South Africa Industrial Policies And Their Suitability in Terms of International Best Practice Economics Grade 12 Notes and Study Guide

South Africa Industrial Policies And Their Suitability in Terms of International Best Practice Economics Grade 12 Notes and Study Guide

SOUTH AFRICA’S INDUSTRIAL POLICIES AND THEIR SUITABILITY IN TERMS OF INTERNATIONAL BEST PRACTICE GRADE 12 NOTES – ECONOMICS STUDY GUIDES

Overview

10.1 Key Concepts

These definitions will help you understand the meaning of key Economics concepts that are used in this study guide. Understand these concepts well.
Use mobile notes to help you learn these key  concepts. Find out more about mobile notes on page xiv in the introduction.

10.2 Industrial development policies in South Africa

10.2.1 Industrial development policies
Reasons for industrial development

• Exploit the world economy to trade and acquire knowledge.
• Maintain macroeconomic stability.
• Achieve high rates of savings and investment.
• Establish large scale manufacturing, agricultural, mining and services production.
• Diversification of the economy.
• Develop domestic manufacturing capacity to increase exports.
• Create jobs.
• Develop and maintain appropriate incentives to attract investors.
• Contribute to the industrial development of the African continent.

National Industrial Policy Framework (NIPF)

• Is the industrialisation policy of the Department of Trade and Industry.
• Aims:
  1. To make the economy more diverse so that exports can increase.
  2. To make industrialisation more intensive in the long run.
  3. To promote the development of labour-intensive industries.
  4. Greater participation by disadvantaged groups and development of marginalised areas.
  5. Increase potential for large scale production.

Industrial Policy Action Plans (IPAP)

• As part of the NIPF, the DTI developed a revised three-year rolling action plan each year with a ten year outlook.

10.2.2 Industrial development strategies

• National Research and Development Strategy (NRDS)
• Integrated Manufacturing Strategy
  • The IMS focus on improving competitiveness in manufacturing by looking at a range of factors, such as input prices, improving infrastructure, technology and innovation, skills and effective regulation.

Focus of these policies and actions

• Targeted industries, sectors and regions
• Sectors with potential
• Special Economic Zone (SEZ)
• Southern Africa

10.3 Regional development

10.3.1 Aims

• Reduce unequal development of economic activities within the country
• To stimulate development in poorer areas
• To implement and coordinate the implementation of national and regional industrial policies
• To prevent new imbalances from emerging

10.3.2 Regional development in South Africa

• An estimated 80% of the country’s GDP is produced in four industrialised areas, namely:
  • Johannesburg-Pretoria-Tshwane
  • Durban-Pinetown
  • Cape Town metropole
  • Port Elizabeth-Coega-Uitenhage
• Reasons for the uneven geographical economic development
  • Unequal spending on regional development
  • Uneven distribution of economic resources, such as natural resources and skilled workforce
• The regional development policy aims to promote a more even spread of industries so that capital and labour can be directed towards under-developed areas.
• Regional development is currently based on the Spatial Development Initiatives (SDIs), Special Economic Zones (including IDZs and corridors)
• The Integrated Manufacturing Strategy (IMS) was implemented by the DTI to assist industries to grow by identifying certain cross cutting issues and competitive input sectors. The cross cutting issues are technology, human resource development, access to finance and infrastructure. The competitive input sectors are transport, telecommunications and energy.
• Strategic Integrated Projects (SIPs) are being implemented to uplift economic and social infrastructure projects across the country. There are currently 17 identified SIPs.

10.3.3 International best practice for regional development
These are the best international practices for regional industrial development policies:

10.4 South Africa’s endeavours

10.4.1 Spatial Development Initiatives (SDIs)
SDI is a policy to promote sustainable industrial development in areas where poverty and unemployment are at their highest. It can be defined as a link between important economic hubs and regions in a country. The main objective is to stimulate economic growth and employment in those regions.
These are the main SDIs and their economic focus:

Financial incentives for SDIs:

• Duty-free incentives – duty-free import of raw materials or intermediate goods.
• Small and Medium Enterprise Development Programme (support operations).
• Skills support programme – tax-free grants for skills development.
• Critical infrastructure programme – cash grant to build or expand physical infrastructure.
• Foreign investment grants – cash grant to foreign companies that want to invest in new manufacturing businesses.

10.4.2 Industrial Development Zones (IDZ)
A purpose built industrial estate linked to an airport or seaport with export as the main objective (it will be incorporated into the SEZ in future).
These are the current IDZs in SA:

• Coega – Steel and auto components
• OR Tambo International Airport – high tech industries
• East London – vehicles
• Richards Bay – metals
• Saldanha Bay – steel

10.4.3 Special Economic Zones (SEZ)
Geographically demarcated area where specific economic activities have been identified to be developed. These areas may enjoy incentives such as tax relief and support systems to promote industrial development.
It creates a basis for a broader range of industrial parks and provides economic infrastructure to enable the effective clustering of value-adding and employment-enhancing manufacturers.
10.4.4 Corridors
A corridor is a track of land that forms a passageway allowing access from one area to another and is developed as part of regional development (also forms part of an SDI).
10.4.5 Strategic Integrated Projects (SIPs)
Integration of economic and social infrastructure projects in the country.
There are currently 17 designated projects identified. The Strategic Integrated Projects main objective is to identify and implement projects to achieve the provisioning of infrastructure.
10.4.6 Infrastructure plan
The focus is on assessing infrastructure gaps and needs in terms of population growth. The main focus is on water, electricity, roads, sanitation and communication.

