At the launch of the eighth iteration of South Africa’s Industrial Policy Action Plan, Minister of Trade and Industry Rob Davies said there is now an even more pressing need for structural change in the economy, to break out of commodity dependence and move to a more diversified base.
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Building on achievements: a higher-impact IPAP
The Minister of Trade and Industry, Dr Rob Davies says there is now an even more pressing need for structural change in the economy, to break out of commodity dependence and move to a more diversified base in which increasing manufacturing-based value addition, employment creation and export-intensity come to define South Africa’s growth trajectory.
Minister Davies was speaking at the launch of the 8th iteration of Industrial Policy Action Plan – IPAP2016/17-2018/19 (IPAP) on Monday 9 May 2016, at Guestro Naledi Inhlanganiso Group Foundry (NI-Forge), in Benoni.
Launching IPAP 2016 at NI-Forge emphasises the importance that government attaches to developing close cooperation with cutting-edge local industrial (and especially black-owned) companies involved not just in infrastructure development, transport and logistics, but in the widest range of technologically sophisticated, export-ready and labour-intensive sectors of the SA economy.
Speaking at the launch, Minister Davies indicated that economic growth should not be based on unsustainable models and that Industrial Policy is key for inclusive growth.
“Inclusive growth cannot be achieved by sticking to an imbalanced and unsustainable economic model based on the service sectors growing at twice the rate of the productive sectors, on the back of credit-fuelled consumption and import-intensity. Especially in tough times, there can be no retreat from Industrial Policy. It must be strengthened, deepened and embraced by all the social partners,” specified Davies.
Achievement highlights 2015/16
Public procurement: the impact of designations and localisation
Clothing, Textiles, Leather and Footwear – After having set a 100% local content requirement – we have seen the re-introduction of products where local production had been discontinued. These include technical fabrics, protective footwear, protective fabrics and chambray fabrics.
The value of public procurement of locally produced clothing and textile products recorded by National Treasury increased from R264m in 2013/14 to R479m in 2015/16 – an increase of 82%. This intervention, supported also by our Clothing and Textile Competitiveness Improvement Programme has contributed to turning the sector around. Similar lessons have been applied to the Leather and Footwear sector, with 4 new factories having opened in the last six months.
Designation of bus bodies has led to the local manufacture and assembly of more than 700 bus bodies.
Alongside the rejuvenation of the bus industry for the various Bus Rapid Transit (BRT) systems, there has been a substantial increase in medium and heavy commercial vehicle exports. In 2012, South Africa exported just R1.3bn worth of these vehicles. By 2014, this had almost tripled to R3.7bn and we expect the performance in 2015-16 to have improved even further.
Local production of locomotives
At the present time, the supply chain supports 14,000 jobs, and many supply companies have not only rebuilt their fabrication capabilities but developed niche capabilities in high value and complex systems such as traction and propulsion motors and bogie systems.
Local procurement requirements provide a framework for achieving a minimum local content of 55%, rising to 85% in different rolling stock classes and involving 4 OEMs in the Transnet, Transnet Freight Rail and PRASA procurement programmes.
The fact that many domestic Tier 1, 2 and 3 suppliers have the capability to produce components to the required standard – at a competitive price and within ‘just in time’ manufacturing principles – demonstrates that these companies now have the possibility of entering the global supply chains of these same OEMs.
Ship and boat building
Under the Oceans Economy Operation Phakisa, SA Shipyards (SAS) won a R1.4 bn tender to build nine Tugboats for Transnet National Ports Authority (TNPA). The contract has to date created approximately 200 new jobs and more than 60 apprentice artisans and mine engineers are being trained. More than R700 million has been earmarked for the Supplier Development agreement entered into by SAS and Transnet’s local suppliers, employees and graduates.
Automotive sector investments
The automotives sector has performed exceptionally well. For example, R7.8 billion in government incentives has yielded R28.5 bn worth of investments by OEMs. At the same time, exports grew to R151.5 billion in 2015, while 113,360 jobs are currently supported in the sector.
Nestlé has committed to help revive South Africa’s chicory industry by committing to increase its local sourcing of the plant for use in its Nescafé Ricoffy brand.
Ice Cream: A R600m Unilever Ice Cream factory was opened in Midrand, supported by the dti to a value of R350 million.
Grain staples: FABCOS was funded by the dti to establish and market the Home Grown brand. The brand (bread, mealie meal) has become well-established and has continued to be regularly stocked by leading retailers.
Cassava: The Cassava Programme is a vehicle designed to improve the productivity, profitability and market access of small-scale and emerging farmers through support provided by the Transfer of Technology Innovation Agency (TIA).
Business Process Services
South Africa’s Business Process Services (BPS) sector continued to maintain its status as a leading global outsourcing destination, whilst steadily moving up the value chain in terms of service offerings. BPS already accounts for 200,000 jobs nationally and is one of the country’s fastest growing sectors, with double digit growth over the past five years.
