How to master the art of stimulating run down sectors
Ebrahim Patel’s automotive master plan is an example of a nuanced approach that is sensitive to context
03 DECEMBER 2019 - 14:55
Since Ebrahim Patel’s arrival as political head of the department of trade & industry, a new buzzword is gaining momentum: the master plan. The seeds for this new approach were planted by his predecessor, Rob Davies, but now Patel seems to be becoming the master plan minister.
The idea is to take an industrial sector in need of support and investment, and set up a structure to nurture it. Most probably, this approach has been influenced by the auto sector, which already has its own master plan. The auto master plan has set ambitious targets for growth in vehicle assembly, local content and BEE support. In return, the government has extended its generous support mechanism.
An environment of certainty exists in which the auto giants can plan for the longer term, and we recently saw the fruits of this when Toyota announced a major expansion of commuter taxi production at its Durban plant, with an investment of almost R500m.
At the first presidential investment summit, the auto firms lined up to pledge additional investment of R50bn over five years, and more recently they confirmed a new R6bn transformation fund. On the eve of the summit, President Cyril Ramaphosa was at a Ford factory, where he launched the R3.5bn first phase of the new Tshwane auto special economic zone, which is already fully subscribed. So, to a large extent, the auto industry box has been ticked; the master plan is up and running. Where to from here?
Master plan minister Patel seems to be keen to inject the master plan model into the DNA of SA’s industrial strategy. A master plan for the poultry sector, and a clothing & textiles master plan were both signed at the recent investment summit. There are undoubtedly more to come, but will this strategy work?
For some time, people from industry and the government have been wondering how well we can replicate the production and export growth of the auto industry in the other industrial sectors. It is going to be a challenge. The auto industry is unique in the sense that you have six or seven key role players — the giant multinational assemblers — that control the value chain and set the rules for all the sector’s smaller multinational and local companies, which supply them and are dependent on them.
The auto assembly companies have been shown to have an impressive capacity to engage with the government. Their weight and global influence affect the way in which they operate. They are able to get results from their interactions with the government. State support for SA auto manufacturing dwarfs its support for any other sector. BEE rules have been applied with a light touch, to allow the multinationals to keep full ownership of their SA subsidiaries. Instead, they have been allowed to pledge to fund and support BEE in related parts of the value chain, and the industry fund to implement this has been established.
So when you look at BEE in the auto industry it is far more nuanced and sensitive to context than elsewhere in the economy. The government has been open to negotiating a way to improve on BEE through deep engagement with its social partners.
The industry structure in the agro-processing industry, where master plans are advancing, is quite different. There are a few big local companies and multinationals in the sector, but there are also a lot of small and medium enterprises that work directly with farmers. These firms are employment intensive, operating in locales where we actually need the jobs. Value chain relationships in agro-processing are also governed by several players, such as large retail chains food processors.
With this structure, different from that of auto, the relationship with the government is also different. In addition to the disadvantage posed by being small, it would be fair to assume that the demographic characteristics of the agro-processing firms — mainly white, family-owned farm-based processing and packaging operations — increase their social distance from those who make decisions in the government. The two-way communication that is a prerequisite of successful policy design and implementation is hampered by SA's racial legacy.
It is doubtful whether the industry bodies and trade unions in the agro-processing sector are as engaged by the government as are auto industry lobby groups National Association of Automobile Manufacturers of SA (Naamsa), the National Association of Automotive Component and Allied Manufacturers (Naacam) and the union Numsa. When the government makes changes to the automotive programme, it engages intensely with the auto industry and its labour unions. When it talks to the agro-processing sector, the interaction has a welfare element — a donor and recipient relationship — with far less interaction with firms, labour and other social partners. This has led to poor outcomes in harvesting existing state support.
The department of trade & industry (DTI) has an agro-processing support scheme to assist manufacturers, but the impractical BEE rules with which firms have to comply to qualify for state support have resulted in insignificant support to the sector, which is evidenced by the latest department incentive report, which indicates that only one company received support under the scheme. As we see with all aid recipients, there is absolutely no pushback from industry on this inappropriate donor-driven aid model.
We need to see some flexibility and full engagement from Patel as he develops the new master plans. If he were to follow a model of interaction, close to what has been happening with the auto sector, that would be a big advance on what currently happens. I am not suggesting that the minister is unaware of the challenges. His trade union background in the clothing and textile sector will have given him a comprehensive insight into its structure, the challenges it faces and what is required to at least arrest, if not reverse, the serious decline of recent years.
What we will need is flexible, thorough, consultative planning with each master plan. Each needs to be panel-beaten into the right shape for that industry, and then set on track and allowed to run. It worked with the auto sector; wouldn’t it be wonderful if other industrial engines could be primed to rev up our economy?
• Tumelo Chipfupa is a co-founder of Cova Advisory.