Review of previous work

Draft Paper January 2013

1.1 Introduction

The volumes and the type of products a country exports are the outcome of many factors. These factors include endowments (natural resources, capital and human resources); technology; size of the domestic market; proximity to other markets; and the cost of doing business. Most of these factors are influenced directly by government policy.

This section discusses both the work that has been done in the policy environment in general (particularly as it affects exports and export promotion) as well as policies, strategies and programmes that have a bearing on exporter development and export promotion.

1.2 Policy environment

Since the end of the Apartheid regime in 1994, South Africa’s Government has made considerable efforts to tackle the high level of inequality and poverty. Policymakers have long sought to overcome constraints in the economy through a comprehensive framework such as the Growth, Employment and Redistribution (GEAR) strategy of 1996, the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) announced in 2006 and, more recently, the 2010/11–2012/13 Industrial Policy Action Plan (IPAP2) and the New Growth Path (NGP), launched in 2010, which builds on previous policy initiatives. The National Development Plan: vision 2030 consolidates the earlier policies and offers a long-term vision.

The NES must be consistent both with national macro policies and also with the mission and objectives of the dti. It is intended to support achievement of both the National Industrial Policy Framework and the South African Trade Policy and Strategy Framework.

1.3 National Development Plan–Vision 2030

The NDP is a visionary document, highlighting weaknesses and bottlenecks. The plan, which is aimed at eliminating poverty and reducing inequality by 2030, is the product of in-depth research over more than two years by 26 experts appointed by the President to the NPC.

The plan bemoans the fact that “Eighteen years into democracy, South Africa remains a highly unequal society where too many people live in poverty and too few work. The quality of school education for most black learners is poor. The apartheid spatial divide continues to dominate the landscape. A large proportion of young people feel that the odds are stacked against them. And the legacy of apartheid continues to determine the life opportunities for the vast majority. These immense challenges can only be addressed through a steep change in the country's performance.”

The Commission’s Diagnostic Report, released in June 2011, set out South Africa’s achievements and shortcomings since 1994. It identified a failure to implement policies and an absence of broad partnerships as the main reasons for slow progress, and set out nine primary challenges:

1. Too few people work

2. The quality of school education for black people is poor

3. Infrastructure is poorly located, inadequate and under-maintained

4. Spatial divides hobble inclusive development

5. The economy is unsustainably resource intensive

6. The public health system cannot meet demand or sustain quality

7. Public services are uneven and often of poor quality

8. Corruption levels are high

9. South Africa remains a divided society.

The plan proposes a multidimensional framework “to bring about a virtuous cycle of development, with progress in one area supporting advances in others.” The achievement of the objectives of the National Development Plan requires progress on a broad front, but three priorities stand out:

Raising employment through faster economic growth Improving the quality of education, skills development and innovation Building the capability of the state to play a developmental, transformative role.

The NDP points out that sustainable growth and development will require:

Higher savings Investment Export growth

The NDP points out that leadership is required to drive the implementation. As far as the NES/NEDP is concerned, leadership is also a critical ingredient.

The NDP proposes to create 11 million jobs by 2030 by:

Realising an environment for sustainable employment and inclusive economic growth Promoting employment in labour-absorbing industries Raising exports and competitiveness Strengthening government’s capacity to give leadership to economic development Mobilising all sectors of society around a national vision.

Its proposals include:

Diversifying South Africa’s trade towards emerging economies Revitalising logistics and transport links Promoting manufacturing in areas of competitive advantage Packaging regional tourism offerings

Lowering the costs of living and of doing businessWith unemployment at roughly 25% in 2010, the NDP aims to put policies in place so that by 2030 unemployment will decrease to 6% while the labour force participation rate will increase from 54% to 65%. This means that employment needs to increase from 13 million to 24 million people – an 11 million, or roughly 85%, increase in employment over the eighteen-year period.

The goal is therefore for GDP to grow by 5.4% per annum. This implies that by 2030 the economy will be 2.7 times its size in 2010 with a per capita GDP increase from R50 000 to R110 000. This should lift most, if not all, out of poverty.

The key ingredients for success are:

The active efforts of all South Africans Growth, investment and employment Rising standards of education and a healthy population An effective and capable government Collaboration between the private and public sectors Leadership from all sectors of society.

1.3.1 The role of exports in the NDP

There have been shifts in global trade and investment that are reshaping the global economy including the emergence of rapidly growing economies, particularly China, India and Brazil. As emerging economies increase their share of world trade and investment, the United States, Europe and Japan will experience a relative decline.

Urbanisation and industrialisation in China and India are likely to keep demand for natural resources relatively high for the foreseeable future. The emergence of more consumers in the BRIC and developing countries will broaden opportunities for all economies.

The NDP notes that South Africa should be “Increasing exports, focusing on those areas where South Africa already has endowments and comparative advantage, such as mining, construction, mid-skill manufacturing, agriculture and agro-processing, higher education, tourism and business services.” And also: “Over the past five years, South Africa’s exports to advanced economies have slowed in response to lower demand. This decline has been offset by increased demand from Asia and higher prices for commodities. While South Africa has maintained a reasonably sound trade balance, owing largely to high commodity prices, it is of concern that high value-added and labour-intensive exports are slowing.” It is clear that more attention needs to be given to these products while maintaining current markets.

South Africa needs to diversify and “redirect its attention to pursuing niche export opportunities in the economic powerhouses of the future, many of them emerging economies. “

The NDP highlights the linkages between export, trade and industrial policies. These opportunities can only be exploited if industrial policy supports sectors and industries that can best produce the goods and services required of the new markets South Africa wishes to serve.

Figure 1: The quandary of growth and job creation

Source: National Planning Commission’s National Development Plan: Vision 2030 (2011)

South Africa can benefit from rapid growth in developing countries that leads to increased demand for commodities and expanding consumer markets. At the same time, these trends pose challenges for middle-income countries as a result of greater competition in manufacturing and certain information technology-enabled services. The rise of emerging markets also increases international competition, placing downward pressure on the wages of low-skilled workers in tradable sectors.

The NDP envisions that the share of exports in South African output will rise and the profile will be more diverse, with a growing portion of non-mineral manufactures and services. A greater proportion of exports will be directed to emerging markets. Opportunities for increased trade and bilateral investment in Africa will develop.

Exports are projected to increase by 6% per annum, which in turn is projected to increase income and thus saving out of income.

The NDP recognises that it is not the export volumes that are important but the type of products that are exported. The focus should be on labour-intensive manufacturing, mid-skill service exports and process outsourcing.

It recognises that to expand production requires more active promotion of demand for South African products in domestic and foreign markets. Policy will focus on developing areas of competitive advantage, where there are revealed strengths. In the process of implementation, it will be important to learn from success and failure and to withdraw from sectors where mistakes have been made. South African companies will be encouraged to participate in regional infrastructure projects, and also in integrating regional supply chains to promote industrialisation.

INDICATIVE SCENARIOS - SECTOR DISTRIBUTION OF EMPLOYMENT

1.4 New Growth Path

The New Growth Path (NGP) preceded the NDP and is described as a framework that will advance the country’s target of achieving 5 million new jobs by 2020. It recognises the need for a coordinated set of actions across a broad front and identifies a “development package” consisting of macroeconomic strategies, microeconomic measures and stakeholder commitments to drive employment and economic growth.

1.4.1 Areas of priority

The New Growth Path has six priority areas to job creation:

Infrastructure development; Agriculture; Mining; Manufacturing; The "green" economy; and Tourism.

1.4.2 Policy packages

The NGP identifies the uncompetitive South African currency as an obstacle to job creation and sets out clear steps for government to address the impact of the rand on the economy and jobs. It proposes a looser monetary policy with lower interest rates, greater building of foreign reserves and a sovereign wealth fund to manage foreign reserves more actively. The document notes that the monetary policy stance will do more to support a competitive exchange rate while continuing to target low and stable inflation.

The challenge of keeping inflation under control involves a stronger role for competition policy and strategic investigations into conduct leading to high and volatile prices for intermediate inputs for producers and basic consumer goods, including important commodities such as maize, steel and fertilisers.

The NGP calls for a broad pact between business, labour and government aimed at fostering employment creation whilst enhancing competitiveness and social equity and development goals. The pact proposed commitments on wages, prices, savings and jobs. The proposal on commitments to lower prices by businesses particularly concerns input costs and basic consumer goods.

On labour market policy, the document pursues three objectives:

To promote partnerships for productivity improvements, To address concerns about the vulnerability of workers in the labour market, and To ensure more efficient decision-making.

It calls for productivity pacts between business and labour at workplace and sector level. It commits to action by the government to reduce worker vulnerability by addressing problems in contract work, sub-contracting, outsourcing and labour broking. Reforms to the CCMA should also reduce abuse by managerial and other high-level staff.

1.4.3 Laying the basis for implementation

The responsibility for coordinating the country’s New Growth Path lies with the Department of Economic Development. The department also oversees the work of key state entities and programmes engaged in economic development, e.g. the Industrial Development Corporation, providing finance for industrial development in South Africa and the rest of Africa (www.idc.co.za), the Competition Commission (www.compcom.co.za); and the Infrastructure Development Programme.

It identifies measures to strengthen the capacity of the state and enhance the performance of the private sector to achieve the employment and growth goals. The New Growth Path proposes major improvements in government, with a call for slashing unnecessary red-tape, improving competition in the economy and stepping up skills development.

The NGP sets targets for scarce and key skills and identifies the role of government departments and agencies in working to meet these goals. This emphasis on skills applies across the economy and will be a centrepiece of partnership with business and labour. Key targets include the aim to produce:

30 000 more engineers by 2014, with an improved focus on high school maths and science and changes to university funding formulae to achieve this, and

50 000 more artisans by 2015, with annual targets for Eskom and Transnet and for individual SETAs to achieve this.

The NGP calls for stepping up the focus on workplace training, targeting on-the-job training and refresher programmes for 10% of the workforce every year. It also calls for measures to make it easier to import scarce skills by streamlining the work permit and visa system. This will be accompanied by a skills transfer programme to ensure that local skills development is enhanced.

It recognises that South Africa cannot develop as an enclave in Africa. It identifies major opportunities on the African continent and calls for greater focus by South African business on opportunities in Africa’s fast-growing economies. This is accompanied by commitments to improve cross-border infrastructure and measures to address unnecessary regulatory obstacles to the movement of people and goods, as part of building a common market on the continent.

