South Africa needs a fundamental overhaul of its industrial strategy, replacing protectionist policies in favour of maximising exports. But it’s easier said than done.
A report by the Centre for Development and Enterprise (CDE), titled Rethink Growth, Jobs and the DTIC, highlights that achieving this shift will require a re-evaluation of the Department of Trade, Industry and Competition’s (dtic) approach to master plans, tariff structures, and competition policy.
The report, the seventh in a series addressing the priorities of the government of national unity, focuses on strengthening the country’s manufacturing sector, according to Linda Ensor in BusinessLive.
The CDE’s findings point to troubling trends in South Africa’s industrial performance. Between 1960 and 2023, the manufacturing sector’s share of GDP fell from 20% to under 13%, and employment in manufacturing declined from 1.8 million jobs in 2001 to fewer than 1.6 million in 2023.
Additionally, only 20% of manufacturing firms currently export, with the number of exporters dropping from 42 000 to 36 000 between 2015 and 2022. Of these, more than half export less than 5% of their output.
The CDE noted that some of these challenges lay beyond the department’s control, but argued that many of the dtic’s policies had been counterproductive. Ann Bernstein, the CDE’s executive director, observed that policy decisions were designed more to replace imports with local production than to maximise export growth.
She explained that this import-replacement approach had steered South Africa further towards protectionism, undermining the ability of local firms to compete globally and expand their share of international demand for goods.
The CDE further indicated that the dtic’s localisation policies had hampered competitiveness and negatively impacted employment prospects. It criticised the department’s master plan strategy – which encompasses industries such as clothing and retail, sugar, steel, agriculture, agri-processing, and furniture – for being overly narrow and sector-focused. The report argued that the approach failed to account for the diversity of firms within sectors, which varied in size, profitability, age, and geographical location.
According to the report, firms within a single sector often share a common interest in restricting access for foreign competitors. This tendency, the CDE contended, reinforced the master plan approach’s promotion of protectionist measures. Although master plans have provided some protection from foreign competition, they have not led to an increase in manufactured exports.
The CDE advocated for a reorientation of industrial policy to centre on exports. Bernstein explained that exports should become the primary metric for evaluating the competitiveness of firms and the success of policy interventions. She suggested that by making export growth the central objective, policymakers would be compelled to focus on key factors that drove competitiveness, such as reducing input costs and improving productivity. The CDE believes this focus on exports would also strengthen domestic firms, enabling them to compete more effectively with imports. SOURCE: BDLive
