UCT GSB Distinguished Speaker
Programme
26 October 2011
SA’s Industrial Policy Action
Plan (IPAP2)
Dr Rob Davies MP
Minister Trade and Industry
1
Problem statement
• Prior to global crisis SA achieved relatively high growth rates but this
masks key structural problems
• SA growth rates lower than peers
• Growth driven by unsustainable increases in credit extension and
consumption (financial intermediation, insurance, real estate,
transport, storage, communication, wholesale and retail, catering,
accommodation) grew 7.7% annually,
• Production sectors, (agriculture, mining, manufacturing, electricity,
water and construction) only grew 2,9% annually. There has been a
substantive decline in manufacturing sector production
• Contributed to range of imbalances in economy including current
account deficit
• Employment has remained unacceptably high – never below 22.8% 2
Unsustainable consumption-led growth path
Divergence of GDP by production and consumption-driven sectors, 1994-2010
3
Source: SARB
Private credit extension
Private sector credit extension by all monetary institutions, 1990 – 2010
4
Source: SARB
Structural constraints have worsened
since 2008 crisis
• Since the 2008 crisis manufacturing has experienced a
virtual 'perfect storm' of:
– Slow global growth particularly in traditional export markets of
the US and EU
– Weakened domestic demand as the credit-fueled boom of 20052007 unwound
– Currency overvaluation and high real effective exchange rate
– High administered prices - escalating electricity price increases
of the order of 75-90% from Eskom and up to 140% including
municipal increases.
– Backlogs in infrastructure expenditure across levels of
government,
– Slow progress with skills development
– and recent industrial action.
5
1Q1990
2Q1990
3Q1990
4Q1990
1Q1991
2Q1991
3Q1991
4Q1991
1Q1992
2Q1992
3Q1992
4Q1992
1Q1993
2Q1993
3Q1993
4Q1993
1Q1994
2Q1994
3Q1994
4Q1994
1Q1995
2Q1995
3Q1995
4Q1995
1Q1996
2Q1996
3Q1996
4Q1996
1Q1997
2Q1997
3Q1997
4Q1997
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
Trade Balance
Manufacturing, Mining and Agriculture Trade Balance Q11990 – Q32010, US$m
2,000,000,000
1,000,000,000
0
-1,000,000,000
-2,000,000,000
-3,000,000,000
-4,000,000,000
6
Agriculture, forestry & fishing
Manufacturing
Mining
Source: Quantec
1990/01/01
1990/04/01
1990/07/01
1990/10/01
1991/01/01
1991/04/01
1991/07/01
1991/10/01
1992/01/01
1992/04/01
1992/07/01
1992/10/01
1993/01/01
1993/04/01
1993/07/01
1993/10/01
1994/01/01
1994/04/01
1994/07/01
1994/10/01
1995/01/01
1995/04/01
1995/07/01
1995/10/01
1996/01/01
1996/04/01
1996/07/01
1996/10/01
1997/01/01
1997/04/01
1997/07/01
1997/10/01
1998/01/01
1998/04/01
1998/07/01
1998/10/01
1999/01/01
1999/04/01
1999/07/01
1999/10/01
2000/01/01
2000/04/01
2000/07/01
2000/10/01
2001/01/01
2001/04/01
2001/07/01
2001/10/01
2002/01/01
2002/04/01
2002/07/01
2002/10/01
2003/01/01
2003/04/01
2003/07/01
2003/10/01
2004/01/01
2004/04/01
2004/07/01
2004/10/01
2005/01/01
2005/04/01
2005/07/01
2005/10/01
2006/01/01
2006/04/01
2006/07/01
2006/10/01
2007/01/01
2007/04/01
2007/07/01
2007/10/01
2008/01/01
2008/04/01
2008/07/01
2008/10/01
2009/01/01
2009/04/01
2009/07/01
2009/10/01
2010/01/01
2010/04/01
2010/07/01
2010/10/01
2011/01/01
Currency
Balances: current account, financial account and real effective exchange rate
(REER), Q11990 – Q12011
50,000
0
-50,000
Balance on current account (Rm)
Balance on financial account (Rm)
REER (1990=100)
120
40,000
30,000
100
20,000
80
10,000
60
-10,000
-20,000
40
-30,000
20
-40,000
-
7
Source: SARB
IPAP2:
