Davies, Deputy Minister of Trade and Industry
29 May 2007
Chairperson
Honourable members
The minister has already spoken of the centrality of industrial strategy to
the work of the Department of Trade and Industry (DTI). The lesson of economic
history is that those very few developing countries that have succeeded in
breaking out of their colonially defined place in the global division of labour
as producers and exporters of cheap primary products and importers of higher
value added products all had one thing in common: industrial policies that were
led by an active developmental state. If we wish to make the transition to a
higher growth path that the Accelerated and Shared Growth Initiative of South
Africa (AsgiSA) is beckoning us to do, we need to draw on that lesson and
ensure that we develop more effective and more robust industrial policies.
Industrial policy work has been ongoing in the DTI for a number of years and
has passed through various phases. Towards the beginning of the current
mandate, we began drafting a new Industrial Policy Framework Document to guide
our efforts over the next few years. That work perhaps took longer to complete
than we initially anticipated. Engagement within government required us to take
on board, and to engage with, perspectives of a number of different departments
which need to be mobilised in order push forward a more effective industrial
policy. We also benefited from engagements with domestic and international
researchers, including some of the world's most prominent experts on industrial
policy.
At the end of last year we concluded that that the ongoing work of
constantly refining and improving the framework document needed to draw to a
close. The framework was in any case only the appetiser. What was more
important was the main course, the production of an Industrial Policy Action
Plan (IPAP). Work which has been underway over the course of this year has
focused on the development of this Industrial Policy Action Plan. There are a
number of key features of this work which I briefly want to touch on:
Firstly, we have said that the action plan should be the product of
exercises of self-discovery involving key stakeholders in industrial sectors.
Following the mandate of the Growth and Development Summit of 2003, various
sectoral processes have been underway across a number of broad sectors of our
economy in order to identify new opportunities and strategies for growth and
sustainable competitiveness in these sectors. These have generated what we have
called Customised Sector programmes (CSPs). Some of these CSPs have been
approved by the Executive Board of the DTI and some have not. In addition to
this, the AsgiSA process independently identified three sectors for priority
action, namely, Business Process Outsourcing (BPO), tourism and bio-fuels,
based on a conclusion that these were sectors where rapid gains in employment
and growth could be achieved through the introduction of co-ordinated support
programmes.
Considerable work has now been done on all of these sectors and appropriate
programmes with corresponding incentives schemes have been developed for each
of them. In his State of the Nation Address at the beginning of this year, the
President listed a number of sectors which have been the subject of CSP
processes in the past few years and indicated that action plans needed to be
developed and implemented for these sectors over the course of this financial
year. In the department, we have now completed the work of drilling down into
the CSPs with a view to identifying action plans for immediate, medium term and
longer term implementation. We have identified all the various recommendations
that have emerged from the CSP processes in sectors identified by the
President, and broken these down into a number of categories. First, there are
recommendations that can be described as "low hanging fruit," that is to say,
measures which could be relatively rapidly implemented and which could be
largely accommodated with an existing budgetary resource allocation and so
on.
There are also, however, recommendations for a range of cross cutting
interventions, requiring actions from departments other than our own, as well
as the big ticket industrial finance issues which will require further work and
further deliberation within government. All of this has been distilled into an
Industrial Policy Action Plan which will be included as an appendix and an
integral component of the Industrial Policy Framework Document that will be
launched shortly. A point to note is that the IP Action Plan for the current
financial year will differ in important respects from those we envisage for
later years. As I said earlier, the current programme envisages plucking low
hanging fruit across a relatively large number of sectors. It will thus be
fairly broad in its scope but implementing effective industrial policy is also
recognised as requiring prioritisation and choice. The CSP processes have
encompassed a very broad range of industrial sectors. While we are seeking to
respond to the low hanging fruit and cross cutting issues on as broad a range
as possible, when it comes to big ticket industrial finance issues and a number
of other specific recommended action plans, there will inevitably be a need for
us to prioritise. Later IPAPs will reflect greater prioritisation and
choice.
As I already mentioned, AsgiSA has already prioritised three sectors. A
prime candidate as a fourth priority is the Capital Goods Industry linked to
and producing inputs for the infrastructure investment programmes. As
honourable members know, we will over the course of the Medium Term Expenditure
Framework be spending well over R300 billion both on and off budget in
infrastructure investment programmes. These will embrace ports, railways,
Information and Communication Technology (ICT) infrastructure, public
transport, energy and local economic development and municipal infrastructure
programmes. If we do not have an effective industrial policy response to this
infrastructure investment programme, we will inevitably find ourselves
importing the lion's share of our requirement, with the result that jobs which
could have been created in South Africa will be created in supplier countries.
We will be working closely with the Department of Public Enterprises to
identify products and services related to the Infrastructure Investment
Programme which could be undertaken in South Africa. We will also identify what
we need to do to make sure that these products and services can be
competitively produced in South Africa.
If we succeed in these endeavours, we could make a contribution towards
beginning to overcome a vulnerability which the South African industrial
economy has had from the outset of its industrialisation, namely an
overwhelming dependence on imported means of production. As part of the process
of gearing up for the implementation of industrial policy, Industrial Sector
Divisions have migrated from our trade and investment promotion division, Trade
and Investment South Africa (TISA), where they have been located for a number
of years to a more appropriate location in the Enterprise and Industry
Development Division (EIDD). We are concluding discussions about the optimum
grouping of sectoral units within EIDD. One unit which we have already agreed
on is that there should be a Capital Goods Industrial Sector unit located
within EIDD. During the course of the year, we expect to be able to share
further details of this work with the Portfolio Committee as well as with our
social partners.
