Govt's IPAP2: COSATU's initial response
Introduction
The Congress of South African Trade Unions welcomes the release of the New Industrial Policy Action (IPAP2) by the Trade and Industry Department (see here). COSATU is studying the action plan and will make its submission before the Trade and Industry Portfolio Committee on 3 March 2010. We however wish to make the following preliminary comments on the action plan.
We note with satisfaction that the call COSATU has been making for many years that to address the high rate of unemployment, poverty and inequality, the country needs a clear industrial strategy that targets labour intensive sectors of the economy, is ultimately taking root/becoming a reality. The release of IPAP2 is an indication that increasingly there is an acknowledgement within government that there is no country that has developed without a focused and well resourced industrial policy. However, as the IPAP2 correctly indicates, industrial policy ought to be part of a comprehensive New Growth Path that integrates related policies and strategies. COSATU is in the final stages of developing its perspective on such a comprehensive New Growth Path Strategy, and hopes to engage with government soon on these proposals.
The IPAP2 has added one new sector and placed more focus on two sectors which were targeted by the old IPAP. The new sector is Green and Energy Saving Industries and the strengthened ones are metal fabrication, capital and transport equipment; and Agro-processing. In keeping with the resolve within the alliance to put the creation of decent work at the heart of government policy, IPAP2 has also put clear estimates of jobs to be created in most of the sectors targeted. We are however disappointed that there are [no?] job estimates on Green and Energy Saving Industries, an important sector in the light of heightened struggle against climate change. Any economic policy that does not explicitly prioritise the creation of decent work shall never be supported by COSATU.
We hope the period between 2002 and 2007 has taught us that trickle-down economics will not take the country out of its huge challenges of unemployment, poverty and inequalities. This period has shown that pursuance of growth for its own sake can never be a solution as the economy grew relatively faster without creating any significant jobs and denting high unemployment rate. IPAP2 notes that formal employment has only grown in the wholesale and retail as well as business services sectors. Interestingly, growth in the latter has been the function of outsourcing of activities. In our view these outsourced activities, which include catering and security are provided by labour brokers and it is not surprising that the conditions of service are precarious and this is why Cosatu calls for the banning of labour broking in the country.
Furthermore, the IPAP2 has delineated clear roles for various departments in implementation the key action plans. We hope this would help in addressing the challenge of coordination in realising the objectives of IPAP2. The timeframes will also help in monitoring the implementation of the key actions plans and holding those responsible to account.
Macroeconomy
Cosatu agrees with an honest observation by IPAP2 that the global economic crisis has exposed "the serious structural weaknesses and imbalances in South African economy". This is in sharp contrast to the argument we have been hearing that "prudent" macroeconomic policies of the past have cushioned the South African economy against the global economic crisis.
In keeping with the Polokwane mandate, various alliance summit resolutions and the framework response to the crisis, the action plan calls for the realignment of macro and micro economic policies. In putting a strong case for industrial financing for productive sectors of the economy, IPAP2 correctly contends that such financing would have a major positive macroeconomic impact:
"It is critical to emphasise that industrial financing for selected real sector activities has a major positive macroeconomic impact. It lowers pressure on the monetary authorities for unduly low interest rates across the entire economy which could be channelled into unsustainable, debt driven consumption and speculative investment activities. Increased supply in productive sectors lowers price pressures in the economy and hence moderates inflation. Increased investment that generates a mix of import replacement and exports lowers the current account deficit and reduces associated balance of payments risks..."
Through this, and other assertions, IPAP2 is making the critical point that macroeconomic and microeconomic policy need to be aligned with each other, and be mutually reinforcing. No stand alone macroeconomic policy, even if it claims to be promoting stability, or ‘fundamentals', can assist in economic development, if it acts against productive activity, and therefore against development of the real economy. This has guided Cosatu's opposition to the misguided pursuit of inflation targeting, which has choked productive economic activity, and promoted economic speculation. The logical extension of Ipap2 is that macroeconomic policy needs to be realigned to reflect the economic strategy advanced in the document.
Strategic Procurement Practices
Government is a significant consumer of goods and services in the economy and the strategic usage of procurement policy has got huge potential to transform the economy and create and create more decent work. Unfortunately, procurement has so far been crisis driven and the fact that much of the 2010 infrastructure is imported is scandalous.
We have called for the review of the Preferential Procurement Policy Framework Act (PPPFA) and its regulations at the same time to ensure that public procurement prioritises goods manufactured and whose inputs have been sourced locally. The current process of amending the regulations is aimed merely at aligning them with BBBEE codes. In our view BBBEE must be subordinated to the imperatives of the industrial policy.
