Industrial Policy: public hearings

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Trade and Industry

28 April 2002
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE; ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE: JOINT MEETING
29 April 2002
INDUSTRIAL POLICY: PUBLIC HEARINGS
 


Chairpersons: Dr R Davies and Mr M Moosa

Documents handed out:

Nedlac Report on the Industrial Strategy Document
South African Communist Party submission (see Appendix 1)
Integrated Manufacturing Strategy: DTI Powerpoint presentation
South African Federated Chamber of Commerce (SAFCOC) submission
Industrial Development Corporation (IDC) submission (see Appendix 2)
South African Transport and Allied Workers Union (SATAWU) submission

SUMMARY
Submissions were heard from Nedlac, DTI's Motor Industry Development Programme, the South African Communist Party, the South African Federated Chamber of Commerce, the Industrial Development Corporation and the South African Transport and Allied Workers Union. All submissions were made in response to the Industrial Strategy policy document released by the DTI. The Industrial Strategy, which also encompasses the Integrated Manufacturing Strategy, was released by the Minister of Trade and Industry Mr Alec Erwin in 2001. It aims to help government achieve its black empowerment targets, small business development, higher development and geographical spread of developments.

MINUTES
Nedlac submission
Mr Philip Dexter, Executive Director of Nedlac, told the Committee that there would still be a process of consultation between his organization and the government on the industrial strategy. They needed to have as much consensus with the government on the industrial policy as possible. A task team consisting of Business, Labour and Government has been set up to engage on broader issues of the industrial strategy. The issue that would trigger much debate was that of Black Economic Empowerment. He said Nedlac wants to look at how black economic empowerment could fit in the entire industrial strategy.

Discussion
An ANC committee member wanted to know what was the gender position as far as black empowerment policy is concerned.

Mr Dexter said there were two contested views, the first view was that of promoting black entrepreneurs, which was the most functional view. NGOs and Trade Unions are putting pressure on government and Nedlac to allow people to be involved in the economy through black empowerment. Secondly, there is the view that issues of gender, disability etc should be taken seriously. He added that even the industrial policy should look at those issues more broadly.

Mr Dexter added that the Nedlac Summit in 2000 took a resolution to promote black people in business. The general problem is that there are people who claim to represent black business constituencies whereas they do not, they only represent themselves.

Dr R. Davies (ANC) asked what were really the activities of Nedlac, were they just analyzing and debating issues?

Mr Dexter replied that Nedlac assists all its stakeholders in formulating policies that would best suit labour, government and the business.

An ANC member wanted to know what research Nedlac has made on the industrial policy document.

Mr Dexter replied that Nedlac does not have huge resources for research. For research, they rely on information from their stakeholders: labour, business and the government.

Mr N Bruce (DA) asked what are the ingredients for agreement amongst all Nedlac stakeholders?

Mr Dexter said the ingredients for agreement is the power of the constituencies to interact for the cause of success as well as strong leadership. He added that relevant information is also important because the South African economy is a knowledge-based economy.

Ms F. Mahomed (ANC) wanted to know what are the relations like between Nedlac and the Industrial Development Corporation (IDC).

Mr Dexter replied that they do not have direct involvement with the IDC. They communicate with the IDC via the Department of Trade and Industry.

Ms Mahomed asked what is the position of Nedlac concerning the promotion of foreign direct investment in South Africa.

Mr Dexter said the point is how to mobilize a local economy that would attract foreign capital, how to make the manufacturing industry of South Africa attractive, that is what Nedlac seeks to promote.

Motor Industry Development Programme (MIDP) submission
Mr Sagay Moodliar from the Department of Trade & Industry's Enterprise and Industry Development Division presented on the performance of the MIDP between the year 2000 and 2001. MIDP is an export/import complementation mechanism that seeks to force specialization and economies of scale for global integration. The objectives are to provide high quality vehicles, at competitive prices to promote domestic products in global markets while being a platform for sustainable employment and growth in South Africa.

Discussion
Mr Bruce asked to what extent has the Integrated Manufacturing Strategy (IMS) promoted investment in the manufacturing of basic motor parts.

Mr Moodliar responded that the major trading partner in the industry is Germany however; the trade has been slow because of the decline in the exchange rates. The costs of the products have increased because South Africa is not a major player in the industry anyway.

Mr Bruce further asked what kind of tax does the manufacturing industry pay to the state.

Mr Moodliar said there has been an increase of up to R1, 8 billion in taxes but he was not sure how much exactly each company paid.

Dr J Benjamin (ANC) asked what strategy is there for the training of local engineers to get into the motor industry, because what she saw was that qualified engineers were going out of the country.

Mr Moodliar said the Department has created a programme for the training of auto engineers. There are no such institutions in South Africa, especially in the area of research and auto design. He said it was only in the University of Pretoria where they offer these courses in auto engineering.

