Lack of coherent policy and strategy is to blame for de-industrialisation of SA

The Minister of Trade, Industry, and Competition, Ebrahim Patel. File: photo

The Minister of Trade, Industry, and Competition, Ebrahim Patel. File: photo

Published Apr 2, 2024


By Bongani Mankewu

President Cyril Ramaphosa provided an indifferent cause-and-effect explanation of the Black Industrialists' sad failure at the Black Industrialist and Exporters' Conference, which took place in Sandton, Johannesburg, on March 20.

The analysis failed to address the historicity concerning industrialisation and why the economy is in its current weak state.

In the past, just before democracy was established, the Macroeconomic Research Group (MERG) published a report titled "Making Democracy Work: A Framework for Macroeconomic Policy in South Africa".

The report recognised that industrial development has the potential to increase overall economic productivity, create jobs, produce necessities for domestic consumption, improve trade balances, encourage foreign direct investment, and lessen balance of payments constraints.

There was an opportunity during the same period to establish a Sovereign Wealth Fund backed by mineral resources to finance the Reconstruction and Development Programme (RDP).

A properly funded RDP, in tandem with a committed, competent government, would have been the ideal means of bridging South Africa's racial divide.

In part, because industry encompasses a diverse range of economics, the MERG report acknowledged that developing an industrial policy can be very difficult. Nonetheless, the fact that industrial and macroeconomic goals are still not coherent in 2024 is not rational, nor is it morally acceptable.

The Minister of Trade, Industry, and Competition, Ebrahim Patel, blames the failure of state-owned enterprises (SOEs) for the failure of black industrialists, rather than looking at the de-industrialisation crisis in South Africa as a whole.

Patel should be aware of the significant infrastructure expansion South Africa has initiated in recent years, including energy and logistics projects.

The black industrialist program's support and localisation were rendered absurd during that period due to the lack of coordination between his department and the National Treasury. This terrible failure gave the Original Equipment Manufacturers (OEMs) carte blanche; they were working under some sort of covert agreement and arrogantly disregarded localisation, which furthered the industry's catastrophic decline.

It went unnoticed by Patel that industrial and macroeconomic policies at that time were practically evinced to be at odds with one another. The SOES were acting rapaciously with OEMs, disregarding the Ministries in charge, including the legislators. It is unfortunate that the coordination crisis within statecraft, which affects the rare instruments available to revive industrialization and consequently economic growth, is not taken into account in the President's analysis.

Globally, industrial policy and industrialisation have gained importance. The World Bank, which has long opposed active industrial policy, is one organisation that has partially expressed this. This has happened in the context of the global financial crisis and the ensuing great recession, which have highlighted the obvious unsustainability of a finance-led economic model for developed countries, and the disappointing outcomes of traditional policy reforms in several developing countries since the late 1980s.

Due to its peculiar adherence to the principles of orthodox economic policy, which is based on the idea that markets are rational and ought to be free, South Africa has not established a cogent industrial policy since its founding. The country sold itself to the markets in exchange for these idealised realities under the Washington Consensus because of its fixation on these orthodox directives.

It has been determined that the "minerals energy complex" (MEC), a conglomeration of key industries propelling South Africa's industrialisation, is the predominant system through which capital accumulation has taken place.

Industrialisation during the Apartheid era was primarily focused on the "upstream" processing of commodities derived from minerals and other natural resources.

Coherent policy and sufficient demand did not promote more labour-intensive and value-adding "downstream" manufacturing sectors that were not globally competitive. The South African government ignored the ten recommendations in the 1993 MERG report, both in terms of strategy and policy. Because of this omission, the Magnum Opus RDP was abandoned as the government's contemptuous National Development Plan.

Most of South Africa's democratic history has seen traditional economic reforms dominate the country's economic agenda. A step change in fixed investment was the specific objective of these reforms, with the hope that this would lead to higher employment and growth across the board in the economy, including manufacturing.

But there haven't been any noticeable or sustained gains in investment, growth, or employment as a result of these adjustments. A shift in industrial policy slowly emerged within the same time frame, lacking a clear direction.

Though the economy has experienced several significant shocks—the ongoing volatility of the currency, the global financial crisis, the Great Recession, and a shock to the price and supply of electricity domestically—the mobilisation of the required support instruments has moved very slowly.

A substantial amount of research suggests that for the success of industrial policy in South Africa, there needs to be much greater coherence and coordination between industrialisation and macroeconomic objectives, which ought to include other policies affecting the entire economy.

An in-depth analysis of South Africa's de-industrialisation state is indispensable and must guarantee the prosperity and inclusivity of black industrialists.

Practical clarity regarding the localisation of industrial products, a review of the Development Finance Institutions' mandate to refrain from being commercial banks, and the implementation of infrastructure through innovative financing and funding models that are mostly in abundance in South Africa are all necessary components of an industrial policy, along with macroeconomic policies.

Bongani Mankewu is the Director of the Infrastructure Finance Advisory Institute.