What is hamstringing SA’s industrial growth?

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ANALYSIS

Last month, data from Statistics South Africa inspired surprisingly upbeat sentiment about the state of the country’s economy. After a second quarter slump, the economy grew by an unexpectedly robust 1.6% when eight industries recorded positive growth. 

But a deeper look into the data paints a less reassuring picture of the health of the country’s economy, especially its industrial sectors — which are each contributing less to the GDP than they did a decade ago. 

Manufacturing, which has endured the biggest hit, has shed over 400 000 jobs since 2008, according to StatsSA’s labour figures.

The data suggests something has gone terribly wrong with South Africa’s industrial policy, which is designed and implemented by the sometimes overlooked department of trade, industry and competition (DTIC). 

The department, led by minister Ebrahim Patel, is at the very centre of the country’s effort to drive economic development which, by any measure, has been devastatingly slow.

To get to the bottom of this problem, the Mail & Guardian spoke to a number of experts, including Patel himself. These conversations suggest that bringing stability to the ungainly department has demanded the ministry’s energy, which ought to be laser-focused on designing and managing the country’s complex industrial policy.

Patel spoke to the M&G in November last year. His department had recently come under scrutiny after it emerged that the South African Bureau of Standards had been without a board or full-time chief executive for four years.

The minister has since announced the appointment of eight new board members to the bureau, which is responsible for maintaining South Africa’s database of more than 6 500 national standards, effectively bringing a close to that chapter. 

But the episode exposed one of the department’s vulnerabilities — the difficulty the ministry has faced in building adequate capacity in its 17 agencies.

In the interview, Patel spoke extensively about his efforts to build a capable state, an endeavour, outlined in the 2010 national development plan, that was greatly compromised during the state capture era. 

“We sit with a deep crisis in society. And part of that crisis, not all of it, but part of it is the big challenge of getting the state to work ….  So, I sat down with my team at the DTIC this year and crisped our objectives down to three things,” the minister said.

Those objectives, Patel explained, include growing the economy through industrialisation, driving economic inclusion and building a capable state.

One important element of the third objective is ensuring the right people, with the right technical skills, are appointed to the department’s structures. Doing so, the minister said, takes time. 

The search for the right people for the DTIC-related jobs has not been easy, Patel conceded. This requires finding those with the right balance between governance, technical and other skills.  

Patel also spoke of the stigma that comes with making acting appointments, which has presented a short-term solution to some of the department’s organisational battles.

“It is true that you can weaken an institution with constant acting appointments — absolutely true — as much as you can weaken an institution with inappropriate appointments … So, I would want to take on board the caution not to keep on acting appointments for unnecessarily long,” he said.

“Recognise the value of permanent appointments. It does make sense. But don’t take an instrument off the table, because whichever way you do it, decisions are always fraught.”

This dilemma is not only true for the department’s various agencies, but for its own organisational structure.

Reorganising the plane

According to the department’s organogram, of its nine deputy director generals, four are working in an acting capacity, including its DDG of industrial policy. 

The department also has an acting director general, chief financial officer and chief operating officer — meaning that of the 13 people working under the minister and his deputies, more than half are doing so in an acting capacity.

The proliferation of acting positions in state institutions has been widely criticised, including by Wits School of Governance associate professor William Gumede. Acting appointments, he told the M&G, undermine the performance of the state.

“Acting people have absolutely no power to make any decisions, so you have paralysis … It just undermines the morale and the culture for everyone in the department or entity and, obviously, it undermines the capacity.”

But Patel said that, for his department, this predicament is symptomatic of the decision to merge the economic development and trade and industry departments to create the DTIC in its current iteration.

The merger meant a number of units were duplicated and the department had to consolidate and reduce these. 

“Do you make permanent appointments? Because you can’t disappoint people. You can’t fire them just because you’ve reorganised,” the minister said. 

“So, you sit with a set of deputy DGs that are in excess of what you need. You’ve got to fly your plane and you’ve got to reorganise your plane … How do you reorganise two different departments into a single department, cut out duplication and overlaps, so that we release money that can go into frontline programmes?” he said.