South African Communist Party submission
The Secretary-General of the SACP, Dr Blade Nzimande, told the Committee that his party wanted an industrial policy that would involve policy choices. As a party of the working class, the SACP has repeatedly stated that the goals of job retention, job creation and poverty eradication are central to the vision of industrial strategy. He said they were not convinced that it is a foregone conclusion that jobs must continue to be lost in agriculture, mining and formal manufacturing. They believe that these sectors can and must become sectors of job creation. Another critical issue is to locate the promotion of export-oriented activity in a broader context. While this is an important objective, policy cannot, in their view, focus exclusively on export-orientated sectors. Higher priority than hitherto needs to be given to strategies for basic needs production, and the development of non-tradable services.

Discussion
Prof B Turok (ANC) said areas of underdevelopment in South Africa are understated whereas they are primary. The townships are major areas of underdevelopment and he said he would like Dr Nzimande to comment on that.

Dr Nzimande agreed that these were areas of underdevelopment and that could be solved by an industrial policy that had a spatial focus. For instance some Departments have no links with provincial and municipal authorities whatsoever. If there were to be a link, that could help in developing these areas. Rural people rely on remittances from workers who are working in urban centres; he added that land reform could be so crucial in this regard.

Prof Turok argued that unless South Africa adopts a massive consumption strategy, there could be no good industrial policy.

Dr Nzimande agreed that there should be a massive consumption of goods yet a large number of people in South Africa are very poor.

Dr Davies wanted Dr Nzimande to comment on the Ekurhuleni Industrial Strategy that the SACP was part of.

Dr Nzimande replied that the Ekurhuleni declaration resolved that the country should concentrate on building and developing domestic markets. They felt that there is a lot of domestic investment in SA that could eradicate poverty.

Ms Mahomed said Business SA has declined to admit that there is massive investment within this country. What evidence could Dr Nzimande give to the contrary?

Dr Nzimande said there is a lot of evidence to prove that, but he did not have the statistics. He suggested that Kevin Wakeford of SACOB could blow the whistle on that issue as he did in government's investigation on the depreciation of the rand.

Ms September asked what could be done to improve the performance of parastatals in service delivery.

Dr Nzimande argued that the debate that parastatals are inefficient could be contested. He added that today everything that is from the private sector is regarded as good and anything from the public sector is inefficient. It was high time that people do away with such perceptions.

Ms September asked if it was wise for the social services sector to be included in the industrial strategy.

Dr Nzimande said the SACP view is that provision of social services should be the responsibility of the state. This could be the responsibility of the parastatals outside the framework of industrial policy. Services should be performed with a broader industrial policy.

In conclusion Dr Nzimande told the Committee that there is uncritical thinking about the Information & Communication Technology (ICT) being an answer to all the economic problems facing the country. He said ICT is not capable of creating jobs for the millions of unemployed in this country. He even said cellphones for that matter have no market in South Africa.

Prof Turok disagreed with Nzimande, he made an example of rural women in Bangladesh who were using cellphones to make trade of their rural produce with the cities in that country.

South African Federated Chamber of Commerce
Mr K Warren, Mr M Mazaname, Ms P Drodzie formed the SAFCOC delegation.
SAFCOC recognised, welcomed and supported most of the submissions in the document released by the DTI. They did not however endorse the proposals to establish a separate voice for black business and were particularly concerned about the poor implementation and roll-out of previous government strategies such as GEAR. They stated amongst other things that it is important for government departments and other stakeholders to co-ordinate their programmes. In this regard, they expressed a willingness to work with DTI to help ensure an appropriate roll-out of the strategy.

Discussion
Mr. Bruce noted that in SAFCOC's submission, they stated that government should consider alternatives to the traditional financial institutions for SMME financing. He was interested to know what alternatives SAFCOC suggests.

SAFCOC responded that so far the micro-lending model in SA had not worked well. They suggested that it could be more successful if government opened up the regulatory framework and let competitors to the banks come in. The purpose of this is not to exclude the formal banking sector, but simply come up with alternatives.

A committee member posed a question to SAFCOC challenging them on the fact that they had ignored the gender issue. Another committee member asked them what they had done up until now for the development of black business in rural areas

SAFCOC replied that they do not promote gender discrimination in any way. They do believe however that the chamber movement can be a springboard to help the economy and in this regard, they have brought in youth chambers. With regard to women and youth development, especially in the rural areas, SAFCOC stated that they realize that not much has been done in the rural areas, but believe that it is more important to focus on the townships. They have however looked at rural areas and do have agreements in place, but they lack the capacity for implementation. An example of something they have done is to approach Pick and Pay to get them to buy produce from rural producers. They are also involved with the Genesis program, which is a process for development. They are looking at big corporates to finance the process and it does have a focus on rural areas. Because it is a process however, it is difficult to measure benefits until the process has been completed.