By the end of 2015 a further 18,000 jobs had been created as a direct result of the BPS incentive, representing a growth rate of 26% per annum.
Green industry investments
On the back of the highly successful Renewable Energy Independent Power Producers Programme (REIPPPP) the very strong flow of new investments in the sector continued throughout 2015-16 – too many to mention individually here. The major areas of investment were in solar and wind, with interesting new developments in own- and co-generation.
Fuel cells: Working in conjunction with key industry stakeholders, government has made significant progress in accelerating the development of the fuel cell industry. A number of ground-breaking initiatives are under way which promise to put SA at the forefront of the technology development (and pilot implementation) of static and mobile fuel cell generation, placing the country in an optimal ‘first mover’ position to ensure that clean energy production with associated industrial benefits is secured.
dti incentive schemes
Across the dti’s main incentive schemes – the AIS, 12i, CIP, Film, MCEP & ADEP – R57.1 bn in private-sector investment was leveraged in FY 2015-16, on the back of R10 bn in incentives (on-budget R4bn + R6bn in 12i tax allowances). Support is being provided to 1,770 local companies – i.e. at a rate of 7 new or established firms every working day in 2015-16.
A national industrial effort
IPAP 2016 envisages nothing less than a massive, concerted and focused national industrial effort, intimately involving all the key stakeholders and economic partners.
This must be built on four pillars:
1. Policy coherence and policy certainty across government;
2. A close collaborative effort between government, business and labour;
3. A commitment to ensure that the linkages between the primary and secondary productive sectors of the economy are maximised; and
4. A combined and constructive drive to overcome the key constraints to manufacturing-led, value-adding growth and labour-intensive manufacturing.
IPAP 2016/17–2108/19: Key Focal Areas
1. Public procurement – greatly enhanced and enforced compliance with localisation targets set for government departments and SOCs.
2. A strong focus on spill-over and labour-intensive sectors – In particular: agro-processing; the CTLF sector; the component manufacturing and sub-assembly sub-sectors in automotives; rail, light manufacturing and engineering in the metals sector; plastics and associated sub-sectors; electro-technical assembly, sub-assembly and component manufacturing; downstream timber and pulp products, including furniture and boatbuilding.
3. Carefully targeted Industrial financing and incentives – including a) much stronger export credit and export credit insurance support, in combination with a wide range of sector-specific incentives; and b) energetic implementation of the recently launched Black Industrialists Incentive.
4. Leveraging the devaluation of the Rand to make South African manufactured products more globally competitive and create opportunities for the expansion and further development of SA’s domestic manufacturing capabilities.
5. Growing exports: There are four main pillars to the IPAP export strategy:
• Building partnerships with global Original Equipment Manufacturers (OEMs) focused on transferring technologies and growing our exports in OEM value chains; partnering with national export champions to catalyse increased national technology absorption for the development of high value exports.
• Strengthening existing Industry Associations and Export Councils; including establishing a dedicated new Export Council for Africa.
• Developing export-orientated production hubs in SEZs and Regional Clusters and fostering industrial decentralisation.
6. Automotives: the dti has established a team of technical experts to develop a post-2020 Automotives Master Plan.
The mandate of the team is to examine the entire automotive sector and not just the existing Automotive Policy Development Plan (APDP) – which means that it will now include light, medium and heavy vehicles and motorcycles.
The purpose of this work will be to ensure that in the context of long term policy certainty a post-2020 Master Plan will create a framework to secure even higher levels of investment and production, higher exports, deepening localisation and expanding employment.
7. Gas-based industrialisation: IPAP 2016 introduces a medium term programme to ensure that gas-based industrialisation increasingly develops into one of the spines of our industrial strategy – leveraging natural gas as both a source of power generation and a driver of industrial diversification.
8. Minimising red tape: to open up space for much more streamlined and business-friendly governance processes. These efforts will include:
• Establishment of an inter-Ministerial Committee (IMC) on Investment to tighten up the intra-governmental coordination required to underpin South Africa’s new One-Stop Investment Centres.
• A rapidly expanding partnership between the CIPC (Companies and Intellectual Property Commission) and all the major banks to provide official company registration facilities within their branches and online.
Overcoming constraints – moving forward
IPAP 2016 will be renewing its efforts to overcome lingering structural obstacles to development and industrialisation, focussing on:
• Working to stabilise electricity supply constraints, whilst creating an enabling environment for own- and co-generation and fuel cell technology development;
• Continuing efforts to secure port and rail network reforms in order to overcome inefficiencies and associated high costs and robustly support exports; and
• Concerted intra-governmental efforts to address deep-seated and serious skills deficits and mismatches that impact on the capacity of the economy to grow faster and diversify more effectively.
Sidwell Medupe – Departmental Spokesperson
Tel: (012) 394 1650
Mobile: 079 492 1774
Issued by: The Department of Trade and Industry
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