Business Day - 8 February 2021 by Neva Makgetla (TIPS Senior Economist)

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This policy briefs aims to provide an overview of the characteristics of the vulnerable groups in the petroleum-based transport value chain; an understanding of the dimensions of the impact and expected timeframes for the transition; and an overview of the proposed resilience plans. It first looks at the characteristics of those who are employed in the value chain, or are involved in business. It then explores the dimensions of the impact and the timeframes as they are currently available.

The Import Tracker is a quarterly analysis of import trends. It provides an overview of import patterns and look at the causes of surges in manufacturing imports, and their likely impact on industry. Quarter 4, 2020 is now available. Import Tracker Q4 2020.

Although declining slightly compared to the third quarter of 2020, South Africa maintained a high trade surplus in the fourth quarter of 2020, at R103 billion. Year-on-year, this marks a more than 300% increase in the trade surplus compared to the fourth quarter of 2019. The surplus is the result of low imports and high exports (Graph 1). This has been the case over the last three quarters in particular as South Africa and its trade partners continue to respond to the COVID-19 pandemic that began in January 2020.

Thandi Phele is the Acting Deputy Director General of Industrial Competitiveness and Growth Branch at the Department of Trade, Industry and Competition (the dtic). Since her appointment in the acting position, she has been providing thought leadership to South African industrial policy and driving key programmes aimed at industrialisation and localisation. Key among these, she continues to lead the development and implementation of various masterplans led by the dtic: Automotives; Retail-Clothing, Textiles, Footwear and Leather; Poultry; Sugar; Steel and Metal Fabrication; and Furniture.

She has been instrumental in the development and deployment of a number of industrial policy tools to various sectors, including designations and localisation under the Preferential Procurement Policy Framework Act (PPPFA); design of industrial financing support; beneficiation of South African mineral endowment; design and implementation of skills programmes to support the broader manufacturing sector; and standard and quality measurements.

Ms Phele has contributed to the core of the industrialisation agenda in South Africa over the past 16 years at the dtic. She has extensive policy knowledge of the steel, heavy industries and engineering as well as strategy development, implementation, monitoring and evaluation, which is her permanent role as a Chief Director: Metal Fabrication, Capital and Rail Transport Equipment sector desk.

Industry Master Plans have emerged as an important industrial policy intervention and approach to strengthening and growing South African industrial capacity. The approach to and process of developing these plans has brought about a comprehensive understanding of specific industry dynamics, engagements between key stakeholders in an industry, and the actions required to strengthen and grow that industry. Developing the Master Plans involved research, engagement and collaboration between stakeholders to identify and support the actions required. The Master Plans aim to collectively reposition the economy rather than solve a specific crisis faced by an industry. This policy brief explores some of the tensions that have surfaced in the Master Plan process.

China’s Belt and Road Initiative (BRI) and its role in Africa is controversial. This paper argues that African countries should work through regional organisations, such as the African Union (AU) and the African Continental Free Trade Area (AfCFTA) to use their agency and negotiate with China to advance their own interests. The experiences of China in building regional corridors and supporting regional value chains and connectivity in Southeast Asia can provide valuable lessons for both Africa and China on how the BRI can contribute positively to developmental regionalism* in Africa.

* Developmental regionalism is defined as “cooperation among countries in a broader range of areas than just trade and trade facilitation, to include – for example – investment, research and development, as well as policies aimed at accelerating regional industrial development and regional infrastructure provision, such as the building of better networks of roads and railway” – UNCTAD.

Main Bulletin: The Real Economy Bulletin - Fourth Quarter 2020

In this edition

Gross domestic product: As forecast since the middle of 2020, the South African GDP in 2020 was 7% lower than in 2019. After the very sharp downturn during the lockdown in the second quarter, most of the real economy has largely recovered on the back of higher metals prices and more targeted measures to prevent COVID-19 from spreading. Still, economic growth was affected by the continued risk of contagion, which suppressed recovery particularly for in-door hospitality and entertainment. The factors that slowed growth before the COVID-19 pandemic also remain a challenge, although government has announced measures to address unnecessary red tape and infrastructure shortfalls more consistently through its Operation Vulindlela. Read more.