A Committee member was concerned that SAFCOC had not dealt with any other African countries in its submission, especially since government has NEPAD, which is concerned with the entire African continent. Why has SAFCOC not dealt with NEPAD? A second concern was its reference to NAFTA and how we can learn from their experiences. The problem with this is that these countries and their economies can in no way be related to South Africa.

With regard to the first concern, SAFCOC stated that they realize that NEPAD is important, but that it is essential to focus on growing our own economy before we can be of any help to the rest of Africa. Regarding NAFTA, an example was given on what has been done along the USA/Mexico boarder for economic development and how the lessons learnt there could be applied along both the Trans Kalahari and the Maputo corridors.

Dr. Davids asked why they prefer the term 'industrial' as opposed to the term 'manufacturing'. He also posed a challenge to SAFCOC to move into collective action, arguing that organized business is not as coherent as it should be. In this regard, he asked about the unity between SACOB and NAFCOC.

The response to the first question is that manufacturing is a much broader based term and includes things such as tourism. Government's plan must be broad-based, cross- cutting and co-ordinated - such qualities are better reflected in the term 'manufacturing' as opposed to the more restrictive term 'industrial'.

As to the second question, it was agreed that organized business is not as coherent as it could be, but at the same time, business is not monolithic either. There are many different forms of businesses that have many different agendas. While there is not necessarily unanimity within business, they do have a broad-based overall objective, and that is to get a voice for organized business. This is a process that will take time and will sort itself out in the end. Their philosophy is that business must be organized at an operational level, black and white business must rub shoulders and work together. Essentially, disagreement is inevitable and part of the process.

Ms B Ntuli enquired whether globalisation is the answer to our economy and wanted to know how SAFCOC intends to deal with the problems associated with it. Namely: the gap between rich and poor; the problem of exporting cheaper raw materials; and the fact that there are a lot of job losses.

SAFCOC replied that globalisation is not the one and only solution and stated that it is essential that there is investment in South Africa by South African companies. Regarding the broadening gap between rich and poor, it is essential to alleviate poverty and create jobs. They believe that the government strategy will go a long way to assist with this. Regarding raw materials, for a long period of time they have advocated the beneficiation of raw materials. On the job loss issue, it is essential to implement strategies and SAFCOC expressed the hope that the DTI will bring business into the fold to help with this. They thus placed responsibility for developing such a strategy in the hands of the DTI. Essentially the only way to achieve economic growth is to have a stable currency. Certainty it is essential for investors and if South African companies wish to compete overseas.

Mr. L Zita posed various questions: 1: Whether any lessons could be learnt from the experience in East Asia; 2: Can there be any synergy between business and government especially since over the last eight years business has become consolidated as a white domain and politics and government as a black domain; 3: Where did SAFCOC see the position of blacks in business twenty years down the line. Do they see it as remaining the same and do they think black empowerment policies over the past few years have benefited the country. 4: Finally he drew comparisons with Asia and the fact that they had different interest rate regimes and wondered whether or not South Africa should implement any of these.

As to the first question SAFCOC stated that East Asia has been thoroughly studied by big corporates and as such, they saw no reason to make a specific study of it. One thing they did divulge was the fact that East Asia has achieved so much purely because they had a common vision - a determination to get together and improve their lot - a getting together of business, labor and government with a key vision. On question two, they believe that there can be a synergy between the two. Regarding question three, they asserted that SAFCOC had taken the lead in applying the Employment Equity Act even at a time when they were not bound by its provisions. Finally, SAFCOC admitted that they had not considered the possibility of a differential interest rate regime, but believed it to be a worthwhile consideration.

A committee member noted the fact that SAFCOB does not support a regulatory regime with regards to Black Economic Empowerment. He saw this as a problem especially since in the past eight years, the market has failed to provide appropriate opportunities to the black population.

SAFCOC stated that they believed that this should be a voluntary process. What is needed is incentives for business to participate in BEE. An example they gave was of the Oil Industry Charter that came out of a voluntary process and was not imposed from the top down. They would like to advocate the same process for BEE.

Ms Ntuli agreed that it is essential to have a strong South African economy, but asked how this could be done when its neighboring countries were poverty stricken.
There was no direct response to this question.

Mr. Moosa noted that the submission only deals with business and this was of some concern to him because there are other areas of importance that must be discussed.

The response was that their constituency was business and that they simply did not have the resources or the time to concentrate on anything else. Their belief was that if business prospers, then so will everyone else.

A committee member asked how they viewed the role played by the IMF and other such international organisations.

