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A logo of the World Economic Forum is seen inside the Congress Center in Davos, Switzerland. Picture: REUTERS/YVES HERMAN
A logo of the World Economic Forum is seen inside the Congress Center in Davos, Switzerland. Picture: REUTERS/YVES HERMAN

 The World Economic Forum (WEF) in Davos has reignited discussions about industrial policy as a catalyst for economic rejuvenation. Long shunned by many governments, industrial policy is being reconsidered a strategy to tackle global challenges — unemployment, poverty, climate change — while reviving critical industries. 

Broadly defined, industrial policy refers to government interventions aimed at reshaping a nation’s productive structure. Historically polarising, it was embraced by communist regimes to direct economic development, and by the “Asian Tigers” — South Korea, Taiwan, Singapore and Hong Kong — as a pathway to growth by nurturing high-potential sectors. 

Market liberalisation

SA’s post-apartheid economic trajectory veered away from industrial policy in favour of market liberalisation. After the historic democratic transition in 1994 the government embraced trade reforms under the General Agreement on Tariffs & Trade, reducing tariffs across various sectors. By 2002 automotive import tariffs had dropped from 115% to 40%, far exceeding World Trade Organisation requirements. This marked a decisive shift from the import substitution industrialisation model towards freer trade and open markets. 

The adoption of the Growth, Employment & Redistribution (Gear) strategy in 1996 further cemented this liberalisation. While Gear achieved macroeconomic stability, it did so at the cost of public investment, which plummeted from 12% to just 4% of GDP between 1981 and 1993. Underdeveloped infrastructure in transportation, energy and logistics became a persistent drag on the economy.

President Thabo Mbeki’s tenure coincided with SA’s pursuit of a self-adjustment strategy, a decision often criticised for sidelining industrial policy. Yet it is unfair to place the blame solely on Mbeki. By the 1990s the Washington Consensus dominated global economic thinking, emphasising minimal state intervention and market-driven growth. However, SA arguably failed to fully leverage the international goodwill that emerged after the end of apartheid to implement economic reforms aligned to industrial policy. 

In 2002 Mbeki introduced a microeconomic reform strategy aimed at addressing critical structural barriers. This strategy focused on improving social infrastructure, enhancing access to finance for productive enterprises and fostering innovation through the adoption of new technologies.  

Between 1996 and 2008 the country enjoyed a period of economic growth, bolstered by favourable global conditions and rising investment, which peaked at 24.8% of GDP in late 2008. The global financial crisis reversed these gains, and though modest recovery followed by 2013 SA faced entrenched challenges. High unemployment, poverty, inequality and mounting climate risks remained unresolved, casting a shadow over the long-term sustainability of the nation’s economic policies. 

The revival of industrial policy at the WEF highlights its potential to address these challenges. In Europe and the US, rejuvenating manufacturing is seen as critical for job creation and economic security. For SA, lessons can be drawn from China’s export-driven model, which combines state intervention with market exposure. 

Localisation

SA’s industrial policy now emphasises localisation, yet critics contend it lacks sufficient support for competitive industries. For industrial policy to succeed targeted sectors must receive both state backing and exposure to global competition. Shielding industries from market forces risks stifling innovation and long-term viability. 

President Cyril Ramaphosa’s investment promotion efforts could complement industrial policy by minimising state intervention risks. By using investment promotion to lower information barriers, reduce transaction costs and guide investors through bureaucratic complexities, SA could foster growth without relying heavily on subsidies. 

However, simplistic solutions such as imposing tariffs risk unintended consequences. For example, protecting domestic steel production with tariffs might save jobs at ArcelorMittal SA but would harm downstream industries that are reliant on affordable steel inputs. Addressing systemic challenges such as rising logistics and energy costs is crucial to ensuring the competitiveness of SA industries. 

Ruchir Sharma’s What Went Wrong with Capitalism challenges the neoliberal axiom that markets function best without intervention, arguing that governments and central banks frequently shape markets through bailouts, monetary stimulus and interest rate policies. Similarly, the Asian Tigers demonstrated how well-crafted industrial policies — grounded in export-led growth and early competition — can drive economic success. 

The department of trade, industry & competition has identified sectors such as plastics, agriprocessing, automotive components and electrotechnical as priorities. Leveraging tools such as the Preferential Procurement Policy Framework Act, the government aims to stimulate local production and foster equitable procurement practices. However, success requires the state to act as a major consumer of these outputs while fostering efficiency and global competitiveness. 

Historical examples underscore the importance of strategic state intervention. In SA the Smuts government built industrial giants such as Eskom, Transnet, Iscor and Sasol supported by the Industrial Development Corporation (IDC). Similarly, the US government’s investments in the Apollo programme, offshore wind farms and electric vehicles spurred transformative technological advances. 

Start-ups

The green transition offers a unique opportunity for SA to lead through industrial policy. The Integrated Resource Plan’s energy mix prism could make agriprocessing and photovoltaic solar production more cost-effective, bolstering sustainability while creating jobs. 

Supporting start-ups is another critical frontier. Start-ups, often lacking collateral or credit histories, struggle to access financing. Redefining the funding models of entities such as the IDC and National Empowerment Fund to prioritise innovation over traditional metrics could unlock entrepreneurial potential. 

As the WEF’s discussions unfold, one conclusion emerges: industrial policy is back, driven by the urgent need for state interventions to tackle poverty, inequality, unemployment and climate crises. For SA, this is a chance to craft an inclusive, forward-looking strategy that balances localisation with global competitiveness. 

The stakes are high. By drawing lessons from East Asia’s export-led growth, embracing competition and focusing on innovation, SA can leverage industrial policy to transform its economy. The question is not whether to act but how decisively the nation can seize this opportunity. 

• Mabasa is an executive manager in the office of the deputy minister of mineral & petroleum resources.

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