Structural changes needed in SA economy

Wednesday, May 25, 2016

Government has conceded that more than ever before, there’s now a pressing need for structural change in the South African economy.

Such change, says Trade and Industry Minister Rob Davies, would require a break from a commodity-dependent economy to a more diversified economy in which there is increasing manufacturing, value addition, employment creation and export-intensity that defines South Africa’s growth trajectory.

Minister Davies was speaking at the launch of the 8th iteration of the Industrial Policy Action Plan in Benoni, recently.

The launch of the latest IPAP broke away from tradition by being launched at a thriving 100% black owned factory in Benoni, as opposed to being held at an established industry.

South Africa has come a long way since the first iteration of the policy document which is a product of the Economic Sectors, Employment and Infrastructure Development (ESEID) cluster.

The responsibility of the implementation of the Ipap lies with government as a whole including state owned companies.

Observers say the launch, at Guestro Naledi Inhlanganiso Group Foundry (Guestro NI Forge), emphasises the importance government attaches to developing close corporation with local companies that are not just involved in transport and logistics but across the widest range of technologically sophisticated and labour intensive sectors of South Africa’s economy.

Ipap has grown since its first launch in 2007

Ipap –which is based on the need to industrialise the South African economy - has evolved from the time it was first approved by Cabinet in August 2007.

For instance, the 2015 Ipap saw the development of a specific support framework for black industrialists in the country named the Black Industrialists Development Programme.

Launched in February 2016, the programme is aimed at promoting industrialisation, sustainable economic growth and transformation through the support of black owned entities in the mainstream of the country’s manufacturing industry and related manufacturing sectors.

Companies like Guestro NI Forge, which is a black owned manufacturing entity, have demonstrates that indeed industrial policy is working with the company having benefitted from the Department of Trade and Industry’s (dti) support measures.

The company is also a supplier to state entity Transnet’s locomotive and rolling stock programme that is designed to support local manufacturers and advance black economic empowerment.

This after it was awarded the tender to supply cast and forged train wagon wheels to the entity.

“Ipap is not just another government, strategy document which is going to find its way onto the shelves,” says Minister Davies.

The current Ipap builds on the different industrial policies covering previous years that the dti has launched regularly at the beginning of the financial year.

What also comes through from the document is government’s efforts to change structural problems and headwinds facing the South African economy. Like many others around the world, the South African economy is facing depressed global growth.

Ipap stresses need for economy to restructure

With such realities facing the country, it doesn’t come as a surprise that the latest version of the Ipap stresses the need for South Africa to bring about structural change in the economy to move up the value chain.

Several themes in the Ipap document address these challenges.

Among the themes is the focus on labour intensive sectors such as the agro processing sector, the component manufacturing and sub-assembly sub-sectors in automotive, rail, light manufacturing and engineering in the metals sector among others.

“The biggest difference between previous iterations and the current iteration is that this one is what we call higher impact and that means we are going to be more focussed on job creation and so we are targeting labour intensive sectors,” says the dti Director General Lionel October.

October highlights the success that South Africa has had in the automotive and clothing and textiles sector.

“We had big successes in the automotive and clothing and textile sectors which are also labour intensive. Now the focus is going to be on labour intensive sectors so the one we are immediately starting off with is the agro processing and the food and beverages sector,” he explains.  

Billions invested in automotive sector                                                                                                                                        

South Africa has invested substantially in the automotive sector with government investing more than R25 billion in the sector since the inception of Ipap.

Last year saw a steady stream of new investments by automotive Original Equipment Manufacturers (OEMs) in their South African plants.

This was mainly through work under the Automotive Production and Development Programme (APDP) which was introduced to improve the competitiveness and add to the benefits offered to the automotive industry.

This was seen through Daimler --the German motor company’s announcement in February that South Africa will be the regional base for its new global truck and bus strategy while BMW Group South Africa announced a R6 billion investment at its Rosslyn plant.

Volkswagen Group South Africa also indicated that it will invest more than R4.5 billion by 2017 for new models and infrastructure at its Uitenhage vehicles factory, among others.

In addition, the department announced the establishment of a team of technical experts that will develop a post 2020 Automotives Master Plan. The team’s mandate is to examine the entire automotive sector and not just the existing APDP which means that it will now include light, medium and heavy vehicles and motorcycles.

The expert team will engage extensively with various stakeholders, including OEMs and organised labour among others. The team will report to an Executive Oversight Reference Committee that will be chaired by Minister Davies.

Minister Davies has appealed to companies to leverage the devaluation of the rand to make locally manufactured products more globally competitive. –


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