Session 5: Mining and Economic Growth
The 2007 launch of the National Industrial Policy Framework (NIPF) and the Industrial Policy Action Plan (IPAP) could not have anticipated the impact that the global financial crisis of 2008/2009 and subsequent recession would wreak on South Africa’s economy. With its strong focus on the manufacturing sector as a key driver of balanced development, the NIPF set a framework and an implementation mechanism – in the form of IPAP – for addressing cross-cutting and sector-specific constraints (and optimising opportunities) to put South Africa on a stronger growth path. As it turned out, it also assisted in shoring up the South African industrial sector against the worst effects of the recession, particularly through support for industrial upgrading, local procurement designations and export facilitation. This policy brief explores the intended outcomes of the NIPF and assesses some of the progress (and unintended consequences) achieved in implementing IPAP since 2008. It concludes with some recommendations on the need to do a full review of the impact and implementation of IPAP.
Session 1: Regional manufacturing and industrial policy 1
Paper to follow
In 2014, South Africa remained one of the most unequal countries in the world, an outlier by global standards in terms of both overall inequality as measured by the Gini coefficient and levels of joblessness. For proponents of industrialisation as central to long-term development, this situation raises two questions. First, how does manufacturing as presently constituted affect employment and the distribution of income and assets directly and indirectly? Second, is the traditional industrial-policy paradigm sufficiently geared to supporting inclusive growth?
These questions are explored in this working paper by Neva Makgetla, TIPS Trade and Industrial Policy Programme Manager.
Promoting exports to develop manufacturing remains a key growth strategy in the National Development Plan. Super-exporters dominate almost all South Africa's export sectors. They are the main drivers of export growth and they define the country's export structure. However, despite their dominance, super-exporters have been losing dynamism and competitiveness, with 93% of these firms not creating sufficient new high-value exports to replace those that died out during the global financial crisis. According to the World Bank, South Africa is exploiting only about 20% of its potential export relationships compared to China's and Germany's 70%. Smaller South African exporters are more experimental but are not yet large enough to drive aggregate exports.
This paper examines the pattern of trade between IBSA countries for the period 2001-2008. We find that trade between the countries has been on the increase. After the IBSA initiative was established in 2003, each country recorded a significant growth in its trade with other IBSA countries in 2004, leading to a large intra-IBSA trade increase of 43.45%. Intra-IBSA trade continued to rise thereafter peaking at US$26 497.7million in 2008, a 40.97% growth from the previous year.
With regards to South Africa's exports with Brazil, we find that the mining sector dominates. In the manufacturing sector, high-technology followed by medium-technology manufactures dominates. South Africa's chief imports from Brazil are largely with manufactures, particularly of high-technology goods followed by medium-technology imports. The agricultural sector is the second most significant sector after manufacturing.
Significant reforms of the services sector have been conducted in Uganda since 1987, motivated, in part, by the common notion that efficiency in the provision of services can deliver productivity growth in all sectors of the economy, which in turn stimulates overall economic growth and development. Given that the demand for services is often highly income elastic, as incomes grow, the demand for services also tends to expand accordingly. In another respect, services are widely used as intermediate inputs in various production activities, while the proportion of labor utilization in services production has tended to grow larger than that of capital. This paper applies a cross sectional panel estimation approach to discern the effects of services liberalization on downstream manufacturing productivity in Uganda. The results show that the average coefficient (average returns to scale of 0.6251 is less than constant while the respective coefficients of capital and labour are 0.1420 and 0.4831, respectively. The relative coefficient on the composite services reform index is positive, suggesting that services liberalization have had a marked positive impact on manufacturing and its productivity. When individual sector reform indices are accounted for in the regression, the results also confirm that when prudent reform measures were undertaken in different services sub sectors, they imparted strong and significant improvements in the productivity of firms across the board.
Since the mid-1990s, South Africa has made considerable progress in opening ups its trade regime. In 1994 South Africa committed itself to reducing and simplifying its tariff levels and structure in accordance with it offer under the GATT Uruguay Round. As a consequence tariffs have fallen, although the number of tariff rates and types remains high. Some estimates suggest that average tariffs in manufacturing have fallen from close to 30% in 1990 to around 10% in 2002. However, the extent of the decline is highly dependent on the calculation of ad valorem equivalents for non-ad valorem tariffs (specific, mixed, compound and formula duties) and the choice of tariff measure (scheduled tariff or collection duties). The difficulty in measuring protection is reflected in the continuing debate on the extent to which the economy has liberalised its trade (Fedderke and Vase, 2001; Rangasamy and Harmse, 2003).
This study advances existing empirical work in a number of ways. Firstly, we use detailed sector level tariff data as one of our indicators of changes in openness. We calculate tariff levels for 26 manufacturing sectors between 1988 and 2002 using both scheduled tariff rates and collection duties. We thus test the robustness of the relationship between tariff liberalisation and mark-ups to different measures of tariff protection.
The barrier model of productivity growth suggests that individual country productivity is related to the world technology frontier disturbed by national barriers. We offer a country study of the barrier model, exploiting the dramatic changes in the linkages to the world economy in South Africa (SA).
The productivity growth in the manufacturing sector panel for 1970-2003 covers a period of political and economic turbulence and international sanctions. The econometric analysis uses tariffs as a measure of barrier and fixed effects estimation to concentrate inference to time-series properties. The model shows how productivity growth can be understood as a combination of world frontier growth and the tariff barrier to international spill-overs. The estimates establish a long-run relationship where domestic productivity follows the world frontier, with change of barrier affecting transitional growth.
