Industrial Policy Hearings: response by Department

Chairpersons: Dr Davies and Mr Moosa

Documents handed out:
Response to Public Hearings on Industrial Strategy (see Appendix)

SUMMARY
The response presentation by the Director General highlighted about twenty issues that needed to be considered by the parliamentary committee and Nedlac in developing South Africa's industrial strategy further. Questions by committee members focussed on some of the following points: local research and development; phasing out of import tariffs, labour market rigidity, the knowledge economy, the digital divide and re-skilling.

MINUTES
The Director General, Dr Alistair Ruiters, introduced his response presentation by thanking all organisations and individuals who participated in the industrial strategy hearings during the previous week and the media for popularising the hearings. He called upon all the groups who were conspicuously absent during the hearings to participate in ensuing workshops and make submissions before the end of June 2002.

He summarised the hearings as a way forward towards a shared vision and a continuous process towards developing a sustainable industrial policy based on broad participation. He noted that many submissions recognised the three important policy areas of the Integrated Manufacturing Strategy:
- manufacturing as the linchpin of the strategy;
- the central role of the state;
- the need for customised interventions.

He then listed twenty issues that had emerged from the inputs at the hearings which the Department urged both the Committee and Nedlac to discuss. In the last part of his presentation he argued that South Africa was moving towards a knowledge economy and that it was imperative to do so

Discussion
Prof Turok (ANC) commended the Department's response as helpful. He said that the Department needed to explicitly support the use of appropriate technology and include socio-economic factors in the industrial strategy issues. He emphasised that global knowledge should be "indigen-ised" and developed locally in terms of our own research and development. The R&D of multinationals should even be based locally not in their mother country.

Mr Redcliffe (NNP, NCOP) wanted to know the rationale behind phasing out of import tariffs in the clothing and textile industry when the local industry was shedding jobs. He asked if labour market rigidity was not responsible for low growth.

Dr Ruiters replied that there was no clear-cut relationship between job losses and the phasing-out of tariffs. The effects of the gradual phasing-out of tariffs would soon be under review. On the second question he said that the issue was not inflexibility but that people were unemployable and hence we faced structural unemployment. He added that there were other factors such as racial and gender marginalisation which needed attention too.

Dr Davies asked why the Department had chosen the word 'manufacturing' instead of 'industrial' in 'Integrated Manufacturing Strategy'. He also wanted clarity on whether by means of this strategy, the department was developing already-developed sectors to be competitive or developing undeveloped ones so that they can be competitive. His feeling was that it favoured the already developed. Would this not cause tension in the balance of the two.

Dr Ruiters replied that they had chosen 'manufacturing' because they realised that it was the linchpin of economic growth and that tertiary industry emanated from it. On the second question he agreed that there might be tension but that the department was still in the process of developing an industrial strategy and that such tensions were expected.

Mr Moosa (ANC, NCOP) wanted to know the kind of lifetime skills that would be needed in one's working years of thirty years. He also commented that the department must be able to balance the idea of a knowledge economy with the legacy of our context. He also wanted to know how the knowledge economy had helped developed countries. Finally he asked if smaller firms would not be at the bottom end of the digital divide because they lacked funds to invest in research and development.

On the first question, Dr Ruiters said that such an issue spanned many sectors and needed the participation of government, labour unions, business and academic institutions. On the second question he gave the example of the USA as having sustained growth for the past ten years. On the final question he said that the aspect of research and development would not be left to the market but that it would need government intervention.

Mr Lockey (ANC) asked if there were any other model of re-skilling. He also wanted to know if South Africa was adopting Ireland's strategy on re-skilling.

Dr. Ruiters said that the government had not adopted any policy yet. He added that South Africa's context was different to Ireland because Ireland had had an earlier access to European markets than South Africa and their industries were heavily subsidised compared to South Africa's.

Mr Zita (ANC) commented that the industrial strategy should be practical. He asked what could be done while awaiting the completion of the industrial strategy.

Dr Ruiters said that the only thing to do was to continue the training and development of human resources and to continue getting buy-ins for training across sectors.

Mr Zita suggested that the issue might not be the need for a knowledge economy and new policies - but it could still be another epoch of capitalism which by its nature excludes the majority and makes the exercise of a new policy futile for uprooting poverty.

The Chairperson noted that there were more issues that need to be discussed further. Some of the issues were domestic and foreign investments, research and development and participation by all stakeholders. The meeting was adjourned.

