Transcript IPAP – Progress and Priorities

TIPS and World Bank Conference
27 October 2011
Industrial Policy Action Plan Progress and Priorities.
Garth Strachan.
Industrial Policy
the dti.
IPAP – Progress and Priorities
Content
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Problem Statement.
The IPAP
Progress
Constraints
Conclusion
Problem statement
• Prior to global crisis SA achieved relatively high growth rates but this
masks key structural problems
• SA growth rates lower than peers
• Growth driven by unsustainable increases in credit extension and
consumption (financial intermediation, insurance, real estate, transport,
storage, communication, wholesale and retail, catering accommodation)
grew 7.7% annually,
• Production sectors, (agriculture, mining, manufacturing, electricity,
water and construction) only grew 2,9% annually.
• Contributed to imbalances in economy – current account deficit
• Employment has remained unacceptably high – never below 22.8%
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Problem statement – the global economic
crisis and SA
• Since the 2008 crisis manufacturing has experienced a virtual 'perfect
storm' of:
– Slow global growth particularly in traditional export markets of the US and
EU. Growth of exports to new global economic powerhouses dominated by
primary commodities.
– Weakened domestic demand as the credit-fueled boom of 2005-2007
unwound
– Currency overvaluation/volatility and high real effective exchange rate
– High administered prices - escalating electricity price increases of the order
of 75-90% from Eskom and up to 140% including municipal increases. Port
charges among highest in world.
– Backlogs in infrastructure expenditure across levels of government,
– Significant decline in business confidence and capital investment.
– Slow progress with skills development
– and recent industrial action.
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Current Account/ financial account and REER
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Source: SARB
Investment
Real gross fixed capital formation Q1 2005 to Q2 2011 (Rm 2005 prices)
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Source: SARB
Manufacturing Production
Manufacturing monthly production indexed (2005 = 100) and Y-O-Y growth,
January 2005 to August 2011
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Source: StatsSA
Trade Balance
Trade balance by sector Q1 1990 – Q2 2011 (Rm)
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Source: Quantec
Manufacturing employment
Employment in the manufacturing sector ‘000, Q1 2008 – Q2 2011
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Source: StatsSA
The Policy and Programme Framework
• The NIPF adopted by Cabinet in 2007 set out the broad approach. Aligned
with New Growth Path adopted in 2010.
• IPAP 2 launched in February 2010. Next iteration in 2011. ‘Rolling’ action
plan aligned to MTEF budget cycle.
• Intended to:
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Facilitate diversification beyond traditional commodities
Increased value addition in tradable goods and services
Long term industrialisation
Promotion of long term labour absorbing economic development
Industrialisation that ensures increased participation (B- BBBEE) and marginalised
regions
– In the medium term contributes to building industrial development on
African continent
• Underpinned by the view that no country has experienced rapid
employment and per capita income growth without a strong
industrialization effort.
• Manufacturing has the highest growth multipliers in the SA economy,
significant employment multipliers and is key to sustainable consumption
growth and employment in the medium to long-term
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IPAP Sectors
IPAP: value-added sectors with high employment and growth multipliers
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Low employment multipliers &
strong backward linkages
High employment multipliers &
strong backward linkages
4.5
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Motor vehicles, parts &
accessories
Total Backward linkages
3.5
Paper & paper products
3
Basic chemicals
Basic iron & steel
2.5 Basic non-ferrous metals
EGW
Business services
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6
1
2
3
5
4
7
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81
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Leather & leather products
Textiles
Food
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1
Other manufacturing
Transport & storage
Mining
Financial services
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Wood & wood products
Excl. medical, dental & vet
Wholesale & retail trade
Wearing apparel
Agriculture
1. Other chemicals & manmade fibers
2. Furniture
3. Plastic products
4. TV, radio and comm equip
5. Electrical machinery and
apparatus
6. Paper and paper products
7. Rubber products
8. Non-metallic minerals
9. Beverages
10. Glass & glass products
11. Professional & scientific
equip
12. Metal products excl.
machinery
13. Machinery & equipment
14. Footwear
Government services
1.5
1
0.5
Low employment multipliers
& weak backward linkages
High employment multipliers
& weak backward linkages
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0
0
7
Employment multipliers
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Source: CSID
IPAP2:
Requires comprehensive and integrated action
1. Macro-economic policies which support more competitive and stable real
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exchange and interest rates
Industrial financing channelled to more labour-intensive and valueadding sectors
Leveraging procurement to raise domestic production and employment in
a range of sectors
Developmental trade policies such as tariffs and standards deployed in a
selective and strategic manner
Competition and regulation policies: competitive input costs for
productive investments and affordable goods and services for poor and
working-class households
Skills, technology and innovation policies better aligned to sectoral
priorities
Deploying these policies in general and in relation to more ambitious
sector strategies, as set out in detailed Cross-cutting and Sector KAPs
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IPAP2: Sectors
Cluster 1: Qualitatively new areas of focus
– Metals fabrication, capital and transport equipment sectors:
leverage Capex programme, rebuild and position as future exporters
– Green and energy saving industries: solar water heating,
concentrated solar power, wind power, energy efficiency
– Agro-processing linked to food security and food pricing imperatives
– Upstream Oil and Gas and Boatbuilding to unlock significant
opportunities.
