This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
5 Trade, Industrial And Small Enterprise Policies
5.1 Recent policy developments
The unreliability of raw material exports in the 1980s persuaded policy-makers that the central thrust of trade and industrial policy had to be the pursuit of employment creating international competitiveness. This entails a shift away from demand-side interventions, such as tariffs and subsidies, which raised prices received by producers, to supply-side measures designed to lower unit costs and expedite progress up the value chain.
While long-term survival strategies have had to be developed for certain sensitive sectors, general progress towards an outward-oriented stance is reflected in a number of achievements:
replacement of former quantitative restrictions with tariffs;
rationalisation of the tariff structure by almost halving the number of tariff lines;
abolition of import surcharges, completed in October 1995;
phasing down of tariffs, begun in 1995, by on average one-third over five years; and
phasing out of the general export incentive scheme, to be completed by the end of 1997.
Another critical policy thrust has been the expansion of market access through preferential trade arrangements with industrial countries and pursuit of regional economic integration. In the area of concessionary industrial finance, several schemes have been introduced by the Industrial Development Corporation (IDC) and the Regional Industrial Development Programme (RIDP) has been expanded to include a simplified scheme applicable to smaller enterprises.
The impact of trade restructuring is not easily measured. Many firms have been under intense pressure, compounded by the real appreciation of the exchange rate in 1995. Nevertheless, exports and employment in manufacturing have increased, taking advantage of the international cyclical upswing. The most positive sign, also evident in sectors sensitive to the lowering of trade barriers, has been the significant increase in new foreign and domestic fixed investment in the manufacturing sector.
5.2 Compensating tariff reductions
Based on the foundations which have been laid over the past two years, trade and industrial policies will seek to enhance the competitive capacity and employment absorption of manufacturing, alongside continued promotion of tourism as an export sector and appropriate growth-oriented policies in other sectors.
As a result of the real depreciation, a compensating lowering of tariffs is desirable, within the context of an orderly implementation of agreed tariff realignments. The mid-1996 real effective exchange rate is some 12 percent below the January value, which should permit a significant acceleration of the tariff reductions to which South Africa is committed in terms of World Trade Organisation agreements. These reforms will be structured to lower prices for industrial inputs and low-income households, to avoid job losses in sensitive sectors, and to remove price distortions in domestic markets. The overall effect will be to minimise the negative effects of the depreciation on consumer prices and maximise the positive effects on industrial production. It will also encourage additional investment and job creation in competitive sectors, including priority industries.
5.3 Industrial support measures
Industrial innovation support programmes will be enhanced. This includes the incentive provided in terms of the Special Programme for Industrial Innovation, which has had some positive impact on domestic innovation, as well as the matching grants under the Technology and Human Resources For Industry Programme, designed to strengthen the relationship between educational institutions and industry. The technology transfer programme of the Department of Trade and Industry, which serves to police and advise on licensing and royalty agreements, will be converted into an agency dedicated to facilitating access by firms to needed technologies.
Several programmes have already been introduced to promote productivity, such as the IDC's Multi Shift and World Player schemes. A major investigation is now being undertaken under the auspices of NEDLAC to develop a programme to encourage the adoption of best practice work organisation.
To stimulate competitive and labour absorbing industrial development, an accelerated depreciation scheme will be introduced for all new investments in manufacturing. The tax allowance programme will apply to qualifying plant and equipment which is acquired and brought into use for the first time during the period 1 July 1996 to 31 September 1999. In addition, the current Regional Industrial Development Programme will be replaced by a tax holiday available to completely new pre-approved projects initiated during a window of three years, beginning in the last quarter of 1996. Approved projects will get tax exemptions for a period of time determined by three factors: regional location, job creation, and priority industries. The tax holiday, of a maximum of six years, will come into effect as soon as the project becomes liable for tax, and may not be used beyond the tenth year after the initial investment is undertaken.
Closely related are the twelve industrial priority industry investigations as well as the regional industrial locations studies. These major initiatives are intended to identify mechanisms to enhance the competitiveness of selected industrial sub-sectors. While the clusters may be eligible for the proposed tax holiday, specific interventions will also be considered where necessary. These studies involve constant interaction with both owners and workers.
The review of competition policy which is presently under way will be reflected in strengthened new legislation. The main objectives of competition policy are to encourage competition among firms, protect consumers and downstream firms from restrictive practices, and to open up new opportunities for investment.
Ongoing efforts to improve the access of South African firms to foreign markets will concentrate on exploring special arrangements with major trading blocs and continuing participation in the multilateral World Trade Organisation process, as well as other initiatives such as the Cairns Group. A further key element of the strategy is the gradual integration of the economies of Southern Africa through the trade and investment protocols of SADC.
The reform of the system of industrial finance is well advanced. The IDC will continue to provide loan finance, equity, and credit guarantee facilities, and will adapt its programmes to satisfy new needs. The institutional capacity to support small business is also largely in place. The various regional development corporations, however, still need to be integrated more fully into the new investment promotion effort. Other support institutions such as the Board of Tariffs and Trade, the Competition Board, the South African Bureau of Standards, and the National Productivity Institute are also receiving attention to meet the challenge of global competition and employment creation.
5.4 Small and medium-sized enterprise development
The promotion of small, medium and micro enterprises (SMMEs) is a key element in the Government's strategy for employment creation and income generation. Due to obstacles of the past, the SMME sector is severely under-developed. A major effort will be made to operationalise and implement the policies outlined in the White Paper on small business promotion. The relevant legislation is under consideration and various programmes and institutions have been established to give effect to the strategy, including:
the Small Business Centre attached to the Department of Trade and Industry;
Ntsika Enterprise Promotion Agency to provide non-financial assistance;
Khula Enterprise Finance Limited for wholesale loans;
Khula Credit Guarantee Limited for loan guarantees;
a pre-shipment export finance guarantee facility to expand access to working capital; and
the Competitiveness Fund for consultancy advice on technology and marketing.
The Simplified Regional Industrial Development programme will be continued in a modified form as a grant programme tailored to the needs of small and medium-sized firms.