Address by Minister Rob Davies to Numsa 9th National Congress.

Firstly allow me to express my thanks to the leadership and membership of the National Union of Metalworkers of South Africa for extending an invitation to me to speak at your 9th National Congress.

It is indeed an honour and I wish you all the best in your deliberations.


The National Industrial Policy Framework document provides government with the overarching framework for the implementation of the Industrial Policy Action Plan (IPAP).

Its adoption in 2007 was an important milestone in the urgently needed effort to halt the decline of South Africa’s industrial base and put in place the building blocks for its reconstruction.

Following the first IPAP iteration in 2007/8, most notably with the launch and implementation of successive iterations of IPAP in 2010, 2011 and 2012, many lessons have been learned and progress secured.

However many hurdles and constraints remain.

It is important that we reflect on the achievements, lessons and constraints, of this experience, in the context of our theoretical understanding of industrial policy and industrial development, in order to be able to better chart a course forward into the future.

After all, securing sustained industrial development is a highly complex undertaking for which there is no ready-made formula.

There is no App which we can simply download with the press of a cell phone button and set in motion the necessary plans to achieve our objectives.

To coin an overused phrase – ‘if it was this easy everybody would do it’.

And this is precisely what orthodox economics – the proponents of the Washington Consensus – often argues. An orthodox paradigm suggests that free market reforms – conservative monetary and fiscal policy, liberalisation and deregulation will bring prosperity in a one size fits all approach.

This orthodoxy rests on a set of assumptions including the proposition that there are perfect markets which contain no distortions; that all sectors of the economy are of equal importance and that linkages between sectors and economic activities and economic and employment multipliers should not be taken into account.

Orthodox prescripts rest on simplistic notions of political economy including the proposition that any departures from free trade will inevitably result in unproductive rent seeking.

Our heterodox theoretical standpoint is entirely different – without suggesting that market forces are unimportant.

Our point of departure is that there is imperfect competition and market failures.

There are very significant differences between economic activities and sectors in which multipliers and linkages are very important.

Our belief is that there are major distortions in global markets and that a sophisticated understanding of political economy and power relations is important.

It is our view that industrial policy and industrialisation efforts must rest on an understanding of specific conditions, in our circumstances inclusive of the fact that there exist deep structural fault lines in our economy.

We draw not from a once size fits all approach but on a diverse range of economic theory including an understanding that emulation – what other countries successfully did and are doing – is critically important.

I am on record as stating that it is our view that there are few, if any examples of high and sustained economic growth, anywhere and at any time in history, based on increasing returns to scale, which have not been led by the manufacturing sector.

This rests in great measure on our belief that it is the manufacturing sector that has the highest economic multipliers and linkages with increasing returns to scale at a firm, sector and economy wide level.

We believe that an industrial policy is required to overcome market failures and induce learning and effort.

We are of the view that there needs to be a conscious effort to secure a relative shift from capital and energy intensive resource processing sectors to value adding and labour intensive sectors.

Whilst some service sectors have high employment multipliers, manufacturing is a critical sector for employment because it is less skills intensive in many sectors and because the linkages and multipliers manufacturing has with other sectors of the economy underpin sustainable growth and employment creation in those sectors.

This, in broad outline, captures our approach to economic development. This is the broad approach adopted in the New Growth Path, one of the key pillars of which is the Industrial Policy Action Plan or IPAP.

What then are the key successes which characterise our recent efforts to through the IPAP and as we undertake the difficult processes of strengthening policy coherence and intra-governmental programme coordination and integration?

The first example I wish to cite is in the automotive sector where learning by doing, carefully redesigning and strengthening our policy framework and constantly improving our effort has been critical.

The transition from the Motor Industry Development Programme to the Automotive Production and Development Programme has nearly been completed.

Our policies and programmes have received an overwhelming vote of confidence in the form of more than R15 billion in recent investments commitments from assemblers and component suppliers.

There are increases in vehicle assembly volumes and localisation of component production despite the global recession.

