Out-Law News 2 min. read

South Africa seeks partnerships to ‘intensify industrial growth’

South Africa must “vigorously leverage” its enormous resources and develop strategic partnerships in the burgeoning regional oil and gas economy, according to a new industrial strategy blueprint.

The Industrial Policy Action Plan (IPAP) for the next three years, launched by trade and industry minister Rob Davies this week, said the goal is to “push South Africa’s potential for industrial step-change to greater intensity” – with infrastructure development and localisation, beneficiation, a sharper focus on regional integration and exports and enhanced industrial financing among the “major drivers of industrial development”.

Davies said the importance attached to South Africa's infrastructure-build programme was underscored by the fact that 1 trillion rand (ZAR) ($96 billion) will have been spent on the programme by the time national elections are held next month. Further projects valued at ZAR 840bn are scheduled to be rolled out over the next three years under the current administration’s ‘medium term expenditure framework’.

Davies added that, “after five gruelling years of global and local economic headwinds, South Africa now finds itself realistically poised for a sustainable breakthrough as a robustly re-industrialising, competitive, forward-looking regional economic power”. However, the minister warned against expecting “some sort of imminent, spectacular transformation”, adding: “What lies ahead will be a tough, incremental process, with advances and setbacks.”

“State and private capital co-operation must increasingly complement one another if we are to achieve the levels of investment in the production sectors that is required,” Davies added.

According to IPAP, natural gas currently makes up only 3% of the total primary energy mix in South Africa. The preliminary identification of massive reserves of shale gas – currently estimated at “possibly as large as 485 trillion cubic feet – would, if proven to be correct, make it the fifth largest shale gas field in the world”.

IPAP said the medium-term outlook is for growth to improve gradually “but for the recovery to be less robust than previously forecast”. Real gross domestic product (GDP) growth is projected to recover to 2.7% in 2014, from the estimated 1.8% in 2013, and to reach 3.4% in 2015.

IPAP said South Africa’s real GDP growth is expected to remain well below the average of 5.4% projected for sub-Saharan Africa in 2014-16. However, the Real Effective Exchange Rate (REER), a measurement of the rand’s performance against a basket of currencies, declined by 15.2% from March 2012 to September 2013. “This, in principle, has the potential to give new impetus to price competitiveness, notwithstanding developments in other emerging markets,” IPAP added.

Meanwhile South Africa’s trade with the rest of the African continent is a fast-emerging “bright spot” in the overall export picture, according to IPAP. In percentage terms, over the past decade or so, non-mineral exports to sub-Saharan Africa grew from 19% to almost 29%, overtaking exports to the European Union (down from 41% to 28%). Sub-Saharan Africa now accounts for around half of South Africa’s non-mineral exports; while at the same time non-mineral exports to the BRICS group of five major emerging national economies – Brazil, Russia, India, China (and South Africa itself) – have almost doubled, from 5% in 2000 to 9% in 2012.

The Middle East and BRICS continue to “represent important new markets for upper-income consumer products such as confectionery, fruit juices, indigenous teas, fruits and wine” and should be exploited further, IPAP said.

According to IPAP the processing of cassava into starch, which has a wide number of applications in confectionery, sweeteners, textiles, paper, animal feed and alcohol production, is “one important emerging opportunity”. Supplies of cassava are largely sourced and imported from south-east Asia.

South Africa’s Department of Energy has announced that, as of October 2015, it will be mandatory to blend 2% of locally produced bioethanol into petrol. Sorghum and soybeans will be used as the respective biofuels and biodiesel feedstocks. “This will potentially create a ZAR 15bn per annum biofuels industry, with a second-order effect of creating 15,000 to 18,000 direct jobs in the various agricultural value chains alone,” IPAP said.

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