You are here -> NEWS >> Latest News

Latest News

During the course of our interactions with the industry, we are exposed to and alerted to items of interest in the industry. This page is dedicated to sharing news relevant to the industry and ourselves.

 

Industrial policy outlined

Date: 2010-02-19Back to news page

Source: Business Report

Twelve key sectors set to benefit from development finance, says Davies 

By Donwald Pressly

Davies' new industrial policy action plan, which he dubs Ipap, produced in tandem with the Economic Development Department of Ebrahim Patel, has identified 12 key sectors of the economy that President Jacob Zuma's government hopes will fast-track job-creating growth and provide work for millions of unemployed skilled and semi-skilled workers.

But two major problems have arisen. Davies acknowledged that his government had been late in realising that many of the requirements of the R840 billion infrastructure development plan, which embraces road, rail, pipeline and power upgrades were being sourced from abroad. There was, therefore, not sufficient leveraging of this capital expenditure programme to foster domestic industry.

The other problem was that the development finance for industrial investment in plants was more expensive than in competing countries. He noted the wide gap between the development finance cost of loans provided by the IDC and of its Brazilian counterpart, both state-owned entities. 

Over the next 10 years, the government hoped to create 2.5 million jobs through state support of the identified sectors, and Davies said a critical determinant of profitability and investment was the cost and availability of capital.

Referring to "a tale of two development banks" he compared the industrial lending rates of the Brazilian Banco Nacional de Desenvolvimento Economico e Social (BNDES), with those of the IDC.
Whereas the average IDC lending rate was 11.5 percent and the real IDC rate was 6.58 percent, the average BNDES lending rate was 8.34 percent and the real BNDES rate just 0.73 percent. The latter provided a real incentive to investment in industrial plants. 

Davies noted that one of the strengths of BNDES was that it received regular injections of capital from the state and did not have to finance its loan programme from its balance sheet like the IDC. 

The 12 key sectors in which the government would focus state and development finance investment were: metals fabrication and transport equipment; green and energy-saving industries; agro-processing linked to food security; manufacturing of vehicles and components; downstream mineral beneficiation; plastics, pharmaceutical and chemicals; clothing, textiles, footwear and leather; biofuels; forestry for paper, pulp and furniture; strengthening links between cultural industries and tourism; business process outsourcing, nuclear production and technology transfer; and, lastly, advanced materials.

The government would also seek to overcome the current bias of private investment in debt-driven consumption sectors and capital intensive mineral and energy sectors.

Davies said the government would consider increasing tariffs on products with "significant potential (for the) creation and retention of jobs" and import replacement.

Econometrix senior economist Tony Twine expressed concern that South Africa's industrial environment was compared to Korea and Brazil. "They have much bigger domestic demand levels... It is not comparing apples with apples."

Back to news page