It sees active stakeholder engagement and collective action as central to building a better South Africa and it requires the government to:

Facilitate national and workplace productivity accords, Support community organisation, including through the community works programmes and

other delivery mechanisms that build community and collective action, and Strengthen existing institutions for social dialogue, including Nedlac, sectoral and local

forums.

The implementation process for the New Growth Path must manage key risks as well as ensuring clear prioritisation. These risks include the still fragile global recovery; competition and collaboration with the new fast-growing economies; and competing interests domestically.

1.4.4 The NGP and exports

Re-industrialisation off the back of the opportunities identified in the growth path is critical. The NGP holds that this is more than simply identifying sectors and product niches; but also markets. South African businesses need to do more to find opportunities in the fast-growing economies of China, India and Brazil. Measures to enhance domestic and regional demand as well as extending export promotion strategically to the rapidly growing economies of the global South. These measures need a competitive rand to succeed.

The document points out that while trade with China has grown significantly, South Africa still largely exports raw materials and imports value-added manufactured products. The Comprehensive Strategic Partnership signed in August 2010 between the two countries commits to “improve, through a concerted effort, the current structure of trade between the two countries, in particular by working towards a more balanced trade profile and encouraging trade in manufactured value-added products…China, in this spirit, will encourage its enterprises to increase investment in South Africa’s manufacturing industry to promote the creation of value adding activities in close proximity to the source of raw materials.” Therefore the NES must include practical proposals to take advantage of this joint commitment.

The NGP sees regional development as an imperative for both solidarity and sustainable growth and estimates that increased exports to SADC alone can generate almost 60 000 additional direct jobs by 2015 and around 150 000 by 2020.

Export taxes on selected mineral products linked to clear industrial strategies have also been proposed. Although this would limit exports of those inputs, it would reduce the domestic price of inputs.

The NGP recommends guidelines for granting exemptions in terms of the Competition Act for cooperation between producers where this will demonstrably benefit job creation and expansion into export markets. (See section on the Competition Act.)

The NGP also recommended “developmental trade policies”. These are discussed below.

1.5 Trade and industrial policy

Trade and industrial policy is the responsibility of the dti. The main policy directives of the department are contained in the National Industrial Policy Framework (NIPF), Industrial Policy Action Plan (IPAP): 2012-13 to 2014-15, and the South African Trade Policy and Strategy Framework (TPSF).

1.1 National Industrial Policy Framework

The National Industrial Policy Framework (NIPF) provides strategic guidelines to assist in the development of secondary industries within the country, including the clarification of roles, responsibilities and interactions between public and private sectors. The objective of the NIPF, as stated in the State of the Nation Address 2007, is to:

Intensify implementation of customised sector measures to facilitate investment in BPO, tourism, bio-fuels, chemicals and to finalise practical programmes for forestry and paper, clothing and textiles, metals and engineering.

Develop an overarching strategy to prioritise key interventions in mining and mineral beneficiation, agriculture and agro-processing, the white goods sector, creative industries, community and social services and pharmaceuticals. This must include a drive to increase the national capacity to produce capital goods.

Develop programmes to facilitate investment in sectors along the supply chain for the infrastructure programmes, including capital goods in ICT, transport and energy.

Government will also take a variety of steps to improve competition in the economy, among others to lower the cost of doing business and promote investment, including practical introduction of the Regulatory Impact Assessment System, developing high-speed and international broadband capacity, finalising the plan to improve the capacity of the rail and port operators, and strengthening the effectiveness of our completion authorities.

The NIPF was designed to set out the government’s approach to industrialisation and policy development and implementation. The NIPF moves to increase the production of value added products and services, intensification of the South African industrialisation process moving towards a knowledge economy, the promotion of a labour-absorbing industrialisation path focusing on incorporating previously disadvantaged and marginalised communities whilst building on the countries productive capabilities.

In January 2007 Cabinet adopted the NIPF which sets out Government’s broad approach to industrialisation with the following core objectives:

To facilitate diversification beyond South Africa’s current reliance on traditional commodities and non-tradable services. This requires the promotion of increased value-addition characterised particularly by movement into non-traditional tradable goods and services that compete in export markets as well as against imports.

The long-term intensification of South Africa’s industrialisation process and movement towards a knowledge economy.

The promotion of a more labour-absorbing industrialisation path with a particular emphasis on tradable labour-absorbing goods and services and economic linkages that catalyse employment creation.

The promotion of a broader-based industrialisation path characterised by the increased participation of historically disadvantaged people and marginalised regions in the mainstream of the industrial economy.

Contributing to industrial development on the African continent, with a strong emphasis on building its productive capacity.

Rather than a ‘one-size-fits-all’ approach to industrialisation, the NIPF focuses on identifying and addressing the cross-cutting and sector-specific constraints and opportunities prevailing in the industrial economy through thirteen strategic programmes. These are:

SP1: Sector Strategies

SP2: Industrial Financing

SP3: Trade Policy

SP4: Skills and Education for Industrialisation

SP5: Competition Policy and Regulation

SP6: Leveraging Public Expenditure

SP7: Industrial Upgrading

SP8: Innovation and Technology

SP9: Spatial and Industrial Infrastructure

SP10: Finance and Services to Small Enterprises

SP11: Leveraging Empowerment for Growth and Employment

SP12: Regional and African Industrial and Trade Framework

SP13: Coordination, Capacity and Organisation

The NIPF does not include an NES or an FDI strategy and should be amended to include this. Sectors

The dti's Industrial Policy Action Plan 2012/13 - 2014/15 identifies three sector clusters that are critical to the industrial development of the South African economy, namely1:

Cluster 1 - Qualitatively new areas of focus

Realising the potential of the metals fabrication, capital and transport equipment sectors, particularly arising from large public investments;

Upstream Oil and Gas; 'Green' and energy-saving industries; Agro-processing, linked to food security and food pricing imperatives; and Boatbuilding.

Cluster 2 - Scaled-up and broadened interventions in existing IPAP sectors

Automotive products and components, and medium and heavy commercial vehicles; Plastics, pharmaceuticals and chemicals; Clothing, textiles, footwear and leather; Biofuels; Forestry, paper, pulp and furniture; Creative and cultural industries; and Business process services.

Cluster 3 - Sectors with potential for the development of long-term advanced capabilities

Nuclear; Advanced materials; Aerospace, Defence; and Electrotechnical and ICT.

1.2 A South African Trade Policy and Strategy Framework

South African Trade Policy and Strategy Framework builds on the NIPF and sets out the contribution trade policy should make to advancing industrial development, upgrading and diversification along a growth path that addresses structural constraints in the economy, including unemployment and poverty. The Framework sets out the key principles and approaches to South Africa’s strategy for global integration with respect to its engagements and negotiations at multilateral, regional and bilateral levels. It aims to provide greater clarity on the linkages between trade and tariff policy and industrial policy. One of the defining features of trade policy in South Africa today is its demotion from being a key driver of growth to the use of trade policy as a mere tool of industrial policy.

Internationally, open economies with an export base perform much better in terms of economic growth than do closed economies. Increasingly, production is becoming globally integrated, and South Africa forms a vital part of international supply chains. Therefore, dismantling barriers to trade, especially those faced by South African exporters, is a critical component of any economic strategy that promotes sustainable growth.

Trade policy remains an instrument of industrial policy in a context of narrowing options under multilateral and bilateral trade arrangements. Trade policy will be informed much more closely by

1 A more detailed disaggregation of the sectors are included in Appendix??

sector strategies, at both the negotiating and administrative levels. A particular focus will be on reducing input costs for labour-intensive and value-adding manufacturing sectors. Export and foreign direct investment promotion will be more targeted.

Tariffs are used as an instrument of industrial policy, and therefore decided on a sector-by-sector basis. They depend on the needs and constraints of sector strategies. In reality, the South African Trade Policy and Strategy Framework invites certain industries to apply for selective tariff increases on products on a case-by-case basis. According to newspaper reports, the dti encourages companies in strategic industries to apply for tariff increases to protect them from cheap imported products. Strategic industries are those in the priority sectors defined in the department’s Industrial Policy Action Plan (IPAP).

The IPAP identifies sets of policies such as procurement, industrial financing, competition and regulation, skills development and innovation, and trade measures including tariffs, enforcement and standards, quality assurance and metrology measures to strengthen the productive side of the economy.

In its semi-annual report on anti-dumping actions to the WTO in August 2012, South Africa had 31 definitive anti-dumping measures in force; 7 under review and 5 under investigation. In addition according to TRALAC2, the South African International Trade Commission (ITAC) receives many applications for tariff increases on products used or produced in several strategic industries such as textile fabrics; glass, paper and plastic products; frozen half shelled mussels. There was also an application for an increase in the domestic dollar-based reference price for wheat over the past year.

ITAC also finalised investigations into, and recommended tariff increases on, products such as processed tomatoes, stainless steel sinks and uncooked pasta. The dti is prepared to use the trade policies at hand to increase tariffs on imported products which threaten local manufactures or where the applied tariff is below the bound rate allowed by the WTO.

Business Unity South Africa (BUSA) points out that “there are useful points of synergy between the Trade Policy and the Industrial Policy Action Plan 2, including on nontariff barriers and standards. Tariffs can be used to indirectly support industrial development and ensure food security but they are only part of the tool box for creating an overall business environment which is conducive for growth. The “mechanics” of trade are just as important as the policy, including research and development, market analysis, border controls and customs procedures, transport infrastructure and costs, as well as access to information. We hope to see a greater focus on trade facilitation in the work programme designed to implement and refine the Trade Policy in the future.”

Every nation has some form of “trade policy” in place, with public officials formulating the policy which they think would be most appropriate for their country. Trade policy generally is a set of rules and regulations that are intended to change international trade flows, particularly to restrict imports. Trade policy can involve various complex types of actions, such as the elimination of quantitative restrictions or the reduction of tariffs. It also refers to trade relations between countries especially where economic integration is involved.

2 Email received from TRALAC on 15 January 2013.

Edwards and Lawrence (2006) point out that “South African trade policy has exerted a major influence on the composition and aggregate growth of trade. In the Apartheid period, trade protection seriously impeded both exports and imports, and the economy depended on favourable global commodity price trends to avoid running into an external constraint. South Africa developed a comparative advantage in capital-intensive primary and manufactured commodities partly because of its natural resource endowments but also because the pattern of protection was particularly detrimental to exports of non-commodity manufactured goods.”

