Annual Forum Papers

Industrial Development Zones (IDZs) have been and still are important vehicles used by developing countries to facilitate investments, create jobs and boost exports. The attractiveness of IDZs is characterized primarily by their association with the adjacent location of an airport or port, good basic infrastructure and duty-free imports of production-related raw materials and inputs to enhance the key export oriented focus of the zones.

In South Africa, the establishment of IDZs is a recent phenomenon intended to attract investment, increase exports and the competitiveness of South African products. Currently the country houses four IDZs in Port Elizabeth (Coega IDZ), East London (ELIDZ), Richards Bay (RBIDZ) and Gauteng (OR Tambo International Airport). In addition, further sites have been identified and already some are being developed.

The proliferation of IDZs in the country has led to increased interest in the subject. To date the lacklustre investment in the country's industrial development zones and their failure to meet their ambitious goals have attracted mixed reviews regarding the international competitiveness of South African IDZs.

Against this background, this paper therefore aims to contribute to the ongoing IDZ debate. It discusses the economic rationale for IDZs in South Africa, reviews the context in which an IDZ policy is being promoted in the country and then evaluates South African IDZs' economic performance. Accordingly of added value, this paper also reviews the types of incentives offered by Southern African countries in attracting investments in their development zones.

  • Year 2008
  • Organisation University of KwaZulu-Natal
  • Publication Author(s) Vanessa Tang
  • Countries and Regions South Africa

The future direction of South African industrial policy is the subject of vigorous and healthy debate. The outcome is important for the country's economic development. This study is an attempt to contribute to these discussions through an overview of and some questions about the economic impacts of South Africa's post apartheid trade and industrial policy. It comprises two main parts. These parts can be read independently.

The first part reviews some key themes in international policy discussions and draws lessons from the recent experiences of other developing countries. The second and largest part of the report reviews South Africa's industrial policy over the past decade. While not comprehensive, the range of policies examined is sufficient to dismiss the claim made by some that South Africa has not had an industrial policy. In fact, whether by intention or not, South Africa has experimented with a very wide range of policies that have had a direct impact on the path and success of its industrial development.

This review raises some serious questions about the economic impacts of South Africa's industrial policies and of some future alternatives that are now under discussion. Despite the intensity of and broad interest in the debate, there appears to have been very little serious economic analysis of past policies or of future plans. Basic assumptions about the effectiveness of sector-specific interventions, for instance, appear to be poorly founded. Many policies have impacts that are at variance with stated intentions. International experience is drawn upon with great selectivity to support particular views about preferred policy directions.

The real questions facing South Africa are not whether South Africa does or should have an industrial policy. They are not about whether there should be more or less government intervention. The most important questions are pragmatic and not ideological they are about what works and does not work in South Africa and why.

  • Year 2008
  • Organisation Development Network Africa
  • Publication Author(s) Frank Flatters;Matthew Stern
  • Countries and Regions South Africa

South African manufacturing has experienced a slow overall decline despite adopting a range of recommended economic policies from protectionism and active state support in the period preceding political change (1994) followed by aggressive liberalisation and more free access to markets thereafter. Alongside interfering industrial policies, the decline has also been blamed on poor skills, out of date technology and constrained input access, increasing global competition, high labour costs and a range of microeconomic factors unique to the sector. Evidence for this is mixed. Extensive government support and protectionism on the one hand and aggressive economic liberalisation with a focus on supply side policies on the other have failed to stop this decline. Multiple academic and government commissioned studies have typically focused on single sectors or isolated causes rooted in the neo-liberal tradition. Remedies such as those listed above have followed in the same vein with a focus on correcting market imperfections within the micro-economy. These have failed to bring about noted change precisely because they ignore the dominant elements of the South African political economy. Policy and economic outcome has manifested a remarkable continuity despite political and economic transformation. This continuity refers to the interaction between individual sectors of the economy and of their differing degrees of influence over policy choices. Industrial policy studies have sought to categorise policy choices under narrow government- or market-led frameworks resulting in unrepresentative conclusions reflecting prevailing economic fashions more than the South African context.

