The Constraints and Institutional Challenges Facing Industrial Policy in South Africa: A Way Forward (Accelerated and Shared Growth Initiative for South Africa) (Report‪)‬

Abstract Industrial policy is a central plank of ASGISA. However, industrial policy in South Africa faces two key constraints--internally, a macroeconomic framework focused on inflation; and, externally, international agreements that limit the scope of industrial policy generally and of export support in particular. In addition, there are a number of institutional and governance concerns. Currently industrial policy lacks coherence with no clear locus of coordination in government; governmental capacities are very limited; distributional conflicts lead to multiple objectives with poorly specified trade-offs; a severe shortage of skills and simultaneously limited training restrain productivity increases; and, finally, strategic collaboration between government and business is largely absent. Two conclusions result. First, industrial policy should not, in the current context, be too ambitious. Second, given limited governmental capacities, a more prominent role should be accorded to the business sector. Institutional mechanisms need to be established so as to allow business to play the leading role in identifying the constraints and opportunities facing a sector and the policies designed to address these. Government then must support those policies that accord with its social and economic objectives. By way of example, the Western Cape Microeconomic Development Strategy (MEDS) is outlined. The central feature of the MEDS is the Special Purpose Vehicles (SPVs)--an effective institutional form that allows for such a strategic collaboration between government and business.