02/09/2010
Source: The Democratic Alliance
Title: DA: Marais: Address by DA Member of Parliament, on industrial policy, National Assembly, Cape Town

Op ‘n vraag van my in hierdie huis aan ‘n vorige President, was ek verseker dat die regering oor ‘n Industriele Beleid beskik wat enige uitdagings die hoof kan bied. Vandag weet ons dat IPAP nie aan die verwagtinge voldoen het nie, en dat die doel met IPAP2 is om die tekortkominge en uitdagings aan te spreek.

South Africa has lost global market share and was overtaken by Brazil as an important emerging economy over the last 15 years. This has detrimental consequences for us in Africa and in both South-South and North-South trade relations. The inability to attract Foreign Direct Investments, to regain global competitiveness in strategic industries and to create sustainable jobs has become our Achilles Heel.

The success of an industrial policy is not dependent on a once-off successful intervention by government, but on applicable and targeted support over a period of time. The main purpose of IPAP2 should be to speed up the process of structural change towards higher production and employment initiatives, and to know when to adapt and/or terminate interventions as circumstances change, or to rectify outright mistakes.

IPAP2 has identified 13 strategic sectors, compared to the current 7. Most have shed jobs in 2009 - 870 000 to be specific. It also sets out 7 policy objectives. There is no cost benefit analysis or explanation linked to each favoured sector (e.g. what the nature of the deemed market failure in each case is and how it will contribute to achieving the policy objectives). There are also no quantifiable and measurable objectives explaining the expected cost and impact of each intervention. The impression is that government has decided on the winners and leading sectors, which is contrary to the belief of the DA that successful industrial policies are always market driven and private sector led, in partnership with government.

The South African economist Jac Loubscher said "Industrial policy should aim at discovering the competitive advantages in the economy in close collaboration with the private sector instead of government prescribing what they should be". Dani Rodrik of Harvard University said "the real test for an Industrial Policy is whether governments can let losers go".

One gets the impression that some of the sectors made the list because they are either fashionable (e.g. ‘green' and energy-saving industries and bio-fuels) or ideologically attractive (e.g. downstream minerals beneficiation), while others respond to strong lobbying from vested interests (e.g. clothing, textiles, leather and footwear). Global investors are losing confidence in our credibility as an investment destination. The practical implications of the current BBB-EE policy (as represented by the widely reported AMSA/ICT deal), the constant rumours about nationalisation and state corruption, and the effects of the Greenpaper on agricultural land ownership have added to negative perceptions.

In instances of successful global industrial policies, a focused and specialized approach was followed together with partnerships between government, big and small businesses. IPAP2 is targeting too many diverse sectors with no real strategic thrust and targeted financial support in specific sectors to clearly lead the industrialised recovery. It ignores the fact that our strength lies in our diversity, and in sectors where we can be champions.

Dit wil voorkom asof geen werklike moeite gemaak was om die strategiee uit te brei om vir spesifiek KMO's, entrepreneurs en Kooperasies te voorsien nie, en om te verseker dat die beleide van Handel, SEB en Arbeid pro-aktief en op ‘n holistiese wyse onderteuning aan industrialisasie en volhoubare investering bied nie.

Although IPAP2 provides for retail, financial, and some service related activities, its main focus is on growing the manufacturing sector. It is a myth that only mining, agriculture and manufacturing can be regarded as "productive" sectors.

No mention was made of the possibility of utilising the services sector as a lead sector. Experiences in India (our IBSA and potentially BRICS partner) have shown that services-led growth can be sustainable and a leading economic sector. Today services are the largest sector in the world, accounting for more than 70% of global output, and we are not part of that.

Nie genoeg klem is geplaas op die finansiele sektor wat noodsaaklik is vir ekonomiese groei en ontwikkeling nie. Die Suid Afrikaanse finansiele dienste sektor word hoog geag in die wereld en ideaal om dienste te voorsien tussen Afrika en die res van die wereld.

South Africa has ample raw material, natural resources and low skilled (mostly unemployed) labour. A key element of IPAP2 seems to be the importance of technological knowledge and capacity for which a highly skilled labour force is needed, which depends very much on an effective education and skills development regime, for which South Africa is not well positioned. Thus, IPAP2 is targeting an ideal labour force, and not the one we have.

Other barriers IPAP2 is facing are the lack of FDI's due to unpredictability and low investors confidence, low productivity and weak global competiveness, a highly regulated but inflexible labour regime, limited availability of project funding, and the poor state of our transport infrastructure.

IPAP2 emphasised the importance of local beneficiation, and how this will increase the local content of manufactured products, increase employment and foreign earnings. However, the reality seems to be different.

The APDP is seen to be central to the success of IPAP2. The prevailing criticism is of its highly mechanisation nature and the very small local content in vehicles assembled, in some cases less than 30%. Companies (like VWSA) has set a target of +70% local content (in the new Polo), however, it does appear that much of the raw material and semi-finished products are still imported and are judged to be 100% local content after some value has been added. Both NAAMSA and AMSA confirmed that while South Africa has some of the best quality iron-ore in the world, South Africa does not produce flat sheet metal to be used in the manufacturing of vehicle bodies.

Meer klem moet geplaas word op waarde toevoeging van Suid Afrikaanse rou material, en om die arbeidsintensiewe voertuig komponente bedryf as ‘n globale kompeterende sektor te ontwikkel.

IDZs in the past were targeted and designed to drive specific industrial and export sectors. During the visit of our committee to Coega, it became clear that not enough priority and support are being committed to IDZs despite the enormous initial state investments made. The DA believes that EPJZs can be an effective mechanism that must enjoy targeted "behind the border" incentives. EPJZs should be implemented in more rural areas where wage subsidies and tax incentives on profits and to 1st time employees should be considered to also contribute to the economic development in the rural areas.

Agro-processing offers opportunities to effectively structure land reform through the utilisation of commercial productive land as well as existing production capacity, knowledge and expertise. This will add to rural development, it will strengthen the whole agri- sector and will contribute to food security, 2nd tier agri-industries (eg bio-fuel), and their export capacity.

Chairperson, as we learned from our last interactions with Eskom and the iron, steel, and automotive industries, there are still many stumbling blocks preventing IPAP2 from the intended outcomes. We support the view of the committee for the need of continuous evaluation of appropriate strategic industrial actions plans that will meet the demands of the time and will enjoy the full support and buy-in of government, labour, South African business and foreign direct investors. This will contribute to not only optimal employment and beneficiation in South Africa, but will assure strategic global competitive positioning, sustainability, and an open opportunity environment for all. IPAP2 must be se en as a step towards practical and achievable action plans that will contribute to actually growing our economy. The DA will continue to play a constructive role to develop the best options for our needs.