Call made for ‘broad coalition’ to reverse South Africa’s premature deindustrialisation

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A new no-holds-barred study of South Africa’s economic transformation over the past two decades concludes that the country has not only deindustrialised prematurely, but has also failed to materially transform its economic structure to one that encourages inclusive growth and development.

Titled ‘Structural Transformation in South Africa: moving towards a smart, open economy for all’, the report calls for the creation of a broad coalition for reindustrialisation, underpinned by productive investment and widening economic participation.

Such a settlement should also be integrated into any “new deal” pursued by President Cyril Ramaphosa’s administration and be supported through a “reorientation of macroeconomic policy” that manages volatile natural resource earnings, delivers a stable and competitive exchange rate and embraces fiscal policies that prioritise longer-term investment.

Ramaphosa will be convening summits on jobs and investment in the coming months in an effort to forge a new compact between the social partners. He has already indicated that government is aiming to use the summits to facilitate more than R1-trillion-worth of employment-creating investment over the coming five years.

Produced by the Industrial Development Think Tank, which is hosted by the University of Johannesburg’s Centre for Competition, Regulation and Development in the School of Economics (CCRED) in collaboration with the South African Research Chair in Industrial Development, the study has been written with the support of the Department of Trade and Industry (DTI).

In a brutal critique the authors – Jason BellSumayya GogaPamela Mondliwa and Simon Roberts – highlight that manufacturing’s contribution to gross domestic product (GDP) has declined from 21% in 1994 to only 13.3% in 2016. In addition, much of the growth in services has been in low-value traditional sectors.

The authors attribute this poor performance to compromises reached between a narrow coalition of elites, which, “buttressed by higher government salaries and social grants for important constituents, has undermined investment and reinforced rather than changed the existing structure of economic power”.

To redress the situation, the new settlement should mobilise key black constituencies, including industrial trade unions, through effective skills upgrading and investment, and productive black entrepreneurs, through opening-up economic opportunity.

In addition, reindustrialisation requires public investment to provide effective public transport and education for economic activity, alongside long-term private investment and entrepreneurship.

The settlement should also include an agreement with large firms, which rewards long-term domestic fixed investment and investments made into skills development.

Professor Roberts describes the report as a “very honest look in the mirror” and argues that it can no longer be business as usual if South Africa is to address the issues tearing at its social fabric, while confronting the threats and opportunities arising as a consequence of the Fourth Industrial Revolution.

“I don’t think we are saying anything people don't already know. Business has woken up to the fact that there is a strong relationship between livelihoods of communities, the sustainability of the economy and their long-term profitability.

“It’s a watershed moment, where business is realising that, if changes are not made, it assets will not be worth much, as there will be no growing demand and incomes,” Roberts tells Engineering News Online.

But while business is receptive, it has grown tired of government plans that are left unimplemented. “We need to recognise that if we don’t follow through and hold everybody to account – not just government – then we are not going to make this change.”

Besides building a coalition for reindustrialisation, the study suggests the following solutions for reversing the deindustrialisation:

  • The consolidation of fragmented government structures, particularly in the economic policy domain.
  • Regional industrial integration, which takes account of the need for other Southern Africa countries to export more to South Africa for South Africa to grow its own exports into the region.
  • Incentivising and investing in capabilities to take advantage of the Fourth Industrial Revolution.
  • Dealing with concentration in the economy through competition policy and legislation.
  • And a reorientation of macroeconomic policy to ensure it is supportive of industrialisation.

Trade and Industry Minister Dr Rob Davies, who accepted the report on Friday, has acknowledged that the findings, which are critical of government industrial policy interventions in the metals, machinery and equipmentautomotive, and agriculture and agroprocessing sector, “make for hard reading”.

However, Davies says there is no room to be defensive if we are to make the necessary changes.

“The Fourth Industrial Revolution, now upon us, makes it even more critical that we focus single-mindedly on investing in our own productive capabilities and those across the Southern African Development Community.”