PHILIPPA RODSETH: Keep ideology out of growth debate

A disturbing new discourse is emerging in the debate on SA’s industrialisation and the thorny issue of localisation. In essence, this discourse holds that competitiveness is undermined by anything other than the most laissez-faire policy, and that government (or state) intervention to bolster local manufacturing is counterproductive.

According to these views, trade remedies to address the effects of dumping and subsidised imports on local manufacturing and the procurement of designated locally manufactured products by the public sector hobble competitiveness, inflate prices and harm the consumer and taxpayer. These textbook arguments are far removed from the realities that local manufacturers experience — the same manufacturers that account for 13% of GDP and about 1.6-million (sadly, dwindling) jobs.

As recently as November 20, representatives of the steel and engineering value chain told new trade, industry & competition minister Parks Tau in no uncertain terms that the lack of meaningful, well-considered industrial policy was responsible for the country’s deindustrialisation. To quote from a statement by the Steel and Engineering Industries Federation of Southern Africa after the engagement, to arrest the rapid fall in the sector’s performance “interventions need to be as radical and ambitious as deemed necessary under the circumstances”.

Sounding a positive note, Manufacturing Circle chair Mervyn Naidoo said at the same meeting that since 2021 the country had witnessed an “uptick” in fixed investment (which had been in decline for a decade or more). He noted in that discussion that as of the first half of 2024 infrastructural projects actually announced amounted to an encouraging R793bn, with government projects worth almost R200bn driving this uptick.

Naidoo said that electricity generation was expected to rise from the present 66GW of installed capacity to 107GW by 2034 — with a substantial change in the generating mix. On top of this, the country’s electricity transmission capacity is expected to grow an additional 5,000km by 2029, almost tripling from the present level by 2034.

Naidoo referred to how China increased its GDP per capital tenfold in the past 30 years. He said that lessons this country should learn from China included heavy investment made in infrastructure. “The Chinese government actively promoted targeted industries through industrial policy, providing subsidies, preferential loans and protection from foreign competition,” he said. “This has helped develop advanced sectors such as steel, electronics and renewable energy technologies.”

SA manufacturers by no means expect protection from foreign competition in toto. But they are entitled to a level playing field, one in which they are protected from imports that are unfairly subsidised or dumped at below their real cost of production.

I am not saying industrial policy should not be underpinned by competitiveness. However, for manufacturers to be competitive economies of scale are critical. The manufacturing sector  operates now at well below its maximum capacity. Negligible domestic economic growth affects demand for locally manufactured products, compounded by deteriorating infrastructure, poor municipal service delivery and inconsistent electricity supply. The ability to competitively access export markets is compromised.

Where there are opportunities to access local demand, these should be pursued with vigour. The Localisation Support Fund recently published two reports that reference the country’s transmission build programme in particular. The assertion that Eskom pays more because of the government’s insistence on local procurement is roundly disputed. The fund shows clearly that at specified, consistent volumes local manufacturing and contracting are price competitive — and that they bring other benefits such as job creation, local economic development and quality, as well as effective and efficient equipment maintenance compared to imports.

What is needed is new thinking that applies a strategic procurement approach, rather than a purely administrative approach as is now the case. One example of how such a strategic procurement approach should work concerns the steel industry which, for various (often disconcerting) reasons is in the spotlight now.

Today our steel sector has operational capacity of 8.8-million tons a year. Yet local consumption is less than half of that. Where there are opportunities to access local demand to increase installed capacity utilisation, this needs to be assessed on a programmatic basis, with a drive to increase exports running in parallel.

Steel required to supply the 14,000km of envisaged transmission lines is about 450,000, tons which can easily be supplied by present operational capacity. Nuances relating to pricing can be addressed through procurement, contracting and project programming.

Another argument advanced by proponents of the new discourse is that the various sectoral master plans should simply all be tossed aside. Such an approach would be counterproductive in the extreme, ignoring the immense amount of extremely hard and fruitful work that has gone into compiling these master plans — and on achieving consensus around their implementation.

What is needed here is simply proper implementation and proper project management that clearly enunciate who needs to do what — in industry and government. Doing so will remove a great deal of “noise” in the system. It will also address the issues raised by the various naysayers in the public and private sectors who don’t understand what industry can produce and how.

Right now, SA could well be on the cusp of a new industrial revolution, one that will spur GDP growth and job creation. The new government of national unity holds out further promise that real re-industrialisation could be on the cards. However, without a vibrant manufacturing sector the likelihood of such a revolution materialising must be in serious doubt.

We need to put taxpayers’ money to good use through building our industrial capacity and creating jobs throughout the economy. An approach that proposes the majority of our taxes go to creating jobs in other countries is shortsighted and creates systemic risks for our country.

In pursuing the manufacturing and infrastructure-led investment, re-industrialisation and growth we all covet, ideology must at all costs be kept out of the debate.

• Rodseth is executive director of the Manufacturing Circle.