Accelerating Growth and Development: The Contribution of an Integrated Manufacturing Strategy Briefing to the Portfolio Committee on Trade & Industry 8 October 2004

A Vision for the economy by 2014 We need an economy that can meet the needs of our economic citizens in a sustainable way: Access to quality work and enterprise opportunities & necessary capacities and skills Platform of economic efficiency, inputs, infrastructure, government service etc. Adaptive, innovative & competitive enterprises Consumer access to quality goods & services; effective protection legislation and recourse mechanisms Built on the potential of all our people, resources and geographic areas

Extending our policy tradition A vision beginning with the Freedom Charter RDP objectives GEAR programme Geographic strategies Integrated Economic Action Plan Microeconomic Reform Strategy

Integrated Manufacturing Strategy? What is the IMS – Integrated Manufacturing Strategy? A vision for the growth path of manufacturing A series of interventions by government to help achieve that vision A call to action for all economic stakeholders

Objective of the IMS Accelerate growth, employment and equity through developing high value adding, knowledge-intensive integrated manufacturing built on our full potential HOW? Address constraints in the domestic economy to create a platform for competitiveness and economic participation Integrate to our advantage into the global economy Equip our enterprises to compete on the basis of new drivers of competitiveness Integrate equity objectives into each aspect of the strategy Build partnerships and cooperation between economic stakeholders

Extensive consultations The IMS Process revisited April 2002: Revised IMS draft released 3rd quarter 2002 Reworked version submitted to Cabinet May 2001 First draft of discussion document released Extensive consultations and dialogue Parliament, Nedlac, other dialogues

Analysis: Policy and Manufacturing before 1994 Resource-oriented, especially minerals, energy and agriculture Industrial Policy – import-substitution, resource-driven Apartheid policy legacy included: racial and geographic inequalities; distorted demand; restricted skills development; Inefficiencies; inward-orientation, with poor linkages to the region and the world; restricted access to economic assets & opportunities -> limited capacity for savings, investment and enterprise development.

Analysis: The challenges faced in 1994 Interventions required to address both domestic conditions and integration into the global economy Trends in the domestic economy Diverse manufacturing base Continued inward-orientation Concentration of ownership & lack of equity Global trends Liberalisation and acceleration of global capital flows Selective trade liberalisation Systems of global governance with unfair outcomes Dangers of marginalisation

Analysis: Policy interventions since 1994 Macroeconomic reform to address crises Initial set of microeconomic reform measures Trade reform: tariff simplification and trade negotiations (multilateral & free trade agreements) Supply-side measures Small business Competition policy Regulatory reform Institutional transformation Some sector-specific programmes Geographic programmes –e.g. SDIs Some consumer protection reform Wider reforms Labour law dispensation and skills development Agriculture and land reform Development of a consultative approach

SA’s relative competitiveness The period prior to 2000 Significant restructuring and export growth since 1994, particularly in the manufacturing sector SA shares in world trade All Products: 0.7% - 1990  0.4% - 2000 Manufacturing: 0.2% - 1990  0.25% - 2000 Industrial capabilities: slipped in most measures Skills Technological Effort Infrastructure Generally low presence in high growth products in world trade Electro-technical products Apparel Automotives Aerospace

Why did we loose ground? Losing ground on the drivers of industrial capabilities, ie Skills, esp. technical, tertiary Technological effort Infrastructure, especially telecomms Low presence in the most dynamic products in world trade Late start in global integration (1993/4) Even later starter in export services Much has been achieved, but much needs to be done

Global manufacturing trends (1) % Share in World Trade Source: UNCTAD, 2002 Non-resource based manufactures outstrip primary products and resource based manufactures

Global manufacturing trends (2) MT RB LT HT ICT % Share in World Trade Source: UNCTAD, 2002 M & H tech manufactures have become most important

Analysis: Old ways of gaining competitiveness will not work in future: Raw materials Unskilled labour Proprietary production technology Privileged access to markets

Analysis: New sources of competitiveness Information and Communication Technologies Technology diffusion Time, efficiency and responsiveness Integration of value chains Economic participation and equity – developing human and economic potential

Integrated Manufacturing Strategy? A strategy for manufacturing in the wider sense – including all activities associated with the production of goods Uses the conceptual tool of integrated value matrices to understand production and how best to intervene effectively Integrated action with regard to: Market access Beneficiation and value addition Equity and economic participation Regional production Knowledge intensity and services integration Development of integrated value matrices

Integrated Value Matrices BUSINESS ENVIRONMENT / TRADE RELATIONS / RULES OF THE GLOBAL ECONOMY INFRASTRUCTURE (TRADITIONAL/MODERN): TRANSPORT, ENERGY, WATER, TELECOMMUNICATIONS, SKILLS / TRAINING ECONOMIC PARTICIPATION / EQUITY TECHNOLOGY / INNOVATION TECHNICAL INFRASTRUCTURE (STANDARDS, METROLOGY, ACCREDITATION) MANUFACTURING Product Design Production Primary Marketing & Distribution Consump-tion Intermediate Final Services Transport Logistics New Products Machinery

Challenge for all stakeholders: Partnerships for growth & development Developing a common economic vision Information sharing within and between stakeholder groups – developing a common understanding of trends and drivers in the economy Building partnerships for strategy development and action at all levels in the economy, including wider stakeholder representation Developing new ways of thinking and working

South Africa’s growth in GDP Recent performance: South Africa’s growth in GDP The second quarter of 2004 saw the South Africa real GDP increase to 3.9% Depicts solid economic growth during this quarter Sectors which contributed to this growth, included agriculture, construction, transport, communications but also manufacturing Source “the dti Statistics in Brief, Q3 publication 2004” data supplied Statistics South Africa

South Africa’s growth in GDP Source “the dti Statistics in Brief, Q3 publication 2004” data supplied Statistics South Africa

Manufacturing Sector Indicators Recent performance: Manufacturing Sector Indicators Manufacturing production recorded another month of annual expansion in July, with growth rising by 5.5% Manufacturing sales expanded by 8.6% year-on-year For the quarter ending July 2004, manufacturing output increased by 2.5% Significant contributions came from: Motor vehicles, parts and accessories Food and beverages Textiles, clothing, leather and footwear Basic iron and steel, non-ferrous metal products Metal products and machinery Manufacturing output is expected to remain sturdy Source “the dti Statistics in Brief, Q3 publication 2004” data supplied Statistics South Africa

Manufacturing Sector Indicators Source “the dti Statistics in Brief, Q3 publication 2004” data supplied Statistics South Africa

Manufacturing Sector Employment Recent performance: Manufacturing Sector Employment Year and quarter Percentage change and change in number of employees compared to same quarter of previous year 2003 September -0.2% (-3 000) 2003 December +0.2% (+2 000) 2004 March +1.3% (+16 000) 2004 June +2.4% (+30 000) Source “Survey of employment and earnings” Statistics South Africa

Government’s response to the challenge Enable competitive, adaptive & job-creating sectors & enterprises Integrated Manufacturing Strategy Platform of efficiency & reduced constraints to growth & development across the economy Microeconomic Reform Strategy Sustainable Growth-oriented Macroeconomic Framework