Appendix:
DEPARTMENT OF TRADE AND INDUSTRY
RESPONSE TO PUBLIC HEARINGS ON INDUSTRIAL STRATEGY

7 May 2002

Dr Alistair Ruiters Director-General

1. INTRODUCTION
On behalf of the Minister and Deputy Minister, I would like to extend a vote of thanks to the two committees for convening these public hearings on industrial strategy. I would also like to thank all of those organisations that took the time to consider the dti's Integrated Manufacturing Strategy and comment on it during these hearings. The dti is currently studying the various inputs.

There has been some concern expressed by the committees about the limited and, in some instances, absence of participation in these hearings from certain groups, including women, black business, and industry associations. The dti notes this concern and would like to call upon these groups to study the IMS document and send their views to the dti before the end of June or to participate in the many workshops to be held. The document is available on the dti website (www.dti.gov.za) as well as from provincial offices of economic development, parliament, Nedlac, and the dti in Pretoria.

2. DEVELOPING A SHARED VISION
These hearings have represented an important moment in the process of developing a shared vision of our economy and the challenges confronting us as we move our economy onto a higher growth path. By conducting these hearings Parliament has contributed in a significant manner to the process of participatory policy-making in South Africa. This process has been an opportunity for the expression and sharing of different views about our economic future. It also allows us to better understand the commonalities, and differences, in these views. An emerging consensus is slowly starting to take shape and it is the dti's belief that this consensus can be strengthened and taken into an implementation phase through the continuation of dialogue in Nedlac, at a sector level and in different regions of the country.

The conclusion of these hearings does not signify the end of the process. The dti anticipates further discussion and debate with stakeholders in the next two months to forge a shared vision of our economy as well as a strategy for attaining our vision. As the dti we do not claim to have all the answers and more work is required to move from the framework presented in the IMS document to an implementable plan. Indeed, partnerships for performance require stakeholders to contribute new and innovative solutions to the challenges outlined in the document.

The public hearings and discussions on critical economic matters put into sharper focus the significant role the Parliamentary Committees can play in ensuring the implementation of strategy. Parliament can do this through its approval of the dti budget -ensuring that the budget is a tool for the implementation of the IMS. It is essential that the committees also apply this test to all the agencies that make up the dti Group. The IMS provides a framework for interrogating the mandates and activities of the institutions that comprise the dti Group. Parliament can also ensure that the IMS is implemented through the role it plays in debating and questioning all legislation that the dti and other economic departments table before it.

The IMS document, together with the Microeconomic Reform Strategy, provides the committees with a framework to engage with the work of other parliamentary committees. This would be particularly important in areas such as telecommunications, energy, science and technology, transport logistics, HRD and infrastructure, to avoid unnecessary regulatory burdens and increased input costs.

3. ISSUES THAT NEED MORE THOUGHT AND DELIBERATION
Many of the submissions presented over the past few days have recognised three important policy areas identified by the dti in the IMS:

1) Manufacturing represents the linchpin of the strategy to improve the economy's performance.

2) The role of the state - not only in regulating the economy, but also in providing economic leadership for the transformation of our economy in a manner that also meets our development challenges as a nation.

3) The need for customised interventions to address specific developmental and competitiveness challenges in high potential sectors.

Several other themes have also emerged from the inputs made during the public hearings. These require more thought and deliberation by all parties - including ourselves as the dti and its related institutions, and government more broadly. The dti would like to see the Parliamentary Committees and Nedlac consider these questions in their further deliberations on the IMS document.

- What is knowledge?
- What is a knowledge-intensive activity?
- How does knowledge-intensity relate to skills and to labour-intensity?
- Do we abandon old sources of competitiveness?
- Why not focus more on the production of basic goods for the domestic market?
- Is there an over reliance on export-led strategies to generate growth and employment?
- Are competitiveness and development objectives contradictory? What trade-offs are required in the short-term, and does this relationship change over time?
- What is the strategy to bring marginalised groups, women, youth, rural communities and the disabled, into the economy?
- How do we integrate the IMS into the Integrated Sustainable Rural Development Strategy and the Urban Renewal Strategy?
- What is constraining investment rates?
- How do we ensure that investment serves our socio-economlc objectives?
- How can we factor the potential impact of HIVI Aids on issues such as the labour market, skills development and domestic demand into the IMS?
- How do we promote greater coordination in government?
- How do we bring about greater alignment of the strategies of the dti Group?
- What is meant by collective action?
- What form should partnerships assume?
- What instruments are available to ensure that partnerships add value to individual efforts?
- How do we remove the obstacles to effective partnerships?
- How do we measure our success?
- What are appropriate indicators for measuring both the improvements in the competitiveness of our economy as well as improvements in equity and living standards?