Understanding the specific dynamics of manufacturing requires delving into what drives the South African economy and how specific sectors fit together with the underlying combination of economic and political priorities and changing external market conditions. This research aims to show how industrial policy reflects these economic and political priorities with particular focus on the dominant role of the mineral and energy complex (MEC) as a key driver of industrial and macroeconomic policy and economic performance. Core to this analysis is understanding the debate on post-war industrial policy and the false polarisation between the roles attributed to the state (import substitution / protectionism) versus the market (trade and financial liberalisation / supply-side measures) in directing policy. State driven policy is typically associated with the apartheid period and the market driven model with the new ANC government post 1994 whereas a closer look shows liberalisation began before the end of apartheid and elements of strong state involvement remain thereafter.

What emerges is a pattern where mismanaged import substitution, promotion of state owned enterprises, failed decentralisation and unsuccessful support to small and medium sized enterprises during the period preceding political change reflect the underlying presence of minerals energy complex. Though aggressive liberalisation and supply-side policies take over in the 1990's, this role associated with the minerals energy complex remains an and substantial (though evolving) influence over the economy. The poor manufacturing performance and alleged policy ineffectiveness reflects a broader failure to achieve structural transformation through diversification away from natural resources and a break in the dominant class structure with a mature capitalist class in control of the profits extracted mainly from minerals and energy related sectors. How is this industrial policy and economic structure reflected in the case of Textiles and Clothing?

The Textiles and Clothing (T&C) sector (as an example of manufacturing unrelated to the MEC) is used to assess the impact of this unique economic structure and dynamics within a changing global environment. The aim is to show that macroeconomic and industrial policy choices exacerbated the decline initiated by global and domestic economic changes. This is puzzling given that the T&C industry continued to receive preferential treatment through industrial policy support and exemptions or special arrangements to soften the impact of other policies (notably trade liberalisation). In addition, the low skill and labour intensive nature of T&C fits with the government's claims to prioritise employment and would reinforce the need to ensure the survival of this industry.

To summarise, explanations for the failure to arrest this decline typically fall into one of the following categories:

  • State intervention and market (failure) have resulted in poor policy and poor implementation.
  • Poor output and productivity growth of the South African economy as a whole are explained by the popular competitiveness analysis rooted in microeconomic analysis. Multiple explanatory variables such as poor skills, obsolete technology, structural and management shortcomings, organisational limitations etc. have been researched through case studies and statistical analyses. Recent supply-side policy measures are directly linked with this type of analysis.
  • Developments in the global trading environment and other external market factors such as changes to the global T&C value chain, new entrants to the (liberalised) markets, and a proliferation of multilateral and bilateral trade agreements have played a dominant role over and above government actions to support vulnerable sectors.


Though relevant in highlighting specific elements of the decline, these explanations suffer from a static and descriptive nature that is devoid of contextual understanding. What is missing is an exploration of the underlying political economy conditions that drive the South African economy and policy; how T&C fits into the overall political and economic priorities and in particular; and how these priorities have evolved over time. In conclusion, the paper proposes the following hypotheses:

  • South African development in the 1970-2005 period does not fit under existing industrial policy theorising and definitions polarising the state and the market
  • The prospects for the development of the T&C sector were heavily constrained by the dominance of the MEC within the South African economy. Any development opportunities emerging within the T&C were limited or obstructed by the priorities set in the broader economic and political context.

  • Year 2008
  • Organisation SOAS, University of London
  • Publication Author(s) Lotta Takala
  • Countries and Regions South Africa

The paper presents significant new insights for Policy Makers, Practitioners, Educators, and Researchers into the socio-economy of agglomerated SMEs in developing country context. Using mixed methods of inquiry and concurrent triangulation approach this paper profiles the socio-economy of the internationally competitive textile industry cluster of Faisalabad in Pakistan to establish the validity of the concept of clusters in the context of developing economies and seeks new insights into the phenomenon. The paper also investigates the impact of clustering on the performance, governance, organization and entrepreneurial management practices of the constituent SMEs. The methods employed for research include analysis of secondary data, survey of the textile firms and in-depth semi-structured interviews.

Key learning points of the research are:

1. Cost reductions and information spillovers facilitated by the community ties and the shared local identities were the dominant type of advantages for the agglomerated firms. They largely arose at the level of transactions in goods and services, and to a lesser extent in the transformation of inputs into output. Vertical cooperation, rather than horizontal, was mostly prevalent in the cluster.