SAFCOC stated that the DTI had kept them well informed on these issues and they shared the same view as the DTI. Obviously they see room for improvement within these organisations.

Industrial Development Corporation submission
The IDC's submission was centered around their activities within the business community and the approach they have adopted towards the development of business in South Africa. During the course of their submission they did not comment much on the submission by the DTI, but rather outlined their program in the hope that the DTI could learn from their experiences.

Discussion
Mr S Ripinga suggested that the IDC represented economic cycles as moving in rigid departments and questioned whether we really need to move in rigid departments as proposed.

The IDC responded that they agree with what Mr. Ripinga was suggesting but that the intention of their submission was to provide a critical analysis in order to spark debate.

Mr Davies asked how exactly the IDC chooses their projects and the process they undergo when making this choice.

The IDC stated that they get a mandate and they work according to this. Since the mid 90's they have begun to address the issues of the government of the day. They get their strategic objectives from the Department of Trade and Industry. One such objective is the upliftment of rural areas. At the moment, these areas are not participating in the economy and as such they are trying to come up with different models as to how this can be improved on. To help with this, they are for example concentrating on the areas of mining, tourism and agriculture. They stressed that giving away money is not enough and that a supply-chain connection needs to be developed. Another important area of focus for them is job-creation. They noted that the IDC faces resource constraints in terms of the challenges posed to them and as such, capacity is an issue. Ultimately, where they are strategically placed is an issue that must be dealt with by DTI.

Mr Zita stated that the IDC has been receiving government grants since the 1950s and wanted to know if this was enabling or if it limited efficacy. He also asked how they model themselves at present, especially since their heyday was during the Apartheid era.

The IDC stated that they have the ability to raise funds, but that a big problem of theirs was the debt to equity ratio which limits their ability to what they can borrow beyond what they have as assets, which is not much. In regards to the second question, they stated that the IDC used to invest in mega-projects, so being involved in SMMEs is new to them. They do benchmarking, that is, looking at other organisations to see what they do and they look at the realities of the SA economy when developing programs. Based on their track record at present, they are confident that they are moving in the right direction.

Dr. Davids asked whether it is not perhaps better to create strategic policies for the development of rural areas and find investors rather than waiting for someone to bring a proposal from the rural areas as they are doing now. He suggested that the IDC should play a more pro-active role in rural areas and build up capacity around doing this.

The IDC stated that in the past they adopted a wait-and-see attitude but that recently they had in fact adopted a more pro-active approach. They expressed pride in the pragmatic approach they believe the IDC has.

South African Transport and Allied Workers Union
The intention of SATAWU was to sensitize the Committee to some important transport-related issues. They stated that the transport industry is not operating as it should and attempted to offer some solutions. The thrust of their submission was that road transport is inefficient, over utilized and resulted in many unnecessary deaths on the roads. Their solution was to improve rail transport services and establish it as the primary means of freight transport. The recent problems experienced with South Africa's harbours was also alluded to.

Discussion
Mr Zita stated that in the Auto industry, the union, employers and the government have been able to work around their problems to the benefit of all. He was interested to know if SATAWU had considered a similar initiative to sort out problems with the rail industry.

SATTAWU responded by suggesting what they believed the government should do. They stated that the average South African worker lives far away from his place of work and thus has to fork out an unreasonable percent of his wage for transport. Most of the time, getting to work involves catching more than one mode of transport. For example, they will have to catch a taxi, then a train and then a taxi again. This is a legacy of Apartheid and to solve it, the government must provide seamless transport - they proposed a rail-network within the squatter camps. They insisted that government must subsidise transport as well as limit the number of vehicles on the road, especially freight vehicles. To solve this problem, they suggested that the government improve on the rail services in South Africa and must provide bus and rail transport to the rural areas. They concluded that transport is a demand and that it is the responsibility of government to provide it.

Ms September noted that one huge problem in South Africa is transport for the people and wondered whether SATAWU had developed a policy around this.

As part of their policy, SATAWU argued that the tendering system should not be used because this would mean that transport would no longer be provided to remote areas. The tender system would thus not address the needs of the people. They are also against outsourcing because this will mean that people will lose their jobs. Rather they suggested in-house training which concentrates especially on unskilled labor because it is this sector of the population that is the most vulnerable.

Ms September asked how the HIV/AIDS strategy they had developed for long distance drivers had worked out.

SATAWU believed that it had been a success. They had managed to educate quite a number of drivers and had managed to get co-operation from the Road Freight employers association.

Dr Davies asked how they suggest improvement be made to South African ports.

SATAWU noted that one option is equipping the ports with more advanced machinery. This however would lead to a decrease in the number of port workers and hence their membership and unemployment. They were thus against it and stated that if this is done, it must be done in consultation with all interested parties including themselves. The option of training laborers as discussed earlier was also raised.

