Cyril’s industrial reboot will not drive economy to success

president Cyril Ramaphosa
president Cyril Ramaphosa

President Cyril Ramaphosa’s State of the Nation address revealed a new direction in economic policy: “import substitution industrialisation”: producing goods locally where possible. The approach was most effective from 1933-1945, during South Africa’s first modern manufacturing boom. The era featured an average 8% annual gross domestic product growth, more economic balance, and even improved racial equity in wages. 

The need for local sovereignty is today even greater, given the deindustrialisation-driven jobs bloodbath underway. But Pretoria’s residual economic schizophrenia is remarkable, especially thanks to wasteful subsidies for Special Economic Zones (SEZs).

The fable of SA’s special economic zones

The Brazil, Russia, India, China and South Africa (Brics) bloc met late last year in Brasilia, just more than a year after the Forum on China-Africa Co-operation summit in Beijing. These two bodies are seeking to generate a new Global South-South development policy narrative, even though Brics host — Brazilian President Jair Bolsonaro — mimics United States President Donald Trump’s hostility to multilateralism, and China’s gross domestic product (GDP) growth and imports slowed to the lowest levels in 40 years.

One thing all these institutions — plus the G20 countries — agree on: South Africa needs more special economic zones (SEZs), which grant generous subsidies to both Brics and Western corporations.

The SEZ export fetish conforms to Finance Minister Tito Mboweni’s policy paper, Economic Transformation, Inclusive Growth, and Competitiveness. “Export orientation and sophistication are key drivers of long-run economic growth. South Africa needs to promote export competitiveness and actively pursue regional growth opportunities in order to leverage global and regional value chains for export growth. Technologically sophisticated exports, in particular, are crucial to structural transformation as they enable the economy to move from low- to high-productivity activities,” it reads.

Local South African Economic Conditions

Series: Adverse International and Local Conditions for Sub-Saharan Africa (Part 5)

As the world economy spirals into crisis stage, with fully-fledged deglobalisation and a new round of financial turmoil, the South African context is just as foreboding.

Africa’s Renewed Crises of Unbalanced Trade, Disinvestment, Debt

Series: Adverse International and Local Conditions for Sub-Saharan Africa (Part 4)

In addition to China, Africa is meant to be one of the most critical markets for South Africa’s SEZs, and attracting other investment, trade and finance to the continent was one justification for entering the BRICS bloc, according to Jacob Zuma and his colleagues.

The China Factor

Series: Adverse International and Local Conditions for Sub-Saharan Africa (Part 3)

The most crucial factor in whether South African SEZs succeed may well be the complicated role of China.

There are three aspects worth discussing: overall demand; Chinese incoming FDI to South African SEZs (such as is driving Coega and Musina-Makhado); and Chinese-financed and built competition via the Belt & Road Initiative, which is spawning massive export-oriented infrastructure in many India Ocean cities, ports and hinterlands.

South African Special Economic Zones : History of Limited Successes

Series: Adverse International and Local Conditions for Sub-Saharan Africa (Part 1)

Given both short- and longer-term trends in the world and South African economies, there is a danger of government and society placing inordinate hopes in what are variously termed Export Processing Zones, Industrial Development Zones and Special Economic Zones (SEZs), as sources of economic vitality and job creation.

Global Economic Volatility and Socio Political Reactions

(CC – Wikipedia : BY-SA 3.0)

Trade and currency wars, financial volatility and economic turbulence are now the most important features of the world economy.

The elements of a new international financial crisis are in place. Although we do not know when it will break out, it is unavoidable, and its impact on world economy will be as significant as the 1880s-90s, 1930s-40s and more recent 2008-09 meltdowns. Worse, far fewer of the global capacities of the latter period – rapid lowering of interest rates, printing of money to buy up state debt (‘Quantitative Easing’), and sufficient fiscal space for bailouts – are available to global crisis managers. And most troubling, many more of the proto-fascistic political characteristics reminiscent of the 1930s are looming, especially in the new contextualisations of the Global South.

Part 1 South African Special Economic Zones : History of Limited Successes

Part 2 Global Economic Volatility and Socio Political Reactions

Part 3 The China Factor

The contributing economic factors include:

  • sharply increased private debts of corporations;
  • speculative bubbles in financial asset prices: stock markets, debt security prices, and in some countries, the real estate sector (at the end of December 2018, a major stock market crash almost broke out in the United States and the contagion effect was immediate, an additional signal that a major crash will have as great a global impact as did 2008-09’s);
  • the major banks remain extremely fragile, with share values falling in the United States and Europe since the second half of 2018;
  • the US real estate market has become fragile again, overall global prices up by 50% since 2012, with lev- els in excess of those reached just before the crisis that began in 2005-2006;
  • Quantitative Easing policies in Europe and their return in the US (as the Federal