Picture: ISTOCK
Picture: ISTOCK

The Department of Trade and Industry launched the ninth iteration of the Industrial Policy Action Plan (Ipap) this week, reflecting on the attention paid to the programme and the government hopes vested in the industrial sector. But is it working? The short answer sadly is not really.

The department has put forward a long list of projects that it has facilitated and there is no doubt the government has invested valuable effort in the sector. Relations with organised business are not without their bumps but are generally good. The number of iterations of Ipap suggest real commitment and consistency by the department.

 But the hard numbers tell a different story. Since the low point in the recession of 2008, manufacturing has cumulatively risen in real terms by about 15%. That is growth of a little more than 1.7 percentage points a year. It is better than the economy as a whole, so clearly something is working. But in the same period, the services sector grew cumulatively 29%, according to Statistics SA figures.

You have to ask whether the government should not be spending more effort on that sector, which is growing at double the rate. What is more, the manufacturing sector still has not reached the high point it hit in 2008 and has been more or less static since 2012. In the hermetically sealed apartheid economy, manufacturing constituted 23% of GDP; it now constitutes barely 13%.

By international comparisons, SA also lags. The international statistics website TradingEconomics records that over the same period Mexican manufacturing rose 31%. Mexico has a much larger industrial base than SA, but Indonesian manufacturing, is roughly the same size as SA’s, or at least it was — it rose 41% cumulatively over the same period. The difficulty is working out what the causes are of SA’s relative underperformance. SA has been unlucky in that it has not been part of a rapidly expanding region, like Indonesia. Neither does it have a very rich neighbour such as Mexico has. African growth has stalled and that has not helped either.

SA has made an enormous hash of its mining sector, which contrived to miss much of the commodity boom of the early 2000s and then slumped into a moribund state. Much of SA’s manufacturing historically was linked to the mining sector. In fact, the interactions between sectors is a problem for the government and industry. From within the government, it is crucial that there should be alignment across departments.

At the moment, there just isn’t. Hence all the efforts made by the Department of Trade and Industry are negated by, for example, the Department of Mineral Resources, which is focused almost entirely on social and environmental factors and has very little apparent interest in increasing the amount of ore mined. Industry is also a problem. Manufacturing improvements require alignment across the entire value chain. In some industries it takes place; in others it is lacking – much to the frustration of the trade and industry.

In government, it is crucial there should be alignment across departments

Announcing the ninth iteration of Ipap, Trade and Industry Minister Rob Davies bent over backwards to declare fealty to the concept of "radical economic transformation". In his mind, this constitutes "putting coherent initiatives together that can begin to shift the productive base of our economy away from the inherited colonial division of labour and create decent sustainable jobs". Investors think it means the government is intent on covering them in a suffocating blanket of prescriptive requirements and that it is generally impervious to rationality. For this reason, among others, business confidence remains deep in negative territory.

Manufacturing can supply the "missing middle" in the economy, but it needs a tailwind of confidence and alignment, not a headwind of political restraint.

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