1.2.1 Tariff Policy

The TPSF states: “Tariff setting in South Africa is decided primarily on a sector by sector basis, dictated by the needs and imperatives of sector strategies. Sectoral work is grounded on a ‘self-discovery’ process of engagement between government and stakeholder to meet industrial policy objectives. As a general guideline, tariffs on mature upstream input industries could be reduced or removed to lower the input costs for the downstream, more labour-creating manufacturing activities. Tariffs on downstream industries, particularly those that are strategic from an employment or value-addition perspective, may be retained or raised to ensure long-term sustainability and job creation in the context of domestic production capabilities/potentialities and the degree of trade and production distortions on these products at the global level.”

In contrast to approaches that advocate a uniform and rapid elimination of tariffs, the strategic approach to tariff policy places ITAC at the centre of determining the tariff regime. The TPSF continues: “There is no a priori presumption of the benefits or costs of maintaining either low or high tariffs, but the upper limits for tariff setting have been set by the obligations South Africa has taken in the WTO and in other bilateral trade agreements.” The TPSF adopts a “strategic approach to tariff reform that supports industrial and employment objectives”.

In carrying out this complex task, the methodology that ITAC uses becomes critical. It is a coherent and transparent methodology that is applied consistently across all sectors and uses the following adjudication criteria:

Whether a product is produced domestically or not; Whether there is tangible potential to produce domestically; Import and export data; Demand and supply; Comparison of domestic prices with import prices; Productivity; Productive capacity; Market share; Profitability; Effective rate of protection; Employment; and Investment.

Although the South African tariff rates have declined remarkably since 1994 , informed by the above approach, South Africa has since the onset of the Global Recession in 2008 introduced higher duties on 137 lines (mainly textiles and clothing); introduced 10 rebates; tariffs on 9 lines have been reduced. The average tariffs are considerably higher than those of the European Union.

BUSA feels that the “approach is appropriate and has to date worked relatively well”. The organisation was, however, concerned that “the functioning of ITAC is efficient and not hampered and that recommendations made are considered timeously by decision-makers”. BUSA contends that tariffs alone cannot be used to ensure long-term sustainability and job creation. Tariffs are but one tool and may in some cases not be the most effective one to achieve the goals of industrial policy.

Freytag (2011) points out that high tariffs reduce the demand for foreign exchange, increasing the price of rands in foreign currency terms. This disadvantages exporters. Higher tariffs provide an incentive for manufacturers to serve domestic markets only. This limits South African exports further. The input demand channel increases the costs for industries that depend on imported inputs. Apart from transport equipment, the typical inputs for downstream industries, such as minerals, chemicals, base metals, machinery, specialised equipment, have below-average protection.

Multi-lateral trade relations

The World Trade Organisation (WTO) is an organisation that intends to supervise and liberalise international trade. It was established in 1994 as part of the Uruguay Round trade negotiations and became operative in 1995. It administers the General Agreement on Tariffs and Trade (GATT), the first multilateral agreement signed in 1947 to regulate international trade, as well as agreements that have been signed subsequently. South Africa was one of the founder signatories of the GATT in 1947 and founder members of the WTO .

The WTO deals with the regulation of trade between member countries and provides a framework for negotiating and formalising trade agreements, and a dispute resolution process aimed at enforcing members’ adherence to WTO agreements they have signed. It is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. The future of the Doha Round remains uncertain: the work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete.

Ismael (2012) points out that “South Africa’s participation in the WTO was informed by its domestic development challenges, and that its values were derived from its long struggle against apartheid and its transition to a new democracy. In addition, its political leadership in the Doha negotiations was strengthened by its deep democratic institutions and consultative processes. South Africa’s values, articulated by Nelson Mandela, reflected a deep commitment to multilateralism and consensus building, fairness and justice, inclusiveness, and a concern to support and promote development, within South Africa, and also in developing countries of the South, especially the African continent.”

Ismael (2012) identifies five negotiating approaches including:

The need to take into account the interests of ‘both’ South Africa and others, especially that of the African Continent;

The capacity to listen to different sides of an argument; Consultations with constituencies at home; Balancing principles with capacity to implement; and

Adhering to ‘principles’ whilst being pragmatic on ‘strategy’.

1.2.2 Regional and Bilateral Relations

The Southern African Customs Union (SACU)

SACU is an important basis for the government’s global strategy. The revised SACU Agreement, concluded in October 2002 and effective from July 2004, is the result of a lengthy negotiation process that commenced in 1994 with the objective of increasing regional integration and cooperation. The Agreement is of historic significance in that it commits South Africa to effectively ceding sovereignty over trade policy formulation and implementation to a new institutional base where decisions will be taken democratically. In terms of the Agreement, all decisions over tariffs and trade remedies will be taken at the SACU level by a Council of Ministers, which in turn will be advised by a new SACU tariff body and a commission of senior officials. National institutions, such as South Africa’s ITAC, will merely provide recommendations to these structures on the basis of investigations which the former conduct. So SACU will potentially be fully involved in all current and future negotiations.

The Agreement makes provision for the development of common policies in industry, and cooperation in agricultural policy, competition policy and anticompetitive practices. It also calls for the development of harmonised procedures and regulations to govern all aspects of the common trade regime.

The Southern African Development Community (SADC)

Southern Africa is important to South Africa’s economy - the growing trade surplus with SADC countries partially contributes to offsetting trade deficits with other regions. The structural trade imbalance between South Africa and its SADC partners, however, is economically unsustainable over the longer term. The government therefore sought to restructure regional arrangements by pursuing policies to promote industrialisation in the SADC. This entails using Southern Africa as an integral part of supply chains for globally competitive manufacturing processes. Through a combination of sectoral co-operation, policy co-ordination and trade integration, South Africa’s regional policy aims to achieve a dynamic regional economy capable of competing effectively in the global economy.

Tripartite Free Trade Area (TFTA)

There is a proliferation of regional trading arrangements. A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.

South Africa’s trade strategy aims to expand trade and investment links in Africa in the context of ‘developmental integration’ in Southern and Eastern Africa. While the TPSF seeks to consolidate links with traditional partners, it emphasises building economic complementarities with rising economies in the South.

The concept of establishing a Tripartite Free Trade Area (TFTA) that joins together the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC) has gained currency and momentum in recent years. The TPSF recognises that in the context of intensifying competition for access to Africa’s resources and growing markets, advancing the integration agenda in SACU, SADC and the TFTA is more urgent. To this end the Tripartite Initiative to integrate SADC, the EAC and COMESA is

important. The Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community (COMESA-EAC-SADC) Tripartite brings together 26 southern and eastern African countries, which are members of these three Regional Economic Communities (RECs). The intention is to free all regional trade within a three-year period.

The ‘Guidelines for Negotiating the Tripartite Free Trade Area among the Member/Partner States of COMESA, EAC and SADC’, published in June 2011, briefly describe the scope and principles of the FTA negotiations. The negotiations will take place in two phases: with the usual goods’ issues occupying most of the first phase; and discussions on competition policy, intellectual property rights and trade in services carried over to the second phase. At first glance, this seems all too familiar – the possibility of getting down to business in services, anytime soon, would seem remote.

Beyond the potential gains for South Africa through expanded market access, the TFTA is not without challenges. Trade in services still remains a critical area for growth that is as yet inadequately explored and it has only been scheduled for the second phase of negotiations. Domestically, a re-evaluation of South Africa's approach to trade in services negotiations could reap major benefits for the country in the rest of the continent.

The TFTA will also potentially enhance South Africa's investment footprint in Africa, in line with our regional development strategy. South African companies confront investment and competition policy issues which should prompt some introspection on the issues regionally. It is time to begin defining a strategy on the so-called new generation issues as ignoring them will not help South Africa, while a good strategy will maximise the gains and minimise the losses.

The TFTA also presents an opportunity for a revision of the SADC rules of origin whose complexity has turned them into an effective trade barrier. This will facilitate a move away from the use of rules of origin as a protectionist measure. Consideration of more general rules by South Africa will pave the way for deeper and more meaningful integration than has been achieved within SADC for instance.

The Trade Policy Strategic Framework (TPSF) proposes stronger trade integration with other developing countries through various instruments of South-South cooperation whose exact content is not precisely defined. What is apparent, however, is the government's insistence on entering into preferential trade agreements (PTAs) with these 'south' countries. The effectiveness of these agreements is very much in question and, in the case of the SACU-Mercosur PTA, the government's own analysis in the TPSF casts doubt on their efficacy.

SACU, and by extension South Africa, is also in the process of negotiating a PTA with India. Early signs indicate that this will be an extremely difficult negotiation process and the potential benefits are also questionable. It then becomes clear that these agreements are driven by political rather than economic imperatives especially considering South Africa's growing orientation towards emerging economies, particularly the BRIC. South-South cooperation aside, South Africa does not seem to have any strategy in place vis-à-vis trade agreements with its major trading partners and this results in ineffectual PTAs such as the one with Mercosur. Key to such a strategy would be South Africa relooking at its approach to trade in services, implementing reforms in areas such as competition and investment, and playing an active role in pursuing coherence on these policies in SACU and SADC.

Africa Growth and Opportunities Act

Although the Africa Growth and Opportunities Act (AGOA) is a unilateral US dispensation towards most sub-Saharan African countries, it continues to play an important role in South Africa's development and export performance. In many ways, the complementarity between trade and industrial policy is demonstrated by South Africa's support for AGOA and the enactment of the Automotive Production and Development Programme (APDP) which replaced the Motor Industry Development Plan (MIDP.) This has gone a long way towards establishing South Africa as a motor industry manufacturing hub in Africa. The long-term extension of AGOA will be to South Africa's immense benefit and will ensure that the trading relationship with the USA remains healthy.

Finally, given the above, there is room for more open discussion on South Africa's stance on trade policy. As we attempt to emulate or replicate the 'growth model' of the largest emerging economies, will also depend significantly on trade policy and accompanying macro-economic policies. Full complementarity between South Africa's trade and related policies will enable us to ensure internal coherence and, hopefully, play an important role leading SACU and the wider SADC region.

Of concern is the lack of change in terms of South Africa’s export basket. Exports tend to be dominated by the same products. Commodities remain the main export earner. South Africa will need to increase its exports particularly in higher value-added manufactured products. While this is primarily a challenge for industrial policy, the TPSF can complement the national effort by enhancing access to global markets for South African products, and by shaping trade and investment relations, and their related rules, to support these objectives.

1.3 National Export Strategy

In the mid-2000s, the dti drafted an “Export Strategy.” As far as can be ascertained, the strategy was never formally adopted; but did serve as road map for TISA. Seven strategic themes were identified:

1. Global Competitiveness

2. Market Access

3. Prioritising Markets

4. National Trade Information System

5. Exporter Development

6. Export Mechanisms

7. Export Incentives and Financing

This proposal will review this Export Strategy and evaluate it. It will also review international best practice and identify gaps.

