Agro-processing is an increasingly important market access point for agricultural producers. The development of the agro-processing sector thus has significant potential to create opportunities for smaller agricultural producers, thereby supporting the creation of new employment and livelihood opportunities in rural areas. However, market access points are not homogenous from the point of view of smaller producers. Policy needs to incorporate the possibility of the adverse inclusion of smaller producers into established markets. The likelihood of beneficial inclusion outcomes will be enhanced by a stronger focus on net farm income projections for individual producers; farmer cooperatives at the processing level; innovation in the location and structure of agro-processing infrastructure; and better policy co-ordination among the various government actors.

The Real Economy Bulletin - Fourth Quarter 2015

In this edition:

Production and sales:  In the past quarter, agricultural output dropped sharply, by 4%, while manufacturing shrank by 0,6%. Mining, however, climbed by 0,4%. Overall, GDP growth slowed significantly compared to the previous quarter.  Read more.

Employment:  After falling fairly steadily from 2008, manufacturing employment levelled out in 2015. Total employment climbed by 700 000 over the year, with the bulk of net new jobs emerging in public, private and domestic services and retail. Still, the global slowdown, drought and pressure on mining and heavy industry led to widespread anticipation of job losses in the coming months, at least in agriculture, mining and metals production.  Read more.

Trends in trade: Over the last quarter, the more competitive currency protected the revenues of manufacturing and mining exporters in rand terms, despite falling volumes. The falling price of petroleum in dollar terms helped relieve the burden of slowing merchandise exports on the balance of trade. Read more.

Profitability and investment: Statistics South Africa's Quarterly Financial Statistics provides information on trends in profitability and capital expenditure in the formal sector outside of agriculture, with information currently available through the third quarter of 2015. Read more.

Behind the trends: The impact of the end of the commodity boom has coincided with a major drought in Southern Africa. These two blows lie behind the slowdown in the South African economy, which worsened in the past quarter. Read more.

Brief: The exchange rate and the real economy: The depreciation of the rand has made manufacturing more competitive. Without it, more mines would have to close down. It results in part from the end of the commodity boom, and in part from an outflow of investment over the past two years. Download: The exchange rate and the real economy

Brief: Decarbonising the economy  risk or opportunity?The commitment made by South Africa to reduce Green House Gas (GHG) emission levels at the December 2015 COP21 negotiations will affect manufacturing and mining in various ways. A key dimension is the impact of the additional cost of electricity (due to the carbon tax) and the costs associated with improvements in the use of energy, imposed by regulatory constraints. Meeting South Africa’s COP21 targets will likely require diversification away from the current dependence on mining exports, which aligns with the core objectives of the Industrial Policy Action Plan. Download: Decarbonising the economy - risk or opportunity?

Engineering News - 09 March 2016

Read more

Potential of the citrus, table grape and subtropical fruit sectors and Opportunities for strategic interventions in support of agro-industrial production

Given the high levels of unemployment in the rural areas of South Africa this research explored the citrus, table grape and subtropical fruit subsectors of agriculture to better understand the potential for them to contribute to export growth, transformation and employment creation. The research finds that certain categories of agriculture are more labour intensive, better suited to South Africa’s climate and have significant potential for export growth. The research also makes a case for agriculture’s central role in growth, transformation and empowerment, advancing an argument that the distinction between agriculture and industry, and between processed and unprocessed primary commodities, is misleading.

Event: Thursday, 30 July 2015, 09:00 – 12:00 followed by lunch

TIPS, in association with the Department of Trade and Industry, the Embassy of Japan and Japan International Cooperation Agency (JICA), hosted this workshop to discuss the Special Economic Zone (SEZ) programme and the lessons emanating from the Asian experience. The objective of was to reflect on the policy experiences of SEZs in Asia, and to have practical discussions on relevance to South Africa.  As South Africa deepens and expands its approach to using SEZ as a lever of industrial policy, it is important to understand the lessons from Asia and experiences of Japanese companies.  

This workshop is part of a series that aims to highlight policy lessons from industrial development in Asia, and to have discussions with high level government officials. The Embassy of Japan was responsible for bringing out the two speakers, who both have extensive experience working in both an Asian and African context, with important insights.

