Transcript National Industrial Policy

THE NATIONAL
INDUSTRIAL POLICY
FRAMEWORK AND
THE INDUSTRIAL
POLICY ACTION
PLAN
Trade and Industry Portfolio Committee
5 September 2007
South Africa’s economic
performance
•
•
•
•
•
South Africa has achieved stable economic growth since
1994, with an acceleration to 5 per cent in 2005 and 2006
We have a relatively diversified and complex industrial
base that needs ongoing consolidation and renewal
Three of the four manufacturing and tradable services
sectors which government has actively supported since
1994 have become leading sectors
– Automotives (MIDP)
– Resource-processing industries, e.g. steel, chemicals,
aluminium (37E and SIP tax allowances, Kumba
restructuring)
– Tourism (e.g. South Africa Tourism)
Notwithstanding these important industrial policy
successes, the manufacturing and tradable services
sectors have not reached their full level of development
There is also unexplored high-value potential in agriculture
and mining
2
SA’s industrialisation challenge:
manufacturing
Percentage employment shares, 1970-2006
0.45
Tradables: Agriculture,
Mining, Manufacturing
0.40
Public non-tradables: Electricity /
Water, Government
0.35
0.30
Private non-tradables: Construction,
Trade / Catering / Accommodation,
Transport / Communication, Finance
0.25
0.20
1970
1971 1972
1973
1974
1975
1976
1977
1978
1979 1980
1981 1982 1983 1984
1985 1986
1987 1988 1989 1990
1991 1992 1993 1994
1995 1996
1997 1998
1999 2000 2001 2002 2003 2004 2005 2006
3
Source: Quantec RSA Standardised Industry Database
South Africa’s industrialisation
challenge
•
•
•
South Africa’s key industrialisation challenge is to grow and
diversify manufacturing and tradable services
South Africa’s industrialisation process faces a number of
constraints
– Level and volatility of the exchange rate
– Market size and logistics costs
– Cost and reliability of infrastructure (esp. freight / commuter
transport)
– Monopolistic pricing of key inputs
– Skills development and training
– Intense global competition
– Low investment in manufacturing, which has resulted in poor
capital productivity and outdated machinery and equipment
– Inadequate state support for investment, upgrading,
innovation and technology
This has resulted in low manufacturing profitability which in turn
lead to low investment, low output, and poor export and
employment performance particularly in low-and-medium skill
industries
4
National Industrial Policy
Framework: Vision
 Diversification beyond traditional reliance
on minerals and mineral-processing 
increased value-added per capita
 Long term intensification of South Africa’s
industrialisation and movement towards a
knowledge economy
 More labour-absorbing industrialisation path
 Broader-based growth  greater
participation of historically excluded people
and marginalised regions
 Support economic development and
integration on the African continent
5
The need for Industrial Policy
•
•
•
•
•
•
Historical evidence is that rapid industrialisation and
diversification does not occur automatically. Developing
countries that have industrialised fastest are the one’s
that have have implemented robust industrial policies
Rather than restricting their development path to their
comparative natural-resource advantage, they have
intervened selectively to build competitive advantages
in a range of industries
They have done this through active industrial policies
which link state support to economic performance
This was integrated with other key policies such as
macroeconomic, skills and technology policies
Therefore, both international evidence and our own
experience indicates that industrial development does
not happen but requires purposive interventions
In South Africa three domains of industrialisation have
not occurred automatically
6
Instruments of industrial policy
Three domains of industrialisation have not emerged automatically
COST-BASED
INTERVENTIONS
Economy-wide
• Currency/ interest rates
• Transport/ logistics
• Utility regulation
• Labour cost/ productivity
Specific
• Cost of capital
• Competition policy
• Import tariffs
• Market access
INDUSTRIAL
UPGRADING
INTERVENTIONS
• Sector / activity specific
financing
• Manufacturing
excellence support
• Industry-specific
industrial and technical
support
• Skills development
• Innovation and
technology support
• Leveraging public
expenditure
• Standard, quality, and
accreditation support
INCLUSION-BASED
INTERVENTIONS
• Support for labour
intensive sectors/ activities
• Small business/ cooperatives support
• BBBEE
• Spatial interventions
7
Principles
• Ongoing self-discovery processes with the private
sector will be strengthened to identify opportunities
and the binding growth and employment constraints
to their achievement
• Fewer high impact sectoral Key Action Plans (KAPs)
with stronger conditionality and appropriate levels of
support
– Drawing appropriately from three domains
– New as opposed to existing activities
– Stronger reciprocity, monitoring, enforcement
– Linkages with other sectors
– Specified period with sunset clause
– Stronger systems for the design, management,
monitoring and evaluation of industrial financing.