An export strategy is a comprehensive approach to increasing a country’s exports. Njoroge (2010) points out that a national export strategy (NES) can facilitate constructive interaction between the government, the private sector, civil society and academia in mapping a country’s economic and export development.

The NES is concerned with competitiveness. The issues that affect the general competitiveness of countries can be classified in three categories: those beyond the countries border (demand side issues); those experienced at the border (facilitation issues); and those experienced behind the borders (supply side issues). The International Trade Centre (2004) has included development issues.

Figure 2: The ITC’s gears approach to developing a national export strategy

Source: The ITC 2004

Research has shown that there is a tendency for export strategies to focus on access and market development (i.e. border-out) issues, rather than the upstream issues of capacity and competency development (border-in) and facilitation and transaction-related issues (border). There is also an absence of an effective public-private partnership to sustain and enrich the process.

These terms are popular in the international trade promotion/development environment. The Border-out issues have to do with the overseas market(s) and include issues such as market entry strategies, agent/distributor appointment, in-market promotion, foreign market research, etc.–these are all demand-side issues. Border-in issues have to do with factors pertaining to the operation of the exporter (product development, processing, packaging, labelling, etc.) and the firm’s immediate home-market environment (such as inland transportation)–these are supply-side issues.

It is important that the NES be as comprehensive as possible. Although it is not necessary to duplicate interventions where these have been drafted, the NES must ensure that they have been covered. A “gap analysis” from both a policy and implementation point of view must be undertaken.

1.4 Current policy issues hampering or promoting trade

1.4.1 The establishment of the Export Credit Insurance Corporation of South Africa Ltd (ECIC)

The ECIC facilitates and encourages South African export trade by underwriting bank loans and investments outside the country, thus enabling foreign buyers to purchase capital goods and services from South Africa.

1.4.2 Fiscal Policy

Fiscal policy is the responsibility of the National Treasury of South Africa. National Treasury’s policy directives are mainly contained in the statements on the national budget.

The authorities have been committed to careful fiscal management and maintaining macroeconomic stability. They are also trying to strike a balance between providing stimuli and maintaining fiscal sustainability. The fiscal space for managing any future stress diminishes as government debts increase. They recognise the merits of wage moderation in the public sector, as well of making space for needed public infrastructure.

Although South Africa has embarked on a more interventionist approach to development, exporters need stability, certainty and transparency. Exporters do not enjoy many incentives (many of which are prohibited by the WTO). Various incentives will be proposed by the NES and National Treasury should provide these without jeopardising macroeconomic stability.

1.4.3 Monetary Policy

The South African Reserve Bank (SARB) is the central bank of the Republic of South Africa. The primary purpose of the Bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability.

Since the introduction of the flexible inflation-targeting framework in February 2000, the specification of the target has been reviewed on a number of occasions. The initial target measure was the CPIX. Following revisions to the methodology employed to compile the CPI, namely a change

in the treatment of housing, mortgage interest costs no longer needed to be removed from the CPI when evaluating the effects of monetary policy. Since 25 February 2009, the inflation target is a range of 3 to 6 per cent for the year-on-year increase in the headline CPI (CPI for all urban areas) on a continuous basis. The inflation target is set by government after consultation with the Bank.

The Bank has opted for a classical cash reserve system as a framework for its monetary policy implementation. In this framework an appropriate liquidity requirement or structural money market shortage is created by levying a cash reserve requirement on banks. The main refinancing operation is the weekly seven-day repurchase auction, which is conducted with the commercial banks, at the repo (policy) rate as determined by the Monetary Policy Committee. The Bank lends funds to the banks against eligible collateral, which comprises assets that also qualify as liquid assets in terms of the prudential liquid asset requirement. In addition to the main repo facility, the Bank offers a range of end-of-day facilities for the commercial banks to square-off the daily positions on their settlement accounts, e.g. access to their cash reserve balances held with the Bank, supplementary repos/ reverse repos conducted at the repo rate and an automated standing facility whereby the end-of-day balances on the banks' settlement accounts are automatically settled at a rate of 100 basis points below or above the policy rate.

A range of open market operations is also conducted to manage the liquidity in the market in order to give effect to the Bank's monetary policy stance. The open market operations include the issuance of SARB debentures, reverse repos, the movement of public sector funds between the market and the Bank and the conducting of money market swaps in the foreign exchange market.

In its Country Report, the IMF stated that “the inflation targeting framework has been crucial in South Africa’s resilience to the large shifts in the global external environment. It has allowed the monetary authorities to provide stimulus while keeping inflation expectations well anchored.”

In common with other emerging markets, strong capital inflows into South Africa largely because of loose monetary policy in developed countries have been the main driver of the rand’s gains in the recent past. Foreign inflows into South Africa’s bond market tripled in 2010 and although they slowed in 2011, the rand continued to be strong. The rand has been a positive factor for inflation, which has been inside the central bank’s target of between 3% and 6% since February 2010.

SARB maintains that it is not planning to target a specific exchange rate level for the rand. As a result, the currency is volatile and often over- or under-valued. A stronger rand leads to a reduction in the supply of foreign currency, since it reduces foreign demand for South African exports, as they are more expensive (in weaker foreign currency terms). Therefore when the rand appreciates, foreign goods become relatively cheaper and South Africans import more. Further, it has a negative impact on domestic labour-intensive production, employment and exports.

1.4.4 Monetary policy and exchange rates

Real exchange rates are influenced by government policies and many other factors (spending patterns, taxes and tariffs, exchange controls, and the competitiveness of SA industries).

A 10% weaker real rand is like a 10% tariff on all imports and a 10% subsidy for all exports. Export subsidies raise the domestic relative price of exportables, import tariffs raise the domestic relative

prices of import substitutes. Thus weaker real exchange rates encourage production and discourage imported consumption. A weaker real exchange rate will:

Stimulate exports Attract more tourists Reduce imports Improve trade balance Help to diversify exports Re-orientate the economy towards tradable sectors Enhance growth and employment of unskilled labour.

These gains will be short lived if the prices of domestically produced substitutes rise to such an extent that importing these goods would again become favourable to consumers. However, a more competitive and stable exchange rate will encourage entrepreneurs to invest in an export-orientated manufacturing sector. Mining and minerals

The government’s industrialisation policy calls for a paradigm shift in mineral development, strategic investment in assets to maximise long-term growth, enhanced value of exports and opportunities for sustainable jobs. This beneficiation strategy offers huge opportunities for both local and foreign direct investment.

The mining industry is an important sector of the South African economy contributing approximately 10% to the GDP in the last decade. It is also the largest contributor to the country’s exports. In 2010, South Africa as a resource economy was estimated to possess approximately USD 2.5 trillion in non-energy in situ mineral wealth. This makes it one of the wealthiest mining jurisdictions in the world.

In 2011 the mineral beneficiation strategy for South Africa was approved by cabinet. The policy advances government’s developmental agenda and seeks to maximiSe national benefits from the country's mineral resources. It aims to translate South Africa’s comparative advantage inherited from its significant mineral resources to a national competitive advantage. Ultimately, its goal is towards enhancing the value of exports, localising imports and creating sustainable jobs.

The strategy is aligned to a national industrialisation programme, which seeks to enhance the quantity and quality of exports, promote creation of decent employment and diversification of the economy, including promotion of the green economy. Further, the strategy is contributory towards a strengthening of the knowledge economy in support of the overall competitiveness of the economy.

This strategy is anchored on a range of legislations and policies such as the Minerals and Mining Policy for South Africa (1998). It advances the objectives of:

The Minerals and Petroleum Resources Development Act (MPRDA); The Broad-Based Socio Economic Empowerment Charter (BBSEE); The Precious Metals Act; The Diamonds Amendment Act; Energy growth plan; as well as Compliance with environmental protocols.

The strategy identifies several instruments that constitute an enabling environment for beneficiation (policies, legislation, incentives etc.). To attain this competitive advantage, the challenges and benefits need to be considered:

Access to raw material for local beneficiation Lack of infrastructure Research and development Skills sought for expediting local beneficiation Access to international markets for beneficiated products

The strategy recommends a set of integrated solutions to mitigate identified binding constraints and leverage on existing national processes, such as the New Growth Path and the national infrastructure programme.

The strategy outlines ten strategic mineral commodities, from which five value chains are selected. The value chains specified are intended to indicate the inherent value for South Africa in embracing beneficiation for all strategic mineral commodities. The strategy is, therefore, not a blueprint for individual commodity value chains, but provides a framework within which value chain specific interventions will be anchored.

These minerals are:

Chromium Manganese Coal and Uranium Nickel Diamonds Platinum Gold Titanium Iron-Ore Vanadium

These have been clustered according to their value chains and five value chains that will be the preliminary focus of the new beneficiation strategy have been identified. The five value chains are:

Energy commodities (coal, uranium and thorium) Iron and steel (iron-ore, chromium and manganese) Pigment and titanium production (titanium and vanadium) Autocatalytic converters and diesel particulate filters (platinum) Jewellery fabrication (diamonds, gold and platinum)

1.5 DTI’s incentives

The dti provides financial support to qualifying companies in various sectors of the economy. Financial support is offered for various economic activities, including manufacturing, business competitiveness, export development and market access, as well as foreign direct investment.

A summary of these is given below:

Aquaculture Development and Enhancement Programme ( ADEP)

The Aquaculture Development and Enhancement Programme (ADEP) is an incentive programme available to South African registered entities engaged in primary, secondary and ancillary aquaculture activities in both marine and freshwater classified under SIC 132 (fish hatcheries and fish farms) and SIC 301 and 3012 (production, processing and preserving of aquaculture fish). The grant is provided directly to approved applications for new, upgrading or expansion projects.

Business Process Services (BPS)

The South African government implemented a Business Process Outsourcing & Off-shoring (BPO&0) incentive programme as from July 2007. Between July 2007 and March 2010, the incentive resulted in the creation of at least 6,000 new jobs and attracted R303 million in direct investment.

As part of a process of improving South Africa’s position as an investment destination, a systematic review of the BPO & O incentive programme was undertaken with the private sector resulting in a revised BPS incentive.

Capital Projects Feasibility Programme (CPFP)

The Capital Projects Feasibility Programme (CPFP) is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services.

Clothing and Textile Competitiveness Improvement Programme (CTCIP)

The Clothing and Textile Competitiveness Improvement Programme (CTCIP) aims to build capacity among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers and compete on a global scale. Such competitiveness encompasses issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate.