BACKGROUND

Coming out of the Malaysian experience on a ‘Big Fast Results’ methodology, South Africa ran an Operation Phakisa on the ocean economy. Operation Phakisa is a results-driven approach, involving setting clear plans and targets, on-going monitoring of progress and making these results public. The Phakisa looked at the untapped potential of South Africa’s oceans and developed a number of projects to support investment, job creation and economic development. Dr Edwin Ritchken will present on some of the key issues emerging from the Ocean Economy Phakisa.

Aquaculture was identified as a priority sector in the Oceans Economy Phakisa. Aquaculture is the fastest growing food producing sector in the world, and although abalone contributes a relatively small proportion to aquaculture, it is one of the most highly prized, premium seafood delicacies and most sought-after invertebrate. The value of total legal production in the country in 2015 totalled US$73 434 900 and is projected to rise to 135 million US dollars by 2020. The presentation by Gillian Chigumira will outline strategies and policies for the abalone industry to remain economically viable and export orientated. 

PRESENTERS

Dr Edwin Ritchken – Research Associate TIPS; on the Oceans Economy

Gillian Chigumira Junior Economist – Trade and Industry TIPS; on the Abalone Industry

Edwin is a research associate with TIPS. He has worked on the Oceans and Mining Phakisas as well as the Electricity War Room.  He was previously an adviser to the Minister of Public Enterprises.

Gillian is a researcher in the Industrial Development pillar at TIPS. She has been engaged in industrial policy-related studies in regional industrialisation focusing on agro-processing. Gillian Chigumira is currently completing a Masters in Commerce – focusing on agro-industrialisation.  She has previously worked at SAIIA.

Most economics curricula deal with macroeconomic tools for studying the economy as a whole and microeconomic tools for studying the behaviour of individual agents or markets. However, many policies create costs and benefits that extend beyond the targeted sectors or agents.

Furthermore, the impacts on the policy targets are themselves conditioned by the macroeconomic adjustment processes and the structures and institutions of the economy in which they are implemented. Practical public and private sector policy analysts thus often need an economy-wide perspective on the policies they design, implement and monitor.

Economic modelling techniques that capture these economy-wide impacts are increasingly being used in policy, consulting, research and academic environments. Input-output and social accounting matrix (SAM) analysis are used on a regular basis to analyse the impact of policy-related and other changes on the economy. Computable general equilibrium (CGE) models build on these techniques to allow for a wide range of behavioural responses and interactions. While these techniques were once the preserve of a handful of leading theoreticians, the IT revolution has allowed them to become part of the practical economist's everyday toolkit.

In 2001 Trade and Industrial Policy Strategies (TIPS) started (co-)presenting introductory workshops to cater for the rising demand for these techniques. Since then it has held more than thirty such workshops, with more than 500 participants from over 30 countries.

The accumulated experience of running these workshops suggests that there are three different kinds of model users, each requiring different skills. Firstly, modellers need the skills to adapt existing models for new applications and to develop new models completely. Secondly, many policy analysts need to use economy-wide models routinely in their work.

They may want to run and interpret the results of standard models dealing with their specific issues. They also may want to be able to interact with modellers when commissioning work from them. Finally, while never needing to run models themselves, many senior policy managers draw on modelling work undertaken by consultants and others. They need to know when the methods are appropriate and to be able to interrogate the results properly.

TIPS has evolved a suite of three related introductory workshops designed to meet these different needs. All three workshops focus on learning by doing. Brief presentations introduce the various topics, after which participants do hands-on exercises implementing what they have learned. There is also emphasis on the nature of the data underlying the models. Participants undertake projects dealing with typical issues, using real world data.

The first of these three workshops, Economy-Wide Policy Impact Analysis, is suitable for all three of kinds of users mentioned above. It introduces participants to input-output, SUT and SAM multiplier analysis and their extensions. These techniques are widely used to assess the likely impact of policy and other shocks to the economy. They can also form the basis for many CGE models. All the models are implemented in MS Excel.

The second workshop, Introduction to Economy-Wide Modelling for Policy Analysis, targets primarily managers and policy analysts, although it is also useful for those wishing to become modellers who want to get a taste of what it is like. It introduces participants to the key components of standard CGE models, emphasising how to use economy-wide models and the economic interpretation of their outputs, rather than the techniques of building them. The models are run using a specially developed MS Excel interface with specialised modelling software.