– Minimum effective scale  structural change
8
Industrial Policy Approach
•
•
•
Government will always have to engage across substantial
parts of manufacturing, services and primary sectors
involving championship and coordination across multiple
departments and actors
Government will from time-to-time single out sectors for
particular focus, based on: substantial growth and
employment potential; diversification and growth of
exports; substantive research and self-discovery
processes
This requires active use of appropriate policy instruments
to upscale industries to their full potential, particularly:
– Supporting investment to update ageing machinery
and equipment stock through appropriate targeting
and scale
– Industrial upgrading to deepen manufacturing
capabilities
– Support for industry and cluster specific infrastructure
– Addressing monopoly pricing
9
Industrial Policy Action Plan
(IPAP)
• The Industrial Policy Action Plan
– Reflects work which has been undertaken
by DTI and other departments and is
ready for implementation
– Multi-year rolling programme that will be
built upon going forward
– Further work around a range of sectors
will come to fruition at differing stages
– Basis upon which government makes
decisions on allocation of resources
10
Overview: IPAP actions for
immediate implementation
1.
Sectoral actions

Fast-track implementation of four lead sectors which
have emerged from research and intensive interactions
with stakeholders

Maintain momentum on ASGI-SA sector priorities

Sectors for which further strategy work needs to be
developed
2.
Cross-cutting actions

New areas of emphasis:
o
Industrial Upgrading Programme
o
Industrial financing
o
Reducing input costs through competition policy
and trade policy (selected import duties)

A range of industrial policy related cross-cutting
imperatives are being implemented as set out in
Government’s POA
3.
Improvements in government organisation and capacity
11
Lead sectors for fast-tracking
Capital/Transport equipment and Metals
•
Major opportunity to stimulate manufacturing through reducing import leakage of
the public Capex programme and capitalising on the current mining and mineralprocessing boom
•
Platform to position these sectors as major future exporters onto the rest of the
continent and beyond
Automotives and Components
•
SA’s leading manufacturing sector, generating strong backward linkages from
other sectors, particularly metals, leather, textiles and plastics
•
Major opportunity to double current vehicle production to 1.2 million units by
2020 with a corresponding deepening of local content
Chemicals, Plastic fabrication and Pharmaceuticals
•
Major opportunity to increase local beneficiation of polymers, particularly for
automotive and packaging applications and leverage state procurement for local
production of pharmaceuticals
Forestry, Pulp and paper, and Furniture
•
The sector has the potential to bring jobs and income to poor rural communities
•
Increased plantations in EC and KZN in the next 10 years will contribute to the
provinces’ growth and employment and stimulate processing activities, such as
sawmilling and furniture
12
Lead sectors:
Capital / transport equipment and
downstream metals
•
•
•
•
Status: SA capital goods, metal fabrication and transport
equipment sectors accounted for 18% of manufacturing jobs –
employing 216,263 (2005) and 2% of GDP.
Opportunity: Major opportunity to stimulate manufacturing
sectors through reducing the import leakage of the public
Capex programme from 40% to 30% and capitalising on the
current mining and mineral-processing boom. The
resuscitation of these sectors will form a platform to position
these sectors as major future exporters onto the rest of the
continent and beyond.
Constraints/challenges: low historic levels of expenditure in
public infrastructure, co-ordination between Capex demand
and domestic manufacturing supply capabilities,
uncompetitive pricing of raw material inputs, lower than
optimal mining investment, skills development, ageing foundry
and tooling industries
Key Departments: DTI, DPE, DOT, DST, DOL, DME
13
Lead sectors:
Capital / transport equipment and
downstream metals
•
•
•
•
•
Measures to stimulate more competitive input pricing:
– Finalise the Competition Policy and Law Review to
strengthen the Act – December 2007
– Develop a SOE Pricing and Procurement Framework –
December 2007
– Finalise measures on scrap metals – October 2007
– Review import duties on upstream aluminium products to
reduce the costs of inputs into downstream activities –
March 2008
Finalise Supplier Development Plans to reduce import
leakage of Capex programme (Transnet and Eskom) from
40% to 30% – February 2008
Finalise supplier development strategy with respect to public
transport strategy, especially locomotives for commuter
transport – December 2007
National Foundry Technology Network – March 2008
National Tooling Initiative – ongoing
14
Lead sectors: Automotives and
components
• Status: SA’s leading manufacturing sector,
contributing 8% to GDP.
