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Sustaining industrial growth in Africa : A reflection on South Africa ’ s automotive industry support model

The use of selective industrial policy to re-integrate South Africa’s previously protected automotive industry into the global business is one of the few successful cases on the African continent in recent times. South Africa’s success provides a useful reference point for other African countries in which selective industrial policy is a key part of national development strategy. Despite the re-integration, the automotive industry has experienced deteriorating trade deficit since 1995 contrary to what had been envisaged. The paper uses a system dynamics model to explain this apparent contradiction. It is found that the offer fiscal incentives to the industry had a positive effect on industry investment and exports but not long-term competitiveness. The paper argues that for a replica of South Africa’s selective industry support model to sustain industrial growth and subsequent international trade, it has to be implemented in conjunction with a targeted technology acquisition strategy. Introduction In 1995, the South African government put in place a package of incentives for the local automotive industry under a special dispensation named the Automotive Industry Development Programme (MIDP). The offer of incentives was motivated, in part, by new competitiveness challenges that the domestic industry faced because of opening up the South African economy to external competition. The MIDP selective industry policy has been responsible for the reintegration of South Africa’s previously protected automotive industry into the global automotive value chain. As such, the MIDP has been presented as an example of a well-designed, successful industrial policy on the African continent. Barnes, Kaplinsky and Morris (2003) contend that South Africa’s automotive sector performance post 1995 is one of the very few success cases that goes against the Washington Consensus that promote the thinking that the role of government in enabling industrial development through industrial policy should be minimal. Black (2001) postulates that the experience of South Africa’s automotive industry proves that selective offer of investment incentives to a domestic industry can play a key role in influencing major foreign firms to locate manufacturing in a country and to draw such a country into their international networks. Participation in international business networks facilitates integration of a local industry into global production value chain without destabilising gains made by an industry under a protected trade regime. Despite recording consistent increase in investment, vehicle production and exports under the MIDP, South Africa’s automotive industry has been importing more than it has been selling onto the international markets. As a result, industry trade deficit has been