Ms F Hajaij asked why is such training not happening.

SATAWU replied that a large stumbling block is the fact that employers must play a major role in this area. The problem cannot be addressed if government is not there.

Mr N Bruce wanted clarification on whether the worker training that was being discussed was specific to ports, was more general training, or whether it was for alternative jobs.

SATAWU stated that it was more general training and not necessarily specific to ports.

Dr Davies closed by stating that this submission was useful to the Department of Trade and industry but stated that many of the issues discussed did not fall within the ambit of the Committee. It was agreed that the submission must be sent to the Department of Transport. There were however important matters that they themselves would consider.

The meeting was adjourned.

Appendix 1
Portfolio Committee on Trade & Industry/Select Committee on Economic Affairs
Public Hearings on Industrial Policy, Parliament, Cape Town, 26/4/2002

Submission on behalf of South African Communist Party

The SACP welcomes this opportunity to make a submission on the important issue of industrial policy. Our submission will not primarily take the form of a commentary on the dti's document, Accelerating Growth and Development: The Contribution of the Integrated Manufacturing Strategy. Rather, we will indicate the SACP's views of the key elements we believe to be essential to the ongoing process of developing an effective industrial strategy, both in theory and in practice. In general, the SACP sees the present dti discussion document as an advance on the document released last year, Driving Competitiveness: Towards a New Integrated Industrial Policy for Sustainable Employment and Growth. In particular, we welcome:
· The shift in government policy towards a focus on the real economy or micro-economic issues (summarized pp 19-22);
· The fact that the Accelerating Growth and Development document envisages a comprehensive new approach to accelerating growth and development;
· The identification of a leading role for government and active state leadership as central elements of an integrated manufacturing strategy (p 19);
· The focus on promoting collective action, through sector summits and other mechanisms (chapter on Integrated Value Matrices, pp 26-28 and Deepening Stakeholder Partnerships, pp34-35);
· The identification of employment as a key objective of policy (p 20);
· The indication that the dti will mobilize a range of additional support measures, including customized programmes for particular sectors (pp 29-30).

The SACP also welcomes the spirit of debate and engagement that followed the release of last year's discussion document and looks forward to the eventual convening of the proposed Growth and Development Summit. As the Ekhurhuleni Declaration, adopted at the recent Alliance Summit noted, "the success of this Summit depends on the ongoing mobilization of government and popular forces" around key issues. It is our hope that these hearings can contribute to the raising of public awareness around the critical question of industrial policy.

Our submission should also be located in the context of our concern about some of the very serious distortions in our economy and some urgent interventions that need to be made. These concerns include what is tantamount to an investment strike by South African companies. Currently South African companies have the highest levels of liquidity in decades, but they are not investing these in our economy. Secondly the promises made by those South African companies now listed in foreign stock exchanges have not materialized, and this includes the investment of South African workers' savings in the London Stock Exchange. In addition the massive failure of the financial sector to invest in our productive economy and with developmental consideration is something that we believe require urgent attention as part of our overall thrust in promoting a developmental manufacturing and industrial policy.

1. The SACP's Overall Approach to Industrial Policy.

The SACP has long called for a vigorous industrial policy. Numerous policy conferences that we have held in recent years have identified industrial policy as a key element in placing our economy on the kind of development-orientated growth path envisaged by the RDP. While involving core manufacturing, an industrial strategy, in our view, needs also to encompass mining, agriculture, services and the 'new economy'. By industrial policy we mean a policy-led process of state interventions to drive and promote sectoral growth and development. In the case of East Asia, where industrial policy is often seen to have been most developed, these typically included the deployment of various incentives and penalties to mobilize and discipline private capital behind a carefully defined state-led strategy to promote economic growth and develop productive forces in ways that went against, or at least ahead of the prevailing logic of the market. While often co-existing in East Asian countries with a negative or even hostile attitude towards trade unions, this was coupled with a push towards a change in shop floor organization in the direction of more participatory forms and models, with a strong emphasis on skills development, as central pillars of raising labour productivity. Industrial policy understood in this way is broader than a "competitiveness strategy" although an industrial policy cannot, of course, ignore this dimension.

Our emphasis on industrial policy as a priority focus of economic policy derives from our conviction that "market forces" are fundamentally incapable of promoting more than a highly distorted and stunted development of productive forces in former colonial or semi-colonial countries like our own. Indeed, we are convinced that the central lesson of the experience of the very small number of cases where former colonial or semi-colonial countries have achieved some measure of industrial development is that this can only be achieved by policy driven interventions directed at extensive "market failures" in the developmental process.

