SOAS, University of London Emeritus Professor of Economics John Sender
Photo by: Duane Daws
A step-change was needed in South Africa’s approach to growing its embattled manufacturing sector, SOAS, University of London Emeritus Professor of Economics John Sender said on Wednesday.
“If you want to grow the economy, you have to grow manufacturing,” he said, telling delegates at the Manufacturing Indaba that much-needed economic growth would not be achieved if the country was unable to expand the export of value-added manufactured goods.
However, to grow manufacturing effectively, the cultivation of the government’s and the sector’s ability to make rapid, adaptive decisions – the key to successful industrial policies – was imperative.
“Uncertainty is pervasive, mistakes are inevitable, but the ability to take swift decisions to reverse errors – to extricate the State from entanglement with entrenched lobbyists – is rare,” he commented.
South Africa, and other emerging economies, needed to expand its ability to monitor challenges and projects and “creatively” and rapidly adapt and respond to a crisis.
He cited an “overambitious and somewhat inappropriate” infrastructure project in Ethiopia, the completion of which pushed creative solutions and resulted in double-digit revenue, and in effect led to the success of the project.
“Overambitious infrastructural investment could have unintended consequences of greater creativity in revenue raising,” he said, indicating that the “unfitness” of an investment project for a country could actually be an “additional and strong argument” for undertaking it.
He pointed to most economic advice being based on complicated efforts to quantify and then reduce price distortions, the alignment of domestic prices with international prices and using market prices to select only those investment projects with the highest benefit-to-cost ratio.
“[However,] the significant distortions are more likely sources of dynamic efficiency and structural change than getting static allocative decisions right,” Sender added.
“Devote more resources to learning from mistakes, redesigning interventions, facilitating consolidation and responding to blockages, than to exact planning and projecting future cash flows.”
Further, what was needed to drive the manufacturing sector was a “very hard” coordinated push from the top for manufactured exports.
“Aim for a few islands of excellence [and] pockets of effectiveness [and] build on strengths, not weaknesses,” he said.
He added that ambitious targets and incentives for top performing products, exports, employment and research and development expenditure, attached to strict reciprocity agreements and subsequent compliance monitoring would also go a long way in developing the sector.