Policy Advocacy

Many economists and development professionals have called for a new direction for growth. A common thread that runs through the various reports and studies is a call to enhance South Africa’s industrialization and manufacturing capacity. Manufacturing generates value-adding activities based on the existing economic resources of the country. It also enables the country to integrate and trade with the rest of the world. South Africa needs broad-based inclusive industrialization that will restructure the economy and reduce its vulnerability to the fluctuations of world commodity prices.

 

Small and Medium Scale Industrialists and black business in general will not succeed in the “catch up” game without an industrialization policy that is focussed on them. Without an appropriate policy framework, traditional big business (which happens to be largely white) easily out-competes small business (which happens to be largely black) across many sectors. Given their potential to address both the growth and distributional concerns of economic policy, it is imperative that appropriate attention is given to the promotion of SMEs in South Africa.

SME-centered industrialization is most suitable for South Africa for the following reasons:

 

  • SMEs enable better use of existing local capacity, thereby establishing the basis for sustained long-run growth, and the opportunity to expand that capacity in the future – we need to start with what we have;They are naturally more labour intensive and central to job creation and contribute to a more equitable distribution of income.

  • SMEs provide an increasing measure of national self-reliance - the future of entrepreneurship should be in the hands of entrepreneurs themselves. The same applies to the development of black industrialists;

  • Because of their large number in different sectors, there is likelihood to adapt new technologies in response to competitive pressure in domestic and regional (or international) markets;

  • They play the role of invisible colleges that impart tacit knowledge through ‘On the Job Training Units’ for different levels of the labour force for the entire economy;

  • They focus on small markets – mostly domestic and regional markets (intra-Africa trade).

  • They are one of the push factors for foreign investors to invest in a particular country. The potential to be reliable suppliers is credited by foreign investors who may wish to outsource their non-core activities to local suppliers.

  • They are also necessary for the structural change of a country’s economy, from an agriculture- and mining-dependent economy to an industrial and service-oriented one.

  • They expand economic space and develop capacities in various industrial sectors whose combined impact will have profound implications for long-term economic transformation.

  • With SME/SMI focused industrialization the main economic value does not lie in the immediate contribution they would make to a higher GDP. Rather, the value is seen in the supporting role such focus would provide in building an environment conducive to entrepreneurship, innovation and a sustainable growth path.Mega industrialisation projects being driven by current comparative advantage (which is the preserve of “white” big business) are very myopic.

  • FABCOS contends that an SME focused industrialization strategy is much more long-term as it would accelerate the economy’s shift of tomorrow’s comparative advantage into higher value-added, higher return products and can help in securing the economy’s place in higher potential industries.

Copyright 2012 Foundation for African Business and Consumer Services