2. The Context of "Globalisation

Our views in this regard are also strongly influenced by our understanding of the process of "globalisation". We have as the SACP argued strongly against views that have presented "globalisation" as a phenomenon that has "overcome" or "transformed" capitalism or imperialism. We have insisted that "globalisation" has retained essential exploitative, uneven, contradictory and crisis-ridden features of capitalism and imperialism.

At the same time, we have acknowledged that "globalisation" has been associated with important changes in the modus operandi of global capitalism. These include, on the one hand. the rise of "information and communications technology" and of ICT derived knowledge as the driving force of rising productivity and accumulation; the formation of and integration of productive activity into, global networks; the pressure for freer movement of capital and commodities across national borders; and the strengthening of multi-lateral regulation. Various writers, including those of Marxist and neo-Marxist persuasions, have been among those who have compared the rise of "informationalism" with the "industrial revolution" in terms of its significance for the development of productive forces. On the other hand, "globalisation" has been associated with growing inequality, marginalisation and social exclusion. In our view, both aspects - the development of productive forces in the direction of "informationalism" and the widening inequality - exist in a dialectical relationship i.e. both aspects are inter-linked and integral to the same process.

The SACP's view is that both aspects have major significance in the formulation and implementation of economic policy. On the one hand, we clearly need to be doing all we can to equip productive enterprises and our people to benefit from the technological advances associated with "informationalism". At the same time, we need to recognize that those very same technological changes, operating in a capitalist and imperialist context, are fuelling and exacerbating widening inequality and marginalisation. It is, for example, through ICT that global capitalism is engaged in a process of selective inclusion into global networks of "useful" activities across the globe. The flip side of this is, of course, marginalisation and exclusion of peoples and productive activities across the globe, which, given the imperialist context, is sharpest and most evident in underdeveloped countries. It is, therefore, for us no surprise the process of capitalist globalisation has been accompanied by a widening of inequality on a global scale. A study published in April 2001, for example, indicated that the global GINI coefficient was both greater on the world scale than in individual well-known unequal societies and had increased from 62,5 in 1988 to 66 in 1993. Over the same period the share of income going to the poorest 10% had declined by 27%, while that going to the richest 10% had increased 8% (Robert Wade, The Economist, 16/4/2001).

In our view, we need in such a context, to pursue strategies that swim both with and against the logic of globalisation. We need to swim with it in so far as it concerns technological development, raising the capacity of our people and productive enterprises to utilize informational technology to increase access to knowledge and thereby raise productivity and skills. But we need to swim decidedly against the logic of globalisation when it comes to issues associated with its polarizing and marginalizing tendencies.

Above all, we are firmly of the view that we should never forget that the international context we are operating in is one of imperialism. While it is clear to us that in this context we need to continue to complement our domestic economic strategies with initiatives to promote greater equality or reforms at the global level, our own preliminary assessment is that, while it remains important to continue to engage in whatever international fora are available to support our case for greater equality, we should not over rely on the short term prospects of making immediately beneficial breakthroughs.

This has a number of consequences. First, it would suggest that expressed or imagined sentiments of influential external "players" (potential investors, International Financial Institutions) should have less weight in determining the content of our policies Our approach to attracting foreign investment etc. should rather rely on creating an objective environment of development-orientated growth where, whatever their sentiments towards us, foreign investors will want to become involved. Second, it would suggest that our response to actual or potential "external shocks" (e.g. speculative movements against our currency) should rely more on defensive measures we can take in our own economy than on international moves to "reform" the global architecture.

The need for an Active Developmental State

The SACP is convinced that fundamental to all efforts to place our economy on a development-orientated growth path will be a developmental state. Our perspective in this regard derives in part from our long-term socialist vision, but it is also informed by our reading of the experiences of the small number of semi-peripheral countries that have succeeded in promoting industrial development.

By developmental state we mean a state that accepts that it must play a leading role in promoting growth and development, that takes a lead in formulating policies and developing visions, and mobilizes a range of measures to mobilise social forces and resources to give effect to those strategies. It is a state that acts, in a context where at the present stage of our National Democratic Revolution both markets and private capital continue to play a major role in economic life, but which does not hesitate to lead and act ahead of those markets. It is a state that recognizes that our efforts to promote growth and development will encounter extensive "market failure" including:
· A failure by private capital and profit maximising enterprises to, of their own volition, to plan, invest in and lead economic infrastructure projects that are often critical to promoting investment in productive enterprises;
· A failure by both domestic and foreign capital to invest in viable projects to create strategic industrial capacity or otherwise develop productive forces in developing countries or "emerging markets" ahead of a proven record of profitability;
· A failure to initiate and lead strategy development at sectoral or value chain level;
· A failure to address a broad range of developmental backlogs and introduce workplace transformations to raise the capacities and skills of working people.