– Domestic vehicle production grew from 388,442
units in 1995 to 615,000 in 2006. New vehicle
exports grew from 15,764 units in 1995 to
179,869 in 2006.
– Employment (OEMs, components and retail)
grew from 277,400 in 1995 to 306,500 in 2006.
– Automotives generates strong backward linkages
from other sectors, particularly metals, leather,
textiles and plastics.
• Opportunity: double vehicle production to 1.2
million units by 2020 with corresponding deepening
of local content
• Constraints/challenges: establish long-term
investment environment, insufficient component
manufacturing capacity, slow transformation
• Key Departments: DTI, NT, DST, DOL
15
Lead sectors: Automotives and
components
• Announce broad direction of the automotive
programme going forward to create investor certainty
– September 2007
• Implement three-year supplier development
programme, aimed at raising local content by
improving manufacturing processes along the value
chain – September 2007
• Finalise the MIDP review and development of a
replacement scheme (with comparable architecture
and levels of support) to ensure the industry’s longterm sustainability – December 2007
• Formulate an empowerment plan to fast-track
transformation in the sector – March 2008
16
Lead sectors: Chemicals, plastic
fabrication and pharmaceuticals
•
•
•
•
Status: Chemicals comprises a well-developed capitalintensive upstream industry and a more labour-intensive
downstream plastics industry. Collectively all three contributed
2.8 percent to GDP in 2006. Basic and Other Chemicals
employed 64,285 people and Plastics 39,893. Pharmaceutical
industry employs 10,000 people with local production of
R9.5bn
Opportunity: leveraging fluoro-chemistry expertise through
increased beneficiation of fluorspar, increase local
beneficiation of polypropylene for automotives and packaging
industries, leverage state procurement for pharmaceuticals
local production
Constraints/challenges: Downstream plastic fabrication:
uncompetitive pricing of polymer inputs, skills, technical
capabilities, and R&D. Upstream projects: risks and
coordination problems associated with large capital-intensive
projects. Pharmaceuticals: high-levels of import penetration
(50% of local market, 90% of inputs into drugs), coordination
of supply with state procurement demand, medicine licensing
procedures, price administration
17
Key Departments: DTI, DME, DST, NT, DOL, DOH,
Presidency
Lead sectors: Chemicals, plastic
fabrication and pharmaceuticals
•
Review import duties on upstream chemical products to
reduce the costs of inputs into downstream activities – March
2008
•
Project to increase polypropylene value-added products used
in automotives and packaging industries – February 2008
•
Initiative to expand the fluoro-chemical industry in SA:
– Land/site allocation
– Environmental Impact Assessment (commence August
2007)
– Bankable feasibility study
•
Finalise pharmaceutical strategy – March 2008
• interim measure: designate pharmaceuticals as a
strategic industry to leverage ARV tender to expand local
capabilities
18
Lead sectors: Forestry, pulp and
paper, furniture
•
•
•
•
Status: The forestry sector contributes R14 billion to
GDP (2006) and employs more than 170,000 people. It
has the potential to bring jobs and income to poor rural
communities
Opportunity: aforestation of 100,000 ha in EC over the
next 10 years with potential to contribute R215 million
to GDP and job creation of 26,000 at plantation level
and 1,700 at primary processing level; 40,000 ha in
KZN over the next 10 years with potential to contribute
R500 million to GDP and job creation of 15,000 at
plantation level and 429 at primary processing level
Constraints/challenges: water licensing processes,
technical and financial support for emerging small
growers, transport infrastructure, skills, transformation
Key Departments: DWAF, DLA, DTI, Presidency
19
Lead sectors: Forestry, pulp and
paper, furniture
•
Fast-track issuing of water licenses for producers for
aforestation of 100,000 ha in EC 40,000 in KZN – ongoing
•
Develop a programme for skills transfer and to upgrade
the technological equipment for small saw millers – March
2008
•
Expansion of furniture industry:
– Establishment of additional furniture incubator in EC –
March 2008
– Explore potential of furniture sector outside EC and KZN
– March 2008
20
Stabilisation of Clothing and
Textiles: capacity and employment
• Status: Clothing and textiles are highly labourintensive industries employing approximately
131,715 people (11% of total manufacturing
employment). They contribute around 0.6% to GDP
• Challenge: the industry has experienced substantial
job losses over the past few years related to
increased competition from China in particular, and
currency strength. However, it remains a major
employer with capabilities that can be restructured
for long term sustainability.
