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A Review of Industrial Policy, Instruments and Support Programmes: 1994-2008

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Zavareh Rustomjee; Stephen Hanival (2010). A Review of Industrial Policy, Instruments and Support Programmes: 1994-2008. A Contribution to the Presidency's 15-year Review of Government Performance (TIPS). Trade and Industrial Policy Strategies (TIPS).
Type report
Scope Post-1994 South African economy
Method policy analysis
Period studied 1994–2008
Regions South Africa, Eastern Cape (Coega, East London IDZs), SADC region
Themes transition post apartheid, manufacturing industrial policy, business and state, macro fiscal finance debt, methods data sources
Citation key rustomjee2010

Argument

The report reviews how the post-1994 dti industrial policy, incentive programmes and development finance performed over 15 years, extending the Presidency's 2003 ten-year review. It argues that competitiveness, export and investment incentives have mostly met their own objectives and have had a large, concentrated and unnoticed collective impact on particular sectors. It also argues that an increasing share of support flows outside the dti budget (MIDP, DCCS, NIP), and that the absence of any unit tracking cumulative sectoral impact, weak policy coordination and unclear additionality limit effectiveness. The method is to update the Cassim et al. (2003) sector data, draw on dti-commissioned programme reviews, and compute incentive values as a share of sectoral gross fixed capital formation (GFCF). It offers little on apartheid itself, but the short passages on the pre-1994 interventionist industrial policy and its legacies serve as baseline context.

Evidence and method

Stats SA, SARB and Quantec series on sectoral GDP, employment, investment and exports; dti incentive and budget data; IDC financing data; dti-commissioned programme reviews (SMEDP 2004, SIP 2004, CF/SPF 2004-05, Pouris 2006 on THRIP/SPII); World Bank (2006) and FIAS (2005) studies; Flatters and Barnes et al. on the MIDP; the Presidency (2003) ten-year review; the NIPF and RIDS documents. Planned interviews are mentioned but not reported.

Findings

  • The apartheid state's pariah status pushed it into a heavily interventionist, if wasteful, industrial policy. (p. 14)

    The previous government, by virtue of its international pariah status, was forced to develop a particularly interventionist industrial policy with significant state funding for ‘strategic’ investments and a raft of financial support measures.

  • Primary-sector decline since 1980 was driven mainly by mining, especially gold, which is characterised as a declining 'grandfather' industry. (p. 16)

    The main cause of the decline in the importance of the primary sector is the near halving of the contribution of the mining sector, with gold mining in particular in long-term decline

  • Post-1994 manufacturing restructured without deindustrialisation, with growth shifting to resource- and capital-intensive sectors that create few jobs. (p. 25)

    In general, deindustrialisation was successfully avoided.

  • The economy under-created jobs, and agriculture continued to shed labour. (p. 19)

    Perhaps the biggest disappointment is the agriculture sector where jobs continue to be lost.

  • The SIP tax incentive was decisive for only about two thirds of approved projects by value. (p. 48)

    for approximately one third of projects by value, the approved SIP benefits were not decisive. In other words, the project would have taken place anyway.

  • MIDP import-rebate credits are large relative to sector investment and exports, and lend weight to claims of OEM rent capture. (p. 52)

    If the quantum of IRCC benefits at +-R17b is correct, then to continue the MIDP at the level of current IRCCs will confer an excessive benefit to the Motor Assembly and Component sectors

  • Aggregate manufacturing impact of incentives looks small but is concentrated in particular sectors, and no one monitors the cumulative effect. (p. 65)

    At an aggregated level, 1.8% of fixed investment does not appear to be very significant. However, further disaggregation reveals the relative impact on individual sub-sectors to have been much greater.

  • Off-budget incentives (MIDP, DCCS, NIP) have grown sharply while on-budget dti programmes have declined. (p. 65)

    there has been an exponential increase in the value of incentives allocated outside of the dti budget through the MIDP and DCCS incentives to Auto Assembly and Components and Apparel/Textiles

  • The IDC concentrated its finance on large capital-intensive metals and chemicals projects, with some of its heaviest lending falling in 1993 and 1995. (p. 59)

    The large deviations in 1993 and 1995 were for the metals-sector Stage 2 and 3 mega projects that the IDC supported

  • The DCCS ended up subsidising the retail sector and did not clearly promote exports. (p. 53)

    The biggest unintended beneficiaries of the programme appear to be the retail sector which purchases DCCs at discounts of reportedly up to 40%

  • Apartheid's legacy in education and skills, plus fiscal restraint in the 1990s, continues to constrain the economy. (p. 74)

    The effects of apartheid-era education and training policies continue to be felt across all sectors of the economy.