The primary measure of South Africa’s industrial-policy success should be the expansion of exports rather than the creation of direct jobs, a leading economic-policy academic argues, cautioning that the domestic manufacturing sector is unlikely to create as many jobs as services sectors such as construction, transport and retail.
Speaking at a dialogue in Ekurhuleni on the United Nations Industrial Development Organisation’s (Unido’s) latest Industrial Development Report, University of Cape Town’s professor David Kaplan said that, increasing manufacturing jobs would be a welcome development, but should be a secondary objective. Instead the focus should be on significantly expanding manufactured exports, as this would create the conditions for growth in the nontradeable sectors “where the really big employment numbers” reside.
Kaplan’s thesis was underpinned by an assessment of the structure of demand in the South African economy, which was itself shaped by deep inequalities in income distribution. These inequalities were driving middle-class and business consumption patterns, which were typically more services intensive than would be the case of a country where income inequality was less acute. He illustrated the point by highlighting that there were more than a million people employed in the private security sector in South Africa.
In the absence of labour-market reform, Kaplan was also not optimistic that domestic industry was likely to shift from its current labour-saving and capital-demanding manufacturing trajectory.
“If you compare us to Brazil, our manufacturing output has grown at similar rates, but every year since 1988 we have shed 1.5% of our manufacturing labour force,” he noted. Had South Africa grown its manufacturing labour force at the same rate as Brazil over the period, the country would have an additional one-million manufacturing jobs.
In light of that trajectory as well as South Africa’s low growth outlook for the foreseeable future, expanded exports were likely to be key to expanding manufacturing output. Export earnings would be key to paying for the imports consumed by those employed in the services sector.
“The real importance of manufacturing is not the employment manufacturing generates, but that it makes it possible for a society to create jobs in the nontradeable sectors,” Kaplan averred. Even in China, where Unido estimates there to have been 68.8-million manufacturing jobs in 2010, employment was far higher in sectors such as construction and retail.
“So it is wrong to think of our industrial strategy largely as an employment strategy,” he added, while also cautioning against decoupling South Africa’s manufacturing fortunes from the resources industry, which still provided the basis for much of the country’s manufacturing activities.
The ongoing deterioration of the mining investment climate and output could, he warned, further accelerate the country’s deindustrialisation, with some mining-focused manufacturers already considering alterative territories from which to service the growing African resources sector.
Kaplan’s view found some resonance in the Department of Trade and Industry’ latest Industrial Policy Action Plan, or Ipap, which placed greater emphasis than was the case in the previous five versions on raising the country’s export competitiveness as part a ‘Smart Reindustrialisation’ strategy.
When releasing the plan in early April 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 Ipap 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.
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.”