Last week trade, industry, and competition minister Parks Tau told Parliament that South Africa “cannot compete in the world of the future using the tools of the past.” While he was correct on that score, he neglected to mention that his department is reaching for those exact same tools.
His department’s post-budget engagement produced familiar choreography: labour welcoming policy direction but demanding delivery; business representatives calling for procurement reform; committee chairs warning about government silos. As a solution/answer to the 43% unemployment rate, and only 1% economic growth? to consistently show for the last 15 years, Mr Tau stated that his department’s “annual 10, 11 billion year after year” was not enough. “We should be actually adding a zero to it.”
Not different ideology, or policy, not reducing regulatory friction, not a radical rethink of why South Africa’s average real GDP per capita was lower in 2025 than in 2007. The answer arrived at was to simply direct more money at the same framework.
Mr Tau’s department’s industrial strategy rests on three pillars: decarbonisation, diversification, and digitalisation. Priorities are one thing; priorities without a theory of what has failed are political documents, and not the kind of economic strategy South Africa requires while heading into the second half of this decade. The DTIC has been pushing industrial development, localisation mandates, and preferential procurement for the better part of two decades. The unemployment rate has risen. Black middle-class expansion, cited by Aspen’s Dr Stavros Nicolaou as the core business case for transformation, has stalled. Manufacturing’s share of GDP continues its long decline.
The honest post-mortem on South African industrial policy would say that localisation has costs which its proponents consistently understate. Mr Nicolaou’s antiretroviral example was instructive; perhaps not in the way he intended. South Africa imports over 70% of its ARV requirements, despite local capacity, but the reason that capacity exists at all is partly because of global trade and technology access, not despite it. The two-, three-year tender cycle he correctly identified as destructive is a product of the procurement bureaucracy that localisation mandates require. You cannot mandate complexity and then complain about delays.
Forced localisation insulates domestic producers from competitive pressure. It raises input costs for industries that must buy locally-sourced intermediary goods at above-market prices. It invites rent-seeking, and it tends to persist long after infant industries have grown comfortable in their protected position. South Africa’s steel and sugar sectors, cited at the briefing as areas requiring active industrial intervention, are also instructive. Decades of protection have not produced world-class competitiveness. They have produced lobbying capacity.
South Africa’s brittle economy faces a radically shifting, more transactional global trade and foreign policy context. Several major economies are turning inward, designating every sector from semiconductors to food-processing as a national security priority. The United States, the European Union, and increasingly others are rebuilding industrial policy arsenals that were dismantled a generation ago. In some quarters, this is cited as a vindication for South Africa doing the same.
But it is not. The US can absorb the costs of industrial policy because of its currency, its capital markets, and its domestic demand base; South Africa cannot. When large economies subsidise strategic industries, they distort global supply chains in ways that hurt price-sensitive emerging markets more than they help them. South Africa’s correct response is not imitation, but astute positioning. And even before that, the country’s domestic competitiveness would be much better served by a competitive electricity market, better-performing ports and rail, labour market flexibility, lowering the crime rate, and protecting property rights. A country with South Africa’s skills deficit, infrastructure backlog, and fiscal constraints does not win a subsidy race; it wins by being cheap, open and reliable.
Free trade is not fashionable, but the evidence for it remains evergreen. Countries that have grown their way out of poverty in the last forty years, such as South Korea, Taiwan, Vietnam, most recently Bangladesh in garments, did so by plugging into global supply chains, not by building walls around domestic ones. They attracted foreign capital, transferred technology, and gradually upgraded. They did not demand that foreign investors buy local furniture.
South Africa has assets; a sophisticated financial system, two world-class ports, a productive agricultural sector, a comparative advantage in mining and minerals processing, and proximity to a growing continental market. South Africa regularly talks about supporting the idea and integration of the African Continental Free Trade Area (AfCFTA). The AfCFTA is not a threat to South African industry; it could be the demand base that would make South African industrial ambition viable. Pursuing it requires lower barriers, including non-tariff barriers: not higher ones.
What Mr Tau’s budget vote needed, and what unfortunately no panelist at last week’s engagement supplied, was a frank account of regulatory costs on investment. These include the cost of registering and opening a business, the timeline required to obtain environmental authorisation, and the legal uncertainty created by ongoing challenges to preferential procurement rules. These last Mr Nicolaou identified; they are a symptom of rules that are contested and inconsistent. Leonie van Pletzen’s point about R300-billion in non-bank credit being unlocked by “limited regulatory reform” was the most useful intervention of the session, and yet it received the least attention.
South Africa must build its way and trade its way to prosperity; it cannot get there – at least not to the benefit of the majority – through never-ending subsidies, protection for darling industries and businesses, and protectionist policy that over time drives down competitiveness.
South Africa does not need a larger DTIC budget. More money through the same framework will produce the same results. Instead, the country needs a smaller regulatory burden, a more predictable, value-for-money-based procurement system, and the discipline to state that some industries will not be protected forever. If the government cut administered prices, (from 2001 to 2025 the standard Eskom tariff experienced a cumulative compound increase of 1,434.8%) that would also go a very long way towards lowering domestic manufacturing and production costs, assisting countless South African businesses along the way.
[Image: https://www.pexels.com/photo/urban-rooftop-view-of-informal-settlement-30565236/]
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