Johannesburg — ECONOMIC Development Minister Ebrahim Patel has identified deindustrialisation as a major threat to the South African economy and says the government is going to come up with a plan to fix it.

Deindustrialisation refers to the long-term decline of a country's manufacturing and job-intensive sectors. But economists hold mixed views both on how severe this is in SA and on what the best strategy for stimulating the manufacturing sector may be.

Earlier this month, Patel said the government's new industrial policy plan, to be made public in January, would focus on innovation to create jobs and target certain sectors for relief. SA's manufacturing volume was back to 2004 levels and the pressures of deindustrialisation had to be avoided, he said.

But he is not the first to raise the spectre. The fear of deindustrialisation has been raised by trade unions since the early 2000s, even while SA's manufacturing industry was performing better than it had in the previous decade.

According to the Industrial Development Corporation's (IDC's) latest publication, Trends in South African Manufacturing Production, Employment and Trade, the volume of manufacturing production in SA rose continuously from the second half of 2003 until it peaked in the first half of last year. Manufactured goods accounted for 36% of SA's overall merchandise exports in 1990, rising to 58% by last year , and were concentrated in iron and steel products, motor vehicles and parts, and machinery and equipment.

Longer-term figures, released in this month's South African Institute of Race Relations' (SAIRR's) South Africa Survey 2008-09 , also underline the growth in the manufacturing sector since 1951.

SAIRR deputy CEO Frans Cronje says the data do not bear out Patel's argument of deindustrialisation. Real gross fixed capital formation as a percentage of GDP was above the 20% range throughout the 1970s and started to decline in the late 1980s, but then started to pick up again after 1994 and was back above 20% by 2007.

"The rise in this figure does not tally with deindustrialisation and I think it is a very dangerous conclusion to draw in the midst of a recession," Cronje says. "Once SA emerges from recession, towards the middle of next year, we have to see whether we return to the trends of the 1990s."

Employment data show that throughout the 2000s, SA was creating about 300000 jobs a year, both in the formal and informal sectors, Cronje says. "It may not have been enough, but it is not jobless growth, and the unions are wrong." What the unions were probably focusing on was the erosion of their membership, he suggests. Ten years ago, 40% of SA's workforce was unionised and this has fallen to 25%.

Lumkile Mondi , chief economist at the IDC, says SA lost manufacturing capability in the 1980s in specific sectors, such as tooling and metals forging, which was never recovered. That occurred partly because of the level of protection that certain industries enjoyed for many years, which was lost after 1993 when SA signed the general agreement on tariffs and trade, and partly when investment in infrastructure by the government stalled from the mid-1980s.

Stanlib economist Kevin Lings says the picture is mixed, with some industries such as footwear, which had enjoyed substantial protection, almost disappearing altogether over the past 20 years as a result of globalisation. But other industries, such as motor manufacturing, have flourished even when protection was reduced.

"So you cannot say there has been blanket deindustrialisation. In fact, an industry like construction, which barely existed in the 1980s, has been SA's best-performing industry in the 2000s and has stimulated other industries, like cement," Lings says.

But it was probably true that SA never developed its industrial base to its fullest potential, given the country's natural resources, because of political circumstances. Many of those legacies still exist , Lings says. Industry-specific support programmes would not necessarily help and there had been a decade-long debate within the government about whether to offer general incentives or target certain industries for assistance. Government thinking favoured the second route.

What SA needs is a comprehensive industrial policy that industry understands and supports, he says. "The companies I have spoken to do not understand what government's industrial policy is and how it supports them. The South African economy relies on macroeconomic targets for growth but it needs much more to be an industrial success story. Industry needs to understand the balance between competition, trade, labour and industrial policy."