The imperative for a New Growth Path driven by an overarching Industrial Policy has long been recognised by the SACP. Although many of the deep seated structural problems were inherited from Apartheid, it is a well documented fact that since our democratic transition unemployment has never fallen below 22% and is as much as 40%, if the broader definition of the unemployed is used. Income inequality remains amongst the highest in the world - and has even increased with the Gini coefficient measure of inequality having risen from 0.66 in 2007 to 0.679 in 2009. Enormous disparities of access to opportunities and services means that levels of absolute poverty have remained intolerably high.
Even though the democratic, ANC led government has done much to alleviate the plight of the unemployed and the poor since the dawn of democracy in South Africa, the New Growth Path (NGP) acknowledges that post apartheid economic growth have not led to significant reductions in unemployment and inequality. This fact may be considered as the first point of departure for governments NGP and one of its principal pillars, the Industrial Policy Action Plan (IPAP2).
The structural problems which underpin South Africa's economy derive from the accumulation path established under colonialism and Apartheid. What emerged has been historically defined as a 'minerals - energy complex' in which low paid, generally unskilled labour was exploited to support an accumulation trajectory based primarily on capital intensive commodity based industrial activities and the export of basic commodities and low value add products. In the contemporary period this deep seated structural fault line has been exacerbated by the increasing financialisation of the economy. SA's growth in the recent past (before the onset of the 2008/9 recession) was primarily driven by unsustainable increases in private credit extension and consumption, and led to increased imports of high value added goods, including luxury commodities. The consumption driven sectors have grown 7,1% annually since 1994 in contrast to the production - agriculture, mining and manufacturing sectors which have only grown 2,4% annually over the same period.
As a result formal employment growth has come mainly from the services sectors particularly the wholesale and retail sectors and businesses services sectors, particularly outsourcing, logistics and private security. Because growth and employment creation in these sectors is considerably dependent upon credit extension and consumption both outcomes are vulnerable and unsustainable, evidenced by rapidly rising unemployment during the recent global economic crisis.
In other words growth along the existing path was not sufficiently under-pinned by growth in the production sectors of the economy. On the contrary SA experienced a phenomenon known as deindustrialisation in which its manufacturing sectors have declined and in some cases are near to collapse. These sectors, are of strategic importance to a sustainable economic growth trajectory because they are characterised by high economic and employment multipliers. Put another way the process of adding value to basic or primary commodities is both labour intensive (including at lower skills levels) and stimulates other economic sectors including by demand for inputs into the manufacturing process and in the downstream linkages in the production of other value added products, for export, retail and in the services sectors.
Related to the above, has been an insufficient and inadequate role of the state in promoting sustainable economic growth and development. SA's recent economic growth trajectory has been characterised by the following set of problems which have often negatively impacted upon the growth of the strategic sectors of the economy.
The limited allocation and high cost of industrial financing provided by SA's development finance institutions (DFI's) including the Industrial Development Corporation - particularly to the strategic sectors outlined above. South Africa's real interest rate is amongst the highest in the world.
The failure of the state to utilise massive state procurement, including in large procurement programmes such as the capital expenditure programme required to upscale SA's energy generation capacity, as a lever with which to support local manufacturing,
The very high prices of inputs into manufacturing arising from the existence of monopolies and anti-competitive behaviour. Steel for example is the most important input into the manufacturing sector. Despite the fact that SA has the lowest cost of iron ore and reductants as well as low labour and transport costs in the sector, the cost of steel is amongst the highest in the world. This has obvious and negative knock on effects for SA's manufacturing sectors.
The training system and skills provision is poor with a mismatch between the quantity and quality of those trained and the actual needs of the production sectors of the economy.
SA's rail and port infrastructure and operations is in many instances aged, inefficient and expensive.