We have a Medium, Heavy Commercial Vehicle strategy in place and already an investment of R100 million has been secured into this sector.

In another sector which receives significant on budget support – the Clothing, Textiles, Leather and Footwear Sector, we recognised that we had to put in place better designed incentives. These have resulted in significant competitiveness improvements.

Domestic manufacturers and retailers have been brought together to take advantage of proximity, quality and flexibility that domestic manufacturer offers.

Sharp employment losses in the sector have been slowed significantly with modest employment increases being registered in some sub-sectors.

These are two examples of significant achievements. But industrial policy is not just about incentives.

Our approach is many faceted. For example for too long now state procurement was not used as a strategic policy instrument.

Procurement and public infrastructure investment was insufficiently well planned and often supported massive imports into the country and therefore leakages from the economy.

The amendment of the Regulations of PPPFA has enabled us to designate critical sectors for local procurement.

To date we have designated buses, rolling stock, power pylons, canned vegetables and clothing, textiles, leather and footwear and some pharmaceutical products.

More designations will follow later in the year after the necessary groundwork has been done.

This is a very important lever which we will use with the necessary and proper research and monitoring and evaluation rigour that it requires so that it does not become the subject of abuse and rent seeking.

Deepening local supplier development policy, systems and programmes in SOE’s have also achieved significant momentum even if much more still needs to be done.

The conversion of high level co-commitments by business and labour set out in the Procurement Accord to concrete actions is also very important.

In summary we have begun to change the way the state uses the procurement lever to build domestic manufacturing capacity.

Significantly we have begun to change the way in which the national discourse is framed – increasingly the need for local procurement is no longer considered as a nice to have but a must do.

Slowly our efforts to impress upon both the public and private sector that local procurement is vital are beginning to get support but much more needs to be done.

We have previously identified the fact of major market failures with respect to finance for fixed investment.

The bulk of private credit extension has gone to various forms of household debt rather than fixed investment much of it spent on imported consumer goods.

There has been a concentration of fixed investment in consumption-driven and capital-intensive sectors.

SA has a high relative cost of capital with insufficiently long-term tenure of loans in relation to our key competitor countries.

This is why it is so important that significant progress has been registered with respect to the provision of concessional industrial financing to support the production sectors of the economy.

The IDC has set aside R102 billion with specific allocations for labour intensive investments, the green economy, energy efficiency and across the agricultural value chain.

The 12i tax incentive for large investments has been implemented and is achieving a significant uptake.

Securing agreement on and the launching of the Manufacturing Competitiveness Enhancement Programme with a budget allocation of R5, 8 billion over current three year MTEF is also a very important milestone.

It is a manufacturing support response to companies impacted by the overvaluation and volatility of the currency, the rapid escalation of administered prices and the fact that companies have been adversely affected by the worst global recession since the Great Depression.

The MCEP is deployed towards upgrading competitiveness of labour intensive and value-adding manufacturing sectors.

It is grant finance with clear rules-bound access criteria aimed at firms in key sectors to upgrade production facilities, process, products and skills.

The MCEP excludes sectors with existing dedicated support programmes (autos, clothing, and business process services); capital intensive sectors and sectors where there is significantly high market concentration and anti-competitive behaviour.

The dti has provided incentives to the food processing sector to a value of R736 million over the last 3 years.

Our Enterprise Investment Programme disbursed R636 million and facilitated investment of R3, 7 billion in the food processing sector – contributing to the retention of 14 000 jobs and the creation of 7 000 new jobs.

The dti’s Cooperatives Incentive Scheme disbursed more than R100 million.

Incentives in the Business Process Services sector leveraged R4, 1 billion investments inclusive of the launch of the first Amazon Africa customer service centre in the Cape.

These are important achievements even as we recognise that much more needs to be done.

But industrial policy is not just about incentives. Our trade and competition policy is moving steadily in the right direction with significant progress designed to ensure that it is better aligned with industrial policy.