2. In the emergence phase of the cluster factor (input) conditions were more dominant. After three decades of growth, however, extensive co-location of related and supporting industries became, and remains, the dominant factor in the success of the industry in the region.

3. The developing economy cluster lacked strong institutions and infrastructure. Selfreliance of the entrepreneurs and the collective action, however, mitigated the aspects of the lack of cluster specific public goods. The Government's initiative and development efforts were mostly passive but still the national industrial policies were instrumental in spurring explosive growth of the small weavers in the region.

4. The paper also provides new insights on the role of the traders in the functioning of the cluster. They helped the small enterprises to overcome the growth constraints and had supported them to compete in distant markets, nationally and abroad. The clustered SMEs are also different from non-clustered firms in terms of average size, governance, human resource practices, marketing efforts, financing, and operations management.

  • Year 2008
  • Organisation Lahore University of Management Sciences
  • Publication Author(s) Faheem ul Islam
  • Countries and Regions South Africa

Prof. Simon Roberts, previously the director of Corporate Strategy and Industrial Development (CSID) at the University of the Witwatersrand and now chief economist at the Competition Commission in this paper explains the importance for industrial development of technological capability development across all economic sectors. The sector studies discussed here indicate that the traditional 'heavy' industries have not only developed leading technological capabilities in their fields but also created opportunities for lateral migration into 'smart industries' and other markets. The paper shows that for developing economies, technological advancement has less to do with pushing back technological frontiers than with the assimilation and adaptation of technologies.

  • Year 2006
  • Publication Author(s) Simon Roberts
Published in Trade and Industry

Understanding firm competitiveness and product development is crucial to industrial development. The plastics sector provides a good case in which to explore these issues. The plastics sector has been one of the better performing sectors in recent years in terms of output and employment. Plastic products are increasingly replacing metal products, thus placing the plastics sector at the core of manufacturing. There are constant developments related to the properties of materials such as rigidity, colour and flammability. Hence it is vital for firms to adapt, combine and develop capabilities to establish new products and markets. These factors require downstream firms to align their technological capabilities and dynamics to meet such sector specific and international challenges. The paper assessed different dimensions of firms competitiveness and capabilities, including technological capabilities, investment decisions and skills development. It finds that the firms that are engaging product development and industrial restructuring through upgrading or re-organisation of their production processes tend to be more competitive and were growing. The paper also highlights actions required in order to upgrade and re-organise production processes, including appropriate government policies.

  • Year 2005
  • Publication Author(s) L.G. Mohamed
  • Countries and Regions South Africa

South Africa's low investment rate has been widely recognised as both a symptom and cause of relatively poor industrial performance in the past decade. Investment is particularly important as restructuring requires the rapid growth of new activities if potential gains are to be realised, especially with a view to increasing employment and a more diversified industrial base. The IDC played a crucial role in shaping the apartheid economy, and has an equally important role to play in addressing the apartheid industrial legacy and the fundamental transformation of the economy. This transformation includes both broad-based growth and employment generation, and black economic empowerment.

The paper reviews the rationale for development finance for industry in light of recent debates on the importance of investment. It then evaluates the role of the IDC over the past decade with specific reference to the patterns of financing and the changing structure of the South African economy. In addition, the appraisal addresses the role of the IDC in industrial policy formulation and implementation with specific reference to recent developments.

  • Year 2005
  • Countries and Regions South Africa

Brazil and South Africa share similar development challenges. Both have very unequal income distributions, both have a strong resource orientation underpinning their industrial development trajectory, and both have undergone a sharp liberalisation and opening up of their economies in the past decade. At the same time, both countries are attempting to chart a progressive domestic economic path, while being important role players in the global economy. The most obvious difference is that of apartheid in South Africa. However, military regimes in Brazil pursued heavily state-influenced industrial development strategies which had similar objectives of self sufficiency and import substitution as did those of the apartheid regime in South Africa.

