The Development of the Manufacturing Sector in South Africa

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Geoffrey E. Schneider (2000). The Development of the Manufacturing Sector in South Africa. Journal of Economic Issues, Vol. 34, No. 2. Association for Evolutionary Economics.

Type	journal article
Scope	Economics and economic history of apartheid
Method	synthesis review
Period studied	1881–1996
Regions	South Africa, Transvaal
Themes	manufacturing industrial policy, business and state, origins segregation, labour markets wages, sanctions divestment, comparative theory, macro fiscal finance debt
Citation key	schneider2000

Argument

Schneider argues that South Africa's manufacturing success from 1925 to 1973 came from import substitution behind tariffs, state corporations (Escom, ISCOR, IDC) and a compromise between mining capital and local interests. This challenges the conventional view that protection and public investment are inefficient. He then argues that growth stalled because labour repression kept the domestic market small, because the state was 'captured' under apartheid, and because post-1960 forced import substitution, separate development subsidies and capital-intensive policies undermined competitiveness and technological autonomy. The case shows that selective delinking can work, but only if the benefits are shared with labour. The argument is a synthesis of secondary literature from an institutionalist perspective.

Evidence and method

Secondary literature (Clark 1994, Innes 1984, Nattrass 1981/1990, McCarthy 1994, Norval 1962, Jones and Muller 1992, Kaplan, O'Meara, Dietz). Tables on international manufacturing profit rates (Nattrass 1990), manufacturing and GDP growth (McCarthy 1994), and South African versus world growth (World Bank, Reserve Bank). No archival or original data.

Place in the debates

• Import substitution and state intervention versus free trade orthodoxy (see Industrialisation, protection and industrial structure). Argues that protection behind tariffs and efficient public investment (ISCOR, IDC) produced robust industrialization, against World Bank-style conventional wisdom.
• Liberal vs revisionist on apartheid and growth (see Liberal vs revisionist: was apartheid functional or dysfunctional for capitalist growth?). Broadly revisionist and institutionalist. Labour repression and the captured apartheid state limited the domestic market and industrial development, though the pre-1948 state is seen as developmentalist.
• Mining capital versus local interests in the state (1910-1948) (see The state and capital: instrumentalism, autonomy and fractions of capital). Rejects the view that Union meant simple triumph of local over imperial interests (Ehrensaft, Davies et al.) and describes a negotiated compromise in which mining kept cheap labour, low tariffs and cheap electricity.
• Causes of post-1970s industrial stagnation (see Did the apartheid economy fail? Growth, productivity, investment and the post-1970s crisis). Multi-causal: lack of technological autonomy, the civilized labour policy, restrictions on black labour, sanctions, separate development costs, and over-capital-intensive industry.

Findings

• Mine owners pressed the state to dismantle costly concessions, and dynamite prices fell sharply. (p. 4)

  dynamite prices dropped by 60 percent from 1895 to 1910

• The 1924-era settlement was a compromise between local interests and mining capital, not a simple local victory. (p. 4)

  a coalition of local interests, including Afrikaner nationalists, white workers, and white farmers, hammered out a compromise with mining magnates

• The Tariff Act of 1925 used moderate tariffs, and gold profits and natural protection made domestic production profitable. (p. 5)

  Tariff rates under this act ranged from 20 percent to 25 percent, which was not particularly high for a developing country during that period

• Manufacturing firms grew in number after the 1925 tariff and even during the Depression. (p. 5)

  There was a 7.7 percent increase in the number of manufacturing firms from the time tariffs were introduced in 1925 until the Great Depression in 1929.

• Protection was tied to white employment and wages, while black wages stagnated. (p. 6)

  Firms were only given protection if they agreed to employ a large percentage of white laborers and if they paid high ("civilized") wages to their white employees.

• Import substitution raised imports of machinery rather than reducing import volumes, creating balance-of-payments pressure. (p. 6)

  The development of import-substituting industries did not decrease the volume of imports; it simply changed the composition of imports from final consumer goods to machinery and equipment.

• Manufacturing's share of GDP rose strongly to 1965, then stopped growing. (p. 8)

  Value added in South African manufacturing increased from 7 percent of GDP in 1919 to 24 percent of GDP in 1965.

• Low black wages constrained the domestic market on which import substitution depended, and the state became 'captured' under apartheid. (p. 8)

  Development via import substitution depends on a growing local market to purchase domestically produced goods, but low black wages limited the size of the South African market.

