An interview with the Minister of Trade and Industry, Rob Davies

Trade and Industry Minister, Rob Davies, who is at the heart of the transformation of South Africa’s economy, believes that it is important for South Africans to acknowledge their problems and that they have a plan, in the NDP, to deal with them.

“The NDP deals with all aspects of society and government. Everyone has a part to play – with government playing a critical, leading role. Everyone’s contribution is crucial if the NDP is going to be implemented successfully. There is consensus on this issue.”

Davies said the NDP talked about the diversification of the South African economy which needed to be seen in conjunction with the Medium-Term Strategic Framework (MTSF) that guides the work of government, in line with Vision 2030.

“The NDP and MTSF build on some of the existing work in government and, in our case, the Industrial Policy Action Plan.

“There’s a line of sight between the work that we are doing and where we need to end up. We inherited from apartheid an economy that had been incorporated into the global division of labour to produce and export primary products, particularly gold, with a gold mining industry that had already passed its peak in the 1970s. Since that period, it has been expelling labour from the industry, first into neighbouring countries, then back into the then South African Bantustan areas and, when influx control collapsed, into the cities.

“When we came to office in 1994 there was a major change in the world with the phenomenon called globalisation. There were new trade laws and liberalisation which undercut much of the highly protected and inward-focused industrial economy that existed. We faced a very serious set of challenges.

“In the early years we adapted to that and we attempted to use trade liberalisation as a tool to support more competitiveness in industries and to carve out a bit more space for South African products in export markets.

“For some of the quarters in the period from 1994, there was growth of 5% but this was in a minority. Now we have to make structural changes. We cannot occupy that kind of place in the global division of labour. We have to move up the value chain.

“Countries that are successful, except for very small economies or ones with small populations or ones with huge resources like oil, have all passed through a stage of value addition, including manufacturing. More than 60% of oil trade is now in intermediate products.

“The worst place where you can be in the global division of labour is where we were historically. This is why we have to support re-industrialisation. Through industrial development, we can move up the value chain. Our trade policy stance is informed by that fundamental reality of industrial development.

“We are focusing on regional integration, not to prioritise institutional arrangements that deepen integration within existing communities but rather to broaden integration across the regional communities with the eventual destination of a continental free trade area, whilst recognising that tariff arrangements are not going to crack it on their own.

“The real problems facing African countries are much more linked to infrastructure deficits and the lack of economic diversification. We need to cooperate to promote broader industrialisation across the continent to address infrastructure backlogs. This is the work that we’ve been doing and it fits into the MTSF which is supposed to be a line of sight to the NDP.”

Davies said that most of the agencies under his department are crucial for the implementation of the NDP.

“Industrial financing is one of the key challenges. When we started launching our Industrial Policy Action Plans we found that most of the credit that was extended in South Africa was linked to the growth path that we had been on and which depended on things like commodity super cycles which passed their peak in 2011 – and was consumption driven.

“Most of the credit extension was to support consumption and not to support any kind of productive activities.

“The National Empowerment Fund, which now sits under us, has increasingly been moving towards supporting empowerment in the real economy. We’ve been seeking to promote a shift in the focus of empowerment from small deals where black people become minorities, where we don’t change anything structurally, to focusing on empowering people to play an important and leading role in the real economy. That’s why we now have a black industrialist strategy. It should have its own programme and its own support mechanisms.”

This strategy would be driven by the Department of Trade and Industry, said Davies, but would have the support of the BEE Advisory Council which reports to the President.

“We have bodies which set standards and there are a number of them. They have historically been very much in the shadows, but we’ve actually identified that they have a critical role to play. We have been trying to get South African products into export markets, where standards are increasingly becoming the issue, at the same time as blocking out of the South African market unsafe and substandard products which create unfair competition to local manufacturing.

“We have other agencies which deal with consumer protection. For instance, when you buy a paraffin stove and it falls over, the flame is supposed to go out, but with the substandard ones when the fuel spills the flame does not go out. This is a major cause of fires in low-income communities and informal settlements. We have been trying to ensure consumer protection by keeping out substandard products.

“We have agencies which deal with regulated industries such as liquor, gambling and the lotteries. The real thing here is to continuously improve the performance in these areas and also address the challenges that they pose. We must realise the opportunities but also limit the negative social impacts.

“We have agencies that deal with company registration, such as the Companies Intellectual Property Commission – and here we have been making a serious effort with the new Companies Act to make it much easier to register a company, using new ICT technologies. It is no longer a difficult process to start a company.

