The South African government is considering the creation of a fund to support industrial development and job creation, the National Treasury reported on Tuesday.

The fund would be made up largely of existing spending programmes and tax breaks, with clear, measurable job-creation targets.

In its Medium-Term Budget Policy Statement (MTBPS), the Treasury noted that government provided a broad range of incentives, tax breaks and advisory services to help the private sector create jobs, in addition to support offered through the development finance institutions. The proposed fund could be used to access and monitor these government support measures, which it said might not always be transparent.

Industrial policy within South Africa was an important factor in economic development, as it could be used to diversify exports and to promote investment in new sectors through special export zones and tax incentives. However, the MTBPS noted that such measures should be temporary.

"Any profit-seeking activity that needs permanent subsidies or price distortions to survive does not deserve to do so," the MTPBS quoted the Growth Commission.

Transforming the economy and restructuring the public service would require some adjustments. Government, business, labour and civil society would need to give due consideration to these trade-offs and reach consensus on the best way forward, the MTBPS warned.

"For example, increasing budgets for labour-intensive public services could mean reducing expenditure elsewhere. Funding a wage subsidy might require higher taxes, and channelling incentives to labour-intensive sectors was likely to take resources away from other sectors of the economy.

"Such measures imply some discomfort for people and communities, because the options that governments have to reallocate resources are limited. Moreover, the benefits of such resource shifts can be blunted by bureaucratic inefficiency or captured by vested interests."

Key elements of government's strategy to drive more inclusive growth could include: shifting resources to labour-intensive sectors of the economy, helping young workers enter the economy and reducing the barriers to creating jobs, as well as trade, industrial and competition policy that contributed to creating jobs through increasing competitiveness, raising productivity and lowering costs for both businesses and households.

The MTBPS noted that fast-growing economies were open to trade and fully exploited the global economy by importing ideas, technology and know-how, and exporting goods and services.

"Foreign direct investment is an important conduit for the transfer of capital, skills and technology."

Work on trade policy was currently focused on providing support to South Africa's industrial strategy and job-creation objectives. Tariff structures would be reviewed with these objectives in mind, it stated.

"South Africa seeks a conclusion of the Doha Round based on the original developmental mandate. However, that mandate has been eroded over time, and may result in less ambitious reforms to tariff policies in agriculture that hold back developing-country producers. At the same time, our status as a middle-income country implies tariff reductions in South African industrial products that we believe to be too large and could have negative effects on employment in some labour-intensive industries."

The Treasury noted that in line with the objective of building trade relations with key developing economies, South Africa and other members of the Southern African Customs Union negotiated and concluded a preferential trade agreement with Mercosur in June 2008.

The agreement, subject to parliamentary ratification in all signatory countries, provides a sound basis for expanding trade links between Southern Africa and South America.

The Mercosur agreement was founded in 1991 by Argentina, Brazil, Paraguay and Uruguay, to promote free trade and the fluid movement of goods, people and currency.