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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

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Ron Sandrey

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Working Paper



tralac Working Paper

No. D12WP05/2012

May 2012

Please consider the environment before printing this publication

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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.

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Assistance (Danida) for the publication of this Working Paper.

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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


tralac Working Paper | D12WP05/2012

1


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


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


Development Community (SADC) for at least two reasons. The first is that South African policy


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



ined into industrial policies globally. Importantly, the 2010 IPAP sets the


profitability is a prerequisite and that factors inhibiting this profitability include an



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


o industrial policy is important in the

FTA) between the Common Market for Eastern


least two reasons. The first is that South African policy


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



ined into industrial policies globally. Importantly, the 2010 IPAP sets 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



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


In general, the IPAP sees the seven areas of linkages between macro- and micr



industrial sector as formulating the new industrial policy.


Vision for 2030, a report that comprehensively lays a blueprint for

taking South Africa into the future. Here the central challenges of unemployment, education


of the public sector and associated corruption, and inequity and division in society are all recognised



Development Plan recognises that labour-intensive manufacturing and medium



National Development plan. The objective of this study is to examine and build upon that platform,


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


associated with carefully limited government activism, an overall ‘market friendly’ approach focused


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


and microeconomic policies;




, a report that comprehensively lays a blueprint for

e the central challenges of unemployment, education


of the public sector and associated corruption, and inequity and division in society are all recognised.



uring and medium-skilled services



ective of this study is to examine and build upon that platform,


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


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).



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



‘allowed to fail’ in the more open-market sense. The World Bank categorised policies as the broader



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



interventions) to change the structure and raise the growth of exports. He considers that there is



frastructure, and adequate finance for export production. However, the main


the empirical evidence from China’s astonishing growth may refute this. In any cas


based World Trade Organisation (WTO) inhibits domestic policy space.


highlight the role that the well-known Chinese manufacturing export growth plays in African

manufacturing. We contend that not only are Chinese imports dominating



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.,


, an investment friendly regime, open

. The report does also, however, acknowledge the



World Bank categorised policies as the broader



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



th of exports. He considers that there is



frastructure, and adequate finance for export production. However, the main


the empirical evidence from China’s astonishing growth may refute this. In any case, we agree with


based World Trade Organisation (WTO) inhibits domestic policy space.


known Chinese manufacturing export growth plays in African

manufacturing. We contend that not only are Chinese imports dominating African domestic



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



4



troubled years of the early 1990s it eschewed a low-wage Asian approach to manufacturing and


‘no wage’ economy as the high unemployment rates attest. Meanwhile, the growth magnet of the



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


the demand side by manufacturing exports to the US in particular over a prolonged period when the



provided a sound and stable government that inspired investment and secured property rights.



gnificantly below the continent’s developing country peers. Growth in natural resource


especially the case in Africa with its poor linkages into unskilled labour and its appetite for rent



ull policy package, need to be considered in tandem. But in some instances,


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




wage Asian approach to manufacturing and


ile, the growth magnet of the



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


olonged period when the



hat inspired investment and secured property rights.



gnificantly below the continent’s developing country peers. Growth in natural resource-rich


labour and its appetite for rent-



ull policy package, need to be considered in tandem. But in some instances,


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



5


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


the abilities of the South African (or any other) government to enable industrial production, and


dominant position of China as the competitor.

The linkages between the WTO and industrial policies is examined in Bora et al. (2000), who concur



’ is not well defined, and they cite a working definition from the World Bank that considers


based growth’. Especially relevant to South Africa, they also emphasise that the term ‘industrial’



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



formation, innovation, technology and competition policies.



sense, it does have many of the characteristics of a developed country, with the result that we are


WTO imposes constraints on tariff levels, but it must be emphasised that these restrictions apply



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


other) government to enable industrial production, and


examined in Bora et al. (2000), who concur



’ is not well defined, and they cite a working definition from the World Bank that considers


emphasise that the term ‘industrial’



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





ristics of a developed country, with the result that we are


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%.



6

and, furthermore, it is often the case that bilateral and regional


related restrictions are not often binding enough to constrain policy space on their own,



aints was imposed on investment policies. In conclusion, Page considers that in actuality the


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.


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,


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



poultry and meat producers. The researchers isolated the imports of wheat (6.7% of the total) and





totally under the control of South African trade policy authorities. Similarly, it quickly became




and, furthermore, it is often the case that bilateral and regional


to constrain policy space on their own,



aints was imposed on investment policies. In conclusion, Page considers that in actuality the


o suggest that ‘locking in’


ltural tariffs, the classic tool of trade policy.

at that time some 14.1% of the imports were ‘locked’ by the WTO bound rates,


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



isolated the imports of wheat (6.7% of the total) and





thorities. Similarly, it quickly became



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.



