EASTERN CAPE INDUSTRIAL STRATEGY PRESENTATION TO LED CONFERENCE

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EASTERN CAPE INDUSTRIAL STRATEGY PRESENTATION
TO LED CONFERENCE

• NOVEMBER 2007

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Structure of Presentation

• Scope and Objectives of Industrial Development
  Strategy
• Approach
• Progress to date
• Situation Analysis
• Policy Imperatives
• Strategic Framework
• Implementation Plan
• Implications for DEAET

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1. Scope and Objectives

• Provincial Industrial Strategy outlines the broad
  government efforts that are necessary to
  transform the structure and distribution of
  industrial activity in the Eastern Cape to meet
  particular economic, social and political
  objectives.
• Objectives include
• job creation (and job retention),
• increased and sustained growth and output,
• more even income distribution,
• more equal spatial distribution of economic
  activity,
• transforming ownership and control of production
  (including de-racializing ownership and promoting
  social forms of ownership),
• enhanced technological capacity.

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1. Scope and Objectives

• The strategy acknowledges the central role and
  impact that areas of national competence have on
  industrial development (especially fiscal, trade
  and monetary policy), but assumes that a
  sub-national industrial strategy can enhance the
  quality of implementation and the extent to which
  national resources can be leveraged for
  provincial/local priorities.
• The strategy is also premised on the assumption
  that Province (together with local gov) has
  sufficient instruments to make an impact,
  including infrastructure and logistics
  provisioning, industrial upgrading and
  recapitalization, skills development, incentives
  (albeit limited), research and development,
  investment facilitation, financial support, as
  well as co-ordination, compacting, and
  clustering.

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1. Scope and Objectives

• Builds on PGDPs manufacturing diversification
  and tourism plank
• Provides the provincial landing strip for NIPF
  and RIDS, and the basis to leverage from array of
  national support measures
• Provides the linkage between national industrial
  policy and LED (integrating GDS priorities)
• Industry not restricted to manufacturing
  industry broadened to include construction and
  services sector (particularly tourism and BPO)

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2. Approach

• The rationale for an industrial strategy is borne
  out of market failures in which supply and demand
  conditions have not produced optimal outcomes,
  particularly relating to job creation and the
  extent to which the economy is being
  de-racialized and transformed.
• It is now generally undisputed that those
  countries which have experienced significant
  economic performance in economic and employment
  growth over the past two decades have followed
  strategies which contradict the dominant policy
  consensus referred to as the Washington
  Consensus (Rodrik, 2006 Roberts and Mohamed,
  2006)

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2. Approach

• On its own it will not achieve its objectives. As
  highlighted in the strategy, the experience of
  the High Performing Asian economies has
  illustrated that industrial strategy must be
  accompanied by substantial state-driven
  programmes of land and agrarian reform, coupled
  with significant investments in health, education
  and human resource development, and
  infrastructure (particularly transport).
• The design of concrete interventions in
  particular sectors must be linked to
  understanding the complexities of value chain
  governance, particularly through value chain
  research which identifies strategic points of
  maximizing the local economic insertion into
  these value chains
• A focus on knowledge-based development
  (innovation) and improving human capital

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2. Approach

• Intensive engagement with key role players within
  particular sectors is vital to ensure support
  measures are appropriate and roles and
  responsibilities of the private sector and myriad
  of state actors is understood (key is notion of
  reciprocity)
• A reliance on partnership formation, and the
  driving of development from the bottom up
  through regional partnerships and coalitions
• Assumes the establishment of a developmental
  state
• -high levels of coherence to ensure its
  development vision and strategy is implemented
  across all organs of state and key institutions
  in society
• - high levels of strategic, technical and
  organizational capability to design and implement
  (hegemonic) projects aligned with the industrial
  strategy
• -embedded autonomy to avoid capture by narrow
  political elites and parasitic elements, and
  avoid drift towards authoritarianism

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3. Industrial Development Strategy Update

• The Provincial Industrial Strategy emerges from a
  process of shared analysis on the strengths,
  weaknesses, opportunities and threats in the
  provincial economy, based on
• An analysis of opportunities and constraints for
  industrialisation in the Eastern Cape
• An auto-sector study
• A study of the tourism, agro-processing and
  manufacturing sectors
• A study of the forestry and timber processing
  sector,
• Value chains studies and analysis of competitive
  advantage of districts, and
• District Socio-Economic Profiles for all six
  district municipalities and the metro
• A research paper on the developmental state and
  the implications of national industrial policy
  for the Eastern Cape.

