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The international crisis was associated with far-reaching structural changes in the world economy. That, in turn, has implications for South Africa’s longer-term development strategy (see Makgetla 2009). In particular, profound shifts in international markets made it seem even less likely that South Africa could grow on the basis of manufactured exports, although that remained the official core of government’s industrial policy.

The emphasis on exporting manufactured goods largely shaped the discourse on industrial policy worldwide and in South Africa (see Hausman et al 2007). It largely reflected the belief that the rapid economic growth in East Asia from the 1960s was rooted in vigorous industrial policies to support manufacturing for markets mostly in Europe and the US. In South Africa, the Department of Trade and Industry (dti) argued that ‘long-term increases in employment – in all sectors of the economy – needs to be underpinned by higher growth in the production sectors of the economy, led by manufacturing’, with a strong focus on encouraging tradable goods production in particular (dti 2010, p. 6).

This view of East Asian industrialisation neglected three factors that enabled effective industrial policy there. First, East Asian countries generally enjoyed relative equality and social cohesion (see Campos and Root 1998), which meant both capital and workers were more likely to agree on economic growth as a social panacea. In particular, measures to raise productivity prove more acceptable in economies with high levels of low-wage employment than in economies with low employment, where growth through rising productivity in export sectors actually limits employment creation. Second, the United States provided extraordinary levels of support because it saw the East Asian countries until the 1990s as a bulwark against communism. Finally, over the past half century the region as a whole gradually developed logistics infrastructure and market institutions that vastly reduced the cost of exporting to and communicating with the global North. Obviously, none of these factors applied in South Africa.

The international economic crisis laid bare a fourth obstacle to a growth strategy based on manufactured exports. That strategy explicitly assumed virtually unlimited demand in the global North, and in particular the US. If countries could produce competitively, they would be assured of adequate demand. Yet the downturn of the late 2000s could be understood as a crisis of inadequate demand resulting on the one hand from deepening inequalities in much of the North and on the other from the suppression of wages to support continued exports in much of East Asia, including China, as well as some European countries.

The growing imbalance in demand was reflected in the huge balance of payments surpluses enjoyed by the rapidly growing economies of East Asia. The recycling of those surpluses laid the basis for the credit bubble that led to the financial crisis of late 2008. Once the credit bubble burst, demand for imports by the global North contracted sharply.

The prospects for resuming export-led growth remained unclear at the end of 2009. While economic expansion resumed in China and other Asian economies, exports remained far below the levels of 2008. To replace foreign demand, these countries embarked on extensive programmes to stimulate domestic sales, including subsidies for purchasers of consumer durables as well as huge investments in infrastructure.

These developments had significant implications for South Africa’s longer term prospects. Essentially, South Africa participated in the boom of the 2000s by exporting mining products to world markets since the relatively strong rand of the mid-2000s largely blocked manufactured exports (see Hausman et al 2007). As noted above, employment growth occurred rather in the services and construction, essentially to meet the needs of the small high-income group and state infrastructure and redistributive programmes. The new international conditions meant that exports of consumer and capital goods faced even higher obstacles than during the boom.

This situation called into question the basic thrust of South Africa’s industrialisation policy, embodied as of 2010 in the first and second Industrial Policy Action Plans (IPAP) published by the Department of Trade and Industry (dti 2007 and 2010). For most of the period from 1994, the dti’s industrial policy centred on supporting manufactured exports. The first IPAP contained virtually no projects to meet domestic or regional demand or to create employment while raising living standards. The auto industry enjoyed by far the largest subsidies of any industry, with tax relief used mostly to encourage exports. (Barbour 2005) The second IPAP paid greater attention to industries that would meet local demand, both for wage goods and for the infrastructure build programme, but it still maintained a strong emphasis on export-oriented and knowledge-based industries.

In the event, the industrialisation policy proved singularly ineffective. As the second IPAP pointed out, that reflected in part inadequate resourcing and inconsistent implementation. The share of total government spending going explicitly to support agriculture, mining, manufacturing and construction fell from 4 per cent in the mid-1990s to 3 per cent in the mid-2000s.⁵ In the 2000s, moreover, the economy’s growing dependence on short-term capital inflows led to appreciation of the rand. In these circumstances, exports from the mining value chain, including refined but not fabricated base metals, continued to dominate.

Table 19: Mining in the economy, 1998 to 2008

Source: Calculated from standardised industry data in Quantec EasyData. Downloaded from www.quantec.co.za in September 2009.

The structural issues laid bare by the global economic crisis pointed to the need for more innovative approaches to development. A viable growth strategy should focus more on meeting needs in the domestic and regional market, including basic consumer goods and infrastructure effectively funded through the state. In addition, it would have to ensure effective measures to enhance the overall efficiency and inclusiveness of the economy by continuing to improve core economic infrastructure; addressing the serious problems with general education systems serving most black communities; and reducing the cost of living for working people, especially for food, public transport and healthcare. Finally, as the second IPAP noted, it would need to include institutional changes to mobilise domestic resources to fund priority investments while reducing dependence on short-run inflows of financing through the stock and bond markets.

This relatively modest growth strategy might seem second-best to establishing a world-class modern industrial economy. Given the emerging constraints on global demand, however, it was more likely to succeed in laying the basis for sustained growth than a classical export-oriented industrial strategy. Moreover, it would do more to generate opportunities for the majority of southern Africans in the short to medium term, helping to overcome the employment backlogs that the international economic crisis aggravated.

NOTES

1 The media generally reported annualised quarterly falls in GDP, which look significantly larger than the actual drop.

2 The database for the Quarterly Labour Force Survey for the fourth quarter of 2009 was not available at the time of writing, so some elements of the analysis here only go up to the third quarter of 2009.

3 In the third quarter of 2009, the QLFS reported that 9 per cent of South Africans did not report their race, compared to none in the fourth quarter of 2008 and the second quarter of 2009. The increase appears to reflect almost exclusively a decision by whites and to a lesser extent Coloureds and Asians, mostly in relatively senior positions, not to declare their race. Thus, the share of Africans in the total population was reported at 79 per cent for all three quarters, while the share of Coloureds and Asians dropped from 12 per cent in the earlier two quarters to 9 per cent in the third quarter of 2009, and the share of whites dropped from 9 per cent in the earlier quarters to 3 per cent. In addition, the category that did not give race in the third quarter of 2009 had an employment profile similar to that of non-Africans: the employment ratio was 56 per cent, compared to 48 per cent for declared non-Africans; the share in formal employment was 93 per cent, compared to 79 per cent for all non-Africans and 92 per cent for whites; the share employed as senior managers and professionals was 40 per cent, compared to 27 per cent for whites, and 11 per cent for Coloureds and Asians. The employment by industry was not as good a match, however. The non-declared category had a larger share in community, business and financial services and a lower share in manufacturing than non-Africans who gave their race.

4 The survey was piloted in 2001, and can be relied on from September 2002.

5 Data on expenditure by sector from 1995 kindly provided by the national Treasury in 2008.

REFERENCES

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Campos JE and H Root (1996) The Key to the Asian Miracle: Making Shared Growth Credible. Washington DC: Brookings Institute.

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Department of Trade and Industry (2010) 2010/11 – 2012/13 Industrial Policy Action Plan. Pretoria.

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