
Review of South Africa’s industrial policy and implications for SACU
Again, the Lesotho plan closely parallels South Africa’s IPAP in its comprehensiveness relating to all
considers that there is considerable
intensive manufacturing and assembly for the
SACU/SADC market, and given that the only manufacturing capability in Lesotho is TCF we presume
n interesting aspect of regional industrial development is that there
currently seems to be limited linkages between the TCF sector in Lesotho, a sector that exists almost
entirely due to its ability to capitalise on the combination of cheap local labour, Asian finance and
managerial expertise, and access through tariff preferences to the US market. On the one hand and
the domestic market in South Africa that has been under siege from mostly Chinese imports that
be an opportunity for regional cooperation and
have also been studied
ely been disengaged from industrial
policy considerations as there has been a ceding of the latter to South Africa in recent years. This has
been accentuated by the dominance of diamonds in Botswana’s economy and trade, and although
d industrialisation as a strategy, this has not yielded positive results for
manufacturing and manufacturing exports in particular. Most exports rely on preferential access to
markets to survive, and the policy of empowering citizens through local preference schemes in
In summary, the IPAP and its update in dti (2011) carefully outline strategies that recognise the
challenges of industrial policy in the modern era. These policies are about strengthening the wider
operating environment (‘flanking policies’) rather than any direct supports. In particular, the IPAP is
looking approach to where South Africa needs to be. This
2011 National Development Plan – Vision for 2030,
which widens the operating environment to cover every conceivable aspect. This includes the entire
physical infrastructure of South Africa, the need to comprehensively upgrade skills, and the need to
hensively involve more previously disadvantaged people in the economy. Perhaps it is overly
ambitious and unrealistic, but then many Asian economies have shown how to achieve such levels of
sustainable and equitable development. Indeed, Brazil, an economy
Africa, is also showing that Asian achievements are possible outside of Asia. Industrial policy has
changed comprehensively in recent years, and the IPAP clearly shows that this is recognised in South
Africa. The key is increased productivity.
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