Critical Infrastructure Programme (CIP)

The Critical Infrastructure Programme (CIP) is a cost sharing grant for projects designed to improve critical infrastructure in South Africa. The grant covers qualifying development costs from a minimum of 10% to a maximum of 30% towards the total development costs of qualifying infrastructure. It is made available to approved eligible enterprise upon the completion of the infrastructure project concerned.

People-carrier Automotive Investment Scheme (P-AIS)

The People-carrierAutomotive Incentive Scheme (P-AIS)is a sub-component of the Automotive Incentive Scheme (AIS) and provides a cash grant of between 20% and 35% of the value of qualifying investment in productive assets approved by the dti.

Production Incentive (PI)

The Production Incentive (PI) forms part of the overall Clothing and Textile Competitiveness Programme (CTCP) and flows from the implementation, by the Department of Trade and Industry (the dti), of customised sector programmes (CSPs) for the clothing, textiles, footwear, leather and leather goods industries. The PI Guidelines seek to enable companies to present their business cases to the CTCP Desk of the Industrial Development Corporation (IDC). They also provide a framework for the CTCP Desk to evaluate such cases.

Sector Specific Assistance Scheme (SSAS)

The Sector Specific Assistance Scheme (SSAS) is a reimbursable 80:20 cost-sharing grant offering financial support to export councils, joint action groups and industry associations.

Seda Technology Programme (STP)

seda Technology Programme (Stp) is a division of seda (Small Enterprise Development Agency) focusing on technology business incubation, quality and standards and technology transfer services & support to small enterprises.

Support Programme for Industrial Innovation (SPII)

The Support Programme for Industrial Innovation (SPII) is designed to promote technology development in South Africa’s industry, through the provision of financial assistance for the development of innovative products and/or processes.

Technology and Human Resources for Industry Programme (THRIP)

The Technology and Human Resources for Industry Programme (THRIP) is a partnership programme funded by the Department of Trade and Industry (the dti) and managed by the National Research Foundation (NRF). On a cost-sharing basis with industry, THRIP supports science, engineering and technology research collaborations focused on addressing the technology needs of participating firms and encouraging the development and mobility of research personnel and students among participating organisations.

The Manufacturing Competitiveness Enhancement Programme (MCEP)

The Manufacturing Competitiveness Enhancement Programme (MCEP), one of the key action programmes of the Industrial Policy Action Plan (IPAP) 2012/13 – 2014/15, will provide enhanced manufacturing support to encourage manufacturers to upgrade their production facilities in a manner that sustains employment and maximises value-addition in the short to medium term.

Tourism Support Programme (TSP)

The Tourism Support Programme, a sub programme of the Enterprise Investment Programme (EIP) was introduced in 2008, replaced the Small and Medium Enterprise Development Programme (SMEDP) tourism programme. The incentive offered a grant of between 15% and 30% of qualifying investment costs for establishing new and expanding existing tourism operations in South Africa. The incentive provided for qualifying investment costs of furniture, equipment, vehicles, land and buildings and improvements of up to R200m. The maximum incentive is R30m and is payable over three years.

Since inception until 31 March 2012, a total of 545 applications were approved with an investment value of R6.8 billion and an incentive value of R1.1 billion. It is projected that 9 054 jobs will ultimately be created as a result of the supported projects.

The Minister of Trade and Industry, Dr Rob Davies, has announced the termination of the administration of the Tourism Support Programme (TSP) by the dti as from 01 October 2012.

1.6 Advanced Manufacturing Technology Strategy

The Advanced Manufacturing Technology Strategy (AMTS) identified priority sectors within the South African economy, and stimulated the process of technological upgrading, facilitation of technological resource flow via new knowledge networks and built a creative and innovative environment through a supply of skilled manpower, technology infrastructure and funds.

The AMTS is centred on a select number of sectors and technology focus areas. Industry Sectors to be focused on include:

Automotive (and Transport); Metals (and Minerals); Chemicals; Clothing and Textiles; Craft; Aerospace; Capital Goods.

Technology focus areas include:

Advanced materials; Product technologies; Production technologies; Logistics; Cleaner production technologies; ICT in Manufacturing; SMME Development; SQAM Technology issues.

Standards, quality assurance, accreditation and metrology (SQAM) were identified as cross-cutting focus areas, and it is envisaged that additional sectors and focus areas will be added in future.

The strategy will be implemented through a combination of interventions i.e. Centres of Innovation, Innovation Networks and specific initiatives and programmes.

The AMTS recognises the importance of human resource development in order for the South African manufacturing sector to excel and advance. In response to the sector’s requirement of human resource development, the strategy proposes to focus on industry-driven and academic institution-supported human resource development.

The AMTS also stresses the need for provincial and metropolitan council alignment in support of implementing initiatives. Moreover, the Gauteng Provincial government highlights three main areas of intervention regarding economic policy:

Realignment of the regions manufacturing sector (towards value-added production efforts), Developing the province as a smart centre and Expand the finance and business centres.

Without advancing technological processes and production methods these objectives cannot be attained.

1.7 The draft White Paper on South Africa’s Foreign Policy

There has always been an interaction between domestic business interests and foreign policy in general and commercial diplomacy in particular. The direction that South Africa’s foreign policy is taking is therefore critical to the NES. The draft White Paper on South Africa’s Foreign Policy (2011) points to “the rise of new economic powers influencing a shift in the balance of the global distribution of power”. It states as these emerging economic powers assert their positions and seek to increase their influence in global affairs, new economic and political groupings are formed. This has resulted in:

New global markets; Redirection in trade and investment flows; Globalizing labour market; Realignment of economic alliances; Increase in social divisions; New consumption patterns and New production networks.

The white paper emphasises that the success of South Africa’s economic diplomacy will determine the extent to which domestic priorities can be achieved. South Africa must be able to participate competitively in the global market place where “globalisation continues to shape the world at an accelerating pace. People, businesses and governments are interlinked across the borders of the nation-state. Trade, global finance, and migration have encouraged decades of economic growth.”

The white paper affirms that the Department International Relations and Cooperation (DIRCO) is the principal adviser on foreign policy, and lead coordinator and manager of South Africa’s international relations and cooperation. The Department and its missions abroad carry out its mandate by, inter alia, conducting economic diplomacy, advising on international law matters and acting as custodian for all South Africa’s international agreements. South Africa’s economic diplomacy will therefore be focused on providing guidance to government and the business sector on economic developments and markets, pursuing market access for South African products, attracting investments and tourism, removing barriers to trade, and supporting the development of larger markets in Africa.

Successful economic diplomacy requires a close partnership with government, business, and labour. A coordinated government-wide effort is essential to promote South Africa’s economic interests in the international arena, including the use of high-level engagements. Economic diplomacy should explore ways to strengthen ties with other regional economic groupings and deal more effectively with non-tariff barriers. Within the partnership of government, business, and labour it is important that South Africa’s values, principles, and reputation are reflected in their conduct abroad. South African missions abroad are key and can assist South African business abroad through:

Providing sufficient intelligence on market conditions, Giving advice on interpreting market intelligence, Providing information on local cultural nuances that would assist South African business to

better access those markets Advocacy, and Market access support.

To achieve this DIRCO needs to improve its economic research capacity to strengthen its economic diplomacy.

South Africa will continue to support the regional economic programme of SADC that provides for policy co-ordination and convergence, sectoral co-operation and market integration through the SADC Free Trade Area. The proposed integration of SADC, the Common Market for East and Southern Africa (COMESA), and the East African Community (EAC) would also contribute to increased economic interaction.

Under the auspices of the Department, the South African Development Partnership Agency (SADPA) will facilitate and manage development assistance in support of South Africa’s foreign policy objectives. Therefore, to enable effective coordination and to ensure policy cohesion and synergies in South Africa’s bilateral and multilateral interactions, the establishment of a professional diplomatic service as well as these coordinating structures through the adoption of legislation should be pursued. Given dynamic changes in the global environment in which the Department operates, it will be critical for it to have the institutional flexibility to adapt its structure and operations to meet new challenges.

1.8 Special economic zones

A special economic zone (SEZ) is a geographically designated area of a country set aside for specifically targeted economic activities, which are then supported through special arrangements (which may include laws) and support systems that are often different from those that apply in the rest of the country.

Uses of SEZs:

Tools for long-term industrial and economic development, Creating an enabling and sustainable environment for foreign and domestic direct

investment to thrive, Building targeted industries, developing regions and building industrial infrastructure.

There are different categories of SEZ

Sometimes countries use different names for the same concept, but the strategic intention is more important than the names used. An Export Processing Zone (EPZ) is a designated area set up by government to promote industrial and commercial exports and to provide tax and other incentives to export. Historically, EPZs are exempt from numerous laws including labour laws. Another prominent feature of an EPZ is that, once declared, the zoning applies only to industrialists or investors that export 100% of the finished goods produced in the zone with no flexibility to sell some of the products locally, even when expedient or practical.

Overview of SEZs History in South Africa

Industrial Development Zones: Introduced around 2000 to promote value-added exports and export-oriented industries,

Spatial Development Corridors: Introduced to link key development nodes through transportation networks and to catalyse development along the corridors,

Industrial Parks: Apart from private sector ones, the pre-1994 government introduced industrial parks to develop nodes intended to promote “separate development”

In proposing legislation allowing for SEZs, it has been made clear that labour laws will not be relaxed in the new arrangements for accelerating industrial development through special economic zones. The director general of the Department of Trade and Industry said : “Government needs full support from organised labour and business for the proposed special economic zones to work effectively. It is not in our best interest to deregulate labour laws in order to attract Foreign Direct Investment (FDI) and therefore exploit our workers. The model of special economic zones that the government is pursuing shifts away from competing on the basis of cheap labour to competing on the basis of the quality of services and support measures provided in the zones and their host regions. Our challenge is therefore to develop a comprehensive package of support measures that will be adequate to attract desired investments but also assist the country to master the desired industrial capabilities.”

The main aim of the SEZ bill and policy is to support the acceleration of industrial development in order to promote growth and creation of sustainable and decent jobs and also to promote the creation of a regionally diverse industrial economy through the creation of new industrial hubs in under development regions.

The SEZs can be utilised to create a sustainable environment for foreign and domestic direct investment and build targeted industries aimed at developing strategic industrial capabilities and industrial regions.

