Sometimes planning big is essential
Imagine if South Africa found the means and political will to underwrite a $6 billion project to build a 1700 km gas pipeline in Mozambique from the gas-rich Rovuma basin to Temenos, the site of a gas pipeline that leads back to SA. The project would create demand for 1.1 million tons of pipe manufactured in SA. Not only will this provide a stimulus to the distressed primary steel industry but it would catalyse the secondary steel industry too. Studies have also shown that the provision of abundant natural gas in SA could spur industrial development, creating up to 350 000 jobs.
This is an idea proposed by Andre de Ruyter, chair of the Manufacturing Circle. From what I understand it’s not “pie in the sky”, but is being carefully considered in some quarters, not least by Ebrahim Patel, SA’s Minister of Economic Development. Before you roll your eyes at the idea of government touching anything industrial, SA desperately needs ambitious projects like these to help drive growth and stem the rate of deindustrialisation. And sometimes they need a little bit of a push from government. Just getting Sasol to reduce its natural gas prices – necessary for the idea to be viable – will take some persuasion.
Remember how impossible winning the bid to build the Square Kilometre Array sounded? It is one of the world’s biggest scientific projects and multinational collaborations and is quietly being built in the Northern Karoo, and in the process catalysing developments in SA’s science, technology and engineering industries. That bid could not have been won without the active support of a number of government departments.
SA is at a crossroads. After two decades of democracy we have yet to lift the majority of South Africans out of poverty and something radical needs to be done to create jobs and grow the economy. While the solution is multi-pronged, boosting manufacturing with its ability to create jobs, revenue and export earnings, is essential.
This is no small task. The country has fallen into a vicious cycle of deindustrialisation and reversing this will require collective and concerted action on the part of business, labour and government. The contribution of manufacturing to GDP has declined from 21% in 1994 to 13% in 2016.
University of Johannesburg academics Simon Roberts and Pamela Mondliwa argue that the tide can be turned on SA’s deindustrialisation and cite the UK as an example of a country that after 50 years of reversals is now reindustrialising.
Our problem is that industry in SA is still dominated by resource-based sectors such as basic metals and commodity chemicals, which were heavily supported in the late 1990s and early 2000s – by subsidised electricity among other things. We did not use the opportunity granted by the commodity boom to diversify into downstream and higher-value-adding businesses – in engineering and design for instance. In addition, the levels of concentration in the economy hinder the development of a dynamic and competitive economy, favouring big business insiders and BEE elites.
So what can be done? While supporting SMEs is noble, we need a solid class of medium-sized businesses – these are the businesses that employ people and which need support. The economy requires a broader competition policy to reshape markets for investment, productivity and innovation, and open them up to challenger firms.
However to do this Roberts and Mondliwa say that SA’s fragmented government structures must be integrated and reoriented. Surely the departments of Small Business Development, Trade & Industry and Economic Development could operate more effectively as one?
This is not the time for the left hand to not know what the right hand is doing. The challenges and opportunities posed by the Fourth Industrial Revolution make government’s strategy for building skills and capabilities in the economy, bringing together technology policy, investment and industry incentives, even more imperative.
In addition, say the academics, SA needs a reorientation in macroeconomic policy: leaving the exchange rate to the wiles of the market is just naïve. What is urgently required is a stable, competitive exchange rate – and not one that is overly strong either.
To get there we need a new political settlement. One that is built on a “give a little, get a little” philosophy. This will set out the expectations for large firms in terms of local investment, innovation and competitive rivalry, says Roberts. In return, government must commit to effective policies when it comes to infrastructure, procurement, skills development, technology and support in regional and international markets.
The result will be a more inclusive economy which is dynamic, competitive and sustainable, where innovation and productivity lead to better jobs with higher wages and where small businesses challenge bigger players to drive innovation.
The cynics among us might argue that this is impossible. But it is not. Our future requires concrete policy plans as well as a healthy measure of believers and doers.
That is why I believe Andre de Ruyter’s idea to build $6 billion gas pipeline is worthy of support. It’s a plan, and that’s an important start.