Looking at our own experience in South Africa over the past seven years, it seems to us that where we have had some successes in promoting investment and growth a number of elements have been in place. These include:

· A government led and conceived (but not necessarily totally funded) infrastructure development programme. The Strategic Development Initiatives (SDIs) or Industrial Development Zone (IDZ) programmes both embody elements of such an approach, although there is much to debate about the overall character of these specific programmes.
· An active role by a parastatal, such as the Industrial Development Corporation, acting as its mission statement says to "identify and support opportunities not yet addresses by the market". Examples of such a role include the Mozal or Saldanha steel projects where the IDC acted in the market, but with a broader vision than immediate profit maximization and became the dynamic and leading force, but not necessarily the largest shareholder, in strategic productive investments (whose broader character is again open to debate).
· A government led process of developing a sectoral or industry strategy backed up with appropriate incentives and benefits for firms cooperating in the programme. The clearest example here is the Motor Industry Development Programme where elements of this programme, if not necessarily its entire content, are indicative of what can be achieved

The SACP's view is that these lessons from our own experience as well as those of successfully industrializing developing countries need to form the basis of an integrated industrial strategy that would have to include:

· State led economic infrastructure development programmes;
· State driven sectoral and value chain planning process;
· The identification of areas of strength or advantage, which in our case would include cheap electricity and raw materials beneficiation;
· An active role by appropriate parastatals and SOEs;
· The mobilisation of public, social and private capital behind a defined strategy by means of, inter alia, incentives and regulatory measures.

While some elements of such an approach can be discerned in existing policies and practices, our view as the SACP is that we are still far from the effective formulation and implementation of the comprehensive, integrated industrial strategy that we clearly need. In last year's discussion document, the dti argued that "knowledge intensity" is key to industrial strategy and that policy should focus on enhancing knowledge capacities, promoting innovation, R&D, breaking down artificial barriers between manufacturing and other economic activities and promoting joined up government. We agree that these are indeed important aspects of industrial policy. At the same time, we believe that we must not be tempted to see these elements as substitutes for developing capacities in other key areas essential to the effective implementation of an integrated industrial strategy, including those identified above. We also believe that the legitimate desire to extend the scope of policy beyond traditional manufacturing to service sectors (which we indeed share), must not divert attention away from the imperative to develop more effective strategies for core manufacturing and indeed mining, agriculture and energy sectors.

In the resolutions adopted at our Strategy Conferences, the SACP has accepted that an industrial policy must involve policy choices. As a party of the working class, we have repeatedly stated that the goals of job retention, job creation and poverty eradication are central to our vision of industrial strategy. We are not convinced that it is a foregone conclusion that jobs must continue to be lost in agriculture, mining and formal manufacturing. We believe that these sectors can and must become sectors of job creation. Another critical issue is to locate the promotion of export oriented activity in a broader context. While this is an important objective, policy cannot, in our view, focus exclusively on export orientated sectors. We need to give a higher priority than hitherto to strategies for basic needs production, and the development of non-tradable service sectors. Public works programmes linked to infrastructure development also need to be extended as a matter of urgency.

Appendix 2
IDC comments on Industrial Policy
Submission to: The portfolio
Committee on Trade and Industry

Date: 19 April
2002
1. INDUSTRIAL POLICY AS AN ELEMENT OF MICRO -ECONOMIC POLICY AND THE TYPE OF INDUSTRIAL STRATEGYIINDUSTRIAL POLICY/COMPETITIVE STRATEGY SOUTH AFRICA NEEDS
The DC welcomes the government's shift in focus from macro-economic stabilisation to micro-economic reform. We believe that most countries are getting their macro-economic situation in order and that micro-economic issues will become the basis for sustained economic growth and competition for foreign direct investment.
South Africa needs an industrial policy that is predictable, explicit and accessible and that is flexible enough to deal with changing conditions. Also the strategy should consist of a clear plan, which the current industrial strategic document lacks. The current document creates uncertainty regarding its purpose of whether it is a vision or a strategy document.
2. THE SIGNIFICANCE OF SECTOR OR VALUES CHAIN STRATEGY PROCESS
The IDC supports the sectoral approach outlined in the industrial strategy document to promote exports and also to reduce input costs. This approach will benefit the targeted input cost reducing sectors such as energy and ICT and export growth sectors like agro and agro processing, mining technology and mineral beneficiation, textile and clothing, cultural industries, automotive and Tourism
3. IN WHAT WAY OR TO WHAT EXTENT SHOULD WE (GOVERNMENT) BE ACTING WITH OR AHEAD OF THE LOGIC OF MARKETS IN PROMOTING INDUSTRIAL POLICY
The industrial policy's wider focus to cover new non-productive activities undertaken by manufacturing firms can address the direction or extent to which the government can act ahead of the market's logic. Focusing in new areas has the potential to amplify contribution to economic development.
4. WHAT IS THE ROLE OF INFRASTRUCTURE DEVELOPMENT AND HOW SHOULD THIS BE DONE
Economic infrastructure is pivotal to creation of investment and encouraging foreign direct investment. With the development of essential economic infrastructure, Governments can achieve its focus creating a favourable working and investment environment.
In the development of the economic infrastructure the policy need to understand the country's economic stage in terms of competitive advantage. The industrial strategy is currently too advanced for South Africa's current state of competitiveness.

