NUMSA submission on IPAP II

1. NUMSA submission on IPAP II 3rd March 2010 To the Portfolio Committee on Trade & Industry

2. NUMSA submission on IPAP II • Introduction and Context 1.1 An ambitious, revised Industrial Policy Action Plan has been released by the Department of Trade and Industry. We welcome the opportunity to comment on this important policy document. 1.2 The economic and social context in which this IPAP document is released is known to many role players in economic policy making. It is characterized by the following: • A structural capitalist crisis which had a huge socio-economic impact on the lives and conditions of working people and the poor in our country—959 000 jobs have been lost in just one year, bringing almost 5 million South Africans into poverty; • High levels of unemployment and underemployment—above 35% - the worst among inflation-targeting countries of comparative industrial structure; • Growing social and income inequalities—we are now leading in terms of inequality, ahead of Brazil. • Loss of productive capacity (de-industrialization) of the South African economy which preceded the current crisis—our manufacturing sector now accounts for less than 20% of total production.

3. NUMSA submission on IPAP II 1.3. As a union, we welcome and note Government’s broad approach to industrialization, and what the document refers to as the core objectives of IPAP. To name but a few they are: • Facilitation of diversification beyond the current reliance on traditional commodities and non-tradable services; • Promotion of a more labour-absorbing industrialization path; • The promotion of a broad-based industrialization path characterized by the increased participation of historically disadvantaged people and marginalized regions in the mainstream of the industrialized economy; • Contributing to industrial development on the continent with a strong emphasis on building its productive capacity.

4. NUMSA submission on IPAP II 1.4.These, on paper, constitute a break with neo-liberal economic orthodoxy in economic policy making and signal a bold step on the side of the South African government to confront the structural challenges of the South African economy. It is the realm of practice that will tell whether the South African government is on course or not. 1.5.We as NUMSA are also in agreement with the analysis made in IPAP’s problem statement when it says: “Growth has been driven by unsustainable increases in credit extension and consumption not sufficiently underpinned by the growth of the production sectors of the economy. Thus consumption-driven sectors (financial intermediation, insurance and real estate, transport, retail, catering and accommodation grew by 107% between 1994 and 2008 (7.7% annually) by contrast production sectors (agriculture, mining, manufacturing, electricity and water and construction grew by 41% (2.9% annually)”. This is the reality we have been presenting to government and the ruling party for the past 15 years.

5. NUMSA submission on IPAP II 1.6 We now welcome the fact that government is in agreement with the working class on this matter. We now ask for bold, decisive and timely responses and speedy implementation of government policy to change this reality. 1.7 Our consistent contention as a union is that an economy at the stage of development as ours, cannot afford to have non-production sectors taking the lead in our growth and development path. Our socio-economic challenges demand that we develop capacity to produce material produce to meet the basic needs of our people. Failure to realize this problem will subject our economy to persistent reliance on foreign capital to finance the imports of such necessities, thereby threatening our country’s national sovereignty. 1.8 The success of IPAP will therefore be judged on the extent to which it changes this ugly South African economic picture. Below we deal with substantive matters raised in the document.

6. NUMSA submission on IPAP II • Coherence between Macro and Micro Economic Policy IPAP II argues that: “Numerous commentators have emphasized the need for macro economic policies to be aligned and calibrated to micro-economic imperatives. Therefore there is a need to work towards stronger coherence and mutual supportiveness of macro and micro economic policies”. It further argues that: “the success of the IPAP depends fundamentally on macro-economic policies which are favorable-relative to our key trading partners- in the following respects: • A competitive and stable exchange rate regime; and • A competitive real interest rate regime”.

7. NUMSA submission on IPAP II 2.2 We share this perspective. We are however disturbed by the fact that macro-economic policy continues to be an issue under debate. We now ask the Ministry of Economic Development to settle the debate and give directives on government policy. This should involve, among other things, a framework document that: • Outlines the kind of macroeconomic policy that is required to realize the IPAP; • Lays out the role of state-owned enterprises and other agencies in economic development • Systematically lays out a growth and development path for the South African economy, upon which 5-year national plans are to be formulated. • Concretely outlines a strategy to support rural development, including a strategy to revitalize rural towns. This will involve the dismantling of the nodal approach to spatial development, and the formulation of a comprehensive approach that will ensure a spatially inclusive productive economy.

8. NUMSA submission on IPAP II • Resourcing the IPAP II 3.1 While in agreement with the proposals of the document, we are of the view that the document falls short of taking forward alliance agreements such as: • The creation of the Council of Finance Development Institutions • A transitional measure towards one DFI similar to the Brazilian Development Bank (BNDES) 3.2 In the short term we need to take forward the agreed upon process of amending the Industrial Development Corporation (IDC) Act speedily so that the state can inject capital directly in to IDC which is orientated towards labour-absorbing sectors. This should also include the amendment of regulations of all development finance institutions, such as the Land Bank and the Development Bank of South Africa (DBSA), so that they are not constrained by market imperatives in their pursuit of developmental objectives such as financing industries prioritized in IPAP.