As Hon Members are well aware, the DTI is responsible for a broad range of
tasks and functions. A question that has arisen is, what is it that unifies and
draws together all this work into a coherent framework? The answer I think we
have begun to come up with in the ministry and the department is that the
unifying concept is our industrial strategy. Through exercises of
self-discovery, some at sectoral level and some at cross cutting level, we are
identifying a range of measures that need to be implemented to take our economy
forward and in particular to promote value added activity and employment.
These, we believe must increasingly shape the work of all the different
institutions within the DTI group and indeed of other entities falling outside
the immediate DTI purview.
The price charged by key upstream capital intensive manufactured industries
such as steel has long been identified as critical to the development of more
labour-intensive downstream industries. The recent judgment by the Competition
Tribunal in the case brought by Harmony Gold against Mittal Steel highlighted,
once again, the importance of a competitive domestic steel price for the
development of many South African industries. Bringing into being a regime in
which a range of South African manufacturing industries benefit from the more
competitive steel price is obviously a critical endeavour and this will require
the combined efforts and resources of a range of agencies operating in many
different areas across the broad DTI family and elsewhere in government.
Similarly, we have identified a need for our trade negotiations to be
informed much more by our industrial policy processes. This year will see three
very critical trade negotiation processes come to a head one way or another.
The first is of course the stalled World Trade Organisation (WTO) Doha Round
negotiating process. Formal work has now resumed after the suspension last year
but the grand bargain to complete the round still appears elusive. The
fundamental issue in determining whether or not the WTO process moves forward,
remains whether the major developed country trading blocs can develop
sufficient political will to make the kind of reforms in agricultural trade
which have long been identified as necessary to give developing countries an
opportunity to expand exports in an area where many already have a natural
comparative advantage and/or could acquire further competitive advantages.
As South Africa, we continue to pay particularly close attention to the
negotiations taking place in the area of Non Agricultural Market Access (NAMA).
We have observed with dismay that NAMA continues to be regarded by the major
trading blocs as an area where so called advanced developing countries,
including South Africa, merely pay for the reforms which developed countries
need to make in the agricultural sector. Through our work in co-ordinating the
NAMA 11 group in the WTO, we are striving to ensure that we do not find
ourselves in a position where we are asked to make a disproportionate
contribution in industrial tariff reductions, to secure only modest gains in
agriculture. It is precisely here when we discuss the details of issues like
flexibilities and the coefficient in the Swiss formula, that we need to draw on
our industrial policy work. We need this to guide us in decisions about what we
can and what we cannot live with and what can and what may not benefit us.
The second critical negotiation this year will be the Economic Partnership
Agreement (EPA) negotiations which African, Caribbean and Pacific (ACP) regions
are undertaking with the European Union (EU). Following a proposal from the
Southern African Development Community Negotiating Configuration, of which we
are part, the review of the bilateral Trade Development and Co-operation
Agreement which we have with the European Union and South Africa will now be
integrated and merged into the EPA negotiations. We believe that this could
contribute to a harmonisation of an important external trading relationship
within the region that could make an important contribution to regional
integration. We have been disappointed at the slow pace in the response to our
proposal which was made in March 2006, which only came in March 2007.
We were disappointed because the European Union has been insisting that the
entire process must be concluded before the expiry of the WTO waiver for the
Cotonou preferences at the end of 2007, failing which the EU is saying that
most of the ACP will find themselves trading on worse terms than they do under
the current Cotonou arrangements. We are disappointed too that the European
Union while recognising in principle the importance of harmonisation, continues
to argue that South Africa must be treated differently because we are
competitive in some particular areas. The insistence by the European Union,
that EPA must also include substantial agreements in the so-called new
generation areas, competition policy, transparency in government procurement,
trade facilitation and so on is also a matter of some concern. The EU insists
that this is necessary, because effective engagement in the global trading
order requires there to be measures of this sort in place.
The problem is that common regional positions on these kinds of issues only
emerged even in the EU integration process at a relatively advanced stage.
Insisting on ACP regions engaging with these matters now, is one would suspect,
much more to do with the EU attempting to produce a majority for dealing with
these matters in the WTO, than it has to do with any genuine concern about
advancing regional integration. Besides, insisting on comprehensive agreements
on these matters before the end of 2007 is an extremely tall order,
particularly given that substantial discussions on trading goods have scarcely
begun.
The third trade related area which looks likely to be resolved in one way or
another during the course of this year, is the Southern African Development
Community (SADC) regional integration agenda and in particular the debate about
a move to a Customs Union. We in South Africa, have insisted that a move
towards a Customs Union will only be possible once the work of putting in place
the SADC Free Trade Area, envisaged by the Maseru trade protocol, has been
completed. More than that, any move to a Customs Union must be shown to be
contributing towards the promotion of growth and poverty reduction in the
region, must take account of existing arrangements and the variable geometry of
the region and must ensure that any common external tariff which emerges,
allows space for tariffs to be a policy instrument of industrial development
and not simply a revenue raising device. This debate I believe is a critical
one for the future of the region and merits much fuller engagements by
parliamentarians including through the SADC Parliamentary forum.
Chairperson, I have focused on areas of the work of the DTI which has not
commanded much media attention recently but which I believe are ultimately much
more critical for the people of this country than the areas which have
commanded such attention. I have indicated that we are making progress in these
areas. There is much work that remains to be done and I am sure that this work
would benefit from further informed engagement both with parliamentarians and
social partners. I look forward to us having those opportunities in the near
future and I have pleasure in commending Budget Vote 32 to the house.
Thank you.
Issued by: Department of Trade and Industry
29 May 2007
Source: Department of Trade and Industry (http://www.dti.gov.za)
