DIALOGUE REPORT: Localising Nov 13 2014

Localisation: Driving Industrialisation through the National Infrastructure Plan
13 November2014, DBSA
13h30 for 14h00
Over the last two decades, South Africa has experienced a sustained decline in the size of its manufacturing sector relative to gross domestic product (GDP). This decline has been exacerbated by the continued uncertainty in the global economy, especially in the EU zone, South Africa’s major trading partner for value added goods. This has resulted in significant loss of capacity in some key industrial sectors with concomitant job losses. Some have argued that the “spectre of deindustrialization stalks the South African economy.”

The country’s multi-trillion Rand national infrastructure plan under the direction of the Presidential Infrastructure Coordinating Commission (PICC) may be just the intervention required to reverse this deindustrialization trend. The multisectoralscope of the national infrastructure plan could provide the much needed stimulus for the establishment of new supplier industries, as well as the expansion and rejuvenation of existing industries. The PICC recognised very early on, as encapsulated in the Infrastructure Development Act 23 of 2014, that government has a responsibility to ensure that its significant spending on infrastructure over the coming years also contributes to national development goals such as industrial localisation, transformation, employment and skills development.

This is also emphasised in key policies such as the New Growth Path, the Industrial Policy Framework, as well as the National Development Plan. A vibrant and expanding industrial economy will provide the necessary inducement for creating the much-needed decent employment opportunities for unemployed South Africans. In addition, a diversified economy should over time increase our export basket and reduce our import dependency, which makes the country
particularly vulnerable to international economic shocks. This is evidenced by the country’s perpetual trade deficits, which has to be funded by capricious portfolio flows. This is of course one of the main reasons why the Rand is one of the most volatile currencies traded globally, which undermines the competitiveness and therefore sustainability of South African industries.

Nevertheless, recent international experience, particularly those of our BRIC partners, has shown that industrial development cannot be left to the market mechanism alone. Markets typically suffer information asymmetries and often fail to allocate resources in sectors, where entrepreneurs may not fully grasp viable opportunities. Therefore, through sensible and practical policies, the guiding hand of government can direct the profit instinct of entrepreneurs towards new opportunities associated with infrastructure spending.

In practical terms, it requires of government departments at all levels to ensure that its procurement strategies commits to sourcing from local industries. It similarly requires of the private sector to equally commit to source locally, as envisaged in the Local Procurement Accord, as well as to ensure that its ethics is beyond reproach when tendering to do business with government. In addition, local procurement drives in support of the industrial economy should also benefit the development of Black entrepreneurs, particularly women and youth-owned enterprises. The government has set a target of developing 100 Black industrialists over the next three years.

Therefore, this dialogue brings together a panel of speakers from both government and the private sector to unpack the challenges and opportunities associated with driving industrialisation through infrastructure development, as well as how to achieve the country’s key transformation objectives.

The Infrastructure Dialogues are hosted jointly by the Development Bank of Southern Africa, the South African Cities Network, the National Business Initiative, the Performance Monitoring and Evaluation Department in the Presidency, and the Department of Economic Development, with the Engineering News as Media Sponsor.

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