7

h Africa’s industrial policy


The two key institutional requirements for an effective industrial policy are the professionalism



Moreover, the limited capacities of the government are currently exacerbated by a lack of focus



that are a constituent feature of active industrial policies. Finally, the principal objective of


severely constrained by the current scarcity of skills and the limited training being unde



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


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


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


done in recent years. These actions include strengthening competition activities, giving more



investment into business process services, lowering input costs by examining tariffs




The two key institutional requirements for an effective industrial policy are the professionalism and



xacerbated by a lack of focus



f active industrial policies. Finally, the principal objective of


severely constrained by the current scarcity of skills and the limited training being undertaken. Two



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


nt introduction setting out the objectives of the approach to


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


ng competition activities, giving more



investment into business process services, lowering input costs by examining tariffs


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.



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.


years, and, even more worrying is the fact that this growth has been dominated by consumption that


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



The policy response to strengthen the productive side of the economy clearly sho



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,


Competition and regulation policies that lower costs for productive investments and poor and

Skills and innovation policies that are aligned to sectoral priorities.


t the government must move


n dominated by consumption that


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



The policy response to strengthen the productive side of the economy clearly shows that the



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,


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



9

Deploying these policies in general and in relation to more ambitious sector strategies, building



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


competition policies, lowering the cost of inputs and promoting investment.

t four sections the report identifies the four key areas of industrial financing, procurement,


discussed in turn with their opportunities and constraints followed by Key Action Plans (KAPs) for


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


highest real interest rate of the 18 economies given. Most of the 18 are und



the Industrial Development Corporation, and uses the example of Brazil’s



ten an expensive failure from poor governance as such institutions become lenders of last resort.


negate the fact that examples of global failures with concessionary finance abound.


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


Deploying these policies in general and in relation to more ambitious sector strategies, building



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


t four sections the report identifies the four key areas of industrial financing, procurement,


followed by Key Action Plans (KAPs) for


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


highest real interest rate of the 18 economies given. Most of the 18 are under two percent, with



n, and uses the example of Brazil’s Banco Nacional De



ten an expensive failure from poor governance as such institutions become lenders of last resort.


ionary finance abound.


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



10


increased investment being sourced from (1) higher levels of public-sector fixed capital formation



domestically, but this will depend on how well resources are used in the short term to raise





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


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


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



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


impact upon domestic production. The first and most obvious one is tariff poli




r fixed capital formation



how well resources are used in the short term to raise





, 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


best provider caution must be exercised

that the discretionary margins do not impose costs elsewhere in the economy. Globally, 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



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


impact upon domestic production. The first and most obvious one is tariff policy, and here the


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.



11


preferential access for South Africa. Earlier in this paper we outlined tralac research that shows how


the WTO allowed South Africa to raise tariffs on clothing and textile imports from their



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.


ho are obliged to pay more for goods by either increased prices on imports or purchase


Similarly, the IPAP is acutely aware of the role that technical barriers to trade (TBTs) and non



xample, internal transport costs in South Africa and southern Africa


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


becoming important in international trade. These include the use of carbon tax regulations and


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


South Africa at 101 out of the 210 countries it surveyed in 2010.5 While this is not a good place to be,



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.



we outlined tralac research that shows how


the WTO allowed South Africa to raise tariffs on clothing and textile imports from their 40% applied



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


ho are obliged to pay more for goods by either increased prices on imports or purchase


trade (TBTs) and non-tariff



xample, internal transport costs in South Africa and southern Africa


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


e the use of carbon tax regulations and


customs fraud and illegal imports such as

invoicing. This is closely associated with corruption, and this corruption is


While this is not a good place to be,



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



12

elopment. tralac research has examined two aspects relating to this. The first was the clothing


Chinese Ministry of Customs export data highlights that the value of imports from China into South


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


prevalent in neighbouring countries (Sandrey and Jensen, 2010). The set of KAPs outlined i


is examined in a separate section, and rightly so. This is an important area where


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


elopment. tralac research has examined two aspects relating to this. The first was the clothing


of imports from China into South


than exports (Van Eeden

he second was an examination of informal trade in southern African


prevalent in neighbouring countries (Sandrey and Jensen, 2010). The set of KAPs outlined in the IPAP


is examined in a separate section, and rightly so. This is an important area where


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.



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



onomies such as India, Malaysia and the Philippines, and it is a welcome entry to


importation of Chinese clothing and textiles have made serious inroads into South African



rd Porter project provide an excellent background to the sector in a


South Africa is much higher than that of the competitors and that the sector is losin


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


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.


