The Minister of Trade and Industry Dr Rob Davies launched the sixth iteration of the Industrial Policy Action Plan (IPAP) at the Industrial Development Corporation (IDC) in Sandton on 8 April. IPAP 2014/15-2016/17 is the last iteration under the current administration.

Minister Davies highlighted several instruments that will contribute in industrialising the country in terms of growing the economy, enhance manufacturing, job-creation, poverty alleviation. These instruments will promote the integration of the region (including SADC) and the continent.

SMART RE-INDUSTRIALISATION

The Industrial Policy Action Plan’s overarching vision of growth with inclusivity is grounded in the imperative of ’smart re-industrialisation’: a systematic revitalisation of South African industry with a consistent focus on growing the dynamism, competitiveness and labour-absorbing capacity of the manufacturing sector – especially in the traditional and non-traditional tradable and value-adding sectors of the economy. This is the baseline from which everything else can grow.

SA POISED FOR MEASURED TAKE-OFF

After five gruelling years of global and local economic headwinds, South Africa now finds itself realistically poised for a sustainable breakthrough as a robustly re-industrialising, competitive, forward-looking regional economic power. This is not to suggest some sort of imminent, spectacular transformation. What lies ahead will be a tough, incremental process, with advances and setbacks.

Nevertheless – whilst recognising that global economic prospects remain uncertain and difficult domestic constraints persist – we can now say with some confidence that the instruments and capacity developed over the past five years of this administration have placed the manufacturing sector in a much stronger position than before to take advantage of emerging positive factors on the local economic scene. These include a more competitive currency; significant recent investments in competitiveness improvements by firms – which will continue to be strongly supported by key interventions like the Manufacturing Competitiveness Enhancement Programme (MCEP) – and a growing range of export opportunities, not the least of which lie on the rest of the continent.

THE “5 BIG DRIVERS”

The IPAP’s guiding mission over the next 3 years will therefore be to push South Africa’s potential for industrial step-change to greater intensity – with infrastructure development and localisation, beneficiation, a sharper focus on regional integration and exports and enhanced industrial financing serving as five of the major drivers of industrial development.

Infrastructure

The importance attached to South Africa’s infrastructure-build programme is underscored by the fact that, when this administration ends its term in May of this year, R1 trillion will have been spent on the programme, with infrastructure projects valued at R840 billion to be rolled out over the next 3 years of the Medium Term Expenditure Framework.

It is critical on the one hand that the infrastructure build programme is accompanied by strong local procurement. On the other hand the sustainability of investments on this scale with local procurement programmes will be a parallel commitment to building the export-competitiveness of domestic manufacturers in an increasingly wide range of value-added manufactured products – both in the domestic market and through more rapid export growth.

By way of practical example, this means for instance that as our rail recapitalisation programme peaks South African companies must have accumulated greater capabilities to become exporters of locomotives and rolling stock and components.

Localisation

The second key driver – localisation – focuses on all government procurement including the construction of infrastructure as a tool to build wider and deeper industrial capacity. It was for this reason that government introduced designations to support local manufacturing according to prescribed percentages and without additional costs to the fiscus. This initiative would be immeasurably strengthened if private sector procurement, especially by large corporations, could increasingly shift towards local strategic sourcing and supplier development.

Beneficiation

In order to move decisively away from a growth path locked into dependency on primary commodity export, South Africa must vigorously leverage its own enormous resource endowment and develop strategic partnerships in the burgeoning regional oil and gas economy. Taking this path offers ‘game-changing’ long term opportunities for value-added beneficiation, enhanced manufacturing competitiveness and integrated upstream and downstream industrial growth and diversification. It also has the potential, over the next decade, to stabilise energy supply and secure dramatically reduced energy prices for industry and household consumers alike.

Domestic demand – regional integration and exports

International experience demonstrates that successful industrialisation efforts should rest on the combination of maximising domestic demand for manufactured products and developing a focussed export drive for value-added and tradable goods. In our case work to ensure a much tighter concentration of resources and coordinating mechanisms to achieve this is in place.

Beyond this: in order to reap the full benefits of regional integration, for ourselves and for our African neighbours, two preconditions have to be met. First: a common drive to diversify away from primary and semi-processed products exported largely outside the continent, to a range of industrial inputs and consumer products demanded by growing and linked infrastructure, construction, manufacturing, retail and service sectors. Second: a commitment to building regional markets to sufficient scale – and with the necessary degree of complementarity – to create a platform capable of sustaining long term industrialisation. To be at the heart of the process – and at the same time grow our own domestic manufacturing base and global export competitiveness – South Africa needs to ensure that it positions itself as a key player in the development of this emerging regional and continental dynamic.

This means energetically supporting integration across the existing regional communities – with the first important step being accelerated development of a free trade area linking SADC (Southern Africa Development Conference), COMESA (Common Market for Eastern and Southern Africa) and the EAC (East Africa Community). Government sees this process as a flagship development in its own right and as a trailblazer towards an eventual continental free trade area.

Industrial financing

In terms of government efforts to support (re-)industrialisation, IPAP focuses on the development of strong economic incentives for competitiveness. One of the key instruments for achieving this is concessional industrial financing and an incentive regime with reciprocal commitments from the private sector, characterised particularly by mechanisms that incentivise competitiveness upgrading.

The provision of more integrated support packages for South African companies competing in both domestic and export markets – including on-budget programmes, strategically-targeted Industrial Development Corporation (IDC) financing, enhanced export financing through the Export Credit Insurance Corporation (ECIC) and a more strategic focus for our system of export promotion is critical.

IPAP 2104-2017 commits the Competition Commission to resolutely crack down on collusion and price-fixing. Concerted and collective action by state institutions against the clear and present threat of the illicit economy – especially illegal imports – must be the subject of greater focus and action. The consolidation of the Industrial Development Zones (soon to be Special Economic Zones – SEZs – under new legislation) is a priority including with respect to building on the considerable investment promotion achievements registered in the recent past.

OWNERSHIP AND “BELONGING”

IPAP 2014-2017 is fundamentally premised on the understanding that there is no necessary contradiction between economic growth and development and the extension and deepening of socio-economic rights to all South Africans. IPAP must belong to all of us – departments of state, State Owned Companies (SOCs), industry stakeholders and associations, organised labour, academia and think-tanks, budding and emergent entrepreneurs – but, perhaps above all, to the poor, the rural, unemployed youth, the ‘precarious’ and the still many marginalised amongst our fellow South African citizens.

There is much to do, with no room for complacency.