and Industry
29 March 2006
Madam Speaker, Minister, comrades and colleagues, I want to take this
opportunity to speak on two areas of work I have been involved in since my
appointment as Deputy Minister: Industrial Policy and International Trade
Negotiations.
It is pretty much common cause in the serious economic policy debate in this
country, that we need a more effective and robust industrial policy. Economic
history teaches us, that those very few developing countries that have
succeeded in breaking out of their historical places in the global division of
labour as mere producers of raw materials, have all had active industrial
policies. Industrial policy, to paraphrase Vivek Chibber, can be recognised as
a series of state interventions in which the focus shifts from managing the
effects of the accumulation process to accelerating its pace. In the case of
the prominent examples of successful industrial policy governments of various
East Asian countries were all prepared to assert leadership to the extent of
getting prices wrong and directing investment into the development of lines of
industrial activity not then recognised by markets, but which through active
industrial policies were subsequently developed into a major competitive
advantage. Behind the more recent rise of China as a major economic power
have also been active industrial policies.
The Accelerated and Shared Growth Initiative for South Africa (AsgiSA) adds
its voice to calls for a more robust and active industrial policy in South
Africa. Our Department is in the final stages of preparation of a broad
strategic framework document which we hope will pass through the governmental
processes within the next few months. In addition to the overall framework
document, we anticipate that there will also be a need for the development of
new strategies on important key related matters like industrial finance and
capacity building for Industrial Policy. We also need to push forward with,
refine and improve the sectoral work which has been underway for some time. I
have had the privilege to chair a review team, which has engaged in a self
critical reflection of some of the challenges which face us in making our
industrial policy more effective.
Industrial policy is of course not new in South Africa. In the period since
1994 we have produced several industrial policy strategic documents and for
some time have engaged in sector processes, some of which, for example in the
motor industry, have scored important successes. But our reflection has led us
to conclude that some of our efforts in the past were too dispersed, too
unfocussed and we have often failed to deploy sufficient resources to actually
make a real difference to the performance of, and activities within, industrial
sectors. Among the themes which we will be emphasising in our new approach to
industrial policy, will be the need for government to facilitate and encourage
all stakeholders to engage in a process of self discovery. Self discovery needs
to take place both at macro level and at specific sector level. At macro level,
the process of self discovery and analysis needs to lead to the identification
of sectors, which will be targeted in our industrial strategy. Considerable
work has, of course, already been done in this regard and our reflections and
self discovery at macro level have led us to recognise that we have in South
Africa a fairly diversified industrial sector with strengths in a variety of
areas, and also that there is a need to break down artificial divisions between
industrial and service sectors, and between industrial or manufacturing and
agricultural sectors. There are four broad areas that have been identified for
more focused attention:
(1) Firstly, there are sectors which have been identified by AsgiSA, as ripe
for an early harvest in terms of growth and job creation, where work has
already been done, and where the intention is to build on and consolidate those
efforts. In this category we find the Business Process Outsourcing and
Off-shoring and the tourism sectors, where significant job creation has already
taken place, and where with further efforts, we can add many thousand more jobs
by 2014.
(2) The second category includes a number of sectors with potential for
growth and employment creation in the medium term, but would need significant
restructuring and reorganisation in order to achieve their potential. Many of
these sectors were identified by the 2003 Growth and Development Summit, and
are the subject of Customised Sector Programmes at various stages of progress.
They include clothing and textiles, the motor industry, chemicals industry,
agro industries and so on.
(3) In the third category are sectors which have not been the subject of
industrial policy work up to now, but in which job creation potential could be
significant. These are sectors also that link into the Second Economy. Included
here are bio-fuels initiative and the proposed CSP type process for non
tradable service sectors ranging from informal repair shops and personal
services like hairdressing, through to a range of social services provided also
with the assistance of government departments. The draft industrial policy
strategy document which we will be tabling shortly, suggests that there should
be a CSP process for these sectors.
(4) Finally, there are sectors in which we believe South Africa could
develop cutting edge technological excellence and become a world leader. They
include parts of the aerospace industry, parts of the hydrogen economy, medical
technology, biotechnology more generally and so on.
Self discovery also needs to take at sector level and lead to the
identification of key action plans needed to take our sectors from where they
are to where we need them to be. Here again we need to build on, accelerate and
improve on Customised Sector processes already underway. Through CSPs we need
to identify the kinds of contributions which are necessary from government,
business, labour and other social partners to advance action plans. A further
conclusion from our self assessment is that we, as government, must be willing
to employ our resources in a more concentrated way that can actually make a
difference. Greater customisation of industrial financing and incentive
programmes and alignment with action plans identified in sectoral processes,
will also be necessary if we are to make the impact which we need. This will
require much greater coherence between the processes at sectoral level, and
those in which industrial incentives and financing measures are actually
designed.
We will also need to look more closely at the issue of conditionality and
reciprocity in the deployment of incentives and offerings. We need to be
offering sectors and firms significant resources for programmes and projects
that will make a difference, but we must insist on reciprocity and be willing
withhold or withdraw support if appropriate agreed restructuring does not take
place.