The South African Industrial Development Zone concept

The Minister of Trade and Industry may identify an area as suitable for development of an Industrial Development Zone by notice in the Gazette if the Minister is satisfied that designation of the area as an Industrial Development Zone will:

Facilitate the creation of an industrial complex having strategic economic advantage; Provide the location for the establishment of strategic investments; Enable the exploitation of resource-intensive industries; Take advantage of existing industrial capacity, promote integration with local industry and

increase value-added production; Create employment and other economic and social benefits in the region in which it is

located; and Be consistent with any applicable national policies and law, as determined by appropriate

environmental, economic and technical analyses.

An IDZ is a purpose built, industrial estate linked to an international air or sea port, which might contain one or multiple Customs Controlled Areas (CCA) tailored for manufacturing and storage of goods to boost beneficiation, investment, economic growth and, most importantly, the development of skills and employment in these regions. A port (air or sea port), is a place appointed or approved by the Commissioner of the South African Revenue Service (SARS) under the Customs and Excise Act, 1964 (Act 91 of 1964) through which goods may be imported or exported.

The key objectives of the programme are to:

Attract foreign direct investment (FDI);

Attract advanced foreign production and technology methods in order to gain experience in global manufacturing and production networks;

Develop linkages between domestic and zone-based industries; Provide world-class industrial infrastructure.

Benefits of the incentive scheme

The following SARS offerings are available to enterprises in a customs control area:

Relief from customs duties at time of importation into a CCA• any goods for storage;• raw material for manufacture; and• machinery used in the manufacturing process.

Simplified customs procedures• Clearance of goods – importation, exportation and transit• Application for designation, licensing and registration• Release of cargo• Consideration of stage consignments if the requirements are met• Consideration of release under embargo• Lesser amounts for security – licensing, registration and movement of bonded

goods Fiscal incentives on goods when

• Goods are imported for storage, • Raw material imported for manufacture, • Machinery imported for used in the manufacturing process; or • Any material imported for use in the construction of the CCA infrastructure.• Goods are exported from the CCA to a foreign country.• Any services are rendered to a CCAE or in the CCA

Subsidised infrastructure • No import duties payable on goods imported for use in the construction and

maintenance of the infrastructure of a CCA in an IDZ (rebate item 498.02).• No Value-Added Tax shall be payable when:

Goods imported for use in the construction and maintenance of the infrastructure of a customs controlled area

Land supplied to a CCAE in the CCA for sale, letting or any other agreement Electricity or water supplied to the IDZ Operator or CCA Enterprise located in

the CCA

Additional benefits include:

World-class industrial support infrastructure; Links to an international port of entry;

ANDRE, DON’T YOU THINK WE COULD SHORTEN THE ABOVE INCENTIVES INTO TWO SENTENCES? AND THEN DELETE THE FOLLOWING INCLUDING APPLYING FOR THE ICENTIVES. RATHER AN OVERKILL IN THE CONTEXT OF THIS REPORT. JUST REFER TO SARS WEB SITE?

Restrictions on the incentive scheme

All activities, and the manufacture of all goods in contravention of any South African Act shall be prohibited within an IDZ. Contraventions shall attract the penalties prescribed by law;

No person or company shall bring into, or cause to be brought into, an IDZ a substance or good, the possession of which is considered illegal or illicit or items prohibited by the laws of South Africa or binding international conventions to which South Africa is a signatory;

Enterprises who wish to manufacture goods, the manufacture of which requires special permits, license or legislative consent, shall acquire such special permit, license or legislative consent prior to the commencement of production and shall disclose their intention to manufacture such goods in their IDZ enterprise agreement.

Application for the IDZ designation

Interested parties may approach the Minister to apply for a specified area linked to a sea or airport with customs facilities to be considered as an area suitable for the development of an Industrial Development Zone;

The application must contain the information set out in the guidelines; The application for designation must be accompanied by an application for an IDZ operator

permit by the intended company for the area proposed for development; The Minister may request additional information from the applicant when considering the

application.

Applying for an IDZ permit

Any party interested in obtaining an IDZ operator permit shall, in the prescribed manner, submit a completed IDZ operator permit application to the Minister;

In case of a new IDZ, the application for an IDZ operator permit must accompany the application for designation of an area for which the IDZ Operator permit is sought;

In case of an existing IDZ, the provisions regarding transfer of an IDZ Operator permit must be complied with.

An applicant for an IDZ operator permit must:

Demonstrate control of the land within an existing IDZ or within the area under application designated for development as an IDZ or within a new IDZ pertinent to its application in the detail and manner as indicated in the guidelines ;

Submit a comprehensive feasibility study in the detail and manner as indicated in the guidelines ;

Indicate its ownership structure through the submission of a shareholders' agreement of the intended IDZ Operator indicating shareholders, percentages of shareholding, requirements for transfer of shares, requirements for distribution of assets upon liquidation or deregistration;

Comply with such other criteria and prerequisite procedures as set out in the guidelines to this programme;

Each applicant shall submit four (4) copies of the application to the Minister, one (1) copy of which must be an original;

The Minister shall be entitled to return incomplete applications to applicants for subsequent completion or request further information regarding an applicant's application prior to its consideration by the Minister.

1.9 Capital Equipment

HAVE YOU MATERIAL FOR THIS?

1.10 Agriculture

In 2008 the Department of Agriculture Forestry and Fishing (DAFF) drafted an “Agricultural Trade Development Strategy for South Africa”. Its purposes are:

To monitor and evaluate global and local trends in trade and to provide an informed strategic direction that can form part of government and industry’s plans of action, to be reviewed and monitored regularly to measure progress.

To provide a common understanding and directives within government and its institutions and the agricultural industry with regard to the application of trade policy instruments: trade negotiations, tariff policy, trade and business support services and regulatory support.

To provide broad based direction on how trade in agricultural and food products can contribute to the shared growth objectives of ASGI-SA and employment creation.

Three main objectives have been identified:

Improving market access for new export opportunities through agricultural trade negotiations.

Long term sustainability of the production of tradable products. Grow the exporter base.

1.11 Defence export strategy

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1.12 Creative industries

In the Department of Arts and Culture’s Medium-term Strategic Framework, Programme 2: Arts and Culture in Society contains the following points:

Promotion of arts and culture in South Africa and mainstreaming its role social development. Promotion of social enrichment, social cohesion and nation building through arts, culture

and heritage. Promotion of social inclusion of previously marginalised groups in arts, culture and heritage. Socio-economic empowerment of women, youth and special groups through skills,

participation and opportunities in the arts, culture and heritage sector.

There is no specific reference to exports.

http://unctad.org/en/Pages/DITC/CreativeEconomy/Creative-Economy-Programme.aspx

1.13 Regional Industrial Development Strategy (RIDS)

Given the presence of numerous spatial-economic-developmental inequalities within South Africa, the South African government set out to develop a more spatial-economically focused development programme i.e. the RIDS. RIDS is the mechanism designated by the national government to respond to spatial differentiations in the economic welfare levels of the country. It not only aims to support and capitalise on growing and leading regions, but to assist and support regions indicating economic development delays and restraints.

Given the spatial dimension, RIDS recognises the migratory factor present in the South African economy, as well as the fact that poor communities are not only confined to lagging regions, but can also be prominent in regions with leading and growing economies. (ANDRE, WHICH BEGS THE QUESTION: WILL ECONOMIC GROWTH RID US OF POCKETS OF POVERTY? THERE IS AN OLD ENGLISH SAYING “LIKE TAXES, THE POOR ARE ALWAYS WITH US”.)The strategy acknowledges the impacts of endogenous factors i.e. the local labour force etc. on the economy – leading to a bottoms-up approach in terms of economic development. This approach identifies and builds on the existing resource and skills- base of the region involved.

The RIDS also recognises that change is dynamic and inescapable – prompting the strategy to be reviewed on a periodic basis in order to keep up with the ever-changing global economy.

The objectives of the RIDS are as follows

Attempt, as far as possible to reduce economic disparities between regions, address the needs of both the first and second economies and to narrow the gap between them.

Pay particular attention to the needs of those regions which are lagging behind the national norms.

Enhance the current regional strengths and lead sectors or the economy. Promote sustainable economic growth and employment in provinces and municipalities. Build regional competitive capabilities and firm-level support measures; and Enhance regional performance in attracting foreign direct investment.

Three distinct regions are referred to throughout the RIDS, and were identified based on the level of economic development and cohesion of the region. Interventions into these regions will differ significantly depending on their economic and development status.

1.13.1 Regional Typology according to the RIDS, 2006: ANDRE, IN VIEW OF THE REVIEW POLICY STATED ABOVE, HAS THIS BEEN REVIEWED SINCE 2006?

Regions with Potential – based on known economic strengths, competitiveness and economic clusters/lead sectors. They may include areas of industrial concentration.

Regions of Latent Potential – based on available resources and comparative advantages which are not being used to their full potential but which, through catalytic support, could become more economically vibrant. Such regions may include IDZ’s and SDI’s, and will often

benefit from improvements in the local beneficiation of available timber, agricultural and mineral products or the promotion of key assets, e.g. tourism.

Declining Regions – based on either economic decline as a result of mine or industrial closures in a particular area or areas of long-term structural inequality, such as any of the former homelands. In such areas enhancing service support, skills development, business retention and expansion and perhaps support for agriculture would need to be the focus.

Figure 1 represents the core economic regions, delineated by the strategy. Evidently the comparative and competitive advantages illustrated by the regions were a direct result of the dominant economic activity and industrial concentration nodes within these regions. This concentration of activities led to a clustering of related economic activities is clearly a key regional competitive advantage as indicated in Figure 1.

The RIDS proposes the development of partnerships and growth coalitions within regions due to the dynamic and robust growth patterns that occur as soon as initiatives are driven by local role-players i.e. civil society, private sector and local authorities. Government intervention within these coalitions will vary, based on the degree of local private sector diversification. This role can vary between providing assistance and support to well diversified economies or to a more active and prominent role in regions were the private sector is less prominent.

Figure 1 – Economic Regions and spatial linkages ANDRE, THE ILLUSTRATION DIDN’T COME THROUGH

Source: Draft RIDS, Chapter 7, DT (2006)

The RIDS has indicated that the South African economy is plagued by regional level disparities – which has led to some regions becoming economically dominant and prosperous with other regions

lagging, crippled by their isolation from the mainstream and global economy. These lagging regions, for the most part include areas such as the former homelands (of which the study area form part of), has limited resources and economic assets and are usually located in seclusion – cut off from the primary economy.

