The supply disruptions caused during and in the years following the Second World War gave South Africa the opportunity to produce and supply many more products locally than before the war. In the decades following the 60s, sanctions imposed on the country created even more opportunities to localise production. Many of these facilities were, however, also dependent on government support like tariffs and taxes levied on imported products.

Following the 1994 elections and the new political dispensation, sanctions against the country fell away almost overnight. On top of this, most government tariff protection was scrapped. This exposed the domestic economy to fierce international competition and resulted in the liquidation of many local companies, as they couldn’t compete against more efficient international entities and much cheaper, more productive labour.

The Policy Statement on Localisation for Jobs and Industrial Growth, released in May this year by the Minister of Trade and Industry, Ebrahim Patel, states that South Africa’s manufacturing output makes up 11.8% of our GDP. This is 6.5% below the average for middle-income countries. At the same time, South Africa spends 25.1% of the wealth created in the country on imported goods.

To address this imbalance, the Department created six strategies for six industries, namely: the automotive sector; clothing, textile, footwear and leather; poultry; sugar; steel and metal fabrication; and furniture. Combined, these sectors currently employ around 700 000 workers and contribute 6% of our GDP.

Through these strategies – called Master Plans – the government wants to increase local manufacturing of components by 20%, thereby growing domestic demand by R200 billion per year. At the same time, it is expected to place South Africa in a better position to benefit from opportunities created by the African Continental Free Trade Agreement.

Important considerations for the public and private sector

This is exciting, but the public and private sectors should seek clarification about certain aspects of this policy like:

• On which sectors will the focus be? Do we have a competitive advantage in the sectors that we are promoting? Will they need government financial support and if they do, are the finances available?
• Will these components be manufactured by the public or private sector? Or will it be done by public/private partnerships, and what will the shareholding of government be in such companies? Who will determine management policies?
• Will these companies be in areas where the basic infrastructure of energy and water supply is guaranteed and where reliable transport facilities are available?
• If we are to focus on the beneficiation of our mineral wealth, do we have the energy capacity to run smelters?
• Do we have the manpower and skills for the projects we undertake? Does our labour dispensation inhibit or promote local manufacturing?
• To what extent are such local manufacturing industries dependent on the volatile rand for protection?

What SA will need to make localisation work

We must be realistic in our assessment of opportunities to be exploited within the domestic economy but also within the context of the world economy and our international competitors.

South Africa faces a horrific unemployment situation, but is our labour force up to labour-intensive industries? Following 1994, some labour-intensive industries were the first to collapse because they were unable to meet the competition of cheap, highly productive labour from China, and nowadays from other Far East countries. South Africa is still unable to compete on these grounds and often also fails to deliver the required technical training to compete in more skilled and technological industries.

As things stand, reliable, uninterrupted electricity supply cannot be guaranteed. This has dire consequences for the development of the economy and especially for the manufacturing industry. Despite this, the local car industry is an example of how public/private sector cooperation can help to establish a local industry that delivers products to international and domestic markets, while stimulating local production and creating thousands of jobs. Can we apply the same principles elsewhere and do we have the fiscal means to provide such support to other industries?

An alternative could be to rather focus on where we do have a competitive edge and promote local and international tourism. To succeed here also requires that infrastructure and the labour force in metropolitan and rural areas be in top shape.

Find more interesting reads on South Africa’s business environment in the Business Insights section of our content hub.