The Banco Nacional de Desenvolvimento Economico e Social (BNDES) is the government industrial development bank in Brazil and has been heavily involved in the development of minerals and resource-based industry in Brazil. In recent years it has diversified its activities and increased lending to services and infrastructure-related industries. It has also been successful, as part of governments industrial policy, in supporting dynamic industries such as aerospace. Its lending increased rapidly in the 1990s from US$3bn at the beginning of the decade to almost US$10bn by the end of the decade. In addition to its activities as a development bank, BNDES also plays an important role in formulating Brazilian development policies and identifying solutions to structural problems in the Brazilian economy.

The paper assesses the Brazilian experience and contrasts it with that of South Africa, in light of the restructuring of the Brazilian and South African economies and the development challenges they face.

  • Year 2005
  • Publication Author(s) Jorge Maia;Lumkile Mondi; Simon Roberts
  • Countries and Regions Mercosur (Common Market of the South), South Africa

As liberalization and globalization gather pace, concern with industrial competitiveness is growing, not just in developing countries but also in mature industrial ones. But it is the former that face the most intense competitive pressures: many find that their enterprises are unable to cope with rigours of open markets in exporting and in competing with imports as they open their economies. Some countries are doing very well; the problem is that many are not. Diverging industrial competitiveness in the developing world is one of the basic causes of the growing disparities in income that are now a pervasive feature of the world scene. The immense potential that globalization offers for industrial growth is being tapped by a relatively number of countries, while liberalization is driving the wedge deeper.

  • Year 2004
  • Publication Author(s) Sanjaya Lall
  • Countries and Regions East African Community (EAC), European Union (EU), Southern African Development Community (SADC)

This paper examines the impact of national developments and policies on the development of industry in Ekurhuleni. It assesses role of local government in industrial development in light of recent literature addressing agglomeration effects, industrial districts, and the development of local economic competencies and institutions. The analysis draws on recent work on the manufacturing sector in Ekurhuleni and a case study of the foundry industry in particular, focusing on its performance and recent development in terms of firm capabilities, orientation, and the institutional framework

  • Year 2004
  • Publication Author(s) Thandi Phele; Simon Roberts; Ian Steuart
  • Countries and Regions South Africa

In this study, we set out to empirically investigate the impact of interest rates and other macroeconomic factors on manufacturing performance in Nigeria using co-integration and an error correction mechanism (ECM) technique with annual time series covering the period between 1970 and 2002. Some statistical tools are employed to explore the relationship between these variables. The analysis starts with examining stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test. Then, the study estimates error correction mechanism (ECM) model.From the error correction model, several interesting conclusions are drawn from the study. First, interest rate spread and government deficit financing have negative impact on the growth of manufacturing sub-sector in Nigeria. Secondly, the study empirically reveals that liberalization of the Nigerian economy has promoted manufacturing growth between 1970 and 2002. Lastly, the findings are further reinforced by the presence of a long-term equilibrium relationship, as evidenced by the co-integration, and stability in the model.

  • Year 2004
  • Publication Author(s) Babasanmi Babatope-Obasa; Michael Adebayo Adebiyi
  • Countries and Regions Southern African Development Community (SADC)

This paper deals with the importance of agricultural policy and technology for farmers' food security and market integration. We draw on data recently collected in interviews with over 3000 farmers in eight sub-Saharan African countries.2 The results indicate that the food production among African smallholders is highly responsive to increased use of industrial inputs and to marketing opportunities for food crops. In the absence of a favourable macro environment enhancing increased use of inputs, however, the majority of farmers remain stuck in poverty and are barely able to meet their own food needs. In the following we will use maize as an example to demonstrate the crucial role of the African state in providing the necessary macro conditions for realising the production potential inherent in increased technology adoption and increased commercialisation of staple production. This conclusion suggests that development options in African agriculture are different from those often surmised in the general development debate. Hence, we argue that policy makers in governments and among donors often work from assumptions that badly fit existing realities in African agriculture. We criticise a number of tendencies that recur in debates on agricultural development in sub-Saharan Africa. They are not internally consistent, and they seldom occur together, since they typically are associated with different types of actors.

