There are not only important signs of life in the manufacturing sector but reason to confidently state that the country was on the very difficult road of reindustrialization.
Although this year’s manufacturing Indaba was a little lukewarm given the withdrawal of key figures such as Minister of Trade and Industry, Rob Davies (needed by the Cabinet), the provincial premier and CEO of the Durban Chamber of Commerce and Industry, Dumile Cele (due to a more pressing engagement), the man behind this comment not only saved the day but introduced proactive and useful debate during a time when business confidence remains low, to say the least.
Nigel Gwynne-Evans, chief director: African Industrial Development at the Department of Trade and Industry (DTI) is a newcomer to the department. An economist by training, he has clocked up significant successes with the Western Cape Department of Economic Development.
He pointed out that, during the first quarter of 2016, manufacturing production picked up, the PMI rose to a higher level and South Africa recorded a trade surplus in March as exports rose to R96 billion.
But he also observed that great uncertainty and volatility would continue and a variety of headwinds were likely in the future. “But this is a marathon not a sprint and we have to work together for the long haul,” he said, emphasing the need for greater public / private sector collaboration.
“If there are any ready made quick fixes to overcoming the global headwinds and domestic constraints, they have yet to be discovered. It will require a sustained collaborative effort involving all the key players from government, business and labour,” he said.
He noted that the Manufacturing Indaba took place against a background of increasingly uncertain and volatile global economic conditions. The global financial crisis of 2008 had been followed by a number of aftershocks including the global commodity slump, the collapse in the price of oil, the steel crisis and great volatility in financial markets and currencies.
TIME FOR A LASER FOCUSSED INDUSTRIAL STRATEGY
A laser-focussed industrial strategy encompassing a complex set of policy tools was required, according to Gwynne-Evans.
Government had published eight versions of its Industrial Policy Action Plan (IPAP) against a background of very serious economic headwinds. These – and tough economic times – emphasised the need to deal with deep seated structural problems in the domestic economy.
This meant growing the production sectors of the economy, particularly value-added manufacturing, supporting the diversification of the economy and building on the important linkages between the primary minerals and agricultural sectors and the manufacturing sector, breaking the domestic economy’s dependence on the export of resources, maximising the benefits of a robust services sector, moving to a less energy and carbon intensive growth path plus addressing the deep-seated and racially skewed pattern of ownership in the economy and structural unemployment and inequality.
But it would be no easy task.
POWERFUL POLICY TOOLS NEEDED
Gwynne-Evans stressed that a complex set of sector specific policy tools that included trade measures (tariffs, customs; technical infrastructure), procurement, strategic sourcing and supplier development, the establishment of Special Economic Zones, clusters, hubs and incubators, support for innovation and technology acquisition, design and so forth and industrial financing, incentives and export credit were needed.
These should link to a broader set of policies and programmes supporting trade policy, export promotion and investment promotion, competition policy and business regulation.
An ideal world?
According to Gwynne-Evans, the practical experience gained through implementing industrial policy had taught policy makers that, where industrial policy well designed, the subject of sustained engagement with key stakeholders in the private sector, backed by strong intra-government alignment and programmes adequately resourced, significant progress and positive economic outcomes was possible.
An example was the clothing and textile sector which, after many years of decline, had begun to recover. In 2014, the industry’s value-add was R14.1 billion, exports grew by 16.4%; and employment was 87,825.
“The support of the retail industry and the work of the clusters driving local supply chains linking textile companies, apparel manufacturers and retailers have been critical. This includes applying world class manufacturing principles,” he said, adding that government support through the Production Incentive had supported 467 companies and created 4 729 jobs.
Another was the automotive sector which was remarkably resilient despite adverse global economic conditions.
It 7.5% to the country’s GDP. The volume of production grew by 3.8%, export earnings were R151 billion and total employment stood at 113 360.
“Approximately R7.9 billion investment incentives were approved supporting investments approved by OEMs and component manufacturers of R28.8 billion. The projected increase in employment is 11 962,” he noted.
Gwynne Evans said government critics argued that government support for the programme was high and insufficient localisation has been achieved.
However, he warned, the withdrawal of incentive support by the Australian government which had seen the last production and assembly facility in the country closing, served as a strong example of what could go wrong if government did not come to the party.
BREAK THE DEPENDENCE ON COMMODITIES
He said it was important for South Africa to leverage the devalued currency and the capabilities that existed and were and are being rebuilt to drive a national export effort with particular focus on Africa.
“The economic and employment multipliers which arise from exports are significant. However, our export basket remains too small and concentrated on primary products. But the fact that vehicle exports now account for 14.7% of exports demonstrates what can and must be done to ensure that value-added exports break SA’s dependence on commodity exports,” he said.
He said the DTI would focus on global original equipment manufacturers, existing exporters and those companies that can achieve export readiness, especially in key value chains such as automotive, rail, electro technical equipment and white goods.
But he admitted that better industrial financing, incentives and export credit was needed to achieve a higher impact industrial policy.
Procurement was the strongest policy instrument in government’s toolbox. It had designated over 20 products for local procurement, raising aggregate demand for local manufacturers and supporting a value proposition for inward foreign direct investment. But, again, more needed to be done to secure stronger compliance across government departments and state owned enterprises.
At the same time, businesses needed to increase local procurement and supplier development.
“Allow me to state the obvious – if large corporates and industrial companies … committed to local procurement and supplier development, it would make a very significant contribution to the industrial effort. None of us can ignore the pressing need to address unemployment and inequality,” he concluded.