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Industrial strategy debate

Posted On Thursday, 30 August 2001 03:01 Published by
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Independent economics think-tank warns that SA manufacturing could be facing inevitable decline

Independent economics think-tank warns that SA manufacturing could be facing inevitable decline

THE National Institute for Economic Policy think-tank says in a paper that the manufacturing sector may be facing an inevitable decline and that SA's dependence on natural resources 'may be more of a blessing and less of a curse than it has sometimes appeared in the past'.

The conclusions of the paper are at odds with a paper by the trade and industry department, titled Integrated Industrial Strategy, Driving Competitiveness in SA.

The trade and industry document proposes aiming government policy at 'knowledge-intensive activities' in manufacturing like innovation, design and marketing, as well as pushing for wider use of information technology.

The policy institute is an independent economic research body with affiliations to Cosatu.

The paper by Trevor Bell and Nkosi Madula titled Where Has All The Growth Gone? SA Manufacturing Industry 1970-2001 argues that the country is without any distinct long-term advantages and the sector is facing similar pressures that have led to decline in other countries.

The paper says the inability of SA's manufacturing sector to penetrate into skills-intensive hi-tech manufacturing of products that are central to information technology is one reason why SA manufacturing is under pressure.

Most of the productivity gains in the US in the late 1990s were related to manufacturing in information technology industries.

On the basis of US experience the indirect benefits to SA manufacturing of additional investment in information technology will not be significant.

The paper says SA manufacturing is not immune from the 'long downswing' in the advanced industrial countries, triggered by intense competition from Japan and Germany in the early 1970s. This resulted in overproduction and downward pressure on prices, which has been exacerbated by the rise of East Asian manufacturers more recently.

The paper rejects explanations for the failure of the manufacturing sector to grow faster, such as the decline in the sector's output in relation to investment (the capitaloutput ratio) and the skills shortage. Why, it asks, has the output of the financial services sector been so much greater when the sector is far more skills-intensive.

It would be wrong, says the paper, to view what is close to the stagnation of manufacturing industry as a natural and beneficial transition from the old to the new economy, which is heavily servicebased. In SA, employment has fallen in both manufacturing and the formal service sector, as well as in agriculture and mining.

The increased share of services in the economy, the paper says, is due largely to the slow growth of the rest of the economy.

'Continuing increases in the relative importance of the service sector are incompatible with further increases in the gross domestic product growth rate.' International experience showed that faster SA growth would depend heavily on manufacturing durable goods.

Publisher: Business Day
Source: Business Day
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