On Thursday 11 March, tralac attended a discussion on South African industrial policy hosted by the School of Economics at the University of Cape Town. This is a particularly relevant topic at the moment in light of the recent release of the latest version of the Department of Trade and Industry’s Industrial Policy Action Plan.

Guest speaker at the event was Ricardo Hausmann (pictured here), Director of the Center for International Development and Professor of the Practice of Economic Development at Harvard University’s John F. Kennedy School of Government.

Hausmann began the discussion with a brief review of some of the more notable issues that had come out of the work conducted by the Harvard Group. The Group had found that South Africa’s recent domestic consumption-led growth, which had been financed by a rising current account deficit, was likely to be unsustainable. They believed that sustainable growth would only be possible through increased exports.

A second issue was that of South Africa’s exchange rate levels and volatility. The Harvard Group had been of the opinion that South Africa’s fiscal policy had been too loose in the boom years of the mid-2000s and had recommended that the government run a counter-cyclical fiscal policy focusing on the structural rather than actual deficit. The Group had also suggested that the South African Reserve Bank extend its focus to the exchange rate and use a wider range of policy tools to reduce the volatility of the rate.

Two other notable recommendations arising from the Harvard Group’s work were the introduction of a wage subsidy for school leavers in order to tackle the high rates of unemployment among young adults, and a more coherent trade policy that would focus on the liberalisation of tariffs on imported inputs for domestic industries.

With these and other findings having been reviewed, much of the subsequent discussion revolved around three further issues. Firstly, Hausmann reiterated his support for an ‘open architecture’ approach to industrial policy. A second topic of discussion was the relative importance of informational externalities and coordination failures. A final issue touched on was that of beneficiation.