Localisation is a must to drive industrial policy
By Bongani Mankewu
South Africa’s economic policy between 1994 and 2007, in particular, has been overwhelmingly dominated by orthodox economic reforms.
As a result, these reforms were meant to achieve a step-change in fixed investment and catalyse higher levels of growth and employment across the economy, including manufacturing.
Unfortunately, these reforms have not delivered significant or sustainable investment, growth or employment gains.
For the suggested Economic Reconstruction and Recovery Plan through an infrastructure roll-out a consistent and unambiguous industrial policy is required.
A policy with s considerably greater coherence and co-ordination between industrialisation objectives, macroeconomic and other economy-wide policies than the policy at present.
In hindsight, glibness resulted in an industrial policy with no real focus on industrialisation, misplaced to comprehend.
There is exhaustive literature, which emphasises that there is something special about the role of manufacturing in economic development associated with the Kaldorian view of the sector’s ability to generate dynamic increasing returns.
Therefore, infrastructure as an enabler of the economy and its blazing ability to contribute to the competitiveness of the manufacturing sector requires unyielding policy enforcement of localisation.
It is also vital to note that, key issues the industrial policy needs to address are ways to promote the manufacturing sector and transitioning from an imitation regime, based on cheap labor and imported technologies, to a skill-intensive innovation regime.
For the sustainability of the planned investment in infrastructure, the policy instruments must use an approach to economic growth, which prioritises manufacturing as the engine of economic growth. Manufacturing growth will induce productivity growth that cuts across other sectors of the economy.
This approach necessitates 1) market demand mobilisation - creation of demand with a focus on identified sectors of the economy as linchpins to create spill-overs to the economy downstream 2) convergence of market demand with the supply of finance, and 3) sector clusters to build capacity.
Literature has consensus that infrastructure affects productivity and output directly as part of gross domestic product (GDP) formation and as an input to the production function of other sectors. It is, therefore, needed for raising economic productivity and sustaining economic growth.
It increases total factor productivity (TFP) directly because infrastructure services enter production as an input and have an immediate impact on the productivity of enterprises. It thus fosters aggregate economic output given its contribution, on its own, to GDP.
In South Africa it means industrial policy instruments have no option, but to enforce localisation as the driver if sustainable infrastructure investment is to be attained.
Bongani Mankewu is an associate of the Infrastructure Development & Engagement Unit at Nelson Mandela University
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