Industrialisation and Knowledge Economy as an option for SA

For a considerable period I have observed carefully what Government is doing to stimulate the economy and encourage a growth trajectory that we all desire as a nation. I have learned to appreciate other projects, while I have also questioned the creation and subsequent failure of certain policy positions. 

In the generation, where entrepreneurship has become the fundamental means of production and the hope for Job creation, I am still appreciative of how the industrialization process of the economy in South Africa can shape our sociology and commerce as a country like it did in the apartheid years.  Industrialization programmes are less entrepreneurial and historically have thrived on the creation of Government sponsored monopolies. 

To illustrate my point, consider the following two approaches to an industrialization process.

In 2012 Passenger Rail Agency of South Africa (PRASA) advertised their procurement of rolling stock as part of the infrastructure development programme by government (an industrialization process). Even before the advert was placed in the newspapers, it was clear that only a handful of business could deliver the fleet locally and that the fleet would be sourced from an international company. Many lobby groups holding to sense of loss used their gender or race as a bargaining chip to be involved in this procurement process, much to their dissatisfaction and disappointment. Most of those aspiring to participate in the programme, were entrepreneurs, who had little technical know how and limited supplier networks.

Rewind back to 1927 when a white paper was tabled in parliament to investigate the establishment of an oil-from-coal industry in South Africa. It was realized then that South Africa did not have any crude oil reserves and that the country's balance of payments had to be protected against increasing crude oil imports. The government facilitated the creation of intelligence and negotiated with international supplier, leading to the eventual creation of Sasol in 1950. This added to national pride of the time and reassured the public of Afrikaner ingenuity. Much like German’s precision engineering is admired world-wide; Sasol became admired, while Sasolburg was the Silicon Valley of its time.

The inference I would like to draw from the two examples is not that, South African government should build trains or that they should facilitate the creation of another Spoornet, which most likely is capable of also delivering the trains. I am also well aware of the fact that we are living in  WTO and IMF days and that we are now signatories of organisation that make us Global players, where any government sponsored process is measured against several ratings.

The comparison I would like to bring is in three folds:

1. Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists, especially black ones, without the benefit of international travelling and vocational exposure. This is called a, "Knowledge Economy". Knowledge Economy is an economy in which growth is dependent on the quantity, quality, and accessibility of the information available.

Essentially this is the first major challenge I have with the South African Industrial Policy Action Plan (IPAP). We are currently living in an economy that requires 800 000 services based expertise, while it also has about 900 000 or so unemployed graduates. Literary we have trained the population in areas the economy cannot employ.  IPAP identifies crucial sectors of growth in the economy as follows: 

Manufacturing

•         Metal fabrication, capital equipment and transport equipment

•         'Green' and energy-saving industries

•         Automotive, components and medium and heavy commercial vehicles

•         Plastics, pharmaceuticals and chemicals

•         Clothing, textiles, leather and footwear

•         Cultural industries: crafts and film

•         Advanced manufacturing.

•         Primary production/ manufacturing nexus

•         Agro-processing

•         Downstream minerals beneficiation

•         Bio-fuels

•         Forestry, paper and pulp, and furniture.

Services

•         Tourism

•         Business Process Services.

The exclusion of the services sector in the IPAP is an oversight given how the sector accounts for more than 70% of global output. India has benefited from the globalization of services and has shown how economies can be turned around by embracing the IT and Contact centre services. The main focus of the IPAP is on growing the manufacturing sector. The possibility of utilizing the services sector as the lead sector in economic development was not considered seriously. Especially when we consider that Services includes, engineering consulting and many high skilled expertise. 

If SA were to become a Knowledge Economy, the biggest reform in education would not be the quality of education but access to institutions of learning from high school to under graduate level. The number of matriculants willing to learn towards a degree should not be affected by the limited number of studying opportunities in current institutes. I respect that the National Development Plan (NDP) has recognized the need to build Universities in Northern Cape and Mpumalanga but I believe we still have room to build 30 more specialized institutions outside the Quality Council for Trades & Occupations (QTCO) scope. We need a specialized institution to train new graduates in high speed rail, a specialized, Japanese study field which will drive the NDP's transport integration proposals; we need Post graduate institution in Nuclear energy or alternative Hydrogen option to add to the Eskom grid; if Fracking takes over the Karoo, then we need to establish a Karoo based Fracking institution up to PHD levels, after all this is the technology that the American President is saying it’s going to stop the US dependency on foreign oil.   

2.  The relationship between a vision developed by a bureaucratic process should be harmonised with the interests of existing private sector interest groups and labour. Industrial policy should aim at discovering the competitive advantages in the economy in close collaboration with the private sector instead of prescribing what they should be. The success of Sasol was a crucial ingredient to also the Private sector and thus there was support from both sides. The current us and them sentiment have divided us as a country. The private sector has turned its attention away from government and labour now believes that business is the new mask of the old oppressor and there is growing distrust. This sociology is wrong and should be changed. The first and most important social contract in South Africa, I believe should be between the three parties. Violent strikes have no place in this democracy.   

3. The rent-seeking behaviour of the policy is also worrying. The implementation of the policy is dependent on the creation of rents, whether in the form of direct benefits such as subsidies or indirect benefits such as concessionary finance; it encourages rent-seeking behaviour and corruption. The way to counter these tendencies is to put in place definite performance requirements for the recipients of government assistance, with penalties if they are not complied with. Given the advent of introducing Black Business into the process, Government should make contingencies to build capacity within previously excluded groups to achieve such performance levels. Industrialisation cannot be another platform to create a tower of failed white elephant in the name of appropriation.