Government’s current industrial policy is harming manufacturing rather than promoting it

Government’s current industrial policy is harming manufacturing rather than promoting it, according to the latest hard-hitting report from the Centre for Development and Enterprise (CDE).

The report highlights a key policy concern also raised by the Cape Chamber and its private sector partners: that not enough is being done to promote global competitiveness among manufacturers looking to secure export growth. Government’s key focus appears to be protectionist measures such as tariffs which provide short term relief but do little to bolster the fundamental strength of local companies. A fresh policy approach is vital to hopes of reindustrialisation, export growth, and job creation, the CDE report says.

The report has particular relevance to the Western Cape, the fourth largest exporting province responsible for over half of South Africa’s agricultural exports. The Western Cape accounts for over two thirds of all marine manufacturing, with about 95% of boats produced for export.

Instead of expanding our export base, government’s current policies risk eroding our competitive advantages where they occur, says the CDE report which includes the following alarming stats:

• Manufacturing’s share of GDP fell from 20% to 13% between 1960-2023
• Only 20% of SA manufacturers export at all
• Manufacturing employment declined from 1.8 million in 2001 to less than 1.6 million in 2023

“The President and NEDLAC partners acknowledge that existing policies have failed to deliver and that fresh thinking is needed,” said CDE executive director Ann Bernstein in her CDE report commentary. “South Africa needs a new approach, and the government of national unity (GNU) creates an opportunity to change the country’s course for the better.”

The Cape Chamber has long advocated the need for economic reform aimed specifically at making local firms more globally competitive. The current closer working relationship between government and the private business sector is a golden opportunity to recalibrate industrial policy in order to accelerate growth. We have ample natural resources, a solid industrial base, and willing trading partners. We also have a labour force literally bursting at its seams as it struggles to escape the confines of sluggish growth.

The CDE report says government’s focus on ‘localisation’ – replacing imported goods with local production – has led the country down a protectionist path of tariffs that are not in our collective best interests. What is needed is a new master plan to incentivize export growth in a context of increased globalization and free movement of goods and services.

Bernstein argues in favour of targeted interventions to help specific firms looking to grow exports; she believes the current approach of protectionist measures for entire industrial sectors precludes export-orientated firms from expanding their footprint. “Exports should be regarded as the most important metric to assess the competitiveness of firms and of the impact of policy interventions. By making exports the goal of industrial policy, policymakers are forced to focus on the key elements that drive competitiveness, particularly input costs and productivity,” Bernstein said.

We believe robust debate regarding economic reform is essential if we are to achieve the paradigm shift necessary to bolster exports, while simultaneously providing a measure of protection where necessary. Government’s ‘one-size-fits-all’ approach to economic policy has passed its sell-by date.