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Cablegate: Sag Launches National Industrial Policy Framework

VZCZCXRO4130
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #4122/01 3391226
ZNR UUUUU ZZH
R 051226Z DEC 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2882
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 02 PRETORIA 004122

SIPDIS

SIPDIS

DEPT PLEASE PASS TO USTR FOR P.COLEMAN
DEPT OF COMMERCE FOR J.DIEMOND
TREASURY FOR T.RAND

E.O. 12958: N/A
TAGS: ECON ETRD SF
SUBJECT: SAG LAUNCHES NATIONAL INDUSTRIAL POLICY FRAMEWORK
AND ACTION PLAN

REF: PRETORIA 003940

1. Summary. The Department of Trade and Industry (DTI)
released the much-awaited National Industrial Policy
Framework (NIPF) and accompanying Industrial Policy Action
Plan (IPAP) in August. The objective of the NIPF is to
provide strategic direction (which can be read as
"intervention") to the economy by promoting increased
value-added industries, movement to a knowledge economy, and
promotion of a more labor-absorbing industrial plan. Four
lead sectors have been targeted by the NIPF, including:
Capital/Transport Equipment and Metal Fabrication; Automotive
and Components; Chemicals, Plastic Fabrication and
Pharmaceuticals; and Forestry, Pulp, Paper and Furniture.
The NIPF's goal also includes maintaining momentum on four
ASGI-SA sector priorities: Business Process Outsourcing,
Tourism, Biofuels, and Clothing and Textiles. The IPAP sets
out specific interventions with benchmark dates to assist
each of these sectors. South Africa has historically been
strong on strategizing, but weak on implementation, and
whether the SAG is able to meet its own benchmarks, one of
which has already been delayed, remains to be seen. End
Summary.

-------------
NIPF RELEASED
-------------

2. Following several revisions and Cabinet's requirement for
an action plan, the Department of Trade and Industry (DTI)
released the much-awaited National Industrial Policy
Framework (NIPF) and accompanying Industrial Policy Action
Plan (IPAP) in August. The objective of the NIPF is to
provide strategic direction (which can be read as
"intervention", according to references by DTI Deputy
Minister Rob Davies during speeches) to the economy by
promoting increased value-added industries, movement to a
knowledge economy, and promotion of a more labor-absorbing
industrial plan. The SAG hopes that the NIPF will improve
non-traditional export performance and overcome the pervasive
view that South Africa's export performance and creation of
manufacturing jobs lagged during its unilateral trade
liberalization policy over the last ten years.

3. Four lead sectors have been targeted by the NIPF,
including: Capital/Transport Equipment and Metal Fabrication;
Automotive and Components; Chemicals, Plastic Fabrication and
Pharmaceuticals; and Forestry, Pulp, Paper and Furniture.
The NIPF's goal also includes maintaining momentum on four
ASGI-SA sector priorities: Business Process Outsourcing,
Tourism, Biofuels, and Clothing and Textiles. The IPAP sets
out specific interventions with benchmark dates to assist
each of these sectors.

4. The IPAP provides numerous mechanisms for intervention in
these specific industries, such as import tariff reductions
for downstream components, completing a comprehensive review
of import duties relating to lead sectors, competition policy
reform, increased industrial financing, improved incentive
schemes and tax incentives. The IPAP provides benchmark
dates for many of these mechanisms to be completed or in
place.

--------------------
CONTROVERSIAL POLICY
--------------------

5. Controversy over the release of the NIPF was well
publicized in the press. Many economic experts and think
tankers expressed concern over the idea that the government,
and not market forces, would be selecting and prioritizing
the industries to be promoted. Further, seemingly
contradictory measures are expected to take place (i.e.,
designing a tariff structure to protect textiles that does
not in turn negatively effect clothing manufacturers.)
Qnot in turn negatively effect clothing manufacturers.)
Criticism of the plan's vagueness and lack of detail as to
the exact steps taken have also been raised. Lastly, the
SAG's ability to implement this broad-sweeping policy with
current skills and capacity has been called into question.

6. However, DTI points to the success of three manufacturing
and tradable service sectors which the government actively
supported since 1994, including automotives under the Motor
Industry Development Plan (MIDP), resource-processing
industries and tourism. DTI argues that the new industrial
policy will assist the other sectors in reaching their full
level of development to become leading sectors.


PRETORIA 00004122 002 OF 002


---------------------
CAPACITY AND FUNDING?
---------------------

7. The SAG has historically been strong on strategizing, but
weak on implementation, largely due to capacity issues. The
NIPF specifically mentions the need to improve the
government's organization and capacity to implement the
policy. DTI America Desk Manager Cobs Pillay informed Trade
and Investment Officer that "DTI employees have some
reservations about capacity." According to Pillay, the DTI
division responsible for implementation plans to increase its
workforce to 280 employees with 18 Chief Directors covering
18 sectors. Whether this will be sufficient remains to be
seen, but one of the benchmarks set forth in the IPAP has
already been delayed (i.e., the development of a textiles
Centre of Excellence by August 2007.)

8. The cost of funding many of the proposed intervention
mechanisms may also be a barrier to implementation.
Incentives, tariff cuts, and industrial financing all carry a
price tag, and the Treasury, which is already skeptical of
this policy, will want to ensure the benefits outweigh the
costs.

-------
COMMENT
-------

9. Regardless if the new policy can be implemented to a
successful conclusion, the NIPF represents a reversal in SAG
trade policy from aggressive neo-liberal reforms in the '90's
to a far more conservative, protective approach. In order to
support the policy, it can be expected that South Africa will
continue to be a difficult negotiating partner in DOHA and
bilateral negotiations by resisting tariff cuts in protected
sectors and only lowering tariffs in areas that will provide
additional net protection to domestic products. As Davies
noted in a recent speech, South Africa needs "space" to build
and reinforce its local industries before they can be
competitive in the global market.
BOST

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