SA announces new industrial policy

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South Africa has released a three-year industrial policy that seeks to bolster manufacturing capacity, improve the trade balance and create millions of jobs as the country emerges from its first recession in 17 years.

The Bloomberg news service says trade & industry minister Rob Davies told Parliament in Cape Town that he forsees the scheme creating 825 706 jobs and 2.5 million indirect jobs within 10 years.

The SA economy shed 900 000 employees last year.

The plan “represents a significant step forward in scaling up our efforts to promote long-term industrialisation,” Davies added. “Manufacturing and other productive sectors of the economy are the engines of long-term sustainable growth and job creation.”

South African factories have battled to compete with plants in other developing countries that are closer to major markets, have more competitive currencies, better education standards and lower interest rates, Bloomberg adds. Manufacturing accounted for about 15 percent of gross domestic product in the third quarter of last year, down from 17 percent in 2003.

Carmakers including General Motors and Volkswagen AG and textile companies such as Seardel Investment Corp. fired workers last year as the economy went into recession, pushing the jobless rate to 24.3 percent, the highest of 62 countries tracked by Bloomberg. The economy exited the recession in the third quarter of last year. The new R3.6 billion plan aims to promote several key industries, including capital goods, transportation equipment and metals fabrication, Davies said.

Government procurement policies will be overhauled by June this year to ensure local companies secure a greater share of contracts, he said. The role of the Industrial Development Corporation, a state-owned lender, will be also be reviewed to enable it to provide more cheap loans to companies that create jobs.

Economic Development Minister Ebrahim Patel, a former head of South Africa’s main clothing workers’ union, has assumed political oversight of the IDC.
“We have been on an unsustainable consumption-driven growth path,” Davies said. The new plan “is going to be focused on bringing about structural changes to place us on a more sustainable growth path. We will be able to diversify and grow exports. We will build long-term industrial capabilities.”

The new plan also proposes that competition rules be tightened and the regulators that implement them be strengthened, a measure aimed at bringing down the price of steel, chemicals and cement.

Other industries targeted for expansion include automotive components, plastics, pharmaceuticals, clothing, textiles biofuels, forestry and paper, the news service adds.

The success of the industrial policy rests on South Africa attaining “a competitive and stable exchange rate regime and a competitive real interest rate regime” relative to its trading partners, the plan says. The policy is moving things in the right direction,” said Peter Attard Montalto, an emerging markets economist at Nomura Bank International Plc in London. “Getting the IDC to provide more funds is an important step that can hopefully be achieved quite quickly. The job creation targets seem realistic” or even a bit low.

Earlier in the week, Reuters also reported Davies said the government was also looking at ways to stabilise the rand, which rallied nearly 30 percent against the dollar last year. “We don’t want a currency that is fluctuating wildly and we don’t want a currency which is basically moving upwards when other emerging market currencies are moving downwards,” Davies said.
“That places us in a difficult position both in terms of exports and also in terms of competitive imports… that reality I think we understand (and) the debate is going to be around how do we respond to that challenge.”



President Jacob Zuma said last week that the economy was on the road to recovery, although it was too early to determine the pace of recovery as the government looked to its new industrial policy to create more decent jobs.