The challenge presented in these instances is for lagging areas to optimise their economic potential. The RIDS development interventions are primarily focused on supporting the manufacturing sector and aims at addressing industrial practises by means of a more contemporary approach. The RIDS is moving away from traditional approaches i.e. grants and tax incentives, strategic projects, special privileges and special export processing zones in terms promoting economic development. The contemporary approach focuses on a bottoms-up approach and the strengthening of world-class regions (not focusing only on strengthening lagging regions but also supporting leading regions). The RIDS also highlights the use of Systematic Competitiveness – which clarifies the roles and responsibilities of the various role-players.

In line with the various interventions proposed by the RIDS various RID support measures were also identified in order to increase the strategy’s effectiveness and to introduce new innovative support systems into the economy. These support measures include SEZ’s, Industrial Parks, Logistic Parks, Industrial Estates, Innovation Hubs, Regional Growth Coalitions and Industrial Clustering, and Support to firms.

1.14 National Industrial Participation Programme, 1996

The NIPP forms part of the DTI’s key interventions developed to achieve the departments’ mandate of stimulating growth, investment and exports. The NIPP was developed in order to assist the DTI in its endeavours to reshape the country’s economy on a strategically level. The NIPP was founded on the basis of sound business principles, mutual benefit with projects being entered into sustainable over the long term.

The mission of the programme is to “…leverage economic benefits and support the development of South African industry by effectively utilising the instrument of Government Procurement.”

In order to achieve the overarching mission the programme aims to achieve the following objectives:

Sustainable economic growth; Establishment of new trading partners; Foreign investment into South Africa; Exports of South African “value added” goods and services; Job creation HRD; Technology transfer; and Economic advantages of previously disadvantaged communities.

The programme differentiates between foreign customers and South African customers.

The South African customer benefits by means of implementing the NIP business plan which leads to the creation of additional and new business activities by undertaking one or more of the following actions: investment, export promotion, SMME and BEE promotion, R&D,

technology and knowledge transfer, job creation and/or to increase localised sales. Participation in the programme for South African customers is centred on the ability of the industry to satisfy the requirements of both the programme and the foreign supplier.

The foreign customer is eligible to participate only if the imported content of the goods basket amounts to US$ 10 million or more.

ANDRE, THIS IS RATHER OLD – DOES IT STILL EXIST?

1.15 Enterprise development

1.15.1 The White Paper on national strategy on the development and promotion of small business in South Africa

In March 1995 an important milestone was achieved when government released its White Paper on national strategy for the development and promotion of small business in South Africa, the first time a comprehensive policy and strategy on small business development was formulated in the country. The 1995 White Paper on national strategy on the development and promotion of small business in South Africa included:

Creating an enabling legal framework Streamlining regulatory conditions Facilitating access to information and advice Facilitating access to marketing and procurement Facilitating access to finance Facilitating access to affordable physical infrastructure Providing training in entrepreneurship, skills and management Improving industrial relations and the labour environment Facilitating access to appropriate technology Encouraging joint ventures Capacity building and institutional strengthening Introducing differential taxation and other financial incentives

8.23.2 Integrated strategy on the promotion of entrepreneurship and small enterprises

Since the 1995 White Paper, government-owned institutions and programmes have evolved within all three spheres of government with the aim of providing comprehensive support to small business. These institutions have made progress in delivering a wide range key support services.

Summary of strategic programmes

Fostering entrepreneurship culture and increasing the enterprise creation rate Establish a dedicated network of SMME finance Create demand for Small Enterprise products and services Strengthening local network for small business development support services Improving small enterprise competencies and delivery capacity Strengthening Enterprise Networks Providing necessary support incentives Improving regulatory environment Entrepreneurship and small business research

1.15.2 Trade and Investment Development Programme (TIDP) for SMEs

The Trade and Investment Development Programme (TIDP), a project co-funded by the European Union and the South African Government until the end of the first quarter of 2004, aimed to develop the competitiveness of South African businesses in the SMME sector so that they would be able to sell their products in international markets. It was felt that this in turn would stimulate job creation, and contribute to export-oriented economic growth and the diversification of South Africa’s exports. The Programme, which was run by the Ntsika Enterprise Promotion Agency (now Small Enterprise Development Agency – SEDA), had three focus areas:

A Training Programme in International Competitiveness

Through a network of intermediary organisations and service providers located in various parts of South Africa, Ntsika conducted both export awareness seminars and export orientation training courses. The former were intended to be both motivational and informative covering the opportunities and challenges inherent in exporting and the various export support packages on offer from both government and private sector entities. The latter aimed to prepare the would-be exporter for the challenges of selling abroad, covering the various components of export readiness, some of the technical aspects of exporting and the development of an export marketing plan.

Product and Market Development for Export

This aspect of the TIDP concentrated on the provision of subsidised company specific technical assistance and training in the areas of: product development and productivity improvement (including quality and packaging enhancement); international health, safety and environmental protection standards; market research and access strategies; negotiation and selling skills; the development of suitable promotional materials; export costing and pricing issues; trade documentation and freight procedures.

International Partnership Development Programme

More experienced exporters in the SME sector were encouraged through this programme to develop trade/business partnerships with counterparts in the European Union. This was achieved through organised networking events staged within South Africa, the southern African region and in European countries. Participants were required to submit evidence of market research and contacts with potential business partners, as well as a business plan outlining the company’s growth strategy and planned export drive.

The sectors targeted for assistance under the TIDP were largely those identified by the dti as having the most export potential: furniture, clothing and textiles, chemicals, machinery and equipment, footwear and leather, metals and allied products, automotive products, and arts and craft.

With the termination of the EU funding contract, SEDA’s trade development activities are now being focused on specific projects that have either a history of measurable success, or are considered to be of strategic importance to the country. They currently include the continuation of the Export Orientation Course using the structures that have been built up over the years, and support for the national Trade Point initiative. (Note that SEDA has wide-ranging programmes aimed at small business development.)

The establishment of local Trade Points

The idea of establishing a worldwide network of Trade Points to reduce the costs of international trade for small and medium-sized business entities was first mooted in 1992. These costs (associated with meeting regional/national standards, quality certification, customs clearance, transport, banking, insurance, telecommunications and information acquisition) had been identified within UNCTAD, the initiators of the concept, as the primary inhibiting factor in increasing the participation of SMEs in international trade. To small and medium-sized enterprises, particularly those located in land-locked countries, the cost involved tended to eclipse any perceived benefit associated with export ventures.

The Trade Point programme was initially piloted in 16 locations, many of which were in South America. Today, more than 100 Trade Points, located in the Americas, Europe, the Middle East, Asia and Africa, participate in the Trade Point programme which is now operated by the World Trade Point Federation (WTPF). Across the world, more than 85% of Trade Point customers are from micro, small or medium-sized enterprises and, of these, more than 31% are micro enterprises.

A Trade Point is intended to be a source of trade-related information, a trade facilitation centre and a gateway to global electronic networks. It was envisaged by UNCTAD, the Trade Point Programme’s founder, as a place – virtual or physical – where participants in foreign trade transactions, e.g. freight forwarders, transport companies, customs authorities, banks, insurance companies, etc., could be brought together under a single umbrella to cost-effectively provide all required services for trade transactions. In addition, through the then GTPNet (now known as the World Trade Point Federation [WTPF] website), Trade Points would also provide local importers and exporters with international trade-related information pertaining to business and marketing opportunities, potential buyers and suppliers of products, trade regulations, delivery logistics and national technical specifications.

In South Africa, the establishment of Trade Points in the main centres has been the responsibility of SEDA. There are currently four Trade Points in South Arica, in Johannesburg (hosted by the Johannesburg Chamber of Commerce and Industry), in Durban (hosted also by the Chamber of Commerce), Port Elizabeth and Mbombela (Nelspruit).

1.16 The Competition Act

The Competition Commission is a statutory body constituted in terms of the Competition Act, No 89 of 1998 by the Government of South Africa empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy.

The Act does not distinguish between domestic and foreign markets and the proposed Export Consortia will have to apply for exemption.

The purpose of the Competition Act is to promote and maintain competition in South Africa to:

Promote the efficiency, adaptability and development of the economy; Provide consumers with competitive prices and product choices; Promote employment and advance the social and economic welfare of South Africans; Expand opportunities for South African participation in world markets and recognise the role

of foreign competition in the domestic markets;

Ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and

Promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.

The Act prohibits restrictive horizontal practices which are agreements between, or concerted practice by, firms, or a decision by an association of firms if:

It has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro- competitive gain resulting from it outweighs that effect; or

It involves any of the following restrictive horizontal practices: Directly or indirectly fixing a purchase or selling price or any other trading condition; Dividing markets by allocating customers, suppliers, territories, or specific types of goods or

services; or Collusive tendering.

Restrictive vertical practices are also prohibited. These occur when agreements between parties has the effect of substantially preventing or lessening competition in a market. If a party to the agreement can prove that any technological, efficiency or other pro-competitive, gain resulting from the agreement outweighs that effect the agreement can be allowed..

Clearly exporters can increase their export values through collaboration. Firms however can extend their collaboration from foreign markets to domestic markets. This would clearly be contrary to the spirit if not the letter of the law.

In terms of subsection (2)(a) The Competition Commission may grant an exemption only if:–

Any restriction imposed on the firms concerned by the agreement or practice concerned, or category of either agreements or practices concerned, is required to attain an objective mentioned in paragraph (b); and

The agreement or practice concerned, or category of agreements or practices concerned, contributes to any of the following objectives:

• Maintenance or promotion of exports;• Promotion of the ability of small businesses, or firms controlled or owned by

historically disadvantaged persons, to become competitive;• Change in productive capacity necessary to stop decline in an industry; or• The economic stability of any industry designated by the Minister, after

consulting the Minister responsible for that industry.

It is therefore recommended that TISA apply for block exemption where export consortia are being set up under the auspices of the National Export Strategy.

1.17 Conclusion

Appendix

1.18 Accelerated and Shared Growth Initiative of South Africa, 2006

The overarching objectives of AsgiSA are to raise and accelerate the current economic growth trajectory to reach a record high level, to stimulate sectors and create opportunities that are more labour intensive, hence moving towards decreasing the unemployment rate whilst encouraging and stimulating local communities and economies in order to ensure that growth is shared and inequalities are diminished. Through AsgiSA’s efforts to accelerate and share economic growth a large scale social transformation can be expected in the next decade. This social transformation will have a significant impact on marginalised and rural communities – located in the heart of the country’s second economy.