10.5 Incentives to encourage industrial development

10.5.1 Small Business Support Program

• This programme is designed for small businesses with assets of R100 million or less.
• This incentive consists of a tax free cash grant for investment in industries.
• Grants were available to new and expanding businesses.
• Grants are given for three years after which the company is expected to become self-sustaining.

10.5.2 Seda Technology Program (STP)

STP was created as part of government’s national strategy of consolidating and rationalising small enterprise support interventions across the different government departments and government agencies, within the overall objective of improving the delivery of small business support services to entrepreneurs and small enterprises.

10.5.3 Skills Development Programme (SSP)

• This a cash incentive to encourage greater investment in skills training and to introduce new, advanced skills to the SA labour force.
• A maximum of 50% of a company’s trading costs are covered.

10.5.4 Critical Infrastructure Programme (CIP)

• It is a cost sharing grant for projects designed to improve infrastructure in SA.
• It covers a qualifying development cost between 10% and 30% towards the total development cost.
• It becomes available on completion of the project.
• It extends to both the public sector (e.g. municipalities) and private sector (companies).
• It is deemed “critical” if the investment had not taken place or would not work optimally without the infrastructure.

10.5.5 Custom free incentives

• These incentives are aimed at export orientated manufacturing businesses that operate in the IDZs and SEZs.
• Duty-free imports on intermediate products that will be used in the IDZ to produce other final goods.

10.5.6 Foreign investment incentives

• It is a cash incentive to assist foreign investors who want to invest in new manufacturing businesses in SA.
• It covers the cost of relocating new machinery and equipment from abroad.
• It becomes available to any registered company who would like to operate in the manufacturing sector.
• It also covers up to 15% of the costs of new machinery and equipment to a certain value.
• Strategic Investment Programme.

10.5.7 Services to business processes

• The BPS aims to attract investment and create employment in South Africa through off-shore activities.
• A base incentive as a tax exempt grant is paid over three years for each offshore job created and maintained.
• A graduated bonus incentive is paid as follows:
• 20% bonus for more than 4 000 but less than 8 000 offshore jobs paid once off in a year in which the bonus is reached;
• 30% bonus for more than 8 000 offshore jobs paid once off in the year in which the bonus level is reached.

10.6 Appropriateness of South Africa’s industrial policies

10.6.1 Success factors

• GEAR did not do enough to promote development and an increase in economic growth did not occur.
• Asgisa policy was not successful in the main aim of reducing unemployment and increasing skills.
• The New Growth Path has not seen any decrease in the number of people who are unemployed.
• The National Industrial Policy Framework is an appropriate policy within best practice, but is hindered by an unemployment problem.
• SDIs the growth rate is lower than expected despite the huge amount spent on improvement on infrastructure in the SDIs. The main aim of creating employment has not been achieved.
• IDZs – growth has been very slow. The incentives offered were not attractive enough. Investors have not been attracted to Gauteng and Saldanha Bay as expected. Coega and Richards Bay have been more successful.
• Regional development is still uneven, concentrated mainly in the four metropolitan areas.
• Workers still have to move where employment is.
• Small business development – specific government programmes were successful. The promotion of entrepreneurship (amongst women and youth) have been reasonably successful. Improved access to finance and capital, information and advice have been reasonably successful.

10.6.2 External limitations

• Global recession had a severe negative effect on the manufacturing industry.
• An unstable exchange rate resulted in slow economic growth and development in the industrial sectors.

10.6.3 Internal limitations

• Huge increase in electricity and logistic costs – these price hikes affected smaller businesses and many more were forced into bankruptcy.
• Skill shortages – slow progress in addressing this need.
• Infrastructure –backlogs in expenditure at all government levels.
• Restructural scale – government sectoral programme to restructure the industrial economy was not of a significant scale for the structural scale envisaged.
• Neglect of larger firms – much emphasis has been placed on smaller firms and larger firms were neglected.
• Uncompetitive behaviour of firms – competition policy needs to be strengthened to counter high levels of industry concentration and anti-competitive behaviour.
• Poor industrial financing – insufficient financing to meet South Africa’s investment and industrialisation challenges.

10.7 Appropriateness of South Africa’s regional development policies

The regional policy is underpinned by most important international best practice principles: job creation, human development and macro- and microeconomic development. It focuses on:

• Workers-to-the-work: The priority is on employment creation. Workers have to move to where employment is.
• Work-to-workers: This is internationally regarded as the policy most likely to affect long-term problems of structural unemployment (unemployment resulting from a mismatch between demand in the labour market, and the skills and locations of workers).

10.8 Small business development policies

• The Department of Trade and Industry has various programmes in place to support SMMEs.
• The creation of employment for structurally unemployed people.
• Focus is on incentives for small businesses.
• Providing easier access to capital, information, business advice.
• Promotion of entrepreneurial development among women and the youth.

10.9 The appropriateness of black economic empowerment in the South African economy

• This strategy is in line with the empowerment of indigenous people in the development in developing countries. It is in line with the UN and World Bank development initiative of indigenous people in a country.
• Benchmark criteria.

Activity 1
Study the logos in Figure 10.1 and answer the questions that follow:

1. What government bodies do the acronyms in the logos stand for? (2)
2. Define the concept industrial development. (2)
3. Describe in your own words the important role of these institutions. (2)
   [6]

Activity 2
Discuss any TWO international best practices in terms of regional development.[8]

Activity 3
Explain the rationale of industrial development highlighting the past and present approaches. [8]

Activity 4
Study Figure 10.2 and answer the questions that follow:

1. Define the concept IDZ. (2)
2. List any TWO IDZ ’s from the map. (2)
3. Mention the industry involved in TWO of the above mentioned IDZ’s. (2)
4. Discuss an incentive applied to businesses within the IDZ. (4)
   [10]