Governments use a variety of policy instruments to support, transform and advance industrial development. The instruments include financial and nonfinancial incentives such as grants, loans, guarantees, credits, concessions, tariffs and nontariff measures.
The syndication of various financial instruments, including offtake contracts, are all important in the financing of industrial policy. The objective is to promote structural change in the economy by accelerating growth and raising competitiveness of the economy.
In the context of SA, structural transformation includes economic empowerment, which is recognised by the constitution as imperative to redressing the inequalities of the past and promoting economic equality and inclusivity. Therefore, empowerment is not only an economic imperative but a justiciable socioeconomic right in the Bill of Rights.
Besides the government intervention to anchor structural transformation, companies that have a sizeable market share or influence within their respective industries, and exhibit adaptability and innovation in their business practices, have a critical role to play in economic empowerment in SA. However, the process of structural transformation remains particularly challenging.
The ensuing debate on the policies, legality and applicability of economic empowerment in SA must be assessed against the ownership patterns, structure and concentration of the economy. These factors have their own inefficiencies that affect the performance of the economy.
Based on corporate income tax assessments and market share estimates of leading companies in various economic sectors, it is evident that big companies and conglomerates dominate the SA economy, thus making it to be highly concentrated.
The economy is also strongly financialised with linkages to mineral or resource based value chains, amid less processing of minerals in SA. The dependency on mineral or resource based sectors is the hallmark of the SA growth story. The risk is that the demand for mineral commodities is cyclical and prone to global price fluctuations.
The sector has backward and forward linkages with the primary, secondary and tertiary sectors, the latter being dominated by the financial, legal and information, communication and technology subsectors. Trade and Industrial Policy Strategies economist Neva Makgetla argues that SA also developed a new dependency on exports of commodities used in iron, manganese and chrome ore, ferro alloy and steel production.
She contends that the growing reliance on exports of steel-related products, while bringing in critical export revenues, has done little to promote inclusive growth; these sectors mainly employ males.
The other challenge is that some of the companies in the mineral or resource based value chains are either multinational companies or have dual listings and/or headquarters outside SA. Through their interconnectedness, there are various forms of transfer pricing taking place for the payments of intellectual property, licences, management, procurement, marketing and distribution, as well as interest free loans.
These transactions are linked to aggressive tax planning schemes. To ensure that the incentives are allocated in a fair and efficient manner and that government receives value for money for its support and investments, there must be proper oversight from the industrial finance and taxation point of view.
Companies receiving government incentives must declare their transfer payments and report on productivity, jobs created and sales in domestic and export markets. If the support is not yielding positive results, the government should not hesitate to make corrections on the financial and economic losses incurred.
This indicates that navigating through the structure of the SA economy, its ownership and financial relationships is complex and requires thorough analysis, which must dispel the myth or a simplistic view that economic empowerment stalls growth.
A comprehensive analysis of the structure and performance of the SA economy should be at the heart of policy debates and choices, because failure to do so has consequences for structural economic transformation in SA.
• Dr Makube is acting deputy director-general: sectors branch at the department of trade, industry and competition.
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