Tariff setting is better informed by sector analysis.

The work of SARS to tackle customs fraud and the illegal imports which seriously undermine our manufacturing base has achieved important results.

Recent standards development work has assisted the growth of a range of new sectors especially in relation to green industries and industrial energy efficiency.

A range of competition investigations have been conducted with important outcomes especially with respect to tackling anti-competitive behaviour in industries providing inputs into manufacturing, agriculture and mining as well as in sectors providing wage goods for working families.

There has been accelerated progress with respect to industries which require complex multi-departmental coordination such as renewable energy, biofuels and water licences for forestry and agriculture.

The serious concerns that we have expressed over a number of years about port charges for manufacturing has met with a positive response and R1 billion has been set aside for port tariff rebates for manufacturers.

In short there are significant achievements but much, much more needs to be done.

Allow me then to turn to some of the lessons of our experience. Most importantly the first lesson of our experience of implementing the IPAP is that industrial policy can and does succeed in South Africa if it is well designed, adequately resourced and informed by robust and constructive stakeholder dialogue.

Headway in getting this message across has been made but much more needs to be done.

The second lesson is that the task of achieving policy coherence and the integration and coordination of industrial development programmes across all national departments, spheres of government, SOE’s and regulatory agencies is not only critical but also very difficult to achieve.

This is the reason why the IPAP is not the product of a single department but a product of the Economic Cluster of Departments.

It is the reason why we publish the IPAP with a clear definition of the lead and responsible departments for each key action plan.

It is the reason why we have a problem solving approach in our efforts to monitor the implementation of the IPAP – to identify problems and constraints and seek solutions to these.

It is the reason why we put the IPAP in the public domain with clear action plans with milestones which we rigorously monitor and intervene on – where there are blockages and problems.

The third lesson is that not only is the devil in the detail of difficult, painstaking work in each sector but that there is no magic formula for building our own capacity.

We are building capacity by putting in place a wide range of training programmes. We note with satisfaction that members of this union have and are participating in some of these programs.

We would strongly encourage greater participation where possible. Most importantly in this regard we are learning by doing.

We reject the notion that any perceived lack of capacity in the state should mean that nothing can be done until such capacity is built. This is a recipe for failure.

It is of course also important to note also that as we collectively set about the difficult task of implementing the IPAP, we do so in an unfavourable set of circumstances – to coin an old phrase – we do not fight on the terrain of our own choosing.

Government has had to carry forward the implementation of IPAP in the face of very severe external shocks.

The global recession, especially with respect to our traditional trading partners – the US and the Eurozone, has had a very severe impact on the manufacturing sector.

This external shock has coincided with on-going currency overvaluation and volatility. Internal shocks to the economy in particular rapidly escalating administered prices, especially electricity, have had a very negative impact on companies.

We are also driving the slow and difficult process of re-orienting our exports to higher growth developing countries and regions such as India and China.

There are other constraints including the skills shortage and mismatch in key sectors of the economy.

Government’s efforts to deal with the monopolistic pricing of intermediate inputs into manufacturing, especially steel, plastics and polymers has not been as rapid as it we would have liked, often because these efforts have been held back by complex legal and regulatory issues.

Having said all this we make the point that we are neither in the business of patting ourselves on the back nor of believing that the situation is hopeless and little can be done about it.

On the contrary we remain resolute in the view that much more can and will be done.

Our efforts to build the manufacturing sector are a critical pillar in the overall effort to combat the intolerably high levels of unemployment and inequality that exist.

What then are the opportunities to scale up what is being done to support the manufacturing sector?

It is vital that the core focus of work should be to upgrade rapidly to weather the current economic environment and position domestic manufacturers for future growth opportunities.

We must secure this objective if we are not to emerge from the global recession in a weaker position.

Following detailed work by the Presidential Infrastructure Coordinating Committee, government announcements with respect to a massive infrastructure programme for South Africa and the region are very important and reverse a general trend in recent times.