We disagree with the document's implied assumption regarding South Africa's stage of competitive advantage. A country typically moves through various stages: (1) factor-driven stage; (2) investment-
driven stage; (3) innovation-driven stage; and (4) wealth-driven stage. Given the document's focus on knowledge-based activities and innovation (pages 2g to 34), it is implied that South Africa has already reached its stage 3 and should move to stage 4. We disagree with this assumption and are of the opinion that the industrial policy-focus is too advanced for South Africa's current state of competitiveness. We are of the opinion that our economy has not yet reached the investment-driven phase. This is motivated by our relative low investment-to-GDP-ratio, the volatility in gross fixed capital formation, our relatively low levels of foreign direct investment as well as our reliance on portfolio inflows. It is, therefore, not optimal to focus on policies to take us to the innovation-driven stage. We should rather increase our efforts to raise and sustain investment in productive capacities.
5. WHAT IS THE ROLE OF PARASTATALS LIKE THE IDC WITH A MANDATE TO ACT STRATEGICALLY AHEAD OF THE LOGIC OF THE MARKETS
The parastatals like IDC are in a position to give effect to policy and contribute to the implementation of the sectoral strategies out lined in the industrial strategy.
Since the restructuring of the IDC in ~ the Corporation embarked into new areas that were not traditionally associated with the IDC. These new areas included, amongst others, investments in tourism, techno-industries, entrepreneurial mining, wholesale and bridging finance, empowerment as well as some cultural industries. We believe that these new focus areas have the potential to amplify our contribution to economic development. Our focus in the non traditional markets addresses gaps in the market and therefore developing resources and capacity in undeveloped non traditional sectors.
6. HOW SHOULD INCENTIVES/OFFERINGS OF THE DTI GIVE EFFECT TO POLICY
The integration of incentives/offerings of the DTI with other institutions and key stake holders in the economy should give synergic benefit and increase access to the offerings and magnify the effect that policy will have in the market and the economy as whole. Available Incentives and offerings needs to be co-ordinated and linkages DTI agencies need to be enhanced.
7. WHAT R&D AND TRAINING PROGRAMMES ARE NEEDED
We need research and development and programs that will direct resources and increase effort in raising and sustaining investment in productive capacities to expand existing productive capabilities and create new ones based on locally available skills, raw materials and resources. This can help in creating new jobs, consistent with the strategies for improving economic conditions. Trends have significantly changed, research and development needs to look into latest trends and also look at the factors of production in the manufacturing sector and what percentage they contribute to overall GDP.
8. HOW SHOULD WE RECONCEPTUALISE THE RELATIONSHIP BETWEEN "TRADITIONAL MANUFACTURING "AND OTHER SECTORS
It is important to determine the development potential of the ICT sector relative to old economy or traditional manufacturing sectors such as automotive exports and the relationship between the two.
We disagree with Industrial strategy's comment that raw material prices, relatively cheap labour, proprietary technology and market access are so-called 'old' sources of competitiveness and that we should not rely on the 'old' ways. The analysis provided in the document is not convincing, as it hasn't been quantified or applied to the South African situation. From the Idec's experience with foreign direct investors as well as successful domestic clients these factors are still significant for South Africa and SADO. We agree that they are certainly not the only sources of competitiveness, but they should not be disregarded.
We agree that South Africa should not ignore the global challenges of the new economy, but it should not dominate our current base of competitiveness, which is still very much factor-driven. The IDC saw the need to enhance the new economy and created a Techno-Industries business unit, which focuses on IT and telecom investments
9. HOW SHOULD POLICY BE STRUCTURED TO GIVE EFFECT TO STATED PRIORITIES, SUCH AND EMPLOYMENT CREATION AND RETENTION, SMME DEVELOPMENT AND COOPERATIVE DEVELOPMENT AND BEE
The integration of various policies towards an integrated strategy is an important factor in the formulation of industrial policies. Policies need to be co-ordinated and linkages between government departments and institutions need to be enhanced. The policy should indicate its positioning regarding the "Integrated Action Plan to Accelerate Growth, Employment and Investment" recently approved by Cabinet and illustrate where industrial policy interacts with this larger government strategy.
We believe that SMME development; empowerment as well as job-creation rather than the creation of a knowledge-based economy should stand central to an integrated industrial strategy.

 

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