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DTI Economic Research Advisory Network (ERAN) First Annual Conference 2016, East London, South Africa Creating multiple supporting sectors in singlesector mining towns: An alternative to increasing manufacturing exports and promoting trade Presented by Kamogelo Motshidi Presentation outline • Introduction • Influence of industrial policy on industrial development • International competitiveness • Impasses in industrial development • Export diversification • Case Study • Conclusion INTRODUCTION • Manufacturing sector plays a vital role in economy because it stimulates growth in other industries, and is a significant contributor to employment creation and economic growth • Repurposing single-sector towns, such as mining towns • Leverage from existing social and physical infrastructure found in mining towns • Increase exports and promote export diversification • The analysis of repurposing mining towns has been analysed primarily from the perspective of urban planning, and environmental affairs, with minimal analysis being provided from the perspective of economics, trade in particular • SA can leverage from its existing comparative advantage in mining INFLUENCE OF INDUSTRIAL POLICY ON INDUSTRIAL DEVELOPMENT • “Industry is probably seen, domestically, principally as a generator of jobs, maybe also as a source of government revenue, but not much more. Its capacity to shape the sort of economy a nation has and therefore its capacity to shape the sort of people we are and the lives we lead - is probably not considered too often….the reality is that you can change a country when you change its industry and trade policy” . – Peter Varghese Secretary, Department of Foreign Affairs and Trade, Australia Effects of trade policies • Need to address trade inefficiencies • Quantitative instruments used • Secondary and tertiary economic sectors have overtaken the primary sector in terms of the structure of the economy (the tertiary sector is 67.6% of the economy) has led to a decline in employment in labour-intensive work INTERNATIONAL COMPETITIVENESS • Focus on manufacturing • Becoming internationally competitive and self-sustained • Crux is the creating employment opportunities, particularly for a low to semiskilled workforce • Need to transform mining towns Lewis Dual Sector Model • Theoretically explains labour transition from one sector to another • Some assumptions: – Surplus of unproductive labour in a traditional sector – Excess labour will be attracted to the manufacturing sector – Workers no longer in traditional sector would be attracted by the higher wages in the manufacturing sector – Fixed wage levels – Profits are reinvested into sector Lewis Dual Sector Model (cont’d) • Criticisms – Profits from the industry may not necessarily be reinvested into the sector – Transitioning labour from one sector to another is not as simple or straightforward as the model implies – Wage levels will not always be fixed as the model assumes IMPASSES IN INDUSTRIAL DEVELOPMENT • • • • Tough international competition Poor trade and weak industrial development Poor job creation in labour-absorbing industries Insufficient investment in value-adding initiatives and manufacturing • Labour force composition • Private sector uncertainty regarding government policies and regulation (SA ranked 117/140 in terms of government regulation by WEF Global Competitiveness Report) EXPORT DIVERSIFICATION • SA only makes use of 20% of its potential export relationships (World Bank) Graphic: SA Chamber of Mines CASE STUDY: ZHAOYUAN CITY, CHINA • Key Chinese gold mining destination • Economic reform through Deng Xiaoping encouraging market allocation through export-led growth to encourage investment in light manufacturing • Later reinvesting in more technologically advanced production Case study: Zhaoyuan City, China: 5 Supporting Industries 1) Gold mining and gold further processing industry 2) Rubber tyre and tyre material industry 3) Electronic material industry 4) Machinery manufacturing industry 5) Foodstuffs industry Area now generates US$172 million in income CONCLUSION • Need to maximise potential benefits • Assess the implications of town and sector transformation • Promote competitiveness • Carve a new niche • Sector prioritisation: expand or introduce different international markets • Institutional economics THANK YOU