• After 1960, import substitution was forced on strategic grounds and sacrificed viability to political survival. (p. 8)

  Economic viability was sacrificed for the sake of the survival of a political system that increasingly attracted the hostility of the world community

• Manufacturing growth collapsed in the 1980s (Table 2). (p. 7)

  1980-85 -0.5 1.4

• Capital intensity was driven by labour restrictions, subsidies, low interest rates and an overvalued exchange rate. (p. 9)

  overly capital-intensive industries resulting from labor market restrictions, subsidies for capital investment, artificially low interest rates, and an overvalued exchange rate during the 1960s and 1970s

Evidence ledger

Sources used

Source	Kind	Period	How used
Nattrass [1990] international manufacturing net profit rate comparison (Table 1)	secondary literature compilation	1955-1981	Establishes that South African manufacturing profit rates were consistently among the highest in the world, 1955-1981.
McCarthy [1994] manufacturing output and GDP growth rates, 1946-1990 (Table 2)	secondary literature compilation	1946-1990	Shows manufacturing growth outstripping GDP growth through 1980 and then stagnating in the 1980s.
World Bank, World Development Indicators 1998 CD-ROM and World Tables 3rd Edition Vol. 1; Reserve Bank of South Africa (Table 3)	international trade or finance data	1950-1996	Compares South African GDP growth with world and regional groups to show the post-1970s relative decline.
Statistics on the number of manufacturing firms 1925-1933 (source unspecified, note 6)	official statistical series	1925-1933	Supports the claim that manufacturing firm numbers rose after the 1925 tariffs and even during the Depression.
Value added in manufacturing as share of GDP, 1919 and 1965 (source not given)	national accounts macro	1919-1965	Documents the rise of manufacturing from 7% to 24% of GDP and its subsequent stagnation.
Tariff Act of 1925	legislation gazette	1925	Presented as the cornerstone of import-substitution policy, with tariff rates of 20-25 percent.
1942 banking legislation (quoted via Nattrass 1981, 250)	legislation gazette	1942	Shows capital-flow manipulation and liquidity requirements that increased domestic funds for industrial expansion.
Parliamentary debate on tariff policy (M. Kentridge, quoted in Botha 1973)	parliamentary debates	1925	Illustrates that white employment was an explicit goal of the 1925 tariff.
Harvey [1973] sample study of British firms in South Africa	secondary literature compilation	1973 (study of British investment)	Supports the claim that British investment in South Africa was highly profitable and low-risk.
Clark [1994] Manufacturing Apartheid (data on dynamite prices, pre-1925 capital reinvestment, state corporation history)	secondary literature compilation	1895-1960	Source for the dynamite price decline and for the lack of reinvestment of gold profits before 1925.
Archer [1981] on 1925-1939 manufacturing output and white jobs	secondary literature compilation	1925-1939	Source for the claim that manufacturing output tripled and white manufacturing jobs doubled by 1939.
Norval [1962] A Quarter of a Century of Industrial Progress in South Africa	commission or official report	1927-1962	Supports ISCOR's competitiveness and the success of protection in generating white jobs and wages.
Innes [1984] Anglo American and the Rise of Modern South Africa	secondary literature compilation	1917-1930s	Documents foreign and mining investment in manufacturing following the 1925 tariff and AAC's registration in South Africa.
Our First Half Century: 1910-1960 (South African state publication, quoted in Clark 1994)	commission or official report	1910-1960	Quoted as official self-assessment of ISCOR's significance.
Fine and Rustomjee [1996] list of IDC investments	secondary literature compilation	1951-1986	Lists industries in which the IDC invested, documenting state financing of heavy industry.

Inference

Quantification: Descriptive tables.

Narrative, interpretive synthesis of secondary literature on state-led import substitution, illustrated with two reproduced tables on profit rates and growth and a third on comparative growth; comparison over time (1925-1948, post-1960) and with other regions and South Korea; no original data or statistical testing.

Key claims

Claim	Basis	Strength
The Tariff Act of 1925 and state-sponsored protection made domestic production extremely profitable and attracted foreign and mining capital into manufacturing. (p. 416)	Innes [1984] on branch factories; Harvey [1973]; a firm-count statistic of unspecified source.	Partial data
The state-owned steel corporation ISCOR was a successful public-sector investment that supplied cheap steel and stimulated mining and engineering. (p. 417)	Norval [1962] (an official's assessment) and Clark [1994] quoting an official publication; no cost or price series presented.	Illustrative or anecdotal
Protection was tied to employment of whites at high wages, while black wages stagnated because of job reservation and union restrictions. (p. 417)	Norval [1962] and the Kentridge parliamentary quote via Botha [1973]; no wage data shown.	Asserted
From the 1960s forced import substitution, labor repression and low black wages limited the domestic market, and manufacturing stagnated as its GDP share stopped rising. (p. 419)	GDP share figures (source unspecified), Table 3 growth comparisons, and McCarthy [1994] quotation; causal attribution is asserted.	Partial data
South Africa's post-1970s crisis is attributable to a list of factors, including lack of technological autonomy, labor restrictions, sanctions and capital-intensive industry. (p. 419)	Assertion built from Dietz, Kaplan, O'Meara and Black; no testing or weighting of the factors.	Asserted
By the late 1970s South African growth fell below world growth for the first time in decades. (p. 419)	Table 3 from World Bank WDI/World Tables and the Reserve Bank.	Systematic data

Gaps in the evidence

The argument rests on secondary literature and two borrowed tables, with no firm-level, tariff-level or sectoral output data to test whether protection, rather than gold prices or wartime demand, caused the growth. Effective protection rates, wage series by race, ISCOR and IDC financial records, and Board of Trade and Industries reports existed and could test the claims about state efficiency and labor repression. The stated causes of the post-1970s stagnation are listed without any quantitative weighting, and the unsourced firm-count and GDP-share figures cannot be checked.

Replicability: Data poorly documented.