Last week's World Economic History Congress once more left me convinced that I should stick to the things that I love and know a bit about: what happens where and the stories of sub-national growth and development. Earlier this year I wrote about:
Today I want to take the next step and write about the IPAP-2 and its possible place in the North West province.
Government’s broad approach to
industrialisation is set out in the National industrial Policy Framework. The
implementation of policy is set out in the Industrial Policy Action Plan
(IPAP). IPAP-2 is an action plan designed to help build South Africa’s
industrial base in critical sectors of production and value-added
manufacturing, which are largely labour-intensive industries. IPAP-2 is
therefore designed to address the decline in industrial and manufacturing
capacity and contribute to the reduction of chronic unemployment.
The IPAP-2 sets out to contribute to rural
development, advanced technological capabilities, downstream minerals
beneficiation, promotion of energy efficient goods and services, strengthened linkages
between tourism and cultural industries, interaction between sector strategies
and the creation of sustainable jobs. To make these contributions, each of the
above can be related to key sectors on which the IPAP-2 will focus. These can
be clustered into three groups.
The policies outlined above clearly have to be
formulated at the national level (competition, regulation, trade policy), but
have particular sub-national impacts. The implications for economies at
provincial and local level are closely linked to the location of the sectors
identified in IPAP-2. The firms that produce the goods and services are located
in specific provinces, cities and towns and while the pursuit of the different
IPAP-2 polices may be driven by national government, it has implications for
provincial authorities.
To link the IPAP-2 to the North West province
one first needs to consider the nature of the provincial economy. First, the
North West province is a relatively small player in the national economy. In
terms of population the province ranks seventh out of nine provinces with
approximately 7.1 per cent of the population. The population density is low at
32 people per square kilometre. The province’s Human Development Index score of
0.51 is slightly below the national average of 0.56. In terms of contribution
to the national economy, the North West Province does well. The Gross Value
Added per capita is approximately R46 684. It is below the national average of
R49 344 in 2010, but the province ranks fourth out of the nine provinces.
The second point to consider is the unique
make-up of the provincial economy that has particular implications for the
interpretation of the IPAP-2. The following figure shows the primary, secondary
and tertiary sectors’ contribution to gross value added in 2010.
In the North West province the primary sector
plays a larger role than in any of the other provinces. Along with the Northern
Cape and Limpopo provinces the secondary sector (manufacturing) makes up a
small part of GVA (8.2%). The tertiary sector contributes half of the
provincial GVA. When the provinces’ share of national total GVA is examined in
the following figure, it is clear that the North West makes the biggest
contribution to primary sector GVA. Following the Northern Cape it makes a very
small contribution to secondary sector GVA. Even though the tertiary sector
accounts for half of the provincial GVA, the tertiary sector in the North West
contributes only 5 per cent of the national gross value added.
A detailed breakdown of GVA and employment in
the North West province confirms the large contribution of the primary sector,
specifically the mining sector to GVA and employment. The sectors that are
grouped together as the tertiary sector, from retail to transport and
communication, finance and real estate, education and health etc., make up 49
per cent of value added and almost 45 per cent of employment.
The implication for the interpretation of the
IPAP-2 for the Province is that the manufacturing focus of the IPAP-2 has only
a limited footprint in the province. Since the manufacturing sector is small,
the gains from industrial policy are likely to be limited. For the province the
challenge will be to identify linkages between the primary and secondary sector
and to consider the product space and scope for down-stream beneficiation,
linked to national and international opportunities for such products.
The table below shows that matching of the
sectors for which data are available at provincial level and the IPAP-2
clusters of sectors. It is not possible to clearly match the IPAP-2’s green and
energy saving industries, automotive components and vehicles, bio-fuels and
business process servicing to the available industrial classification of
sectors from the Regional Economic Explorer database. The whole of cluster 3;
nuclear, advanced materials and aerospace can also not be matched at provincial
level. For the other IPAP-2 sectors there are close-enough proxies in the REX
database. Cultural industries and tourism is matched with hotels and
restaurants, which is not a close match, but also not too unreasonable to work
with.
Taken all together the match between the
IPAP-2’s focus sectors and the current state of production in the North West province
is limited. Cluster 1 industries represent 2.6 per cent of value added and
Cluster 2 industries make up 3 per cent of value added.
It is possible to have a closer look at the
component sectors of clusters 1 and 2 in terms of their contribution to the
provincial economy in 2010 and growth in GVA, employment and gross operating
surplus over the period 1996 to 2009.
The
table confirms the fact that the sectors in the IPAP-2 clusters make
small contributions to the economy of the North West province in terms of value
added, employment and gross operating surplus. The cultural industries and
tourism seem to be slightly more labour intensive. The table below shows the
growth rates over the period 1996 to 2009.
Thus, my point is that there is only a limited match possible between the IPAP-2 and the small manufacturing sector of the North West province. National and provincial politicians have to be careful when pursuing industrial policy. Targeted support of industries, or special economic zones may fail simply because there is no viable cluster to support. So-called localisation (import substitution by any other name) is also likely to fail without the elements that make up a successful agglomeration: a pooled labour market, specialised suppliers of intermediate inputs, knowledge spillovers, and infrastructure. In the North West province policies focus should be on the factors that drive long-term competitiveness - lots of scope for research and blog posts!