“We have Export Credit Insurance which is a political risk insurance and supports the Company Act. A number of our agencies in the department and divisions deal with trade promotion and investment promotion and they’re sitting on a steadily increasing pipeline in investments in the productive sectors of the South African economy.

“You can set up business without any real hassles here but most investors want to know about the regulatory regimes and what they have to do and also what centres and support programmes are in place.

“Trade Investment South Africa has a network of foreign representatives and has managed substantial investments in recent years. We have another division that deals with trade negotiations where our focus has been on African regional integration but we are inevitably drawn into other things. At the moment the renewal of the African Growth and Opportunity Act is the issue on the table but earlier on it was the negotiation of the economic partnership agreement with the European Union.”

Davies believes that government is trying to improve its communication of the work it is doing on a continuous basis.

“Our focus is on Industrial Policy Action Plans which we’ve launched. We launch them in April every year and they cover the financial year in question and the two outer years. They are the finer set of actions that have to be carried out by different government departments and agencies.

“We launched these at the time when the global economic crisis had a major effect on the South African economy. We had lost a million jobs, with 200 000 of those in manufacturing. Manufacturing is about 12% of the GDP which means that we lost proportionately more jobs in manufacturing.

We stared in the face the very, very real prospect of serious deindustrialisation in this country, but instead we saw a substantial number of investments, of about R25-billion, in the automotive sector.

“We’ve seen original equipment manufacturers investing here, including minibus taxi manufacturers, from places such as China and Korea. We have seen a significant and substantial stabilisation of the clothing industry.

We changed the incentive and moved it away from the previous model which was duty credit certificates which were being traded to retailers, and which led to a flood of imports. We turned that into a competitiveness-based incentive.

“We have also introduced localisation in the clothing industry; one clothing factory we went to was making uniforms for SAA.

“In the metal industries, we have also seen localisation. For instance, all the busses that were used in the 2010 Soccer World Cup were fully bought but now the bus bodies for the rapid bus transport systems are being manufactured in South Africa.

“We’ve introduced localisation requirements and we’ve seen big contracts for locomotives and wagons going to partnerships that involve a degree of localisation. We have the largest renewable energy programme on the African continent that is generating the manufacture of wind towers photovoltaic cells.

“We’ve seen television manufacturing companies coming here and we’ve grown industries like the film industry – for which we have quadrupled our support in the last five years with the film incentive. Major international films are now being filmed here because of our incentive programme and the quality of our destination. We have also been supporting the Cape Town Film Studio, through a government programme and we’ve seen that making a major impact in the film industry.

“We have made an impact in business process services and in the pharmaceutical space. We have carefully managed our industrial policy. If we design it well and resource it properly, it will make a difference, but we are not yet at that stage of leading a new growth path based on productive and value-added sectors. That is the challenge now in South Africa.”

Davies agrees that power outages could impact on the implementation of the NDP.

“There is a need to generate more electricity and there is a need to address transmission lines. We are not the line department that deals with all of these although we are represented in the war room. Our voice in the war room is to ensure that due cognisance is taken of the needs of the productive sector and that we make sure that industry is accommodated as far as possible.

“It is vital. It is not just a question of keeping the lights on in households, it’s the question of ensuring that there’s adequate power supply to support the industrial development diversification in the economy.”

A lack of skills is another issue that could potentially derail the National Development Plan, believes Davies.

“The skills issue is a fundamental long-term one which is why there’s a lot of attention on training and skills development. We are not a line department, but we have invested in a number of skills development programmes, supporting generic skills as well as our own skills inside the department because this is the major challenge.”

Davies believes that, while the NDP’s employment targets are ambitious, the targets on inequality are quite modest.

“We need to take into account the Oxfam study which said that the top one percent in the world have as much wealth as everybody else combined.

“The trend line is increasing to concentrate wealth in the hands of that one percent and this is being driven by a number of factors including some of the technological changes that are happening, and the digitisation process. If you transpose that onto an economy like South Africa’s you see it’s easy for those trends to take root and to sharply divide our society.

“Working to uplift the poor is an important part of it but we are going to have to address the other side. There is a discussion happening around things like base erosion and profit shifting which is also a global phenomenon. This is where multinational companies understate the tax that they should be paying, or understate the earnings and shift the profits offshore to different places, restructure their tax affairs and don’t make their contributions. This is something that’s recognised internationally and we are victims of this as well.

“We are going to have to bite some bullets. We need to have discussions at some point about where the contribution of the wealthy is in all of this. And how the wealthy work with poor people in our country.”

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