Cablegate: South Africa's New Industrial Policy: A Sneak

VZCZCXRO1788
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2599/01 2060924
ZNR UUUUU ZZH
R 250924Z JUL 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0923
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 4634
RUEHDU/AMCONSUL DURBAN 9020
RUEHJO/AMCONSUL JOHANNESBURG 7128
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 PRETORIA 002599

SIPDIS

SENSITIVE BUT UNCLASSIFIED
SIPDIS

DEPARTMENT PASS USTR FOR PATRICK COLEMAN
TREASURY FOR TRINA RAND
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND

E.O. 12958: N/A
TAGS: ECON EINV ETRD SF
SUBJECT: SOUTH AFRICA'S NEW INDUSTRIAL POLICY: A SNEAK
PREVIEW

PRETORIA 00002599 001.2 OF 002

1. (U) This cable is sensitive but unclassified; not for
internet distribution.

2. (U) Summary: South Africa's new industrial policy will
aim to strengthen tradeable goods sectors and promote
manufactured exports, according to Deputy Minister of Trade
and Industry Rob Davies. The capital goods industry will
receive top priority, with other high priority sectors
possibly to include chemicals, agroprocessing, and the motor
industry. The scale of the policy is still uncertain and
much will depend on SAG willingness to fund schemes. End
Summary.

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South Africa's New Industrial Policy
------------------------------------

3. (U) South Africa's new industrial policy will aim to
strengthen tradeable goods sectors and promote manufactured
exports, according to Deputy Minister of Trade and Industry
Rob Davies. Davies outlined the new policy at an American
Chamber of Commerce meeting in Johannesburg on July 20. He
said that the oft-delayed Industrial Policy Framework and
Action Plan would be approved by the SAG cabinet during the
week of July 23 and publicized soon thereafter.

4. (U) Davies noted that South Africa's GDP is growing by 5
percent per year, the best performance in forty years. The
SAG is dissatisfied, however, that growth is not spread
evenly across the economy, with nontradeable sectors such as
construction and financial services outpacing potentially
labor-absorbing tradeable sectors such as manufacturing. At
the same time, the SAG has been impressed by the performance
of those few tradeable sectors, such as autos and steel,
which have received industrial policy-type support.

5. (U) These factors, Davies said, have convinced the SAG to
"refine and improve" its existing industrial policy programs.
"We have decided to act on a larger scale in key sectors.
We must increase the scale of our involvement," he told
AmCham.

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Some Details
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6. (U) Davies said the new industrial policy will take two
forms. Industrial policy "writ small" will aim to strengthen
existing industries by providing duty credits, tax breaks,
training programs, special infrastructure, and other support.
In contrast, industrial policy "writ large" will aim to "get
ahead of the market" through interventions designed to
mobilize investments and develop key sectors. Davies said
the SAG is just beginning to think about industrial policy
writ large, but he indicated that the first sector likely to
benefit from large-scale support would be the capital goods
industry. This sector would be developed to support the
SAG's USD 60 billion infrastructure expansion plans and
thereafter to export to foreign markets. Other priority
sectors could include chemicals, agroprocessing, and the
motor industry.

7. (U) Davies said that sectoral policies would be designed
and adopted only after close consultations with business,
labor, and other stakeholders. The SAG would not issue
directives to the private sector, he promised. The SAG
would, however, insist on reciprocity: in exchange for
support, firms would have to commit to specific levels of
investment, job creation, and/or export performance. Firms
that welshed on commitments could face "remedial action."

8. (U) Davies could not say how much money would be
dedicated to new industrial programs, beyond noting that
existing levels of financial support were certain to be
increased. The South African Treasury, he said, would
scrutinize sectoral programs to ensure that the country got
value for its investment. "We will have to prioritize. We
aren't going to divert funds to support activities that would
happen anyway," he said.

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PRETORIA 00002599 002.2 OF 002

Comment
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9. (SBU) The true scale of the new policy remains to be
seen, and much will depend on SAG willingness to underwrite
new and potentially expensive schemes. Davies' overview
suggested that industrial interventions will be targeted and
subject to review by the Finance Ministry, which generally
respects markets and worries about the revenue implications
of industrial policy. Other challenges will include the
ability of the Department of Trade and Industry to persuade
other SAG departments and parastatals to provide incentives,
such as reduced telephone pricing for business outsourcing
call centers.
Bost

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