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Implications for South Africa Shahid Yusuf October 27 th 2011.

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Presentation on theme: "Implications for South Africa Shahid Yusuf October 27 th 2011."— Presentation transcript:

1 Implications for South Africa Shahid Yusuf October 27 th 2011

2  Sustained doubling of GDP growth rates over the 15 year average of 3.3 percent per annum  Labor intensive growth drivers to reduce unemployment, currently 26 percent  Export orientation and competitiveness to sustain growth of expanding industries.

3  East Asian tiger economies that achieved 7 percent growth rates during 1965 – 1997  Relied upon manufacturing industries and export successes to enter ranks of high income countries  Korea and Taiwan (China) the principal role models.

4  Globalization of trade, increasing access to US market facilitated buyer driven trading networks, FDI and outsourcing  Focused development strategy and political commitment to rapid development reinforced by external pressures  Investment and export incentives  Emergence and growth of firms responsive to incentives  Improving quality of industrial workforce which buttressed manufacturing capabilities.

5  Trade oriented industrial policy  Political imperatives: with regime survival and national security linked to growth performance  Expanding, literate, disciplined industrial workforce  Entrepreneurial and technical skills aiding entry of firms and building of manufacturing capabilities.

6  Functional: Providing relatively uniform incentives to all manufacturing activities using fiscal, financial, education, vocational training, science and trade facilitation policies  Targeted: Singling out selected industries of strategic significance, with better long term growth and technological spillover prospects.

7  Mainly functional in the 1960s when developing light industries  Increasingly targeted in the 1970s through the 1980s when creating transport, chemical, ferrous metal and engineering industries  Reverting to mainly functional policies after mid 1980s  State sector played lead role in metals and chemicals sectors; private sector in others. In Taiwan, state directly assisted electronics industry.

8  Established a number of capital intensive and high tech industries with the help of directed fiscal incentives, financing from government and banks and technical support from public research institutes  IP costly and industries had long gestation lags  Few spectacular success stories e.g. Pohong Steel in Korea, TSMC in Taiwan  Shift to functional IP in 1980s to ease budgetary burdens, pressures on banks, and reduce allocative distortions.

9  Functional IP widely employed to limited effect  China’s industrialization associated with selectively targeted IP  Middle income countries seeking high income status through faster growth rates  Middle income trap, frequently voiced concern: IP viewed as possible solution.

10 Past rapid growth in some countries a function of:  Resource transfer from primary to urban sectors  Exploitation of natural resources and energy  First round of industrialization involving transfer of codified light and assembly based manufacturing assisted by capital and technology funneled through FDI  Russia, Mexico, Chile, Indonesia, South Africa and Botswana in this category  Low hanging fruit approaching exhaustion; growth regressing to global mean of 3-4 percent.

11  Functional IP widely exploited; countries about evenly balanced – however, scope for improving business environment, logistics, and infrastructure services  Growth record of targeted IP questionable, costs substantial and WTO disallows certain subsidies for middle income countries  Global manufacturing overcapacity and medium term trade trends make it difficult to identify winners – more so than in the 1990s  Costs more apparent than long term gains.

12 Strengthening functional IP:  Improving quality of scientific, vocational and soft skills  Increasing productivity and commercial outcomes from R&D  Enhancing labor market flexibility  Enriching urban-industrial ecology through lowering of entry barriers, financing, BDS and use of UILs and science parks to stimulate clustering of SMEs.  Leveraging technological and production capabilities of mining and affiliated manufacturing industries  Exploiting potential of green technologies optimized for African conditions.

13  Improving quality of skills is a long term project  Current rates of investment and saving will only support growth rates of 4 percent or less  Raising TFP via technological advances requires a large increase in R&D and research talent  Global trading environment clouded: medium term trends point to greater South-South trade with uncertain implications for growth.


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