AsgiSA’s approach to economic development and growth recognises that communities have the ability to be their own mechanisms of change – providing an economic environment expectant of a much higher level of community involvement - during the development process. In order to align with the overarching objectives of AsgiSA, local, national and provincial government has taken a much more vigorous approach towards creating an enabling environment, conducive for expanding the business sector, integrating the first and second economies as well as a much more integrated public-private sector relationship.

The challenge of halving poverty and unemployment by 2014 has been posted by the South African Government alongside the challenge of identifying ways and initiatives to accelerate and share growth throughout the county. In order to address these challenges on a national level, they firstly have to be addressed on a local and provincial level. This implies the creation of an economic environment suitable for growth and development as well as the attraction of investment (be it local or international).

1.19 Decentralisation and deconcentration policies

“The development of the underdeveloped areas cannot be separated from the development of the industrial sector. The creation of industries in these areas is an important stimulant to socio-economic progress and to the creation of employment opportunities over a wide front”. (Black Development in South Africa, 1976). This reasoning led to the development of former state policies such as the Deconcentration, Decentralisation and Homelands policies. These policies were aimed at purposely redirecting the expansion and positioning of economic activities as to stimulate the creation of employment outside of metropolitan areas.

The primary focus of the abovementioned policies was to correct the inadequate development of non-metropolitan areas – creating more balanced regional development. These areas were characterised as being highly populated – with little or no economic or other infrastructure. Moreover metropolitan areas had an advantage as being the preferred place of residence again leading to a lesser focus on developing non-metropolitan areas, ultimately resulting in poor economic growth of the respective areas, poor education, high population growth and inadequate infrastructure. The abovementioned policies were not designed to stifle development and growth

of metropolitan areas but to ensure that growth and development occur more evenly – shared between localities outside metropolitan areas.

The Industrial Decentralisation Policy provided for the decentralisation of industries to former homelands and adjoining white areas. The programme provided for the establishment of new industries as well as the transfer (expansion & relocation) of existing industries from the larger metropolitan areas. These programme made use of various incentive measures to promote decentralisation and deconcentration such as –

Tax concessions; Initial and investment allowances; Low interest rates for loans; Price preference on certain purchases; Allowances for the cost of power, housing water etc; Rebates in terms of transport (rail & harbour); Low leasing rates.

According to the abovementioned legislation deconcentration points were identified areas adjacent to metropolitan regions. These areas had the sole purpose of relieving the pressures of industrial concentration in the various metropolitan areas. Industrial development points can be defined as “…points where alternative agglomeration advantages could be created to counterbalance the existing metropolis and thus create employment opportunities in the specific regions. (RSA, 1982).

1.20 Transport

The NDP looks at a variety of factors influencing South Africa’s economy and society, including transport infrastructure; a seven-page segment in a 489-page report.includes:

Research and development, Market analysis, Border controls and customs procedures, Transport infrastructure and costs, as well as Access to information.

In a rather ambitious opening statement to the transport section, the NDP notes that, by 2030, investments in the transport sector will bridge geographic distances affordably, reliably and safely so that all South Africans can access previously inaccessible economic opportunities, social spaces and services. It will also support economic development by allowing the transport of goods from points of production to where they are consumed. This will aid in facilitating regional and international trade.

The NDP further states that the State will, by 2030, oversee a transport system that will provide basic infrastructure where needed. Where independent service providers will best meet transport needs, government will enable licensing within a framework of effective regulation.

“Crucially, the State agents responsible for transport will have the competence, information gathering and planning facilities and the necessary leadership to achieve these goals,” notes the document.

The NDP follows this up by sketching South Africa’s current transport reality, noting that it needs reliable, economical and smooth-flowing corridors linking its various modes of transport, namely road, rail, air, seaports and pipelines.

“Currently, these corridors are dominated by outdated, malfunction-prone railway technology and poor intermodal linkages. Ports are characterised by high costs and substandard productivity relative to global benchmarks,” states the NDP.

“Although rail is the ideal mode of transport for large, uniform freight travelling further than 400 km, 69% of all freight transport activity is by road, parts of which are rail friendly. This strains a road net- work already suffering from significant maintenance backlogs and contributes to poor road safety.

“Providing suitable means for the safe, efficient and cost-effective transport of people and goods is crucial. Such mobility broadens social and economic access, alleviating poverty.”

As solutions to these challenges, the NDP places a number of policy and planning priorities on the table, including creating workable urban transit solutions, strengthening and optimising freight corridors, providing long-distance passenger transport options and ensuring rural access and mobility.

Priority 2: Strengthen and Optimise Freight Corridors

South Africa is a transport-intensive economy, states the NDP. However, its advantages in terms of resources “are greatly eroded by high transport costs and poor freight transport infrastructure. South Africa’s minerals sector, for example, has the potential to drive economic growth in the short term, yet it is being stifled by limited capacity to transport mineral commodities, particularly coal, manganese and iron-ore, on existing rail lines”.

Planning should prioritise improving the capacity, efficiency and sustainability of these corridors, while enhancing the performance of seaports and inland terminals, notes the NDP.

Plans should be informed by “experience and the poor performance” of Transnet’s capacity expansion programmes, it adds. The Richards Bay Coal Terminal, for instance, is greatly underused because capacity on the rail link did not keep up with expansion on the terminal.

“Given the magnitude of these capacity constraints and the huge financial and organisational resources needed to improve corridor performance, effective partnerships need to be developed between the public and private sectors. Healthy competition between service providers is also key,” states the NDP.

A number of corridors have been identified for expansion and improvement.

The first one is the Durban–Gauteng corridor. “As the corridor that handles most of the country’s high-value freight, it’s the first priority,” says the NDP. “It’s also the most strategic corridor to achieve a shift of freight from road to rail by overcoming rail’s main drawback – lack of intermodal flexibility – by improving the performance of terminals on either end. It could demonstrate that the institutional model needed for corridor improvement rests with aligning the interests of cities with those of authorities across all tiers of government, as well as the transport operators that connect the intervening space.”

Keys to success on this corridor include unrestricted access into the terminals for freight, removing bottlenecks on the road and rail routes, and expanding terminal capacity.

Planning priorities include building new hubs or inland terminals around Gauteng for improved road-rail transfers. According to the NDP, at least three new Gauteng hubs will replace existing inner-city hubs as they reach full capacity.

Higher rail density and throughput to achieve economies of scale will require upgraded technology to move and control trains.

Transnet has developed plans that will address the capacity of Durban’s port, states the NDP. Further container capacity to meet South Africa’s needs over the longer term will be provided by constructing a new terminal on the site vacated by moving Durban’s airport to La Mercy.

Coal transport corridors are also in need of strengthening. The Waterberg coalfields in Limpopo need to be linked to both domestic power generators and to export facilities in Richards Bay, notes the NDP. Planning should also take Botswana’s need to access Indian Ocean ports for its own coal exports into consideration.

The NDP also recognises the need to develop a north–south corridor, a Durban to Dar-es-Salaam transport network, linking the two major ports of the Southern African and Central and East African economic communities.

Here, the NDP is especially critical of port costs in South Africa. “As indicated by the ports regulator, South African ports perform poorly, operating at levels below comparative operations and at costs that are significantly higher than the global average. This is hindering the nation’s development objectives. Poor performance is largely due to the absence of competition in terminal operations and Transnet’s business model, which uses surplus generated by ports to fund investments elsewhere. The trade-offs obscured within the Transnet group must be addressed if port prices are to be competitive.”

The White Paper on National Transport Policy

In this White Paper, published in September 1996, the vision of the South African Government for transport is set out as being:

“… to provide safe, reliable, effective, efficient, and fully integrated transport operations and infrastructure which will best meet the needs of freight and transport customers at improving levels of service and cost, in a fashion which supports government strategies for economical and social development whilst being environmentally and economically sustainable”

Transport policy : Moving South Africa Project/The Moving South Africa Action Agenda

This project outlines the strategic framework for the South African transport sector through 2020. It addresses urban, rural, freight and special transport needs, analyzes the sustainability of the present transport system and presents possible solutions to the problems facing the industry. Implementation of government planning policy and legislation to improve spatial development and road planning would reduce commuter distances and traffic jams. The aim is to implement of some form of travel-demand management, such as parking and access control or incentives, in conjunction

with developing an improved public transport system, rather than simply construct more roads which would increase automobile use.

The document also sets out a number of key strategic actions aimed at overcoming these strategic challenges, and to fulfil the aims set out for urban public transport, such as corridor densification and the optimal deployment of modes to meet customer service requirements. With regard to the latter, it is argued in the document that commuter rail, as it is currently operated, only becomes viable in corridors of more than 30 000 passengers per direction per day. Dedicated investment to ensure such numbers is hence required in corridors that have, or show potential to reach, such numbers. In corridors where the number of passengers is between 10 000 and 30 000 per direction per day, road-based transport with dedicated infrastructure or priority measures, at least over parts of the corridor, is proposed. In the case of low ridership corridors of less than 10 000 passengers per direction per day, the policy position as spelt out in the document is that such corridors do not warrant dedicated infrastructure investment.

In a follow-up publication launched in May 1999, the National Department of Transport unveiled the “Action Agenda” to give effect to the objectives set out in its Moving South Africa strategy. In this “strategic framework”, the Department not only spells out how it will endeavour to meet the transport needs of the nation in a sustainable way, but also expresses the view that transport is “… an enabling industry, one which exists not only to meet goals inherent to transport, but also to meet other pressing national and social objectives. Included in this list of objectives are:

“economic growth, creating a high and rising standard of living for all citizens as set out in GEAR and the RDP;

increased trade, especially with neighbouring SADC countries;

improved access to employment opportunities; and

increased social integration”.

The Action Agenda is about action to unwind the legacy of a transport system which emerged through inward industrialisation, which was the hallmark of apartheid economic policy.

The core for freight users:

It builds a new platform where the needs of the rural farmer and of the high-end value-added exporter can be met.

It develops a platform in transport which can innovate and flex according to the emerging needs of the new industrial and economic strategy.

It calls for focussed investment and development to create a strategic backbone system which can support the majority of customers - particularly value-added exporters - while at the same time sustains a supporting network that guarantees economic integration and enables the spatial redistribution of wealth.

Privatisation works for UK ports (http://www.ftwonline.co.za/Default.aspx?NewsNo=17655 Thu, 29 November 2012)

The decision by the UK government to privatise its ports has played a big role in their transformation and competitiveness, said Raksha Maharaj, trade and investment adviser UK Trade and Investment.

While the UK ports sector includes a number of different ownership models, most of the larger ports in the UK are in private ownership, following several privatisation rounds under the Ports Act of 1991.