The key to South Africa's industrial policy is increased competitiveness

The 2010 Budget speech saw government commit to financially support an industry-specific policy for the first time. This was expressed in the allocation given to the Industrial Policy Action Plan, or IPAP2. Previously, government has been reluctant to invest in specific projects and preferred to allocate funds to government departments for them to administer according to their mandate requirements. Therefore reports that there is a difference in opinion between the DTI and the Treasury does not augur well for the implementation of the IPAP2. One of the main issues identified by the current administration, and the reason for the creation of a new government department, the Department of Economic Development under Ebrahim Patel, is ensuring policy coherence and coordination between various government departments.

Finance Minister Pravin Gordhan has also emphasised that in order for the manufacturing economy in South Africa to flourish, the country would have to remain open to international competitiveness. This has caused a lot of debate and criticism, in particular from COSATU and other labour organisations. However, a number of sectors in the local economy would not even exist if it weren’t for multinationals who have established local manufacturing/ assembly plants. A case in point is the automotive sector, which would not exist if it weren’t for companies such as Volkswagen, BMW, Toyota and Ford. These companies provide the demand for local component manufacturers, as well as provide employment for a significant number of people. Without these companies, the industry would collapse, and this would have serious implications on the manufacturing sector.    

Frost & Sullivan is of the opinion that there is certainly a valid argument for the implementation of a point matching system. It will provide local manufacturers with the assurance of a predictable government tender procedure. In addition, this doesn’t bias the system and detract from investment potential in the manufacturing sector. However, if a local company can provide the right products of the correct standard and quality, why shouldn’t they be awarded the tender?

Government and labour have to acknowledge that in some sectors, companies are forced to import components and products from overseas companies since they are cheaper, and meet the required quality standards that the local manufacturing industry cannot provide. Certainly, Minister Ebrahim Patel’s proposed import tariff increases could help strengthen procurement from local companies. However, this is not the answer for all sectors. If forced to do so, some companies will also continue to import goods at higher prices, with a result of increased manufacturing built-in costs for the consumer. Import tariff quotas could however be beneficial in reducing the high number of imports in sectors such as clothing and textiles, electronics, capital equipment and pharmaceuticals.

Frost & Sullivan’s proposed solution to this debate around state tender prices and import tariffs is a local content policy. This policy would require locally-based multinationals to employ a certain percentage of locals in their workforce, and procure a certain percentage of local goods used in their manufacturing process after a certain period of time. Where these needs cannot be met by local industry, by all means allow them to import, or establish facilities for the development of these local companies. This will still enable an investment-friendly environment, while meeting the local needs of labour, the private sector and government.

In summary, the main point that needs to be emphasised is that government and industry cannot afford a delay in the implementation of IPAP2 or any other industrial policy initiative for that matter. Our economy is already under severe pressure to compete in a largely knowledge-driven global economy, and increasing pressure from developing economies i.e. BRIC countries. If we don’t pull together and aim to increase manufacturing competitiveness immediately, there won’t be a sustainable industry to support.