Of special mention are the automotive sector, the textile/clothing/footwear (TCF) and leather

processing sectors. The latter three sectors



onomies such as India, Malaysia and the Philippines, and it is a welcome entry to


de serious inroads into South African



rd Porter project provide an excellent background to the sector in a


South Africa is much higher than that of the competitors and that the sector is losing in the price


low-end firms, high-end

iversify to value-added

added unique products. As recognised by IPAP ‘the key


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/



14

The automotive sector is both the major and the most controversial of South Africa’s industrial


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


sector to South Africa is outlined in the IPAP. The Automotive Production and Development



industry. Tariff reviews are mentioned as part of the possible policy package, but here the TDCA with


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


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



emphasise that the total factor productivity (TFP) in both China and India is significantly superior to



Trade Analysis Project (GTAP) computer model to simulate how increasing the TFP


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%


http://qed.econ.queensu.ca/faculty/flatters/.


troversial of South Africa’s industrial


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


ction and Development



possible policy package, but here the TDCA with


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


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



China and India is significantly superior to



Trade Analysis Project (GTAP) computer model to simulate how increasing the TFP


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%


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



15


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



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.


FP at 0.2% annually is not sufficient to change current unemployment rates from their


larger increase to the current 1.0% TFP levels of China and India will have a spectacular result as



around US$250bn higher over the period to 2020 from a 2007 base should the TFP be increased to


flows, the TFP changes directly, allocative efficiency gains and labour market gains as more pe



Finally, the principal objective of industrial policy (is) namely to enhance technological capacities

and raise firm level productivity…’ (Kaplan 2007).

Regional integration and coordination


uth Africa does not have a tariff schedule – SACU does. Therefore there are wider


particular revenue implications from SACU tariffs for these countries (CIE, 2010)


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



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



term welfare gains from capital accumulation reinforce

term welfare gains deriving from allocative efficiency and terms of trade.


FP at 0.2% annually is not sufficient to change current unemployment rates from their


ve a spectacular result as



iod to 2020 from a 2007 base should the TFP be increased to


flows, the TFP changes directly, allocative efficiency gains and labour market gains as more people



y (is) namely to enhance technological capacities


SACU does. Therefore there are wider


(CIE, 2010). Enhanced industrial


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



16

these BLNS countries themselves. Importantly, with respect to industrial policy,

2002 SACU Agreement states on Industrial Development Policy that ’Member States recognise the



strategies with respect to industrial development’. In examining reports on industrial policies and


give a preliminary report on Namibia.

Industrial Policy is anchored in the Vision 2030 statement which sets out development



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


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.



ow level of branding and marketing of Namibian products. They also lamented the availability of


for local industry to address this problem.

able to cite the draft document from the Namibian Ministry of Trade and


have been heeded. However, a cautionary flag is raised by Duddy (2011a) who quoting fr



and unintended consequences that may thwart and negate local industrialisation efforts and


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


Importantly, with respect to industrial policy, Article 38 of the

that ’Member States recognise the



elopment’. In examining reports on industrial policies and


atement which sets out development



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,


processing industry, unfair competition from

conomies of scale in the manufacturing sector overall.



ow level of branding and marketing of Namibian products. They also lamented the availability of


able to cite the draft document from the Namibian Ministry of Trade and


have been heeded. However, a cautionary flag is raised by Duddy (2011a) who quoting from the



cal industrialisation efforts and


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.



17


In his response, Duddy (2011b) reports that the Namibian Government is aware



and prudent economic management”.

2011) reports that the draft proposes pragmatic reforms to allow competitiveness and


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


to skills development, because ultimately it is the private sector that


funds on innovation, research and development in social areas where Namibia face

challenges, such as housing, health issues and access to financing.


SACU and the entire southern Africa region is seized with domestic regulation r



important aspects of regional plans that must be considered. The first is regional integration and



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



In his response, Duddy (2011b) reports that the Namibian Government is aware that "ineffective and



2011) reports that the draft proposes pragmatic reforms to allow competitiveness and


le of the state in the economy is

developmental’, where the state sets the course of economic direction, and


to skills development, because ultimately it is the private sector that


funds on innovation, research and development in social areas where Namibia faces serious


SACU and the entire southern Africa region is seized with domestic regulation reforms that promote



must be considered. The first is regional integration and



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



18


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


n interesting aspect of regional industrial development is that there


entirely due to its ability to capitalise on the combination of cheap local labour,



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



d industrialisation as a strategy, this has not yielded positive results for


markets to survive, and the policy of empowering citizens through local prefere

Botswana runs counter to SACU free trade principles.


challenges of industrial policy in the modern era. These policies are about st


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



hensively involve more previously disadvantaged people in the economy. Perhaps it is overly




considers that there is considerable

intensive manufacturing and assembly for the


n interesting aspect of regional industrial development is that there


entirely due to its ability to capitalise on the combination of cheap local labour, Asian finance and



be an opportunity for regional cooperation and

have also been studied

ely been disengaged from industrial



d industrialisation as a strategy, this has not yielded positive results for


markets to survive, and the policy of empowering citizens through local preference schemes in


challenges of industrial policy in the modern era. These policies are about strengthening the wider


looking approach to where South Africa needs to be. This

2011 National Development Plan – Vision for 2030,



hensively involve more previously disadvantaged people in the economy. Perhaps it is overly


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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