Industrial policy belongs at centre of development agenda – Godongwana

21st September 2021

By: Terence Creamer

Creamer Media Editor

     

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Finance Minister Enoch Godongwana says industrial policy and the quest for industrialisation belong back at the centre of the development agenda and are critical for meeting South Africa’s aspirations for higher levels of economic growth, job creation, transformation and development.

The South African economy, the Minister said during an address on Tuesday, was unsustainable in its current state and part of government’s response required that emphasis be place on fundamentally transforming the structure of the economy – moving from low growth and labour-absorbing sectors to sectors of high growth and productivity, as well as greater labour absorption.

“Our focus must also be on how we upgrade to higher value-added activities within sectors.

“If we can do this, we stand a greater chance of catapulting our economy onto a path of inclusive growth, sustainability and global competitiveness,” Godongwana said in a keynote address delivered during the launch of a new book titled ‘Structural Transformation in South Africa’, edited by Antonio Andreoni, Pamela Mondliwa, Simon Roberts and Fiona Tregenna.

“We know from economic literature that industrialisation – in the structural sense of shifting resources into industry and particularly into manufacturing – has come to be closely identified with persistently faster levels of economic growth and development.”

Instead, South Africa had experienced significant de-industrialisation, reflected in the decline of manufacturing’s contribution to gross domestic product (GDP) from a high of about 22% in the late 1980s to 12% today.

In addition, the manufacturing sector’s capital base had shrunk, from R677.7-billion in 2008 to the current R545.9-billion in real terms.

“These numbers speak of the decimation of our industrial base. They also speak to significant job losses, widening income inequality and poverty.”

South Africa’s official unemployment rate increased to a record high of 34.4% in the second quarter of 2021.

The decline in manufacturing since the 1980s had been matched by a rapid and significant growth in the services sector, which currently makes up 65% of GDP, 63% of employment and 74% of capital formation.

Services sector growth had been driven by credit fuelled consumption and import-intensity, which reflected “an imbalanced growth model, which is unsustainable and keeps our economy vulnerable”.

Godongwana acknowledged that macroeconomic policy could never be passive in relation to industrial policy and described fiscal policy as a powerful instrument, capable of influencing and shaping the orientation and structure of the economy.

“We are of the view that government expenditure should complement and enable rather than substitute for production in the private economy. Essentially, structural transformation is about building a competitive economy that participates effectively in global and regional value chains.”

The Minister said that, through Operation Vulindlela, government was implementing microeconomic interventions that could be deemed building blocks towards structural transformation.

In addition, industrial policy attention was being given to boosting export diversification and using strategic localisation to reduce the proportion of imported intermediary and finished goods.

Speaking on the same platform, co-editor Tregenna said the book offered five key lessons that South Africa could draw on as it pursued a structural transformation of its economy, including:

  • the need to arrest and reverse ongoing premature de-industrialisation;
  • recognising that technological change and digitalisation underscored the importance of developing an industrial ecosystem of firms with effective links to public institutions;
  • dismantling barriers to entry and allowing a new system of accumulation to develop so as to support a more inclusive industrialisation path;
  • fostering a political settlement that was supportive of long-term investment and capability building; and
  • implementing purposive and coordinated industrial policies to improve the country's productivity and competitiveness and provide the basis for real transformation.

Godongwana stressed that development was intimately linked to industrial production and that countries that succeed in making the structural shift to industry and manufacturing would have met the "necessary and sufficient condition for higher and sustained levels of growth and development".

"I am raising all of this background, which you all know, because for me one of the outstanding features of the volume of work we are launching today, is that it is putting industrial policy and the quest for industrialisation back at the center of the development agenda – where I think it belongs."

Edited by Creamer Media Reporter

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