In addition to all of this, there are of course the cross cutting
interventions which are identified in the Micro Economic Reform Strategy
programme and which are refined and in AsgiSA. They include the infrastructure
development programme, regulatory reviews, and critically the Joint Initiative
on Priority Skills Acquisition (JIPSA) skills initiative and other training
programmes.
To pursue a more effective and robust industrial policy of this kind, we
will have to address some very, very important challenges of capacity building.
We will have to significantly enhance our own capacity within the dti and to
make sure that this capacity is optimally located in the various divisions of
the department. We will also need to find better mechanisms to bring in and co
ordinate industrial policy capacity that exists outside of the immediate
framework of the dti in Council of Trade and Industry Institutions (COTII)
institutions like the Industrial Development Corporation (IDC), and in other
government departments. Beyond this, we need to create mechanisms to draw in
and build on expertise, which exists outside of the governmental framework, in
Universities, research institutions and the like. This all has to relate to our
institutions of social dialogue and must be reflected in sector processes that
are in fact exercises in self discovery by key stake holders involved in
industries and sectors themselves. These will be major challenges that we in
the Ministry and the Department will have to confront as we go ahead. We look
forward to, and welcome an active engagement with the portfolio committee and
with Parliament in this process, which we believe does not lead to the
production of an industrial policy that is going to be written in stone, but an
industrial policy which is constant work in progress, and which needs to be
reviewed periodically at three year intervals.
Let me move now to the area of trade negotiations.
Madam Speaker, Chairperson, we meet at a very critical moment in the ongoing
World Trade Organisation (WTO) Doha negotiations. At the end of last year,
South Africa along with all the other members of the WTO, participated in the
sixth Ministerial Conference held in Hong Kong, China. According to the
original milestones for the Doha negotiations, Hong Kong was supposed to have
agreed on full modalities to give effect to the principles agreed at Doha in
2001 for agricultural, non-agricultural and service negotiations. It was
recognised even before Hong Kong, however, that there was not sufficient
agreement among the membership to achieve this, and Hong Kong tried to reach a
half way house short of full modalities. It did however set a target of
reaching full modalities by 30 April this year and intensive behind the scenes
activities are taking place in Geneva and elsewhere in an attempt to explore
the possibilities of reaching this target.
Madam Speaker, Chairperson, itâs a matter of great regret that we need to
report to this house that the chances of achieving a developmental outcome by
the new target date for modalities look as remote as ever. In Doha in 2001,
developing countries, ours among them, put forward a powerful and convincing
case that the fundamental requirement for an equitable and effective world
trading system, was to address a number of imbalances and inequities that
affected negatively developing countries. These included prominently the issue
of agricultural trade and the thorny question of subsidies. Previous rounds of
multi lateral trade agreements, up to and including the Marrakesh agreement of
1994, had largely left intact a system of agricultural trade in which developed
countries were able to maintain substantial protectionism against competitive
products from developing countries, through high tariffs and subsidies paid to
small numbers of farmers in the developed world. Average tariff cuts in
non-agricultural products allowed the continuation of tariff peaks and tariff
escalations on industrial products where developing countries had an export
interest. Developing countries argued that the focus of a new round, and indeed
the basis on which they would agree to a new round, was that distortions in
agricultural trade as well as tariff peaks in escalations and non tariff
barriers on industrial products where developing countries have potential,
should be the focus of the work programme. Of course the Doha mandate also
included a number of demands of rich countries, but we should not forget that
the Ministers at Doha agreed to place the needs and interests of developing
countries at the heart of the work programme of the Doha round.
Speaker, Honourable Members, unfortunately the period since Doha has seen an
attempt both to water down necessary adjustments by developed countries and to
combine this with highly ambitious demands directed at what are called advanced
developing countries. We have seen extremely modest proposals from both the
European Union and the United States for cuts in agricultural domestic support
that would still leave in place the possibility to deploy large resources to
subsidise activities of a small number of uncompetitive farmers in those
countries. At the same time we have seen a wholly inadequate offer from the
European Union on the question of agricultural market access. The G20, the
Cairns Group in the United States, have all concluded that the proposal from
the European Union could block any real additional access for all current
products of export interest to developing countries.
This has been coupled with demands in the non-agricultural market access
area that would see countries like South Africa being obliged to make very
significant cuts not just in bound, but also in applied tariff rates.
Chairperson, in the run up to Hong Kong, South Africa along with a number of
other developing countries tabled a document in the WTO which we entitled
âReclaiming Developmentâ. We argued that we needed to reassert proportionality
in the negotiations; that the biggest adjustments needed to take place in the
sector that was most distorted i.e. agriculture; that the biggest adjusters
needed to be the developed country blocks, that were involved in these
distortions and that the obligations of developing countries according to the
principle of special and differential treatment needed to be smaller.
During Hong Kong, our delegation under the able leadership of our Minister,
Mandisi Mpahlwa, managed to play an active role on these and other issues. We
consolidated the group of developing countries, which had signed on to the
âReclaiming Developmentâ paper, and constituted it into the grouping, which we
called the NAMA 11.
