A disturbing new discourse is emerging in the debate around South African industrialisation and the thorny issue of localisation.
In essence, this discourse holds that competitiveness is undermined by anything other than the most laissez-faire policy and that government interventions to bolster local manufacturing are counterproductive. According to these views, procurement of designated locally-manufactured products by the public sector hobbles competitiveness, inflates prices and harms the consumer and taxpayer.
These textbook arguments are far removed from the realities that local manufacturers experience — the same manufacturers who account for 13% of GDP and some 1.6-million (sadly, dwindling) jobs.
As recently as November 20, representatives of the steel and engineering value chain told new trade, industry and competition minister Parks Tau in no uncertain terms that the lack of meaningful, well-considered industrial policy was responsible for the country’s deindustrialisation. To quote from a statement by the Steel and Engineering Industries Federation of Southern Africa after the engagement: “To arrest the rapid decline in the sector’s performance, interventions need to be as radical and ambitious as deemed necessary under the circumstances”.
Sounding a positive note, the chair of the Manufacturing Circle, Mervyn Naidoo, told the same meeting that since 2021 the country had witnessed an “uptick” in fixed investment (which had been in decline for a decade or more). He noted at that discussion that, as of the first half of 2024, infrastructural projects announced amounted to an encouraging R793bn — with government projects worth almost R200bn driving this uptick.
To arrest the rapid decline in the sector’s performance, interventions need to be as radical and ambitious as deemed necessary under the circumstances
— Steel and Engineering Industries Federation of Southern Africa
The Manufacturing Circle chair elaborated that electricity generation was expected to rise from the current 66GW of installed capacity to 107GW by 2034 — with a substantial change in the generating mix. On top of this, the country’s electricity transmission capacity is expected to grow by an additional 5,000km by 2029 — almost tripling from the current level by 2034.
Naidoo pointed to how China had increased its GDP per capita tenfold in the last 30 years. He said lessons this country should learn from China included the heavy investment made in infrastructure. “The Chinese government actively promoted targeted industries through industrial policy, providing subsidies, preferential loans and protection from foreign competition. This has helped develop advanced sectors such as steel, electronics and renewable energy technologies.”
South African manufacturers by no means expect protection from foreign competition in toto. But they are entitled to a level playing field, one on which they are protected from imports that are unfairly subsidised or dumped at below their real cost of production.
I do not for a moment argue that industrial policy should not be underpinned by competitiveness. However, for manufacturers to be competitive, economies of scale are critical. Currently, the manufacturing sector is operating well below its maximum capacity. Negligible domestic economic growth affects demand for locally manufactured products, compounded by deteriorating infrastructure, poor municipal service delivery and inconsistent electricity supply. In turn, the ability to competitively access the export markets is compromised.
Few will argue that where there are opportunities to access local demand, these should be pursued with vigour. Recently the localisation support fund (LSF) published two reports that reference, in particular, the country’s transmission build programme. The assertion that Eskom pays more because of the government’s insistence on local procurement is roundly refuted. The LSF clearly demonstrates that at specified, consistent volumes, local manufacturing and contracting are price competitive — and that they bring other benefits such as job creation, local economic development, and quality as well as effective and efficient equipment maintenance compared to imports.
What is needed is new thinking that applies a strategic procurement approach, rather than a purely administrative approach, as is currently the case.
One example of how such a strategic procurement approach should work concerns the steel industry which, for a number of (often disconcerting) reasons is in the spotlight. Today our steel sector has an operational capacity of 8.8Mt per annum. Yet local consumption is less than half of that. Where there are opportunities to access local demand to increase installed capacity utilisation, this needs to be assessed on a programmatic basis, with a drive to increase exports running in parallel. The amount of steel required to supply the 14,000km of envisaged transmission lines is approximately 450,000t, which can easily be supplied by current operational capacity. Nuances relating to pricing can be addressed through procurement, contracting, and project programming.
Another argument advanced by proponents of the new discourse is that the various sectoral master plans should simply all be tossed aside. Such an approach would be counterproductive in the extreme, ignoring the immense amount of extremely hard and fruitful work that has gone into compiling these master plans — and on achieving consensus around their implementation.
What is needed here is simply proper implementation and proper project management that clearly enunciate who needs to do what — within both industry and government. Doing so will remove a great deal of “noise” in the system. It will also address the issues raised by the various naysayers in the public and private sectors who don’t understand what industry can produce and how.
Right now, South Africa could well be on the cusp of a new industrial revolution — one that will spur GDP growth and job creation. The new government of national unity holds out further promise that real reindustrialisation could well be on the cards. However, without a vibrant manufacturing sector, the likelihood of such a revolution materialising must be in serious doubt.
We need to put taxpayers’ money to good use by building our industrial capacity and creating jobs throughout the economy. An approach that proposes the majority of our taxes go to creating jobs in other countries is shortsighted and creates systemic risks for our country.
In pursuing the manufacturing and infrastructure-led investment, reindustrialisation, and growth that we all covet, ideology must, at all costs, be kept out of the debate.
• Rodseth is the executive director of the Manufacturing Circle
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