Minister Davies talks to the UNCTAD secretariat about the recent launch of the second stage of South Africa’s Industrial Action Plan, a roadmap designed to help build the nation’s industrial base in critical sectors of production and higher value-added manufacturing.
UNCTAD: The IPAP uses the term “developmental trade policies”. This marks a step away from identifying trade policy with a liberalization agenda, including the use of tariffs as dictated by the imperatives of sector strategies, and linking it to growth and employment objectives. What are the key policy instruments envisaged in this approach?
Minister Davies: The IPAP does not a priori promote either a high or low tariff regime. Tariff setting must be informed by the underlying imperatives of a particular sector or value chain. So for instance there has been an extensive exercise of lowering or removing tariffs on certain ‘upstream’ industries that – due to their pricing power in the economy – impose monopolistic costs on relatively more value-adding and labour-intensive ‘downstream’ sectors. However, we have also signalled that – on a case-by-case basis – there may be space to increase tariffs within bound rates.
We also see standards as a new front of trade policy development. Therefore there is a focus on using our Standards, Quality Assurance and Metrology (SQAM) institutions to play a stronger role in facilitating market access for imports and ensuring that unsafe imports do not enter the South African market.
UNCTAD: Pursuing a more active and integrated approach to trade, industrial and financial policies raises questions about the possible constraints from multilateral rules and more open economic borders. Is there sufficient policy space to advance this kind of strategy? If not is there a need for reforms at the multilateral level?
Minister Davies: The policy space is clearly significantly more circumscribed than when the first wave of rapid industrialisers (such as Japan, South Korea and Taiwan) launched their processes of industrial catch up in an environment of much greater national sovereignty over policy decisions. Notwithstanding this, there remains considerable space within multilateral rules to pursue policies of more rapid catch up. Although morally a more developmental set of outcomes at the multilateral level should be on the cards it is not at all clear that these outcomes will materialise.
UNCTAD: The emergence of strong growth poles in the south over the past decade or so marks a significant global economic shift. The recent financial crisis appears to be accelerating that trend. How do you see position South Africa in this shift? What role do you see for south south linkages in the context of your industrial policy plan?
Minister Davies: It is clear that in the aftermath of the financial crisis a number of rapidly growing developing economies are going to consolidate and strengthen their share in world GDP and trade, as well as in the global political order. This poses both opportunities and challenges for South Africa. The opportunities arise from strengthening our trading relationships with rapidly growing developing economies. This is particularly in the light of predictions of relatively slow growth in the coming years of a number of our traditional advanced economy trading partners. However, in order to ensure developmental rather than ‘immiserising’ growth in trade we need to identify clear areas of complementarities and carefully craft our trade relationships along these lines.
As the largest economy on the African continent we see South Africa as an important player in the emerging global political order.
UNCTAD: A stated goal of the 2007 National Industrial Policy Framework was “contributing to industrial development on the African continent with a strong emphasis on building productive capacity”. What kind of complementary linkages do you see supporting that effort? Does South Africa see itself as playing a lead role along the lines of the East Asian “flying goose” model?
Minister Davies: Our approach to African economic integration is fundamentally informed by the observation that the biggest impediment is the under-development of production capabilities on the continent. Even with the most open trading relationships amongst African countries there is currently a fundamental mismatch between what African countries produce and export (largely primary and semi-processed commodities) and their structure of import demand (largely finished goods).
South Africa is therefore engaged in a range of regional processes to promote the development of productive capabilities on the continent. This includes within trade arrangements such as SACU and SADC and initiatives such as NEPAD and the Council of African Minister of Industry (CAMI). It is not clear that the ‘flying geese’ model is the most appropriate for African regional integration. Value chain development might be a more appropriate approach. In this regard two value chains stand out as being possible to develop in most African countries: agro-processing and mineral beneficiation.
A key consideration for African countries is how they negotiate arrangements with China and India in particular to take advantage of higher demand for food and mineral products and leverage this to generate investment in these value chains at source, rather than exporting unbeneficiated commodities.
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