The South African government’s latest Industrial Policy Action Plan (Ipap) places greater emphasis than was the case in the previous five versions on raising the country’s export competitiveness as part of what the Department of Trade and Industry (DTI) is now calling a ‘Smart Reindustrialisation’ strategy.

Speaking at the release of the sixth Ipap in Johannesburg on Monday, Trade and Industry Minister Dr Rob Davies said government would increasingly demand that those benefitting from industrial incentives become active exporters, particularly into growing African markets.

The export strategy, which was conceived against a backdrop of South Africa’s persistent trade-account deficit, would seek to reward export-oriented firms with conditional incentives, increased industrial financing and export-promotion assistance.

In its recently published ‘Economic Trends’ publication, the Industrial Development Corporation (IDC) noted that the current account of the balance of payments deteriorated substantially, as the deficit-to-gross-domestic-product (GDP) ratio widened to 5.8% in 2013, from 5.2% in 2012. A key contributor was the country’s largest trade deficit in relation to GDP in four decades, which stood at 2.2%.

Davies saw export growth as central to raising the overall competitiveness of industry, noting that there were strong arguments to suggest that Asian industrial policies did not so much pick winners as “weed out losers”, with losers identified through their lack of export penetration.

“The ability to be involved in the production of exportable, tradeable manufactured goods is very, very important, in particular, as we confront a serious balance of payments problem [and] as we also confront the reality that the rents that we are earning from mineral products are not what they used to be and we cannot count on them coming back any time soon.”

He acknowledged that, in the ongoing recovery from the economic crisis, South Africa could not rely overly on demand from developed markets and should rather seek to exploit its proximity to the fast-growing economies of the rest of the continent.

The rest of Africa had already emerged as a ‘bright spot’ for manufacturing, with Africa having surpassed the European Union as the largest market for South African manufactured products in 2012.

Total exports to the continent more than doubled from R100-billion in 2008 to well over R200-billion in 2012, with the World Bank calculating that South Africa’s nonmineral exports to Sub-Saharan Africa grew as a percentage of overall nonmineral exports to 29%, from 19%.

But further regional integration and trade-supportive crossborder infrastructure would be required for South Africa to further penetrate the African markets.

“The problem we have is that colonialism divided us into 54 countries - so each of us has got too small a domestic market to really support and sustain industrialisation.  But if we look at the regional scale we start to see that the numbers are there,” Davies averred.

However, he acknowledged that the proposed broadening of integration across the established blocs of the Southern African Development Community, the East African Community and the Common Market for Eastern and Southern Africa was unlikely to meet the end of 2014 deadline set by the Heads of State of the three blocs. The Trilateral-Free Trade Area was also viewed by the African Union as an important trailblazer for a larger Continental FTA.

“But the work is proceeding,” Davies said, noting that it is being complemented by efforts to galvanise action around the North-South Corridor infrastructure plan and industrial cooperation.

OTHER PILLARS

The other four areas of emphasis in the latest Ipap, covering the period from 2014/15 through to 2016/17, included:

• Leveraging the infrastructure programme to support industrialisation;
• Further entrenching localisation within public procurement programmes;
• Galvanising further minerals beneficiation; and
• Deploying industrial IDC and governmental financial solutions in a more coordinated way.

Davies argued that its analysis showed that industrial policy was working in instances where it was supported both by resources and stakeholders. But progress had been uneven since the first Ipap, which was unveiled in 2007.

The “modest” successes should also be seen against the backdrop of a major threat of deindustrialisation, which Davies felt the Ipap had helped mitigate. “We came into office in 2009 having lost a million jobs, 200 000 of those in manufacturing . . . and I think if we had not done what we have done, we would have been sitting here and talking seriously about the loss of industries across the board in this country.”

Manufacturing Circle chairperson Mike Arnold, who is also Consol CEO, concurred. He said manufacturers found themselves in a difficult position at the end of the global financial crisis, where demand had imploded, while costs in the domestic arena had escalated significantly.

“Under these conditions, a comprehensive and coordinated development approach to support domestic manufacturing was vital,” Arnold said, adding that the role of government remained crucial to promoting a conducive environment for growth in manufacturing.

INCENTIVES ADJUSTMENT

“Manufacturers accept that not every incentive can continue in the same form indefinitely and it is in this spirit that we note the changes to the provisions of the Manufacturing Competitiveness Enhancement Programme (MCEP) announced last week, as well as many of the changes prevalent in the [new Ipap] document.”

Davies said the adjustments made to the MCEP, including the decision to cap the maximum allowance to R30-million from R50-million previously, had been made in an effort to spread the incentive as far as possible within the budgetary framework.

“Given the budgetary limitations, we were faced with the choice of either making a small number of larger awards, or a larger number of small awards and we opted for the second,” Davies said.

The MCEP was introduced on June 4, 2012, and by March 31, 2014, 524 applications had been approved, representing more than R4-billion in commitments, which could sustain 100 000 jobs.

Davies said the adjustment did not represent a withdrawal of support. But he did stress that the government would be more “rigorous in extracting quid pro quos” from beneficiaries in the form of jobs, investment commitments and supporting the development of new black industrialists.

“We have far too few black industrialists . . . and far too many people who are looking to go into business who are generalists, who are looking to any contracts coming from government and then subcontracting that to somebody else.”

The desire now, supported by amendments to the Broad-Based Black Economic Empowerment Act and the associated codes, was to develop “deeper entrepreneurship” in the productive sectors of the economy.