Davies worries about credit fueled growth

 This is an edited version of an address by the minister of trade and industry Rob Davies at the Proudly South African Buy Local summit.

“Various government documents including the National Growth Path and Industrial Policy Action Plan point to the fact that there are deep structural problems, which characterize the domestic economy. Amongst these is the fact that a credit fuelled; consumption driven growth path characterizes SA’s growth trajectory and which has led to a massive surge of imports and a consequent negative balance of trade. “

This summit takes place against a backdrop in which South Africa’s economy is faced with numerous and very difficult problems. These include:

  • The worst and most protracted global recession since the great depression,
  • The impact of the value and volatility of the Rand on the manufacturing sector,
  • High administered prices impacting negatively on the manufacturing sector
  • The impact of industrial action on the production sectors
  • The fact that very significant distortions, subsidies and barriers characterize the global economy.

Various government documents including the National Growth Path and Industrial Policy Action Plan point to the fact that there are deep structural problems, which characterize the domestic economy. Amongst these is the fact that a credit fuelled; consumption driven growth path characterizes SA’s growth trajectory and which has led to a massive surge of imports and a consequent negative balance of trade.

In short all these factors have combined to mean that our manufacturing sector is under considerable strain. Government responded in a number of ways. At the onset of the recession an R7billion rand fund was made available through the IDC for companies in distress.

The adoption of the National Industrial Policy Framework found further expression in the launch of successive iterations of the Industrial Policy Action Plan commonly known as IPAP. Our experience over a number of years in implementing the IPAP is that industrial policy is and can work if it is well conceived and planned, properly resourced; is the subject of vigorous and sustained stakeholder engagement and is closely monitored and evaluated to ensure that blockages and problems are addressed timeously and decisively.

This is demonstrated for example by the following:

Our support for the Automotive sectors has, notwithstanding considerable constraints led to R15 billion investment commitments in the sector; the export of vehicles from SA will soon hit the 360 000 mark and the export of components is set to hit the R40billion mark by 2013.

The Clothing, textiles, Leather and Footwear Sector was a sector, which was hemorrhaging jobs, and factory closures were the norm. The dti has deployed close to R1bn of incentives over the past year to raise competitiveness in the sector. This has been instrumental in stablising the sector; slowing down the loss of jobs and in some cases such as the footwear sector actually creating jobs. This sector is especially important in the context of this summit because it illustrates what can be done when the private sector works with government. Three retailers, much to the credit have entered into agreements with SA manufacturers to procure locally to save jobs and ensure that factories remain open. This is not only for important reasons, which are in the national, interest but also because this makes commercial sense. Security of supply; fast turn around times especially for niche products and fast fashions are among the reasons why this makes commercial sense.

Similar and important progress has been registered in other sectors such as agro-processing; metals, transport and capital equipment and the BPO sectors.

These successes have been consolidated in our planning and implementation of successive iterations of IPAP by the creation of what we call industrial policy platforms. These include industrial financing; trade measures; stepped up actions against illegal and fraudulent imports and competition policy to name a few.

One of the most important policy instruments which government has successfully implemented is the procurement lever. Local procurement is a policy instrument widely used in developing and developed countries alike the world over. Government has already designated 6 sectors for local procurement with minimum thresholds for local procurement. Other sectors and products will follow shortly.

The Competitive Supplier Development Programme, which provides for local procurement and supplier development in the State Owned Companies has been embedded and strengthened in the state owned companies with considerable success. For example 65 of the procurement of Transnet and Prasa multi-billion dollar procurements will be from local suppliers. The National Cabinet has now agreed to the National Industrial Participation Policy or NIPP. This ensures s that all government agencies, which procure imported products above 10 million US dollars, have to commit to the development of the local manufacturing sector. The new NIPP will align all of government’s procurement policy instruments and allow for so called direct NIPP in which international suppliers should strengthen manufacturing capacity in the same sector that the supplier is active in. The formula for calculating these so-called offsets will be greatly strengthened to ensure compliance.

Government also led the process, which resulted in the signing of the Procurement Accord in which government, business, labour and the community sector agreed to a set of commitments to support local manufacturers. It is our considered view that business could have done more to support this initiative. If all the mines organised under the Chamber of Mines committed to local procurement and supplier development it would immeasurably strengthen our mining capital equipment and transport sector; if all the private sector hospitals and clinics committed to procure medical supplies and pharmaceuticals products and drugs from local manufacturers it would make an immeasurable contribution to these manufacturers; if all the construction companies committed to procuring building materials and electrical and plumbing equipment from local manufacturers it would have a significant impact on these domestic manufactures and so on and so forth.

This is why this Buy SA Summit is so important. We must change national sentiment – not buying SA is something we cannot afford to do. Changing national sentiment is about changing the mind set of company executives; of retailers and production companies that use intermediate products to buy local. It is about changing the mindset of every public servant who is responsible for procurement and tender processes – within the prescriptions of the law – buy local. It is about changing the mindset of ordinary SA consumers. We know that you want value for money at the cheapest price. So without giving up this right think about supporting local jobs when you buy.

It is for this reason that the dti is working closely with proudly SA; the Manufacturing Circle and other representative bodies of industry; and labour to ensure that a revitalized national buy SA is launched and sustained. No single policy instrument or initiative on its won will turn back the tide and stop de-industrialisation in SA. But the successful utilization of all the policy instruments we have at our disposal in concert with each other and in close collaboration between the public and private sector with close support from labour and the community sector will and must turn the tide.

 

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