Fourthly and in keeping with many other developing countries SA has suffered from an exchange rate that is both volatile and over-valued. This arises from the fact of large speculative movements of short-term or 'hot' capital inflows from the industrialised economies into the domestic economy as a result of the existence of large stocks of liquid global assets, low growth and returns in many markets, and high real interest rates in SA - as at December 2010 both our short and long-term real interest rates were amongst the highest in the world. This has played a large role in facilitating short term capital inflows into South Africa's financial market - which contributes to the massive recent appreciation of our exchange rate and which in turn hinders long-term fixed investment in the manufacturing sectors and undermines the viability of these sectors.
It is for all these reasons, amongst others, that both the NGP and the IPAP point to the need for a strategic shift in emphasis in governments approach. Employment creation and a more labour absorbing growth path capable of generating decent work are at the centre of economic policy. The NGP articulates interventions across the range of production sectors - agriculture, mining, manufacturing, tourism and high level services- and the need for the coordination and integration of these interventions.
The IPAP in turn reports on the progress already registered and sets out a range of interventions which dovetail with the objectives set out in the NGP, which aim to address the structural weaknesses of the economy and craft and implement the industrial policy interventions which are required to reverse industrial decline, create decent work and begin the long and complex task of placing SA's economic growth on a more sustainable foundation.
In summary the recently released second phase of the IPAP reports on progress registered to date and a further set of measures as follows;
The provision of concessional industrial financing, particularly by the IDC, to support NGP and IPAP sectors, which subject to proper process and conditions will stimulate investment in these sectors. The IDC has already set aside R66bn for this purpose and further policy directives in this regard are being processed.
The revision of government legislation to ensure that all government procurement is weighted in favour of local production and the scaling up of local capacity, without prejudice to cost and BEE considerations. Regulatory amendments in this regard are at an advanced stage with further interventions in the pipeline.
An intervention to ensure that a developmental steel price is put in place to ensure that SA's comparative advantage in this regard is passed on to the manufacturing sector has been processed and will be implemented in the near future. SA has fared relatively poorly when it comes to a clear strategy to ensure that our national minerals endowment is utilised to maximise sustainable growth and development. This is why government is committed to ensuring that a stronger minerals beneficiation strategy leads to practical interventions which can add value to our primary commodity exports rather than simply allow for the extraction of massive profits by transnational mining companies and 'rents' by a domestic elite. Work in this regard is underway.
The strengthening of SA's developmental trade policy interventions to lock out sub-standard products which undermine local production capacity and a tariff regime which lowers tariffs on products used in manufacturing and increases those for products which require protection from cheap, often low quality imports. The IPAP also lists a range of interventions to minimise the ever increasing and very damaging effects of the illicit economy including against smuggling and import fraud of one type or another.
A wide ranging set of practical interventions across a range of sectors, including in the automotives and clothing and textile sectors, aimed at scaling up the productive and competitive capacities in these sectors as well as with respect to skills, innovation and other interventions required. This includes a set of interventions in the strategically important renewable energy sector involving energy generation, saving and the localisation of production for these new sectors.
Finally it may be worth stressing that governments' Industrial Policy Action Plan is no magic wand. Firstly SA's economy is part of an increasingly hostile global economic environment. The economic recovery in our traditional trading partners to which we exported relatively more of our value added products - Europe and the US - have been very slow to emerge from the global recession. India and China, to which SA exports much of its primary commodities, have continued on high growth trajectories. This necessitates a shift in the emphasis of our trade efforts.
Secondly both the NGP and the IPAP involve complex government policy coherence and integration - objectives which require sustained effort. The success of governments interventions also require that government works closely with the private sector, which itself is often hostile to efforts by government to initiate policy interventions which place the economy on a more sustainable path.
Nevertheless the considerable progress already achieved over the last year since the launch of IPAP, the opportunities which have emerged from SA's inclusion in the BRICS group of countries and our efforts to secure regional economic integration, amongst other positive indicators and factors means that there is growing confidence that the battle to place SA's economy on a more labour intensive, sustainable and equitable growth path in the future can be won.