Employment: As usual with downturns, but on an unusually devastating scale, the recovery in jobs lagged the resurgence in the GDP. Total employment grew by 330 000 or 2.2% in the fourth quarter of 2020. But employment remained 1.4 million below 2019 levels because the economy shed some 2.2 million jobs in the second quarter. The decline over 2020 was greatest for lower-level workers in general and informal workers in particular, aggravating South Africa’s already sharp income inequalities. Read more.

International trade: The trade balance remained strong in the fourth quarter, largely because exports benefited from higher mining prices and auto exports. Manufactured imports also rebounded sharply. Read more.

Investment: Private investment flattened out in the fourth quarter of 2020 while public investment showed strong growth. The investment rate (investment as a percentage of the GDP) improved marginally from 15.1% of the GDP in the third quarter to 15.4% in the fourth quarter – still far below pre-pandemic levels. Returns on assets improved for mining and manufacturing in the third quarter, but fell for construction. Read more.

Foreign direct investment projects: The TIPS FDI Tracker tracks foreign direct investment projects on a quarterly basis, using published information.The total investment value from projects captured this quarter was R68.9 billion. Projects captured in the fourth quarter are a mix of those announced at the 2020 Investment Conference and others identified outside the conference. Read more

Briefing note: South Africa's emerging recovery strategy: From the day the lockdown started, government has contended that South Africa cannot simply go back to pre-pandemic days, when growth was already slow and inequality persistently high. Instead of a narrow recovery, then, it called for reconstruction, addressing the structural constraints on inclusive growth. There is, however, a huge gap in how different groups define and prioritise the structural constraints to growth. Read the briefing note online: South Africa's emerging recovery strategy.

As South Africa responds to COVID-19 and aims to stimulate the economy and job creation post lockdown, an opportunity should not be missed to consider investing in new product markets which could increase the size and dynamism of the manufacturing sector. Such a package could contribute to arresting the current trend of deindustrialisation and shift the trajectory of the industrial base into new, sustainable growth areas and value chains. This would result in new factories, new downstream demand for primary and intermediate inputs, new export products, increased foreign exchange earnings, and importantly new direct and indirect long-term jobs.

Using the idea of “business unusual” TIPS economists put together a Post COVID-19 recovery programme in South Africa that could provide the impetus to arrest the current trend of deindustrialisation and herald in the beginning of a new generation of industrial activity. The study comprises a main consolidated report and the seven initial projects that have been identified. 

Main consolidated report: Industrial development projects

Project one: Borehole drilling rigs

This project looks at the production of 100% local content borehole drilling rigs specifically engineered for small and medium enterprise drillers to service increased investment in groundwater access in South Africa and the African export market.

Project two: Industrial hemp

This project looks at commercial scale cultivation and production of de-hulled (possibly organic) hemp seeds for human consumption for the export market.

Project three: Polylactic acid (bioplastics)

This project looks at supporting the sugar industry through the domestic production of polylactic acid for export and downstream domestic value addition.

Project four: Containerised short sea shipping service

This project looks at creating a short sea shipping service to increase containerise intra-regional trade between South Africa, Mozambique, Tanzania, Kenya and their hinterlands.

Project five: Alternative fuel

This project looks at establishing a co-processing facility at a cement plant as a means to catalyse a broader waste beneficiation industry in South Africa.

Project six: Furfural and furfuryl alcohol plant (biochemicals) 

This project looks at the commercial scale production of furfural and furfural alcohol from sugarcane bagasse for the local foundry industry and broader export market.

Project seven: Motocycle components

This project looks the production of Class A motorcycle components (only) for export to the African assembly and after-sales markets.