We accordingly agree that the current procurement practices must be changed without any further delay. We will comment on the proposal in IPAP2 for "identification of eight to ten large and strategic procurement fleets". In the meantime COSATU supports immediate intervention in the ongoing projects to deal urgently with the problem of import leakage.
We support the proposal that DFIs must include local and regional localisation into their funding conditionalities and this must happen without any further delay.
An important element of local procurement linked to a strategy of industrial diversification, is the use of the public infrastructure programme to promote the development of our domestic capital and intermediate goods sectors.
Developmental Trade Policies
To be more developmental the Trade Policy must be informed by the objectives of the industrial policy. In the context of liberalisation of trade which has resulted in many industries shrinking and losing thousands of jobs, the role of technical infrastructure becomes critical to give the country some policy space to industrialise.
In the context of the 2010 FIFA World Cup, customs fraud and illegal imports that are undermining productive capacity and employment across a range of sectors, including smuggling and under-invoicing would become even more pronounced. We therefore support the proposal for criminal prosecutions in some cases to deal with the problem of customs fraud, illegal imports, smuggling and under-invoicing.
Industrial Financing
IPAP2 shows that private financial sector's share of the GDP has increased exponentially since 1994 and increased by a whopping 117% between 2004 and 2008. Despite this dramatic growth, the sector is refusing to catalyse growth of the productive sectors of the economy. This confirms COSATU's concern about the financialisation of the economy. While it is important to focus on industrial funding through DFIs, there is an urgent need for intervention to ensure that the private financial sector invest in the real economy and help to create decent work.
We support the proposal for strong conditionalities for any support to companies, particularly for new capital and electricity intensive mega projects. This is why we have called for the amendment of the IDC Act to ensure that it focuses its support on labour intensive as opposed to traditional capital intensive sectors.
Competition Policy
The increased focus on completion policy will go a long way in addressing the anti-competitive practices that are so wide-spread in most of the key sectors of the economy.
Green and Energy-saving Industries
We welcome the new focus on green and energy-saving industries and hope strategies would be put in place to address the situation of growing imports of Solar Water Heaters without any significant exports from local manufacturers. Research and development in this area must be given a special focus.
Agro-processing
The criticism against the old IPAP was that it was not giving the necessary focus on the agricultural sector. With a strengthened focus on agro-processing there are significant prospects for the agricultural sector and a move away from exporting much of our agricultural produce without adding value to them.
Conclusion
The IPAP2, having identified the structural economic problems, seeks to focus on an integrated approach to deal with features such as underdevelopment of key sectors of the economy; deindustrialisation; underdevelopment of the rural areas etc. Proposals are made to revive the manufacturing sector, broaden its base and develop new sectors, including key interventions such as the development of a capital goods sector leveraging the public investment programme; taking forward the drive to beneficiate across the economy; development of new technologies and a strategy to develop the green economy etc. Important contributions are made towards a rural development and food security strategy, in areas such as agro processing. The drive towards broad based industrialisation is linked not only to an export-led strategy, but also focuses on production for the domestic market, and the promotion of a regional industrialisation and development strategy. While careful analysis is required as to whether IPAP2 succeeds in achieving these objectives, it is certainly welcome that it for the first time signals that government is serious about a comprehensive industrialisation and employment strategy.
However, while IPAP2 is explicit in terms of the role of DFIs in industrial finance, there is worrying silence on how other state enterprises would contribute in ensuring the successful implementation of the programme. The glaring weakness of IPAP2 is its failure to highlight progress in the implementation of areas that constitute a continuation from the old IPAP. For instance, in the key area of public procurement, the old IPAP had committed to ensure an "agreement between relevant departments on increasing local content in the CAPEX (particularly electricity and transport) projects". To that effect, the dti would "finalise the supplier development plans to reduce the import leakage for Eskom and Transnet CAPEX programme from 40% to 30% by February 2008". Another example is the commitment in the old IPAP to ensure "increased growth and employment through coordination of SOEs investment plans with domestic suppliers' capacities". While IPAP2 identifies locomotives, wagons and coaches for freight and commuter rail as part of the strategic procurement ‘fleets', it fails to give an update on the old IPAP commitment to deal with Transnet by December 2007. Therefore, the starting point in dealing with the issue of procurement would be to state the progress made, challenges met and lessons drawn. Indication of progress would give us confidence that this would not be just another grand plan that would only end on paper. The challenges affecting the working class cannot afford endless planning. Accordingly, COSATU will initiate a discussion at NEDLAC on the strategy to monitor the implementation of commitments made in IPAP2.
Statement issued by Patrick Craven, COSATU national spokesperson, February 21 2010
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