It is high time for us to wake up and confront our predicament

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Filomena Scalise

It is disingenuous to say that “the king has no clothes on”. Numerous and consistent warnings by the Reserve Bank about labour cost and instability, the balance of payments deficit, the need for business confidence to improve investment, to name but a few, is testimony to that.

The government itself and, specifically, the Department of Trade and Industry (dti), is aware of the circumstances and environment in which industrial policy has to be designed and implemented to at least stem the tide of declining business activity and ever-rising unemployment.

The dti is brutally honest about the constraints and threats confronting South Africa. In its most recent public information sessions it stated as constraints to industrial growth: a protracted world recession and decreased demand for South African exports; weakened domestic demand as the credit-fuelled boom of 2005 to 2007 continues to prove unsustainable; a significant slowdown in private sector investment; a slowdown in Chinese demand for primary commodities and possible drop in prices; monopolistic pricing of privately owned key intermediate inputs into the manufacturing sector; and continuing currency volatility.

The dti states as threats: sharply escalating and “bunched up” administered prices, including electricity prices, especially with significant increases from municipalities; the slow pick-up and backlogs in infrastructure spending at all levels of government; high charges and inefficiencies at ports; slow progress in addressing the skills deficit and mismatch in the economy, an especially critical problem for the new growth sectors; and labour relations volatility; and service delivery tensions.

Clearly, we should debate the opportunities and not focus only on the threats.

It is acknowledged, therefore, that these constraints and threats inhibit industrial development. It must also be acknowledged that these dynamics are akin to “a rising tide” and, as we know, leaning against the ebb or flow is futile. Some of these are of our own making.

The cumulative effect of most or all these dynamics turning against you can have the devastating effect articulated by BMW.

It cannot, however, be said that nothing is being done “while Rome is burning”. The irony is that the motor industry is being targeted where much, if not the most, effort has gone into building the capacities to become a player in world export markets.

There are successes. There has been huge effort put into assuring the realisation of the maximum domestic benefits of large public investments.

Billions of rand have been poured into financing investment programmes to which more and more private sector companies are subscribing. You cannot write off a metals and engineering sector contributing nearly 450 000 job opportunities directly and sustaining hundreds of thousands more.

The most fundamental shift in industrial policy over the past two decades has been the shift from protectionism and inward industrialisation to a more export-led approach to development, yet efforts to protect sectors against the ravages of international competition must be commended.

There are often inconsistencies between the macro-economic dynamics and what is good for the micro-economic survival of companies.

There are policy inconsistencies and delivery failures and as a result skirmishes have arisen among implementation departments and government agencies often in an effort to rectify some of these.

The recent parliamentary committee “bun fight” between the dti and Transnet National Ports Authority for favourable rates for manufactured exports is one example. Another is the dti’s resistance to Eskom’s 16 percent a year tariff increases. Toll roads are another example: the private sector subscribes to the “user pays” principle, public-private partnerships, foreign investment, and policy certainty, yet all have been compromised in the saga.

Change in the country has often been shaped by international events, which have been our saving grace, because they prevented us from stepping off the precipice with glee.

Irreparably damaging international investor confidence could deprive South Africa of the capital inflows needed to fund infrastructure investment needed to spur growth, and inflows of fixed investment capital to build industries like the automotive sector to employ our people.

We’d better all understand the juncture we find ourselves at.

Henk Langenhoven is the chief economist at the Steel and Engineering Industries Federation of SA.


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