Finally the third workshop, Introduction to Computable General Equilibrium modelling using GAMS, specifically targets those wanting to become modellers. It introduces the participants to economy-wide model building, using specialised modelling software. While the material is driven by the economics of models, the major focus is on actual model building techniques. This workshop does not require prior knowledge of model building, but is technically more difficult than either of the other two workshops. Workshop B or equivalent is considered to be a prerequisite to participate.

The different aspects of the three workshops are summarised in Table 1. The precise content of each workshop is varied from time to time, to meet needs of specific participants and as the field evolves. Schematic outlines of the programmes are presented in Table 2.

Who should attend

Workshop A: Economy-Wide Policy Impact Analysis is suitable for senior policy managers, policy analysts and intending modellers.
Workshop B: Introduction to Economy-Wide Modelling for Policy Analysis is also suitable for senior policy managers, policy analysts and intending modellers.
Workshop C: Introduction to Computable General Equilibrium modelling using GAMS is suitable for intending modellers.

No pre-reading is required for any of these workshops and all necessary materials will be provided for the course. However, interested participants may wish to consult the following references as preliminary reading.

Suggested readings

Workshop A
Jeffrey Round 2003 "Social Accounting Matrices and SAM-based Multiplier Analysis" Chapter 14 in L A Pereira da Silva and F Bourguignon (editors) Techniques for Evaluating the Poverty Impact of Economic Policies, World Bank and Oxford University Press, September 2003. http://siteresources.worldbank.org/INTPSIA/Resources/490023-1121114603600/14017chapter14.pdf

Workshops B and C
Lofgren, H; Harris, DL & Robinson, S, 2002, A Standard Computable General Equilibrium (CGE) Model in GAMS, Microcomputers in Policy Research 5, http://www.ifpri.org/publication/standard-computable-general-equilibrium-cge-model-gams-0   

Lofgren, H, 2003, Exercises in general equilibrium modeling using GAMS and key to exercises in CGE modeling using GAMS, Microcomputers in Policy Research 4a, http://www.ifpri.org/publication/exercises-general-equilibrium-modeling-using-gams-and-key-exercises-cge-modeling-using  

TABLES: WORKSHOP SUMMARIES AND SCHEMATIC PROGRAMMES FOR WORKSHOPS

Table 1: Workshop Summaries

Table 2: Schematic Programmes for Workshops (subject to change)

Responses to Eskom’s request for compensation for additional costs and for lower than expected sales in 2013/4 should be designed to support industrialisation. From this standpoint, the regulator’s response to Eskom’s proposals should take into account the following.

• Eskom should be guaranteed compensation for the cost of diesel and other measures to avoid loadshedding, since otherwise it would be effectively incentivised to loadshed rather than incur additional expenses.
• The multi-year price determination (MYPD) did not foresee the structural decline in electricity demand since around 2011, largely as a result of the end of the commodity boom combined with the rapid rise in electricity tariffs, and should therefore be revised to take it into account. That in turn would affect both the scale and nature of investment in new generation capacity.
• Efforts to hold down tariffs as a way to enforce greater efficiency at Eskom have had severe unintended consequences, fostering in particular inadequate investment and maintenance. Instead, tariffs should be managed to ensure responsiveness to shifts in supply and demand and to maintain a reasonable rate of return at Eskom, as the Act requires, while the state as shareholder should work with Eskom to develop specific and practical measures to address the obvious areas of inefficiency around staffing, coal procurement, subsidies to the aluminium refineries, planning for construction and debt management.

This briefing note considers three key questions about inflation targeting in South Africa, drawing on international experience as well as an assessment of the conceptual framework for monetary policy. First, does inflation in the low single digits promote development and growth? If not, raising interest rates at low rates of inflation may not be the optimal policy stance. Second, is inflation in South Africa a demand-side problem? If not, then raising interest rates may not be the most efficient and targeted policy tool to address the source of inflationary pressures (and may cultivate higher inflation in the future). Third, will reliance on a single monetary tool, the policy interest rate, successfully lower inflation and promote employment growth and development? If not, other tools should be sought.

Policy Brief prepared for TIPs by Stephanie Seguino, Professor, Department of Economics University of Vermont, USA, and SOAS, University of London.

TOPIC: PRESENTATION OF THE LATEST QUARTERLY MANUFACTURING BULLETIN