Requires comprehensive and integrated action
1. Macro-economic policies which support more competitive and
stable real exchange and interest rates
2. Industrial financing channelled to more labour-intensive and
value-adding sectors
3. Leveraging procurement to raise domestic production and
employment in a range of sectors
4. Developmental trade policies such as tariffs and standards
deployed in a selective and strategic manner
5. Competition and regulation policies: competitive input costs for
productive investments and affordable goods and services for poor
and working-class households
6. Skills, technology and innovation policies better aligned to
sectoral priorities
7. Intra- governmental action on customs fraud and illegal imports.
8. Deploying these policies in general and in relation to more
ambitious sector strategies, as set out in detailed Cross-cutting
and Sector KAPs
8
IPAP2: Sectors
Cluster 1: Qualitatively new areas of focus
– Metals fabrication, capital and transport equipment sectors:
leverage Capex programme, rebuild and position as future
exporters
– Green and energy saving industries: solar water heating,
concentrated solar power, wind power, energy efficiency
– Agro-processing linked to food security and food pricing
imperatives
– Boatbuilding and Oil and Gas sectors with significant potential
Cluster 2: Scale up / broaden interventions in existing IPAP sectors
– Automotives, Components, Medium and Heavy Commercial
Vehicles: raise economies of scale and localisation of components
– Downstream Mineral Beneficiation: based on establishing
minimum beneficiation levels
– Plastics, Pharmaceuticals and Chemicals: focused on plastics
and value-adding pharmaceuticals
– Clothing, Textiles, Footwear, Leather: recapture domestic
market share through competitiveness upgrading and tackling
illegal imports
9
IPAP2: Sectors
Cluster 2: Scale up / broaden interventions in existing IPAP sectors
–
Biofuels: establish regulatory framework and support agricultural
and refining investment
–
Forestry, Paper & Pulp, Furniture: promotion of afforestation to
ensure downstream sawmilling
–
Strengthen Craft and Cultural Industries
–
Business Process Services: broaden and deepen SA’s product
offerings
Cluster 3: Sectors to develop long-term advanced capabilities
–
Nuclear: leveraging local production and technology transfer
–
Advanced Materials: feeding into new growth industries such as
aerospace, solar and nuclear
–
Aerospace: strengthening integration into supply chains
10
IPAP 2:
Key pillar of the New Growth Path
IPAP: value-added sectors with high employment and growth multipliers
5
Low employment multipliers &
strong backward linkages
High employment multipliers &
strong backward linkages
4.5
4
Motor vehicles, parts &
accessories
Total Backward linkages
3.5
Paper & paper products
3
Basic chemicals
Basic iron & steel
2.5 Basic non-ferrous metals
EGW
Business services
2
6
1
2
3
5
4
7
11
81
9
Leather & leather products
Textiles
Food
14
1
Other manufacturing
Transport & storage
Mining
Financial services
13
Wood & wood products
Excl. medical, dental & vet
Wholesale & retail trade
Wearing apparel
Agriculture
1. Other chemicals & manmade fibers
2. Furniture
3. Plastic products
4. TV, radio and comm equip
5. Electrical machinery and
apparatus
6. Paper and paper products
7. Rubber products
8. Non-metallic minerals
9. Beverages
10. Glass & glass products
11. Professional & scientific
equip
12. Metal products excl.
machinery
13. Machinery & equipment
14. Footwear
Government services
1.5
1
0.5
Low employment multipliers
& weak backward linkages
High employment multipliers
& weak backward linkages
11
0
0
7
Employment multipliers
14
Source: CSID
IPAP Progress: Public procurement.
Preferential Procurement Policy Framework Act Regulations
- Amended Regulations of the PPPFA become effective in December 2011.
 Alignment with B-BBEE Codes and enable local procurement
 DTI to designate sectors for domestic production at specified level sof
local content before year end which require mandatory local procurement
for all organs of state.
 Matching sector specific and transversal commitments from labour and
business to support local production with conditions including
competetiveness upgrading, employment retention, skills upgrading and
pricing.
State Owned Enterprises
- First phase of mobilisation within SOEs to introduce localisation and supplier
development into the procurement process. SOEs introducing new policies,
processes, systems and capacity building to embed supplier procurement
leverage more systematically.
- Designation in key sectors will add impetus to process.
National Industrial Participation Programme
- The consolidation of CSDP and NIPP will be finalised by the executive
shortly. Mandatory provisions for all state institutions to enable direct and12
indirect NIP commitments for all imported procurement above a threshold.
Progress: Industrial Financing
Short term industrial concessional financing
- IDC reviewed its business model and balance sheet
 Identified R102bn over the next five years for investment in NGP
and IPAP sectors at Prime minus 3% in many instances an d
includes
 R10bn Job Creation Fund
 R25bn earmarked towards Green Economy
 R5bn Agro-processing fund
Further interventions for industrial financing.
- Further significant work taking place to address the the key issue of
mismatch between short-term sources of funds (largely deposits) and
long investment terms required in real sectors like manufacturing
- Development banks play a fundamental role in closing this gap in many
countries such as Brazil and Germany. New policy proposals to
leverage and deploy long term concessional industrial finance to be
completed in 2011/12 and feed into appropriate processes.
- This will include sector specific industrial financing packages in support
of other industrial policy levers to scale up production value chains in
key sectors.
13
Progress: Sectoral highlights
•
Automotives
- Automotive Investment Incentive with a budget of R2, 69 billion over the
MTEF period instrumental in securing R14 billion investment commitments
from assemblers and component suppliers such as VW, GM and Daimler
Chrysler. There have been significant increases in volumes and levels of
localisation in auto’s sector. Conservative estimate of 12,000 new jobs in
this sector in 2011 – 2013
•
Clothing & Textiles
- Rollout of the Clothing Textile Competitiveness Programme (CTCP) and
the Production Incentive (PI) totalling R731m supporting more than 200
companies. This is in support of 48 384 jobs.