Cluster 2: Scale up / broaden interventions in existing IPAP
sectors
– Automotives, Components, Medium and Heavy Commercial
Vehicles: raise economies of scale and localisation of components
– Downstream Mineral Beneficiation: based on establishing minimum
beneficiation levels
– Plastics, Pharmaceuticals and Chemicals: focused on plastics and
value-adding pharmaceuticals
– Clothing, Textiles, Footwear, Leather: recapture domestic market
share through competitiveness upgrading and tackling illegal imports
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IPAP2: Sectors
Cluster 2: Scale up / broaden interventions in existing IPAP sectors
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Biofuels: establish regulatory framework and support agricultural
and refining investment
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Forestry, Paper & Pulp, Furniture: unblock water licences and
promote further processing
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Strengthening linkages between Cultural Industries and Tourism
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Business Process Services: broaden and deepen SA’s product
offerings
Cluster 3: Sectors to develop long-term advanced capabilities
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Nuclear: leveraging local production and technology transfer
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Advanced Materials: feeding into new growth industries such as
aerospace, solar and nuclear
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Aerospace: strengthening integration into supply chains
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Some cross-cutting progress highlights
• Public procurement and SOE supplier development
- The amended regulations of the PPPFA will become effective from
December 2011. Will enable designation for local procurement and
align the PPPFA with BBB-EE objectives.
- Extensive research and engagement with business, labour and
community laid basis for designation of six sectors before effective
date with more sectors to follow. Procurement Accord being finalised
by EDD.
- Local Production SANS will be finalised by effective date.
- PSA to launch national Proudly SA Campaign to support localisation.
– First phase of mobilisation within SOEs to introduce localisation and
supplier development into the procurement process. SOEs introducing
new policies, processes, systems and capacity building to embed
supplier procurement leverage more systematically.
• National Industrial Participation Programme
- Study into more strategic evolution of NIPP – including consolidation
of CSDP and NIPP completed.
- Executive decision will introduce Fleet, Indirect and Direct
procurement provisions to support other procurement interventions
including designations.
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Some cross-cutting highlights
• Industrial Financing
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- IDC has made available R102 bn mostly in loan finance for IPAP and NGP
sectors.
- R10bn Job Creation Fund at Prime less 3% over five years
- R25bn earmarked towards Green Economy
- R7.7 5bn agricultural value chain, including forestry.
- The completion of Phase One of a study into concessional industrial
financing lays the foundation for a framework for securing long-term
sources and provision of concessional industrial financing.
- Phase Two of the work regarding requisite financial products for key
sectors set for completion before year end.
Trade
- Exporters Early Warning System on Technical Barriers to Trade developed
by SABS and fully operational ; identifies technical barriers to trade for
exporters.
- ITAC processed numerous applications for increases, rebates and
reductions of duties in line with IPAP priorities
- SABS developed a wide range of enabling standards for various industries
and products including solar water heaters; water efficient buildings;
wind energy turbines; energy efficient appliances; electrical components;
water efficient components; electric vehicle batteries; automotive fuels;
energy/electricity co-generation etc,. New accreditation program for
energy efficient measurement and verification finalised.
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Some sectoral highlights
• Automotives
– Automotive Investment Incentive with a budget of R2, 69bn over the
MTEF period has been instrumental in securing R14 billion investment
– Includes R9 billion investment commitments by Ford (Ranger); GM
(Production of Spark in SA); VW (investment in new press shop for Polo
and Daimler Chrysler and New C Class)
– ITAC and SARS finalising new APDP regulatory amendment.
– OEM Purchasing Council finalised proposal to bolster localisation.
– MHCV value chain report and action plan completed
• Clothing & Textiles
– The new incentive architecture – the CTCP and PI with strong conditions
for competitiveness upgrading , capital investments and skills
development has enabled on budget incentives for manufacturers to
halt the decline of the sector, job retention, competitiveness and
recapture of some market share and exports, particularly in leather.
– Over R1bn committed in incentives with strong conditions.
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Some sectoral highlights
• Business Process Services
 New incentive framework.
 R40 million investments made. R42 million new investment
commitments
 3,400 young trainees being trained under the Monyetla II
Programme – 79% employed in period. Significant positive example
of demand side skills programme.
• Green Industries
- IDC allocated R25bn with 54 pilot projects in pipeline.
- Draft Green Industries customised sector programme (CSP) developed
for finalisation and draft action plans for solar and wind completed.
- Intra-departmental South African Renewables Initiative (SARI) initiative
to leverage international climate finance to supplement domestic
funding sources for renewable energy production linked to domestic
manufacturing
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Taking IPAP2 Forward - 2011/12 -2013/14
• Very substantial progress has been recorded in IPAP2 2010/11 and
2011/12 including in latter case with respect to developing demand side
skills interventions and support measures for prototyping and
commercialisation of new technologies.
• Effective internal monitoring and evaluation combined with external
impact assessment is designed to overcome constraints related to policy
coherence, complicated regulatory and operational coordination and
integration as well as budgetary constraints.
• The Minister has signaled an intention for further interventions to respond
to the global crisis and support competitive enhancement interventions.
Next iteration to consolidate and scale up sector and cross-cutting
interventions.
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