NAMA 11 resisted an attempt to try to force a premature agreement on
modalities in non-agricultural market access ahead of any significant agreement
on the main issues in agriculture. We also managed to have included in the Hong
Kong declaration, a paragraph on the balance of the outcome of the round as a
whole. Paragraph 24 speaks of there needing to be a comparable level of
ambition in market access in agriculture and in NAMA. And it goes on to say
that this must be achieved in a balanced and proportionate manner consistent
with the principle of special and differential treatment.
Recent technical work undertaken by a group of 10 countries, six developed,
for developing, has established that even in NAMA itself, developed countries
would have to accept a very low coefficient in the application of Swiss formula
of around two to ensure that they take a bigger percentage reduction in
industrial tariffs than developing countries applying a coefficient higher than
in many proposals of around 35.
Madam Speaker, colleagues, I am happy to report that the NAMA 11 continues
to be an active and significant force in these negotiations. We will do all we
can as South Africa to ensure that we do not find ourselves in a situation
where we are obliged to make large adjustments in our industrial sectors to
achieve little or nothing in the area of agriculture. That cannot be a
developmental outcome. Where the WTO process goes from here will not be easy to
predict. What we need is a high level political decision in developed countries
in favour of developed countries taking the lead and making the adjustments
which are necessary, not just in the interest of developing countries but in
the interest of an equitable global trading system as a whole. Failing this,
there are real prospects that we may end up coming out of the Doha process with
little that can be recognisable as a development round.
The danger in the latter scenario is that we will be faced with the
alternative of aggressive bilaterals, in which ambitions that the major
economic powers have not realised in the multilateral process are recycled and
placed on agendas of bilateral negotiations. We can see signs of this in some
of the bilateral processes we are engaged in. The Southern African Customs
Union (SACU)/United States (US) negotiations have failed to make progress
partly because we have faced what we believe are inflexible proposals on tariff
reductions that do not take sufficient account of our different levels of
development and the principles of asymmetry. These have been combined with
demands that would effectively require us to accede to US systems and positions
on a host of so-called ânew generationâ issues including competition policy,
state procurement, intellectual property and so on. One of the difficulties we
face in this regard, is that we now negotiate not as South Africa, but as the
Southern African Customs Union. As a Customs Union of five countries including
one least developed country, we do not have common positions on these kinds of
issues, and the actual regimes of the five members of the Customs Union on
intellectual property and on competition are fairly divergent. A meeting at the
level of âdeputiesâ is scheduled for next month. If we are to make progress, it
is essential that our partners show much greater flexibility than they have up
to now.
The Economic Partnership Agreement negotiations between the Southern African
Development Community (SADC) configuration and the European Union (EU), in
which we are at present participating observers, are at the point where we are
seriously beginning to discuss their scope and content. Here too, it is
essential if we are to make progress, that our interlocutors adopt flexible
approaches and also genuinely place developmental needs and the promotion of
developmental regional integration, at the forefront of their objectives.
We need in the light of this to be reviewing much more intensively our
approach to promoting regional integration. The most credible analytical work
on regional integration that I am aware of, has argued that in regions of
developing countries many of the major barriers to promoting intra regional
trade, do not arise from tariffs and regulatory regimes, so much as from under
developed production structures and inadequate infrastructure.
Some of the most informed and credible studies that have been done for
example of the Southern African Region in the 1990s, argued that what was
needed was a programme that combined sectoral cooperation, policy co-ordination
and integration in a broad developmental programme. What we need to interrogate
much more rigorously, the extent to which our regional programmes and ambitions
for customs unions, monetary union and the like, legitimate and valid as they
undoubtedly are, are actually grounded in a programme that makes such steps
realistic and viable.
Finally Madam Speaker, Chairperson, we need to think much more strategically
about how we relate to the new important players in the global economy,
countries like China and India. There is a growing body of opinion which is
suggesting that these countries are not just emerging as important players, but
also as potential new poles in the global economy.
Some analysts are suggesting that their path of industrialisation and the
pattern of external relations that emerges there from, is significantly
different from that of the advanced industrialised countries of Europe and
North America. There may be real new opportunities for SouthâSouth trade in
mineral products and beneficiated mineral products arising from this. Of
course, at the same time these countries have become very dynamic forces, and
strong competitors, in a range of industrial sectors. What we need is a much
more rigorous analysis of these trends as a basis for informing a programme of
economic diplomacy aimed at reaching mutually beneficial and development
orientated agreements with these countries.
This is all work which the dti will need to be engaging in during the course
of this budget year, in particular through the International Trade and Economic
Division.
Madam Speaker, colleagues, in the divisions dealing with these important
areas of industrial policy and trade policy, not to mention divisions which are
dealing with important issues like small business development, co-operative
development and so on, the department continues to put forward a relatively
modest budget. A budget, however, which is showing some growth from that of
previous years. Our challenge in the dti is not so much one of money, but in
getting value for money, by working harder, smarter and more effectively than
we did in the past.
In calling for the support of this house for the budget vote of this
Department, we indicate that the Ministry and the Department is committed to
rising to the challenge in this regard.
I look forward to your support for this budget vote and I thank you for your
attention.
Issued by: Department of Trade and Industry
29 March 2006