9. NUMSA submission on IPAP II 3.3 At a broader level, this means that the state must find ways in which to control credit through institutions such as a state bank, workers’ bank, and putting quantitative controls on commercial banks. 3.4 We agree with the proposals that are set out in the document, but would further propose that the national industrial participation program and Competitive Supplier Development Programme (CSDP) be removed from Department of Energy (DPE) to Department of Trade and Industry (DTI). We have long called on government to put all industrial development programs under one department and that is the DTI.

10. NUMSA submission on IPAP II • Development Trade Policies 4.1 While in agreement with the institutions that have been identified to enforce the SA tariff and non-tariff barriers regime, we are disappointed by the performance of International Trade Administration Commission (ITAC) with regard to the duration of processing applications. Many companies have closed and jobs have been lost due to delays in ITAC. For example some companies in the television industry are now closing due to the failure of ITAC to process applications in time. 4.2 This case highlights the need for the state to be efficient and timely in its implementation of policy. 4.3 Our contention as a union is that the state should engage in active trade policy that aims to selectively reverse the liberalization process that poses a threat to the development of a coherent domestic productive base. This active trade policy should be coupled with the move towards a competitive exchange rate, a creative application of non-tariff barriers and an aggressive drive to uplift the skills base of our labour force. 4.4 Another area that requires urgent attention is the surveillance and monitoring of our borders and enforcement of trade agreements with Southern African Development Communities (SADC) in order to eliminate scope for imports to flood our economy through alternative channels and to avoid dumping. This calls upon South African Receiver of Revenue (SARS) and the law enforcement agencies to escalate their capacity to defend our economy from dumping.

11. NUMSA submission on IPAP II • Sector Clusters 5.1 We are in agreement with the clustering approach in that it gives coherence, co-ordination and focus on the side of the department. Moreover as we indicated before, the success of IPAP will rely on National Treasury releasing resources for its implementation. We want to propose that if the democratic state is serious about our industrialization agenda we need to allocate a certain portion of our national expenditure to finance industrialization. 5.2 This involves the specification of the proportion, in the budget, that will be used to procure locally, particularly in the capital equipment sectors that are critical to the roll-out of the infrastructure development programme and the promotion of productive capacity in agriculture. 5.3 Glaring absences in IPAP are export taxes. Companies that are doing well in exports have to be taxed to finance our industrial strategy. This will go a long way to create sectoral balance. We propose that DTI must conduct an international study about how best to implement this in the South African context.

12. NUMSA submission on IPAP II • The question of Arcelor Mittal and SASOL 6.1 An active, interventionist democratic developmental state can never use one set of instruments in driving an industrializing agenda. It has to use nationalization as one of its core instruments to punish and discipline companies that are showing signs of uncompetitive and monopolistic behaviour. There is agreement that the pricing system of Arcelor Mittal undermines our industrializing agenda. 6.2 The National Union of Metalworkers of South Africa demands of the democratic state to act decisively and in the interests of our development agenda, by renationalizing the two above-mentioned companies. We further demand that profits of these companies be used to finance education, skills development and research and development of innovation. 6.3 The call to nationalize these companies is informed by the position that these companies occupy in the value chain of our economy. There can be no talk of manufacturing without steel and chemicals.

13. NUMSA submission on IPAP II • A neglect of the spatial dimension Whilst IPAP shows signs of a progressive industrializing agenda, it is very silent on the distribution of economic activity between rural and urban. It has a potential to continue to perpetuate colonialism of a special type (CST) and unequal economic geography. South Africa continues to be a labour surplus economy where poverty and unemployment are concentrated in the former Bantustans. Our industrial strategy must assist us in terms of dividing industrial activities equitably between and among provinces. There has to be a shift away from nodal planning in terms of economic development. The developmental state that we seek to build must develop and apply capacity to direct investment. This will also go a long way in the pursuit of rural development and the elimination of economic enclaves that our country suffers from.

14. NUMSA submission on IPAP II 8. Competition policy Though there have been successes in this area, NUMSA proposes that in cases where companies have been found guilty of wrong-doing, fines should also require companies to reduce prices to consumers so that there is a direct benefit to them. 9. Key action programs and the role of parliament Parliament, from now on has to tighten its monitoring role; it has to make sure that it pushes the Minister to account on a regular basis about progress in the implementation of this agreed upon program. 10. Concluding remarks Overall we agree with the analysis and welcome the paradigm shift and commend the Department on the good work done so far. As NUMSA we will continue to monitor the implementation of this document and will put pressure on the department when there are deviations to a neo-liberal agenda.