Infrastructure investment is a critical lever for economic growth and industrial development especially if it is used in concert with other levers such as local procurement and is not accompanied by sharply escalating input and logistics costs for the manufacturing tradable sectors.

It is also critical that the design and implementation of the infrastructure enables and supports economic development as well as meeting important socio-economic requirements such as an accessible, affordable and safe public transport system.

Secondly we believe we must follow opportunities to regain domestic market share in areas such as clothing, textiles, leather and footwear and agro-processing.

Similarly there are important opportunities to grow manufacturing exports on the rest of the African continent linked to mining, infrastructure, construction and a rapidly growing middle class on the continent.

These and other important opportunities are the focus of attention in the latest iteration of IPAP and build upon and utilise the lessons of work including in the auto’s and clothing sectors. These are:

To importance of utilising the designation and levels of local content for solar and wind renewable generation componentry and solar water heaters in the Green industries and industrial energy efficiency space.

The utilisation of MCEP to accommodate existing and new entrants, including with respect to foreign direct investment, in component manufacture as well to unlock industrial opportunities with respect to energy efficient buildings. .

There are important opportunities in the Agro Processing sector including with respect to expediting the regulatory and support mechanisms to create a large scale Biofuels industry.

Work is being done to prepare emerging and commercial farmers to produce biofuels feedstock crops.

It is important that everything is done to identify and drive the promotion of export market opportunities to major net food importing countries as well as scale up investment, product development and standards support in the sector.

In a third sector, the Metal Fabrication, Transport and Capital Equipment sector it is important that the MCEP is used to upgrade industry capabilities.

There should be a leveraging of the massive public infrastructure drive especially in rail and electricity with further designation and matching sector specific co-commitments.

This should be accompanied by the exploitation of opportunities in mining capital equipment investment in SA and rest of continent.

An emphasis on these sectors does not mean that on-going sector development across the other sectors should or will be neglected.

Neither does it mean that on-going work on all the transversal sectors will be downgraded.

This includes the public procurement lever which is the subject of a further more comprehensive review led by the National Treasury.

A special effort must be placed on ensuring that the industrial financing instruments that have been put in place are adequately utilised and scaled up where appropriate and necessary.

Similarly work on speeding up the implementation of the Special Economic Zones to promote the creation of a regionally diversified industrial economy and establish a broader range of industrial parks and infrastructure for effective clustering is critical.

Finally a greater effort to ensure that the effective commercialisation of new innovation and technology is an area which requires special attention.

In conclusion we must reiterate that there is no magic formula for industrial development. Apart from the strong global headwinds there are significant challenges in the global economy.

There is very rapid technical progress across a range of sectors and we need to ensure that our industrial capacity is not left behind in the surge toward knowledge intensive production.

We will inevitably be faced with the challenge of adapting our economy to climate change low carbon intensity production processes.

We are sometimes accused of ignoring the danger of private sector capacity to ‘capture’ the state to the point where some suggest that we should not pursue industrial policies.

We believe that the view that the private sector will not try to defend and lobby in their own narrow interests is naïve.

The point is to ensure that our policies are designed in consultation with the private sector but pursue broader interests including the creation of decent jobs.

Industrial policy is often constrained by macroeconomic constraints, international trade and intellectual property regimes and we do not operate off a blank slate.

In short the constraints and challenges in an increasingly competitive and even hostile global economy are significant.

But I am confident we shall not be found wanting. Perhaps most importantly of all we have to work together to achieve more.

Important sectors of business are vocally articulating and driving home the need for manufacturing led growth.

Government must engage and work with business in the national interest without any relegation of its duty as a developmental state.

Labour has long been a champion of industrial policy and industrial development and on-going support is critical.

The road ahead is not an easy one and it is unlikely to become any easier.

It is much like pushing a heavy load up a steep hill against a strong headwind. But we will not be found wanting in our effort and hard work.

Long live NUMSA.

Thank you.


Numsa Press Statement