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Localisation of infrastructure inputs can help ‘reverse’ deindustrialisation

5th December 2014

By: Anine Kilian

Contributing Editor Online

  

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If government wanted to increase South Africa’s productivity, the country needed to boost its manufacturing sector, Industrial Development Corporation head of corporate strategy and portfolio management David Jarvis said at the localisation infrastructure dialogue, hosted by the Development Bank of South Africa, in Johannesburg last month.

He commented that deindustrialisation was an important issue and that the South African economy was seeing manufacturing levels, relative to other components of the country’s economy, were in decline.

“Looking at the experience of [other] late-industrialising countries, manufacturing has played a key role, and remains core to the development of South Africa’s economy,” Jarvis said, adding that localisation happened when opportunities in the rest of the economy were linked to building the manufacturing industry.

Over the past two decades, there has been a sustained decline in the size of South Africa’s manufacturing sector relative to gross domestic product.

This decline has been exacerbated by the continued uncertainty in the global economy, especially in the European Union, South Africa’s major trading partner for value-added goods.

This has resulted in significant loss of capacity in some key industrial sectors, with concomitant job losses.

Meanwhile, Jarvis noted that the infrastructure build programme must, as its main focus, assist in generating manufacturing capacity in South Africa.

“Within South Africa’s manufacturing content, there is an opportunity for localisation to revive industries that have faded to develop new industries, which means that a lot of the engineering capacity that has diminished over the past few decades can be rebuilt on the back of the infrastructure build programme, if we get localisation right,” Jarvis commented.

He added that linking black industrialists’ opportunities to localisation was not only very important but should also go hand in glove.

Black Business Council executive member Gregory Mofokeng said during the dialogue that, as a country, South Africa had missed a generation of capital investment in rail, roads, ports, electricity, water, sanitation, public transport and housing.

Regravelling

“Over the next three years, government will invest R9.6-billion to rehabilitate roads, which includes resealing 3 000 km of roads and regravelling 3 200 km of roads,” he said.

He added that 810 000 m2 of roads would also be repatched and that government had committed to procure 75% from local manufacturers through the local procurement accord.

Mofokeng commented that the country could achieve industrialisation, localisation and empowerment through the national infrastructure plan.

“The country’s multi-trillion rand national infrastructure plan, under the direction of the Presidential Infrastructure Coordinating Commission (PICC), has the potential to reverse the deindustrialisation trend,” he said.

The multisectoral scope of the plan can provide the much-needed stimulus for the establishment of new supplier industries, as well as the expansion and rejuvenation of existing industries.

The PICC realised early on – as encapsulated in the Infrastructure Development Act 23 of 2014 – that government has a responsibility to ensure that its significant spending on infrastructure over the coming years also contributes to national development goals, such as industrial localisation, transformation, employment and skills development.

This is also emphasised in key policies, such as the New Growth Path, the Industrial Policy Framework and the National Development Plan.

A vibrant and expanding industrial economy will provide the necessary inducement for creating the much-needed employment opportunities for unemployed South Africans.

“In addition, a diversified economy should, over time, increase our export basket and reduce our import dependency, which makes the country particularly vulnerable to international economic shocks. “This is evidenced by the country’s perpetual trade deficits, which has to be funded by capricious portfolio flows,” Mofokeng stated.

He noted that this was one of the main reasons why the rand is one of the most volatile currencies traded globally, which undermines the competitiveness and, therefore, the sustainability of South African industries.

Markets typically suffer information asymmetries and often fail to allocate resources in sectors where entrepreneurs might not fully grasp viable opportunities. Therefore, through sensible and practical policies, government can direct the profit instinct of entrepreneurs towards new opportunities associated with infrastructure spending.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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