4. SOUTH AFRICA IS A KNOWLEDGE ECONOMY
Perhaps the key theme that has emerged from many of the submissions that have been made is a concern about South Africa's readiness to embrace a knowledge economy.

A knowledge economy aims to make use of all the benefits of working smarter. It aims to join technology with human experience in a new way. A knowledge economy needs to draw on the experience and capacities of everyone.

We need to combine knowledge with technology and productive activity to develop our economy and deal with its deep problems. Economic opportunities lie increasingly in people and the knowledge that people possess. This knowledge is the knowledge of how to produce more effectively and how to read, anticipate and meet the precise needs of customers. The knowledge of workers must be harnessed to raise productivity levels and generate innovations. Experience and expert knowledge are accumulated over a period of time and the increasing casualisation and informalisation of employment typically mitigates against the acquisition and utilisation of knowledge on the job.

Thus, the knowledge economy involves new ways of working, new management practices, new forms of corporate governance, more visionary boards and enlightened managers, new forms of government offerings, and new relations between government, business and labour. The knowledge economy also requires the development of networks and the diffusion of best practice between enterprises.

Studies conducted by the dti in a wide variety of sectors have identified knowledge-driven activities, such as innovation and marketing intelligence, as the prerequisite of their further development. The key blockage to growing these sectors - for example clothing, wine, chemicals, pharmaceuticals and jewellery and others - is frequently the absence of knowledge. Thus, the focus on knowledge is not just a strategy only for high-tech industry but is relevant for the entire economy.

South Africa is already on the path to becoming a knowledge economy. Some sectors have embraced the concept more readily than others.

The economic problems that we currently confront reflect that the economy has significantly restructured and that this restructuring is deep-seated and cannot be easily reversed. This is evident in the fundamentally altered sectoral contribution to gross valueadd (the tertiary sector now contributes nearly two-thirds of gross value-add), the change in the labour-skills mix (demand for highly skilled labour has increased in all sectors while at the same time the demand for unskilled labour has fallen), and the rapid deepening of technology (capital to labour ratios have increased despite the relatively high cost of capital). This structural change gives rise to negative social implications that must be addressed through immediate and mediumAerm interventions otherwise higher growth rates will only serve to exacerbate inequality and poverty.

The challenge we need to meet collectively is how to adjust to this reality in a way that also allows us to achieve our developmental and equity objectives, and that brings the full potential of our people and their knowledge into this process.

Government has already responded to the challenge: a growthorientated and redistributive budget was announced this year and the Microeconomic Reform Strategy sets out government's plans to improve the efficiency of the economy. The Integrated Human Resources Development Strategy and the forthcoming Technology, Research and Development, and Innovation Strategy address key challenges in areas that are imperative for a knowledge economy. Both of these strategies address issues such as the recognition of prior learning and the advancement of indigenous knowledge systems. Widespread education and training are basic requirements for effective integration into the knowledge economy and more needs to be done to address this fundamental prerequisite. Infrastructure planning is also seeking to significantly widen the access to affordable telecommunications and physical infrastructure, which are essential to a broad-based knowledge economy.

The dti will respond to the challenge through a closer working relationship with its social partners in specific sectors and value matrices to promote increased output and employment at a sector level. This work is hampered by the absence of a credible, highlyorganised and unified business voice in South Africa. In addition, forthcoming small business development and black economic empowerment strategies will address questions around marginalisation and economic development. The dti strongly believes that it is now well-placed as an institution to meet the challenges that are set out in the IMS:

- To act as a facilitator of the Microeconomic Reform Strategy
- To champion the pursuit of competitiveness and equity in a global economy
- To work with social partners in sectors to develop customised interventions
- To efficiently provide relevant broad-based products and services

5. CONCLUSION
As early as 1994 stakeholders, including parliamentarians, trade unionists, business people, commentators, politicians, have all expressed a common concern about the absence of a document that clearly articulates a shared vision for our economy. We believe that with the release of the Integrated Manufacturing Strategy we have gone some way in addressing this concern.

The IMS sets out a framework for achieving a vision of an economy that can sustainably meet the needs of all our people. A detailed implementation plan needs to follow. A key step in this process would be for Parliament and all social partners to work with the dti to shape this plan and to ensure that sufficient resources are allocated to the implementation of the plan.

Once again, I would like to thank the committees, the chairpersons in particular, for creating this platform for a rigorous and constructive debate on critical matters that impact on the lives of all South Africans.

Allow me to express my sincere appreciation to all the dti staff who contributed to the formulation of this strategy and to all those who participated in the various focus groups conducted by the dti.