Greed, self-interest and lack of political will are costing South Africa easy gains when it comes to boosting the economy and creating jobs. This is the view of a number of government officials, academics and competition-law practitioners with intimate knowledge of South Africa’s industrial policy strategies and competition law.
The Organisation for Economic Cooperation and Development released a report last week that highlights how investment in manufacturing is increasingly moving from developed countries to developing countries. The report, titled Perspectives on Global Development 2013: Industrial Policies in a Changing World states that a number of developing countries have begun to put in place industrial policies to increase manufacturing capabilities and play a greater role in global value chains.
The report highlights how policy can lead to structural transformation of economies, but only if driven by those with “political will”. A number of sources indicated that they viewed Trade and Industry Minister Rob Davies as not having enough political clout to make South Africa’s industrial policies work. “It needs to go higher than Davies. This is something the whole of government needs to buy into,” said one source.
The department of trade and industry (the dti) has repeatedly made it clear it wants to target input costs in certain sectors, such as steel, polymers and telecommunications.
It is in these sectors South Africa has dominant companies, such as ArcelorMittal, Sasol and Telkom, which have all been the subject of competition tribunal hearings.
It was already reported in May that the DTI and the department of energy (DOE) were in discussions to regulate Sasol’s polymer pricing if the competition commission’s case against it failed.
h3. Telkom Monopoly
A DTI official who spoke anonymously said the political economy had not favoured the regulation of private businesses. “There is a view that price regulation is only suitable for public monopolies,” he said. “The engagement with the DOE will continue and hopefully bear some fruit.”
One source said sector regulators and regulation driven by government departments would be more effective than forcing the competition authorities to do government’s work.
In the case of Telkom, government is directly responsible as it is still the major shareholder and could have done something about Telkom’s abuse of dominance in the market, but it didn’t, allowing Telkom to directly affect the cost of doing business in South Africa and the levels of innovation, for which affordable high-speed bandwidth is a must, according to the report.
“The design and implementation of industrial policies and strategies demand a close collaboration between government and private enterprises,” says the report. “But this relationship entails the risk that the government may be captured by private interests,” states the report.
h3. Poor Education System
The report singles out other key drivers that will allow an industrial policy to succeed, including a skilled workforce, investment in innovation and meeting infrastructure gaps. But South Africa’s education system is poor, it has low broadband penetration, communication is expensive and its recent infrastructure had a construction-cartel margin added on. The report speaks at length about the need for the public and private sector to work together to align investment strategies, but the picture in South Africa is more of a private sector that is at odds with government.
Under a section titled Promoting Youth Employment: A Key Challenge For African Countries, the report states, “without urgent action to modernise their economies, African countries risk wasting the potential offered by their young people”. South Africa is one African country facing the problem of large numbers of unemployed youngsters. The youth wage subsidy proposed by government was shot down by trade union federation Cosatu.
As the report states: “The transition from one development stage to another can be hampered by interest groups, such as companies and institutions (public and private) with prominent positions in the existing industrial configuration, which fear losing their privileged position.”
South Africa’s leaders will have to be able to see beyond their immediate interests to put South Africa’s future first!