• Constraints: outdated capital equipment and
technology; insufficient skills development;
inadequate innovation and product upgrading; high
input costs (textiles)
• Key Departments: DTI, NT, DOL, DST
21
Stabilisation of Clothing and
Textiles: capacity and employment
•
Implement measures to recapture and stabilise the
domestic market
– Country of origin labelling regulations – July 2007
– Monitor implementation of quotas on Chinese
imports – December 2008
•
Review import duties of key inputs into the sector (certain
textiles) – March 2008
•
Design a customised industrial upgrading programme for
the sector – March 2008
•
Fast-track development of more appropriate support
mechanism for the industry than the Duty Credit
Certificate Scheme – March 2008
22
Further sector work
•
Maintain momentum on ASGI-SA Sectors:
• BPO&O
• Tourism
• Biofuels
•
Other key sectoral projects:
• Diamond beneficiation / jewellery
• Agro-processing
• Film and Television
• Crafts
•
More comprehensive strategies and interventions to be
developed, such as:
• Mining and mineral beneficiation
• Agriculture /Agro-processing
• ICT (services and products)
• Creative Industries
• White goods
23
Cross-cutting Actions
•
Industrialisation requires a range of associated and
supporting policies. Government’s Programme of
Action has already identified a range of comprehensive
interventions related to industrial policy in the following
areas:
– Macroeconomic
– Infrastructure
– Skills
– Technology
•
IPAP identifies three new areas of emphasis:
– Industrial Upgrading Programme
– Industrial financing
– Reducing input costs through competition policy
and trade policy (selected import duties)
24
Cross-cutting Actions:
Industrial Financing
•
•
Review of incentives has been completed
A number of schemes have proved successful
– SMEDP  R67bn of investment
– IDZ’s  Coega has secured R30bn of new
investments
– SIP  R29bn of investment
– Critical Infrastructure Fund  R17,5bn of investment
•
In general incentive administration needs to be
strengthened to improve conditionality, monitoring and
ensure more targeted focus
•
IDC financing has successfully assisted with restructuring
of a number of industries, through its cumulative financing
support of R66bn (1995 – 2006). However the support
remains low in proportion of its asset base  need to
increase IDC financing to priority sectors
25
Cross-cutting Actions:
Industrial Financing
•
Incentives
– Design an Industrial Upgrading Programme to improve the
productivity and competitiveness of manufacturing industries
– March 2008
– Fast-track process with National Treasury to finalise improved
suite of incentives, including:
• Methodologies for incentives
• Reintroduction, targeting and upscaling of tax incentives
• Revised and more targeted SMEDP
• Upscaling of Critical Infrastructure Fund
– New sectoral incentives and upscaling of existing incentives
will be incorporated in the MTEF budgeting process
•
Industrial Development Zones
– Explore expanding IDZs to additional regions (e.g. Mafikeng)
– Finalise governance and financing mechanisms for IDZs
•
Development financing
– Agree modalities with Industrial Development Corporation to
align and expand its financing in line with industrial policy
priorities
26
Intra-governmental Coordination and
Capacity
•
•
•
•
•
•
Implementation of IPAP requires effective and
strengthened intra-governmental coordination
The Minister of Trade and Industry will champion this work
through the Economic Cluster
This work will be aligned with the three-year rolling MTSF,
POA and MTEF
The Economic Cluster will support the implementation of
IPAP through:
• Appropriate levels of resourcing
• Associated and supportive policies and institutions
Strengthen the strategic capacity of key cluster
departments
Presidency/DP to play championship, advocacy and
unblocking role to ensure co-ordination and
implementation across government
27
Summary
•
•
SA’s major industrial policy challenge: to grow and diversify
manufacturing and tradable services
NIPF sets out the industrial policy vision. IPAP articulates the
implementation approach and outlines key interventions focussing on:
– Four lead sectors for immediate implementation:
• Capital/transport equipment and downstream metals
• Automotives and components
• Chemicals, plastic fabrication and pharmaceuticals
• Forestry, pulp and paper, and furniture
– Stabilise Clothing and textiles to preserve capabilities and
employment
– Maintain momentum on ASGI-SA sectors: BPO&O, Tourism and
Biofuels
– Further strategies and interventions will be developed:
Mining/mineral beneficiation, Agriculture /Agro-processing, ICT
and Creative Industries
– Further sector projects: Diamond beneficiation / jewellery, Agroprocessing, Film and Television, Crafts
– Key cross-cutting actions: Industrial upgrading, Industrial
financing, Reducing input costs
28