1. The relationship between industrialisation, trade and investment policy
Portfolio Committee on Trade and Industry
Trade and Investment Policy Training Workshop
21 July 2015
Nimrod Zalk, Department of Trade and Industry 1
DISCUSSION DOCUMENT: CONFIDENTIAL

2. The importance of manufacturing
Physical transformation of raw materials into value-added products
Knowledge and learning
Linkages
Backward linkages
Inputs from upstream sectors like agriculture and mining
Forward linkages
New industries / diversification
Demand for associated services
Direct and indirect employment creation and effect
Export earnings and balance of payment

3. The importance of manufacturing
Growth rates by sector: countries post WWII experiencing high and sustained growth
2008 Commission on Growth and Development (World Bank & Commission on Growth and Development, 2008) identified common features of countries that have achieved ‘episodes of high and sustained growth’ since the end of World War II.
Such a period is defined as being one of uninterrupted growth, in GDP per capita, in excess of 7% per annum for 25 years or more.
Ten of the thirteen success stories were cases of manufacturing-led growth: Brazil, China, Indonesia, Japan, the Republic of Korea, Malaysia, Singapore, Taiwan, China and Thailand.
The three exceptions are small, single-commodity exporters (Botswana and Oman) and Hong Kong, a small financial offshore centre.
Two additional countries are potentially on track to achieve high and sustained growth: India and Vietnam, both of which having recorded rapid industrial growth up to the 2008 global crisis.
This evidence is consistent with the view that manufacturing acts as the “engine of growth” associated with economists such as Nicholas Kaldor
Kaldor argued that manufacturing leads or “pulls up” GDP growth through a range of productivity enhancing effects.
Source: Growth Commission

4. The role of trade
Trade has the potential to promote rapid growth through structural change
Specialisation
Economies of scale
Export earnings
Succesful late industrialisers have engaged strategically with external trade:
Generate export earnings in order to purchase …
… machinery needed to to upgrade to more sophisticated industrial structure
Industrialisation objectives have led trade policy

5. The role of trade Trade liberalisation
Could push industries close to international competitiveness the “last step”
Could damage / destroy industries which are not yet close to international competitiveness
Industries that are damaged / destroyed will not automatically be replaced by other more competitive industries
Global value chains
Increasing amount of global trade
Participation depends on domestic industrial capabilities

6. The role of foreign investment
Foreign investment could promote industrialisation, depending on …
Supplement domestic savings for investment
New technologies / production techniques
Short or long-term?
Portfolio
Direct investment
New investment?
Greenfield
Mergers & Acquisition

7. Regional industrialisation
Increased African growth rates
Commodity boom
But limited diversification to greater industrialisation
African countries generally export: primary and semi-processed mineral and agricultural commodities
African countries generally import: final consumer goods and machinery
Scope for lowering tariffs between African countries
Fundamental constraint is mismatch between export and import patterns, requring investment:
Diversified manufacturing capabilities
Physical infrastructure

8. KENYA: EXPORTS TANZANIA: EXPORTS KENYA: IMPORTS TANZANIA: IMPORTS
Source: Quantec
Source: Harvard, CID, Atlas of Economic Complexity, 2013