A new Centre for Development and Enterprise (CDE) report argues that the South African government’s policy of localisation is locking the country “into the wrong path” of rising protection and rising inefficiency.
Published following an expert roundtable, the report outlines what it calls the “seven sins of localisation”, including:
- A policymaking process that is neither transparent nor evidence-based;
- The imposition of conditionalities that pose a threat to investment;
- A strategy of import substitution that is biased against exports;
- A reduction of competition, owing to a restriction on imports;
- Constraining innovation by excluding foreign knowhow;
- Threatening trade relations by forced localisation that may violate international obligations; and
- locking the country into an industrialisation path that relies on protection and facilitates rent-seeking behaviour.
The report comes as the Department of Trade, Industry and Competition (dtic) continues to prioritise localisation as a central pillar in South Africa’s industrial policy and amid growing concern over what some are describing as the country’s premature de-industrialisation.
Government has responded with a series of initiatives, including a 2021 approach to the social partners represented in the National Economic Development and Labour Council with a call for a 20% reduction in nonfuel imports over a five-year period.
In addition, the dtic has for some time been working across various sectors, from steel and automotive to renewable energy and clothing, to develop masterplans to identify opportunities for local industrial development.
It also comes as several other countries, including highly developed countries, are ramping up their own industrial policies to revive domestic manufacturing.
Nevertheless, CDE executive director Ann Bernstein argues that, instead of compelling the local manufacture of products, government should be working to shape a business environment that attracts and rewards investment shaped by strong competitive pressures and which is more often export-oriented.
She, thus, calls on government to rethink its adherence to the localisation policy, which the CDE report describes as “expensive”.
“We need a different approach to building an expanding local economy with many more growing, innovative and export-oriented firms creating employment opportunities for the whole South African labour force.
“That is the kind of ‘localisation’ we need,” Bernstein concludes.