Cape Town - Minister of Trade and Industry Rob Davies on Thursday unveiled a new industrial action plan for SA which promises to ramp up manufacturing capacity and create 2.47 million jobs in the next decade.
The purpose of the long-awaited Industrial Policy Action Plan (Ipap), which kicks into action in April, is to shift South Africa's economy from its current "unsustainable consumption-driven" economic growth path to a production-driven and, therefore, labour absorbing growth path.
"Production sector growth has been half that of the consumption sector. This is the reason why, even when we achieved relatively good GDP [gross domestic product] growth, our unemployment never fell below 22%.
"As a country, South Africa has no alternative to the course of action we propose," said Davies in a briefing before he tabled Ipap in parliament.
Aside from increasing the economy's capacity to absorb labour, Davies said the revised Ipap would significantly improve the country's trade balance, mitigate the balance-of-payments threat to the public capital expenditure programme and diversify and grow exports, especially in areas of capital equipment, automotive components and agro-processing.
The strategy rests on four cornerstones.
The first is to secure and channel greater concessional industrial financing through the country's development finance agencies like the Industrial Development Corporation (IDC). This means that the balance sheet of these agencies will have to be strengthened.
"A critical determinant of profitability and investment is the cost and availability of capital on terms comparable to competitors," said Davies, who stressed that compared to its trading partners, South Africa's cost to capital is almost the highest.
He referred to development finance agencies in other middle-income countries like Brazil, where there is constant balance sheet replenishment from state coffers, to make the point that the IDC, which does not get this replenishment from the public purse, is penalised by being limited in the amount and cost of money it can raise.
Ipap's second cornerstone consists of a plan to overhaul South Africa's procurement system so that it moves away from the current mechanism where tenders are awarded on a once-off basis as they are needed, to a more strategic system that enables "fleet" procurements.
Focus to be on three sector clusters
These will also oblige the winning contractor to produce the required goods locally as the contract progresses. While the aim of overhauling the procurement system is to leverage off the country's infrastructure building programme, Davies did concede that time was running out to capitalise on this.
The third cornerstone involves ensuring that South Africa's trade policies are being used more strategically.
"This includes intensifying the campaign led by Sars [the South African Revenue Service] against practices such as customs fraud, under invoicing, smuggling and illegal imports - all of which profoundly undermine the productive capacity and employment in the economy," said Davies.
The three clusters of sectors these interventions will focus on include metals fabrication - where government sees "major opportunity for industrial development" - capital and transport equipment, and green energy-saving industries as well as agro-processing.
While these will be new areas of industrial policy focus, Davies said the policy would broaden on sectors that were the focus of the previous industrial policy action plan.
These include automotives and components, medium and heavy vehicles, plastics, pharmaceuticals and chemicals, clothing textiles, footwear and leather, biofuels, forestry, paper, pulp and furniture as well as business process outsourcing.
"The third cluster focuses on sectors in which we have potential to develop long-term advanced capabilities: nuclear, advanced materials and aerospace," said Davies, dismissing criticism that investment in clothing textiles, footwear and leather is misguided because of the competition this sector faces from China.
He said research has confirmed there is opportunity in this sector, especially in fast fashion, specialised sportswear and camping equipment.
While Ipap will be the subject of public hearings in parliament's trade and industry portfolio committee, Davies stressed that the document he tabled in parliament is "it" and that any changes would be accommodated when the document was updated each year to coincide with the beginning of a new financial year.
- Fin24.com