•
Business Process Services
- 2010/11 financial year:
 R40 million investments made.
 R42 million new investment commitments approved.
 Sector specific Monyetla II Training Programme for 3,400 young
trainees is a model for demand side skills interventions.
14
Progress: Sectoral highlights
•
•
•
Green Industries and bio-fuels
- SABS finalised enabling standards for: solar water heaters; wind energy
turbines; energy efficient lighting, appliances and products; electric
batteries and alternative fuel vehicles; co-generation of electricity and
biofuels
- DOE have published REIPP to enable renewable energy generation.
Request for Proposals were published by DoE on 31 July 2011 for 3 750
MW.
- DTI to publish wind and solar power strategies shortly – emphasis must be
on local production of components and equipment for renewable energy
generation.
- Intra-departmental South African Renewables Initiative (SARI) initiative to
leverage international climate finance to supplement domestic funding
sources for renewable energy production linked to domestic manufacturing
Regulatory mechanisms to enable creation of biofuels industry to be
finalised shortly with target of 100 000 jobs.
Illegal imports and customs fraud.
- Sars/Customs putting in place new electronic system to significantly scale
up interventions.
15
Progress: Transversal highlights
•
Competition
- Referrals against many companies including tyre companies; scrap
merchants; chemical companies; airlines and construction companies
– Findings against bread price collusion including establishment of
associated agro-processing fund at IDC to promote competition.
•
Trade
- Exporters Early Warning System on Technical Barriers to Trade
developed by SABS fully operational.
 Identifies technical barriers to trade for exporters notified to WTO
 Distributed via email free to exporters on a weekly basis
- ITAC processed numerous applications for increases, rebates and
reductions of duties in line with IPAP priorities
- SABS developed a range of enabling standards for various industries /
products
16
Impact of Current Wave of
Global Financial Crisis
• SA must respond to current wave of global crisis
and persistent market and institutional failures:
– Increasingly volatile and still overvalued exchange rate
– Decades old and multi-billion Rand backlogs in rail, port and electricity
infrastructure.
– Adoption by government of a 'user pays' approach to financing such
backlogs, resulting in large and rapid increases in utility price increases,
especially in relation to new electricity build.
– Financial rather than economic approach to cross-subsidisation of rail
leading to excessive ports charges, impacting particularly on exporters of
value-added products
– Low absolute and relative levels of profitability, low investment per worker
and inadequate productivity growth in manufacturing
– Private financial sector which has major structural failures, notably a
mismatch between short term sources of finance (deposits and short term
inflows) and long term bricks and mortar investment .
– Recognition that large swathes of global trade and production are subject
to significant subsidies, trade measures and other 'distortions'.
17
A South African response
• Should strengthen existing measures which include:
–
–
–
–
IDC concessional industrial financing;
designations;
sector specific and transversal incentive support mechanisms
Scaled up anti fraud and illegal import measures.
• Government will announce raft of support measures
in form of Manufacturing Competitiveness
Enhancement Programme (MCEP.)
– Detail and implementation in 2012 Budget
18
Key components of the MCEP
• The Production Support Mechanism (PSM) - labour
intensive and strategic manufacturing industries funding assistance for competitiveness improvements
and expansions with conditions.
• Enhanced IDC Distressed Funding – subsidised
interest rates for funding that IDC currently provides to
distressed companies, with conditions.
• Energy Efficiency and Co-generation – assistance to
companies wrt impact of electricity price increases
through the implementation of more efficient
technologies and assist in building generation capacity.
• Capital Good Supplier Programme (CGSP) subsidised loans for purchase of capital goods from
domestic manufacturers.
19
Opportunities
• No country has experienced rapid employment and per
capita income growth without a strong industrialization
effort
• Manufacturing has the highest growth multipliers in the
SA economy, significant employment multipliers and is
key to sustainable consumption growth and employment
in the medium to long term.
• Significant opportunities in manufacturing in key sectors
– green industries, agro-industries, metals etc.
• BRICS represents both a challenge and enormous
opportunity to shift our trade regime to grow value add
tradable exports to new markets and promote FDI into
manufacturing sectors.
20
Opportunities.
• Significant growth of African economies and emerging possibilities of
single African market of 700 million strong. Must identify and utilise
opportunities to enter and support :
–
–
–
–
Infrastructure development - rail and ports
Development corridors
Regional trade integration
Integration of production supply and value chains in key sectors :
– oil and gas, agro-industries, pharmaceuticals, etc.
– Common approach to minerals beneficiation strategies to leverage
maximum value added production.
– Investment promotion strategies to build production capacity and
manufacturing sectors - lessen dependence on commodity exports
• Build stronger partnerships between government, business and labour
to support and strengthen Industrial Policy Action Plan and New
Growth Path to address economic growth, unemployment and
inequality.
21
Thank you
22