SAG LAUNCHES NATIONAL INDUSTRIAL POLICY FRAMEWORK

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