VZCZCXRO1788
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2599/01 2060924
ZNR UUUUU ZZH
R 250924Z JUL 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0923
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHTN/AMCONSUL CAPE TOWN 4634
RUEHDU/AMCONSUL DURBAN 9020
RUEHJO/AMCONSUL JOHANNESBURG 7128
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 PRETORIA 002599 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPARTMENT PASS USTR FOR PATRICK COLEMAN 
TREASURY FOR TRINA RAND 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD SF
SUBJECT: SOUTH AFRICA'S NEW INDUSTRIAL POLICY:  A SNEAK 
PREVIEW 
 
 
PRETORIA 00002599  001.2 OF 002 
 
 
¶1.  (U) This cable is sensitive but unclassified; not for 
internet distribution. 
 
¶2.  (U) Summary:  South Africa's new industrial policy will 
aim to strengthen tradeable goods sectors and promote 
manufactured exports, according to Deputy Minister of Trade 
and Industry Rob Davies.  The capital goods industry will 
receive top priority, with other high priority sectors 
possibly to include chemicals, agroprocessing, and the motor 
industry.  The scale of the policy is still uncertain and 
much will depend on SAG willingness to fund schemes.  End 
Summary. 
 
------------------------------------ 
South Africa's New Industrial Policy 
------------------------------------ 
 
¶3. (U) South Africa's new industrial policy will aim to 
strengthen tradeable goods sectors and promote manufactured 
exports, according to Deputy Minister of Trade and Industry 
Rob Davies.  Davies outlined the new policy at an American 
Chamber of Commerce meeting in Johannesburg on July 20.  He 
said that the oft-delayed Industrial Policy Framework and 
Action Plan would be approved by the SAG cabinet during the 
week of July 23 and publicized soon thereafter. 
 
¶4.  (U)  Davies noted that South Africa's GDP is growing by 5 
percent per year, the best performance in forty years.  The 
SAG is dissatisfied, however, that growth is not spread 
evenly across the economy, with nontradeable sectors such as 
construction and financial services outpacing potentially 
labor-absorbing tradeable sectors such as manufacturing.  At 
the same time, the SAG has been impressed by the performance 
of those few tradeable sectors, such as autos and steel, 
which have received industrial policy-type support. 
 
¶5.  (U) These factors, Davies said, have convinced the SAG to 
"refine and improve" its existing industrial policy programs. 
 "We have decided to act on a larger scale in key sectors. 
We must increase the scale of our involvement," he told 
AmCham. 
 
------------ 
Some Details 
------------ 
 
¶6.  (U) Davies said the new industrial policy will take two 
forms.  Industrial policy "writ small" will aim to strengthen 
existing industries by providing duty credits, tax breaks, 
training programs, special infrastructure, and other support. 
 In contrast, industrial policy "writ large" will aim to "get 
ahead of the market" through interventions designed to 
mobilize investments and develop key sectors.  Davies said 
the SAG is just beginning to think about industrial policy 
writ large, but he indicated that the first sector likely to 
benefit from large-scale support would be the capital goods 
industry.  This sector would be developed to support the 
SAG's USD 60 billion infrastructure expansion plans and 
thereafter to export to foreign markets.  Other priority 
sectors could include chemicals, agroprocessing, and the 
motor industry. 
 
¶7.  (U) Davies said that sectoral policies would be designed 
and adopted only after close consultations with business, 
labor, and other stakeholders.  The SAG would not issue 
directives to the private sector, he promised.  The SAG 
would, however, insist on reciprocity:  in exchange for 
support, firms would have to commit to specific levels of 
investment, job creation, and/or export performance.  Firms 
that welshed on commitments could face "remedial action." 
 
¶8.  (U) Davies could not say how much money would be 
dedicated to new industrial programs, beyond noting that 
existing levels of financial support were certain to be 
increased.  The South African Treasury, he said, would 
scrutinize sectoral programs to ensure that the country got 
value for its investment.  "We will have to prioritize.  We 
aren't going to divert funds to support activities that would 
happen anyway," he said. 
 
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PRETORIA 00002599  002.2 OF 002 
 
 
Comment 
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¶9.  (SBU)  The true scale of the new policy remains to be 
seen, and much will depend on SAG willingness to underwrite 
new and potentially expensive schemes.  Davies' overview 
suggested that industrial interventions will be targeted and 
subject to review by the Finance Ministry, which generally 
respects markets and worries about the revenue implications 
of industrial policy.  Other challenges will include the 
ability of the Department of Trade and Industry to persuade 
other SAG departments and parastatals to provide incentives, 
such as reduced telephone pricing for business outsourcing 
call centers. 
Bost