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3. Industrial Development Strategy Update
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4. Situation analysis
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4. Situation Analysis
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4. Situation analysis

• SA economy dominated by MEC
• EC developed on margins of import-substituting
  industrial policy
• Low levels of growth in primary sector (average
  growth of 1 over past 10 years),
• Manufacturing growing at 1,6 but up over past 2
  years (mainly in transport and automotive
  furniture wood products, chemicals, metal
  product but contraction in food and clothing,
  textiles and leather
• Significant growth in tertiary sector (averaging
  more than 3 over past 4 years) mainly in
  finance and real estate, transport, and trade
• Overall growth up and sustained over past 2 years
  
• Significant new investments through IDZs
• EC well positioned to take advantage of
  export-oriented policy, has internationally
  competitive productive capability (around auto
  sector) and is natural resource endowed

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4. Situation analysis

• But growth has been highly uneven (NMMM has been
  growing at almost 4 since 1996 but economies of
  Ukhahlamba and Alfred Nzo have not grown)
• Triggers for growth primarily finance, property,
  trade and construction (with exception of NMM and
  Amatole which show growth in manufacturing)
• These sectors are not the basis for sustained
  growth implying more concerted efforts to build
  productive capabilty.
• Structural weakness within the provincial economy
  (low levels of capital formation sub-optimal
  performance of primary secondary sector)
• Low levels of state investment outside of NMMM
• Challenge is to address uneven development
  economic bifurcation between the west the east

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4. Situation analysis

• Provinces growth trajectory over past 20 years
  has not been labour absorbing
• Growth trajectory has not deracialized ownershop
  of productive assets (inequality increasing)
• Not sufficient growth in construction and
  agriculture (which have highest employment
  co-efficients no of jobs per R1m output)
• Provincial labour market is still highly
  segmented (by gender, race and region)
• Strong correlation between unemployment and
  poverty
• More than 64.7 of population living below MLL,
  mostly in OR Tambo (77.6), Alfred Nzo (75.4)
  and Ukhahlamba (74.6)

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5. Policy imperatives

• MTSF ASGISA (job creation and shared/inclusive
  growth, developmental state, public
  infrastructure- led growth)
• NIDF RIDS (active industrial policy with
  support measures CSPs)
• PGDP (manufacturing diversification,
  infrastructure and HRD)
• Job Summit (sector processes in key labour
  absorbing sectors)
• GDSs integration of local level priorities

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5. Policy imperatives

• It is clear that South Africa is committed to an
  interventionist industrial policy that is both
  pragmatic and responsive to our own experience
  and that of other countries. However, it is also
  clear that capacities to implement industrial
  policy are in short supply. Hence, the critical
  importance of developing our own Provincial
  Industrial Strategy.

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6. Sector prioritization

• The Industrial Strategy targets a few priority
  sectors so that limited (financial and technical)
  resources are not spread too thinly.
• Sectors have been selected on the basis on the
  extent to which
• we have competitive advantage,
• they create/protect jobs
• enable industrial diversification into
  non-commodity tradable sectors
• enable value-added linkages within and across
  sectors
• hold out direct benefits for BBBEE,
  co-operatives, and marginalized regions.

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6. Sector prioritization

• Economic Growth and Labour Absorptive sectors
• Agro-processing
• Mariculture
• Forestry and timber industries
• Tourism
• BPO
• Construction
• Retention and sector protection
• Auto-sector
• Textiles
• Potential New Growth sectors in rel to Coega
• Chemicals and Metals processing

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7. Towards implementation

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7. Towards implementation

• High level interventions identified in Industrial
  Strategy
• Detailed interventions being developed through
  Priority Industry Action Plans which will result
  in sector/industry level compacts
• Industry Action Plans must emerge from a process
  of intense engagement with all key role-players
  in the sector, and should reflect concrete
  outputs that will unlock opportunities and
  address identified constraints across a range of
  interventions areas including infrastructure,
  skills development, RD, investment support,
  financial support etc (sector support packages)
• Importantly, the Action Plans should contain
  details on the industry co-ordination and
  implementation modalities, and accountability
  mechanisms both to Provincial Government and
  other industry role-players.
• Will assume new role for DEDEA and range of other
  state entities
• Some Industry Action Plans quite advanced (eg.
  Forestry and timber processing)
• Identification of high impact quick wins and
  innovation vis-à-vis delivery

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8. Issues for LED

• Micro economic outcomes can only be realized in
  an enabling macro-economic environment
• LED is not about establishing isolated micro
  projects while small-scale projects may be
  desired these projects are often only viable when
  aggregated (economies of scale for inputs and
  markets)
• Solutions for LED often lie outside the local
  economy (finance, infrastructure, skills etc)
• LED is about aligning local priorities to
  investment plans of other spheres (is at the
  haert of inter-governmental relations)
• Projects should begin with proper market analysis
  (business viability) and value chain analysis
  (import replacement)

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8. Issues for LED

• Partnerships with established players may be
  necessary (technology, market access etc)
• Bringing in external investors should not crowd
  out local investment opportunities
• LED is not a back-office in a municipality but
  the heart of developmental local government
• Gendered aspects of LED need more attention (eg.
  Under-prioritization of the care economy)
• LED should not compromise social policy
  protection outcomes
• LED is about access to knowledge systems,
  technology, and investment in human capital
  development (partnerships with HEIs)
• More emphasis to be placed on project development
  and packaging (moving beyond value propositions)