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SA sees black industrialist potential in Japanese production model

Trade and Industry Minister Dr Rob Davies

Trade and Industry Minister Dr Rob Davies

Photo by Duane Daws

25th September 2014

By: Terence Creamer

Creamer Media Editor

  

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Trade and Industry Minister Dr Rob Davies believes South Africa should mimic the Japanese model of developing small manufacturing enterprises in close geographical proximity to large industries, thereby enabling small industrialists to supply inputs directly into the production networks of the larger entities.

Addressing the second Japan-South Africa seminar in Johannesburg this week, Davies argued that such production-network integration could also become an important platform for the creation of black industrialists.

The idea would be for manufacturing entrepreneurs to supply intermediate goods into large domestic and foreign enterprises – inputs that could also eventually be sold into global supply chains.

Professor of Economics at the Graduate School of Asia-Pacific Studies at Waseda University, Shujiro Urata, argued that strong linkages in Japan between large and small manufacturing enterprises had been important to the country’s industrialisation and urged South Africa to focus on the development of small and medium-sized manufacturing enterprises, or SMEs.

“The importance of SMEs can not be overemphasised,” Urata added, while adding that, for industrialisation, it was important to integrate SMEs with established industrial firms.

PGM VALUE ADDITION

Davies saw particular potential for deploying the model at the proposed platinum group metals (PGM) special economic zone (SEZ), which was being planned for the Rustenburg area, in the North West province.

The PGM SEZ – the creation of which would be facilitated by emerging legislation that would make it possible for government to offer tailor-made incentives for investors willing to pursue the creation of specific industrial value chains in specific areas – was among a number of SEZ concepts currently under consideration nationally. The Saldanha Bay industrial development zone (IDZ) had already been proclaimed and President Jacob Zuma would officially launch the Dube Tradeport IDZ, in KwaZulu-Natal, in early October.

Davies urged Japanese businesses to consider supporting efforts to develop PGM SEZ, saying such cooperation would be especially critical in the area of fuel-cell manufacturing. But government was also keen for the zone to focus on opportunities in the manufacture of jewellery and catalytic converters.

The SEZ was also central to government’s ambition to increase minerals beneficiation, which was being pursued as part of a broader reindustrialization thrust, designed to shift South Africa onto a production-led rather than consumption-led growth path.

Urata, who has studied the industrialisation models across East Asia, argued that foreign direct investment (FDI) and trade had been key drivers for the development of manufacturing in the region over the past few decades.

The rise in FDI flows from Japan into the rest of East Asia in the 1980s and 1990s had also been important in expanding intraregional trade and the integration of production networks. Intermediate goods currently dominated trade flows, with investment decisions driven by a desire to maximise supply-chain efficiencies.

Urata argued that FDI could also become an important driver of industrialisation in other developing regions, including Africa.

‘NATIONAL TREATMENT’

Davies stressed that, while South Africa was insisting upon local content in all public procurement, it did not preclude foreign investors from participation.

If Japanese companies set up domestic productive capacity, “national treatment” would be given to such goods. “But if you want to put your goods on a boat and bring them over, you don’t count – come here and invest, create productive capacity here and you do count.”

South Africa’s trade policy would also be aligned to industrial policy goals, which could result in higher protection for certain products, but also a lowering of tariffs on inputs required to support local manufacturing.

Ambassador Yutaka Yoshizawa indicated that Japanese enterprises were keen to invest in South Africa, including as a gateway to the rest of the continent.

Some 250 Japanese firms were already active in South Africa and many more were looking for new opportunities. In fact, the Japan Bank for International Cooperation’s 2013 ‘Survey Report on Overseas Business Operations by Japanese Manufacturing Companies’ showed a rise in South Africa’s ranking, from 23 to 18, as a promising business-development destination.

However, Yoshizawa said that Japanese companies remained concerned about the country’s volatile labour environment, as well as uncertainty surrounding black economic empowerment, immigration policy and mining legislation.

He insisted that Japan understood the need for the South Africa government to rebalance the interest of business with the needs of its citizens, but that he hoped that the country’s policies would remain conducive to business development and FDI.

Davies indicated a willingness to hold discussions with the embassy and with Japanese companies to address these concerns and gave an assurance that the government was keen to foster even stronger ties with Japanese companies.

Edited by Creamer Media Reporter

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