21 July 2008
editorial
Johannesburg — SA HAS received the umpteenth lot of criticism for its decision to pursue an industrial development strategy to grow the economy and halve unemployment.
The Organisation for Economic Co-operation and Development (OECD), in an assessment of SA released last week, criticised the government's plan to spur growth through industrial incentives, saying the plan risked preserving the apartheid-era pattern of protecting national champions insulated from foreign competition and enjoying high mark-ups.
The criticism comes hot on the heels of a speech to the Black Management Forum in KwaZulu-Natal where African National Congress (ANC) president Jacob Zuma spelt out his policy plan, emphasising exactly the key role he wants the state to take in advancing the economy and accelerating transformation.
The OECD, however, sees a clear danger in such an interventionist approach , warning that the favouring of firms and industries could distort market signals.
And turning to the Motor Industry Development Programme - a piece of industrial policy that has become something of a reference point in the debate on industrial intervention - the report points to the opportunity it creates for multinationals to benefit at the expense of consumers. It suggests more detailed cost-benefit analysis of the programme, especially in view of the trade and industry department's intention to extend it over a much longer period than initially planned.
It all feels a bit like déjâ‚ vu.
It is an interesting piece of synchronicity that in the same week the OECD released its report, the Competition Commission said it found evidence of a cartel in the steel industry, not naming but again implying the involvement of ArcelorMittal in anticompetitive behaviour. The steel giant came about and was nurtured into the dominant position it now holds through state incentives.
But looking at trends from around the world, it appears that when it comes to industrial development it is a case of being damned if you do and damned if you don't. All countries in one way or another pick winners and incentivise them to bring investments to their shores - not least the developed countries.
Indeed, trade-distorting subsidisation is arguably the primary reason the World Trade Organisation, after seven years, has yet to make a breakthrough in multilateral trade negotiations to clinch a world trade deal that is supposed to benefit the developing world.
Apart from heavy subsidisation for all sorts of industries, most states in the US and in Australia, for instance, also give aggressive tax breaks to lure investments.
And Brazil has just released an astonishingly ambitious industrial policy, the budget of which makes SA's industrial development budget seem like that for a nursery-school party.
Brazil will target no fewer than 27 sectors for development over the next four years in a bid to boost exports and raise investment as a proportion of GDP. And it will spend $160bn over the next three years to make that happen.
It seems somewhat hypocritical, then, that think-tanks and economists from developed countries should advise SA against industrial development, knowing full well that it happens in other markets and that SA has to compete with these markets for investment and trade opportunities.
Given the food crisis and the US's persistence with farm support - Congress passed a $300bn farm bill in May in defiance of the spirit of the Doha round, which asks for a cut in farm subsidies - maybe SA should in fact consider extending state support to the agricultural sector too.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