This paper investigates whether African manufacturing exporters are more productive than non-exporters and whether these productivity differences precede entry into the export market. We find at expoters are more productive but that productivity does not matter for entry into t export market - suggesting that learning by exporting is important. We investigate the nature this relationship and find that exporters donot have higher rates of productiity growth than non-exporters.
The current implementation of a free trade area in SADC has given rise to concerns that the present location of industry in the region will be adversely affected. Specifically, many of the smaller and less-developed countries fear that this change will result in a loss of their industry towards the more developed members, and particularly towards South Africa. The paper conducts a review of the spatial distribution of industry within SADC from 1970 to 1999. This is achieved through the calculation and examination of industrial locational Gini coefficients, measuring the relative degree of concentration of 28 ISIC (rev 2) industries for the years 1970, 1980, 1985, 1990, 1995 and 1999. The analysis, however, is focused on the most recent two decades.
The average level of concentration within SADC is found to increase steadily from 1970 to 1990. Between 1990 and 1995, the level of concentration increases further, but at a lower rate, and, by 1999 industry begins to disperse. The Gini coefficient is a relative measure, and thus does not measure the absolute level of concentration. Thus, much of the increase in concentration seen is towards peripheral countries. To further interpret the Gini, the changes in concentration are compared to the absolute changes in manufacturing employment in South Africa. From this analysis there appears to be a distinct advantage for industry as a whole to locate in South Africa versus SADC as a whole. However, this is not the case for all industries as eight of the 28 industries analysed show particular tendencies to concentrate in the periphery (i.e. SADC excluding South Africa). Additionally, there are individual countries in addition to South Africa that appear to have a revealed comparative advantage in many of the other industries. Two main policy recommendations result from the paper. Firstly, individual countries in SADC need to promote those industries that show concentration tendencies in their country, and investigate further reasons as to why other industries tend to locate in South Africa. Secondly, further study should be undertaken on the effect of reducing transport costs on specific industries.
Between January 2002 and July 2005, the South African exchange rate has appreciated by more than 30 per cent. At the same time, there has been widespread news coverage of the decline in several manufacturing sectors, notably clothing and textiles. Over the same period, commodity prices have risen substantially. The gold price rose from an average of $310 per ounce in 2002 to an average of $436 in 2005. The platinum price rose from an average of $541 per ounce to $887 over the same period.
This has led some commentators to speculate that high commodity prices have led to the appreciation of the rand, and the subsequent lacklustre growth in output and decline in employment in the manufacturing sector, along the lines of a classic case of the 'Dutch disease', where an economy is harmed by commodity abundance. These commentators are concerned that once our manufacturing sectors are lost, we may not be able to rebuild them, and we will lose the dynamic benefits of having a manufacturing sector, which include skills accumulation and economies of agglomeration.
In this paper, we begin with a definition of what is meant by a commodity and what is meant by a manufactured good, and we describe the commodity price time series we use. We then provide an overview of the literature on the 'Dutch disease' effect, followed by an analysis of the impact of the commodity price boom on South Africa. Finally we present our conclusions, and some potential policy interventions emanating from the literature on Dutch Disease.
This paper examines growth patterns in the Western Cape over the 1970-1996 period by means of primal growth accounting decompositions. Evidence by magisterial district, by statistical region and by SIC 3-digit manufacturing sector is presented. We find that the Western Cape differs from national growth patterns. Manufacturing in the Western Cape has relied consistently relied on capital accumulation for growth, while labour has contributed more to manufacturing growth than natioanlly. TFP growth has not been an important contributor to growth in Western Cape manufacturing, with a relatively minor exception in the 1980's.
This paper advances on previous work on the effects of trade and technical change on labour markets within the framework of Heckscher-Ohlin trade theory. First, we employ dynamic heterogeneous panel estimation techniques not previously used in this
context, which separate Heckscher-Ohlin-based long run relationships from short run dynamics that are heterogeneous across sectors. Second, we provide evidence for an unskilled labor abundant developing country that allows comparison of the results
against developed country evidence. Third, we consider the appropriateness of alternative approaches and examine endogeneity issues in the impact of technology and price changes on factor returns. For South African manufacturing we find that output prices
increase most strongly in sectors that are labor intensive. Our results further suggest that trade-mandated earnings increases are positive for labor, and negative for capital.
By contrast technology has mandated negative earnings increases for both factors. We also find that separation of different demand side factors collectively constituting globalization is useful in understanding the impact of trade, and taking account of
endogeneity is important in isolating factor and sector bias of technological change.
Ryan Hawthorne, Reena Das Nair and Keith Bowen of Johannesburg Economics presented this paper at the TIPS/DPRU/UNU-WIDER Forum 2005. It finds that there may be reasons other than high commodity prices for the general lacklustre growth in manufacturing output, the decline in manufacturing employment and the increase in employment in the skills-intensive sectors in South Africa. Factors such as capital, labour, trade and output market distortions and a lack of physical and human capital accumulation may be far more important sources of these trends.
We begin by presenting an overview of manufacturing in the Durban area and report on the GDMA survey, highlighting the methodology and key objectives and findings of the survey. We then focus on the international trade issues, reporting on how firms in the GDMA are responding to trade liberalisation. We report here on three sets of issues: the export orientation of firms, the effects of volatility in exchange rates, and on a set of trade policy issues. Finally, we present some concluding remarks.
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
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.
Absences can be as telling as presences, as Sherlock Holmes reminds us. Some times, however, it is difficult to know whether one is really dealing with an absence or not. In the case of South African labour economics some absences have attracted attention: the surprisingly small size of the informal sector, or the surprisingly small rate of job creation during the 1990s. To these mysteries can be added another: the disappearance of about 300 000 manufacturing workers from the 1996 population census.
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.