Wishing for a simple department

“Is this something any minister likes? No. You wish you just had a simple department from the start, so you can just run, use your five years and get the maximum impact. And after  those five years, you could say, ‘I’ve done my duty. I feel like I’ve achieved it.’”

The hope, Patel said, is that the next administration will be left with a well-organised, combined department, “that is not simply one plus one, but is a little bit more than that”. 

“And … if we can retain its budget and its total staff complement, it can be even more effective, because we’ve been able to use this period to reorganise. It could have been done a little bit quicker, fair enough, if Covid had not sapped a lot of our energy and focus. But anyway, we are where we are.”

Despite these complications, Patel said the department’s output is “substantial”.

Economist Iraj Abedian said not having organisational stability as a result of the merger has been a major obstacle for the department. This quagmire, Abedian said, is a reflection of a lack of understanding about what the department’s role is.

“Has it done enough? Has it done what DTI ought to be doing? The answer is ‘no’,” Abedian added.

Not only has the department’s administration, which is critical to steering the regulation of the economy,  been found lacking but it is also falling short on policy, according to Abedian.

Cumbersome

David Kaplan, who served as the department of trade and industry’s chief economist under then minister Alec Erwin, agreed. “All the targets that the government has set, that the DTI has set — employment targets, output targets, etcetera — just haven’t been realised. We have fallen far, far short.”

That said, the department has been steered by dedicated and hardworking administrations over the years, Kaplan said. The fact that the country’s industrial sectors have had to contend with tough electricity and transport constraints has also hampered their growth.

Kaplan noted that one of the department’s problems is that it is “a polyglot ministry”, with too many entities attached to it. This makes it difficult, he said, for the department to pursue a trade and industrial policy.

“At least when I was at DTI, these occupied the minister’s mind and the leadership a great deal … I think the DTI is a very cumbersome body, which makes it difficult for a singular focus on trade and industry.” 

One policy area criticised by Kaplan and others relates to the department’s push for localisation, which is now a key component of the strategies of a number of sectors. Localisation, insofar as it is imagined in policy, seeks to divert demand away from imported goods.

In 2021, in its statement on localisation, the DTIC said the policy would promote innovation, drive competition and build capacity for the export markets. Kaplan believes localisation will do the exact opposite.

Kaplan also said there ought to be more scrutiny of the vaunted successes of the department’s support of the automotive sector, especially considering that the subsidies are considerable. The extent of the benefits derived from these subsidies are questionable. 

The department’s automotive policy, and its cost to the public purse and consumers, should be subject to an external review, he said. 

Demands

Kaplan has previously argued that industrial policy must be reviewed regularly. Considering the degree to which it has fallen short, a substantive review is overdue.

According to Kaplan, the institutional requirements for designing and implementing an effective industrial policy are very demanding.

The different units in charge of policy for each of the main sectors must have a strong understanding of the forces shaping those sectors. They also have to create a good rapport with the players in those sectors, without favouring them over new entrants.

In the absence of these institutional requirements, Kaplan said, “one gets sub-optimal policy”.

To put this point into more perspective, the department is currently balancing the demands associated with implementing seven very complex masterplans, each covering sectors with their own challenges and economic conditions and requiring considerable resources to implement.

Where there are strong, experienced organisations representing the sector, as is the case with automotives, developing policy can be less burdensome on the department. Less organisationally robust sectors may require more capacity.

As another expert put it, “there is no one-size-fits-all in industrial policy”. 

According to the department’s annual reports, the current structure of the DTIC provides for 1 350 approved positions, but only 1 176 of those positions had been filled by March 2022. This means that the department has fewer staff members than it did a decade ago.

The department’s vacancy rate at the end of March 2022 was 12.9%, almost 4% higher than it was in the previous year and exceeding the public sector target of 10%. According to its annual report, the department’s ability to fill vacancies has been impacted by efforts to cut the public sector wage bill.

The highest vacancy rates were in the competition policy and economic planning; economic research and co-ordination and industrial competitiveness and growth units. 

The latter unit is charged with designing and implementing policies, strategies and programmes for the development of manufacturing and related economic sectors. In 2012, there were 139 people working in this unit, which had 147 posts to fill at the time. Today there are 122.