Contrary to South Africa’s recent slate of poor economic growth, it has over the past two decades shown overall improvements, boosting living standards and reducing poverty nationwide. However, significant reforms are necessary to accelerate growth and create a self-sustaining platform for the country.
South Africa, through the National Development Plan (NDP) aims to eliminate poverty and reduce inequality by 2030. Part and parcel of this, government has seen an opportunity in building local capabilities and creating an inclusive economy through localisation. This has been done before, point in case South Korea.
South Korea the industrialist
South Korea is recognised for its spectacular rise from one of the poorest countries in the world to a developed, high-income country in just one generation. Following the Korean War in 1953, and having almost no natural resources and suffering from overpopulation, they turned to localisation.
The Koreans aimed to acquire the capabilities with which the Korean industry could independently construct high-quality nuclear power plants within various constraints. In 1983, localisation agreements were implemented with foreign contractors to establish the technology base of domestic companies with a primary objective of achieving 95% localisation by the end of 1995. They rapidly reconstructed and developed their economy and by 2000, South Korea had increased their GDP by 728%, while South Africa improved by a meagre 69% over the period.
South Africa, down but not out
Similar to the butterfly effect, an initial local investment can create an economic ripple effect which will lead to major direct, indirect and induced economic impacts. Take, for example, the purchase of new locomotives. As an alternative to importing locomotives and having money exit the country, government has required international original equipment manufacturers (OEMs) to transfer capabilities and procure components from established local suppliers.
Local jobs will be created, value adding manufacturing will contribute to GDP, salaries and wages will increase and will contribute to household income. Employees will spend money and will contribute towards taxes and government revenue.
Because we are late to the game, we need to fast track innovation on the back-end of a platform with the following six elements:
- Clear strategic intent is required by government on priority segments.
- A clear view of the demand signals and marketplace, including regional integration.
- Investment from both the private and public sector (in the words of our CEO – it takes two to tango).
- Time and reciprocity – long-term supply and manufacturing contracts to allow adequate settling in of skills transfer and competitiveness.
- Sensible financing terms by financiers.
- A competent set of members at the dinner table playing by the rules of the game to avoid bullying, corruption and greed
South Africa has embarked on some local programmes which may well have spurred some of its tailwind growth. The real question is whether it is so far behind other countries, that the growth led by industrialisation will remain an ideology rather than an implementable reality. If we aim for the latter, then South Africa needs to get its affairs in order and craft its industrialisation game plan soon.