  • Year 2004
  • Publication Author(s) Goran Djurfeldt; Rolf Larsson
  • Countries and Regions Southern African Development Community (SADC)

South Africa has experienced significant liberalisation during the 1990s on the political as well as economic front. Starting with the first democratic elections in 1994, the economy has undergone liberalisation of internal and external financial markets, labour markets and trade regime. Major changes have also taken place in terms of monetary and fiscal policy, where discipline and sustainability have become the guiding principles, while industrial policy saw a shift from demand-side to supply-side measures. Whether these policy choices have resulted in higher levels of efficiency and more importantly better economic performance and equity will remain the subject of economic research for years to come, notably because the structure of any economy does not change overnight. While some of the liberalisation efforts started before the 1990s, a number of them took place during the middle of the decade. Although perhaps still somewhat premature, an examination of the South African economy during both halves of the decade is perhaps a worthwhile exercise.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

This report attempts to provide an overview of South Africa's industrial landscape during the 1990s, focusing on growth and sectoral shares in value-added at a detailed 46-sector level. Use is made of the TIPS South African Standardised Industry Database, which offers long-term trends spanning 1970 to the present for 46 industrial sectors, mainly in manufacturing. Monetary values are recorded in 1995 constant prices.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

This report attempts to provide an overview of South Africa's industrial landscape during the 1990s, with specific emphasis on growth and sectoral shares in exports at a detailed 46-sector level. If one of the objective of the policies adopted during the middle of the 1990s was to bring about a shift in resources towards more tradable goods producing industries, then it is important to examine the trade performance of South Africa's industries in both the first and second halves of the 1990s.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

In spite of the trade liberalisation efforts that have characterised the 1990s, it is apparent that imports by the manufacturing sector have remained more or less constant in real terms, whereas imports by agricultural industries have witnessed a decline in imports. Declining imports of business services have also been manifest during this time. Using the TIPS South African Standardised Industry Database, the trends in import growth and sectoral shares of imports at a detailed 46-sector level are investigated for both halves of the decade. Monetary values are recorded in 1995 constant prices

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

Only a handful of sectors have shown an increase in their demand for labour, amongst others, Leather Products, Plastic Products, Wood and Wood Products, Wholesale and Retail Trade, Printing and Publishing, Medical Services, Basic Chemicals and Other Chemicals and Television and Communications Equipment producers (Table 17). In terms of labour demand, these industries are also relatively new on the scene, judging from the positions they held during the 1991-1996 period. However, with the exception of the Wholesale and Retail Trade sector, none of these industries have a large weight in the total demand for labour, as can be attested by the second last column of the table. On the contrary, labour shedding has been the trend in the relatively large sectors such as Gold Mining, Agriculture, and General Government, and this has obliterated whatever little gains in labour demand that have been recorded anywhere.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) Donald Onyango
  • Countries and Regions South Africa

Mainstream economics and the Washington Consensus caution against industrial policies that target sectors, firms and regions. At the most they favour cross-sectoral policies which address generalised market failures. This paper analyses the success of an industry-specific policy, South Africa's Motor Industry Development Programme. It documents significant learning processes and shows the impact of the sector's growth on macroeconomic performance. It also addresses the "costs" of industrial policy and shows how well-designed scale-enhancing selective policies can provide domestic consumers with global-quality products at global-price levels, without subsidy from the exchequer. The Conclusion addresses the relevance of such selective policies to other developing economies, arguing the case for intelligent and appropriately crafted industrial policy.

  • Year 2003
  • Publication Author(s) Mike Morris; Raphael Kaplinsky; Justin Barnes
  • Countries and Regions South Africa

The purpose in this paper is to provide a framework for the analysis of the relationship between different macroeconomic, sector and commodity policies and the multiplier effects of agriculture. To this end, the paper starts with a listing of the macroeconomic, sector and commodity policies that have been included in the analysis. This should be considered in conjunction with the likely roles of agriculture along each of the dimensions of the environmental, social, poverty and cultural roles of agriculture. These policies and roles should be conceptualised as the vertical and horizontal axes respectively of a ‘policy-role' matrix. The ‘cells' of this matrix, i.e. the policy-role interactions, are discussed in the final two sections with respect to the immediate macroeconomic, agricultural economic, institutional and social impact of the policy change on the agricultural sector at farm, regional, national and multinational levels, and thereafter on the role of agriculture in terms of each of the dimensions identified above.

  • Year 2003
  • Publication Author(s) v
  • Countries and Regions South Africa
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