VZCZCXRO4130
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #4122/01 3391226
ZNR UUUUU ZZH
R 051226Z DEC 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2882
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 02 PRETORIA 004122 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS TO USTR FOR P.COLEMAN 
DEPT OF COMMERCE FOR J.DIEMOND 
TREASURY FOR T.RAND 
 
E.O. 12958: N/A 
TAGS: ECON ETRD SF
SUBJECT: SAG LAUNCHES NATIONAL INDUSTRIAL POLICY FRAMEWORK 
AND ACTION PLAN 
 
REF: PRETORIA 003940 
 
¶1.  Summary.  The Department of Trade and Industry (DTI) 
released the much-awaited National Industrial Policy 
Framework (NIPF) and accompanying Industrial Policy Action 
Plan (IPAP) in August.  The objective of the NIPF is to 
provide strategic direction (which can be read as 
"intervention") to the economy by promoting increased 
value-added industries, movement to a knowledge economy, and 
promotion of a more labor-absorbing industrial plan.  Four 
lead sectors have been targeted by the NIPF, including: 
Capital/Transport Equipment and Metal Fabrication; Automotive 
and Components; Chemicals, Plastic Fabrication and 
Pharmaceuticals; and Forestry, Pulp, Paper and Furniture. 
The NIPF's goal also includes maintaining momentum on four 
ASGI-SA sector priorities: Business Process Outsourcing, 
Tourism, Biofuels, and Clothing and Textiles.  The IPAP sets 
out specific interventions with benchmark dates to assist 
each of these sectors.  South Africa has historically been 
strong on strategizing, but weak on implementation, and 
whether the SAG is able to meet its own benchmarks, one of 
which has already been delayed, remains to be seen.  End 
Summary. 
 
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NIPF RELEASED 
------------- 
 
¶2.  Following several revisions and Cabinet's requirement for 
an action plan, the Department of Trade and Industry (DTI) 
released the much-awaited National Industrial Policy 
Framework (NIPF) and accompanying Industrial Policy Action 
Plan (IPAP) in August.  The objective of the NIPF is to 
provide strategic direction (which can be read as 
"intervention", according to references by DTI Deputy 
Minister Rob Davies during speeches) to the economy by 
promoting increased value-added industries, movement to a 
knowledge economy, and promotion of a more labor-absorbing 
industrial plan.  The SAG hopes that the NIPF will improve 
non-traditional export performance and overcome the pervasive 
view that South Africa's export performance and creation of 
manufacturing jobs lagged during its unilateral trade 
liberalization policy over the last ten years. 
 
¶3.  Four lead sectors have been targeted by the NIPF, 
including: Capital/Transport Equipment and Metal Fabrication; 
Automotive and Components; Chemicals, Plastic Fabrication and 
Pharmaceuticals; and Forestry, Pulp, Paper and Furniture. 
The NIPF's goal also includes maintaining momentum on four 
ASGI-SA sector priorities: Business Process Outsourcing, 
Tourism, Biofuels, and Clothing and Textiles.  The IPAP sets 
out specific interventions with benchmark dates to assist 
each of these sectors. 
 
¶4.  The IPAP provides numerous mechanisms for intervention in 
these specific industries, such as import tariff reductions 
for downstream components, completing a comprehensive review 
of import duties relating to lead sectors, competition policy 
reform, increased industrial financing, improved incentive 
schemes and tax incentives.  The IPAP provides benchmark 
dates for many of these mechanisms to be completed or in 
place. 
 
-------------------- 
CONTROVERSIAL POLICY 
-------------------- 
 
¶5.  Controversy over the release of the NIPF was well 
publicized in the press.  Many economic experts and think 
tankers expressed concern over the idea that the government, 
and not market forces, would be selecting and prioritizing 
the industries to be promoted.  Further, seemingly 
contradictory measures are expected to take place (i.e., 
designing a tariff structure to protect textiles that does 
not in turn negatively effect clothing manufacturers.) 
Qnot in turn negatively effect clothing manufacturers.) 
Criticism of the plan's vagueness and lack of detail as to 
the exact steps taken have also been raised.  Lastly, the 
SAG's ability to implement this broad-sweeping policy with 
current skills and capacity has been called into question. 
 
¶6.  However, DTI points to the success of three manufacturing 
and tradable service sectors which the government actively 
supported since 1994, including automotives under the Motor 
Industry Development Plan (MIDP), resource-processing 
industries and tourism.  DTI argues that the new industrial 
policy will assist the other sectors in reaching their full 
level of development to become leading sectors. 
 
 
PRETORIA 00004122  002 OF 002 
 
 
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CAPACITY AND FUNDING? 
--------------------- 
 
¶7.  The SAG has historically been strong on strategizing, but 
weak on implementation, largely due to capacity issues.  The 
NIPF specifically mentions the need to improve the 
government's organization and capacity to implement the 
policy.  DTI America Desk Manager Cobs Pillay informed Trade 
and Investment Officer that "DTI employees have some 
reservations about capacity."  According to Pillay, the DTI 
division responsible for implementation plans to increase its 
workforce to 280 employees with 18 Chief Directors covering 
18 sectors.  Whether this will be sufficient remains to be 
seen, but one of the benchmarks set forth in the IPAP has 
already been delayed (i.e., the development of a textiles 
Centre of Excellence by August 2007.) 
 
¶8.  The cost of funding many of the proposed intervention 
mechanisms may also be a barrier to implementation. 
Incentives, tariff cuts, and industrial financing all carry a 
price tag, and the Treasury, which is already skeptical of 
this policy, will want to ensure the benefits outweigh the 
costs. 
 
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COMMENT 
------- 
 
¶9.  Regardless if the new policy can be implemented to a 
successful conclusion, the NIPF represents a reversal in SAG 
trade policy from aggressive neo-liberal reforms in the '90's 
to a far more conservative, protective approach.  In order to 
support the policy, it can be expected that South Africa will 
continue to be a difficult negotiating partner in DOHA and 
bilateral negotiations by resisting tariff cuts in protected 
sectors and only lowering tariffs in areas that will provide 
additional net protection to domestic products.  As Davies 
noted in a recent speech, South Africa needs "space" to build 
and reinforce its local industries before they can be 
competitive in the global market. 
BOST