The ANC wants to double down on its industry Master Plans. The DA says it won’t pick winners and losers.
‘The ANC,’ says the ANC, ‘is working to transform the economy to focus on increased industrialisation, jobs and opportunities for all.’
This should come as no surprise. The ANC has been working to transform the economy to focus on increased industrialisation, jobs and opportunities for all for 30 years. Since it has only misery and despair to show for it, it goes without saying that its 2024 election manifesto promises to continue working at it, as if success can be achieved by sheer persistence with bad policies.
It’s astonishing how blind the ANC is to its own failures. For all its work on industrialisation, South Africa’s manufacturing output as a share of GDP has steadily shrunk from 21% of GDP in 1994 to 12% of GDP in 2022.
Whatever the ANC has been doing, it hasn’t been working.
Of course, it blames a litany of calamities, internal and external, but South Africans cannot eat excuses.
‘As a middle-income country, South Africa needs to industrialise and reduce its reliance on primary commodity exports and the import of luxury and capital goods,’ the ANC says.
Why re-industrialisation should come at the cost of primary commodity exports is anyone’s guess. I would have thought South Africa should take its economic growth and job creation wherever it is to be found, and that includes exporting raw materials.
But it certainly needs to re-industrialise, that is true.
Progress? What progress?
‘The progress over the last five years,’ the ANC manifesto continues, ‘has laid a good foundation for the more rapid transformation of the economy, with emphasis on employment creation and active, state-led industrialisation drives supported by macroeconomic policy interventions.’
Progress? What progress?
Manufacturing output is lower, in nominal terms and as a share of GDP, than it was in 2018.
If you invested R100 into South Africa’s economy five years ago, it would today be worth R100.28. You would have been better off investing it almost anywhere else outside the circle of South Africa’s closest international friends and allies.
The unemployment rate rose from 27% in 2018 to over 32% by the end of 2023.
So, I ask you with tears in my eyes, what ‘progress’ is this that ‘has laid a good foundation’ for more ‘active, state-led industrialisation’?
Master Plans
The ANC wants to, and I quote: ‘Consolidate industrial and sectoral Master Plans into a comprehensive industrial policy to drive localisation.’
And further: ‘Ensure alignment and coordination across all national departments and provincial and local governments for the implementation of sectoral master plans and Industrial Policy Action Plans.’
The DA says a lot less about industrial policy in its 2024 election manifesto, but what it says offers a refreshing contrast with the ANC’s policies.
It will ‘[implement] industrial and competition policy that supports all sectors equally. The DA will implement a horizontal industrial policy that does not pick winners or losers. This will enhance competitiveness and foster a conducive business environment for enterprise to flourish.’
Government is notoriously bad at picking winners and losers. It is notoriously bad at planning and intervening in industries. All the attempts by the ANC to do so have either failed or have not delivered the anticipated outcomes.
Does South Africa have a globally competitive steel and metal fabrication industry? A globally competitive clothing, textile, footwear and leather value chain? Globally competitive cultural and creative industries? Globally competitive forestry? Globally competitive chickens and eggs? A globally competitive sugar industry?
Sugar exports are down 87% from their peak in 2006.
Despite record global lumber prices between 2020 and 2022, South Africa’s wood exports hardly budged.
South Africa’s textile exports have been stagnant.
I couldn’t find recent data for the furniture industry, but by 2021, exports had declined by more than 50% from their 2015 peak, and imports were consistently about double the value of exports.
The last five years saw the closure of Saldanha Steel, ‘[signalling] the death of SA industrial dreams’. According to a 2022 report by the South African Iron and Steel Institute, steel exports have collapsed by 83% from their 2004 peak.
And so on. Even the automotive industry, the jewel in the ANC’s industrial policy crown, which thanks to elaborate tax breaks, subsidies and tariff protection did see record exports in 2023, has had a stifling impact on the domestic market, with South Africans paying a 25% premium for motor vehicles, and not being allowed to import second-hand cars, just so a few foreign companies can make cars in Gqeberha for rich people.
These are all the industries for which the ANC government has created Master Plans. Instead of picking winners, it has picked losers, and the people of South Africa are paying through their noses to prop up uncompetitive, inefficient industries as a result.
If you, in your industry, do not want to see a 50% to 80% crash in exports, you’d better pray the ANC hasn’t earmarked your industry for a Master Plan.
Cautionary tales
There’s a global trend, especially among advanced economies, to return to industrial policy planning, as they struggle with slow growth, trade wars, actual wars, interrupted supply chains, and populist demands for protectionism.
Experts at the International Monetary Fund have warned, however, that ‘history is full of cautionary tales of policy mistakes, high fiscal costs, and negative spillovers in other countries’.
They say that sector-specific industrial policy generates productivity and welfare gains only under very narrow conditions, namely ‘when targeted sectors generate measurable social benefits, such as lower carbon emissions or higher spillovers of knowledge to other sectors; when policies do not discriminate against foreign firms; and when the government has strong capacity to administer and implement such a policy’.
That’s what the ANC was told over localisation, too.
‘Most industrial policy relies heavily on costly subsidies or tax breaks, which can be detrimental for productivity and welfare if not effectively targeted,’ the experts write.
‘This is frequently the case, as for example when subsidies are misdirected toward politically connected sectors. In addition, discriminating against foreign firms can prove self-defeating, as such policies can trigger costly retaliation and most countries – even major advanced economies – rely on innovation done elsewhere.’
Technology inflows
They recommend instead that fiscal support be directed towards innovation that can have benefits across industry sectors, such as basic research and support for innovative startups.
‘Priorities differ for less technologically advanced countries,’ they add. ‘Their governments can obtain larger productivity dividends with policies that promote the diffusion of technologies developed elsewhere. But they must invest in human capital and strategic infrastructure to reap the full benefit of technology inflows.’
The DA’s single paragraph on industrial policy is not packed with detail. We don’t know what specific ‘horizontal industrial policy’ they have in mind.
That it is intended to cut across sectors, and create a better business environment for all enterprises, marks a fundamental difference with the ANC about the potential of industrial policy and central planning, however.
Instead of relying on the limited wits of a few ideologically biased and corruptible bureaucrats, the DA proposes to leave innovation and growth to the market. It employs the brainpower of thousands or even millions of people, all duly incentivised by the profit motive, to discover what consumers really want and need, and how to go about meeting that demand in the most efficient way possible.
A few years of that enlightened approach, and we might finally see a reversal in the relentlessly down-sloping charts that ANC election campaigners are trying to present to us as ‘progress’.
[Image: Trade and Industry Minister Ebrahim Patel, the ‘master’ in ‘Master Plan’, addresses the 2nd Conference of Black Industrialists and Exporters on 20 March 2024. Image: GCIS]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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