Seminar on Industrialisation and sustainability in Gauteng: contradiction or coherence? 1st March 2010

1. The Development of an Industrial Policy for Gauteng Province Seminar on Industrialisation and sustainability in Gauteng: contradiction or coherence? 1st March 2010

2. Presentation overview • Conceptions of industrial policy • Approach taken on industrial policy and policy research • South Africa’s inherited industrial structure • Gauteng’s industrial structure, sector composition and trends • Input-output analysis • Further aspects to CSID’s input into the Gauteng Industrial Strategy • Identification of challenges to greater integration of supply chain in Gauteng • Spatial aspects of industrial structure and development – industrial clusters • Cross cutting issues

3. Conceptions of industrial policy

4. Our approach to industrial policy in Gauteng • Industrial structure conceived as the totality of activities around the production of output • Industrial policy must be focused on structural transformation and breaking the legacy of Apartheid. • Based upon a vision of an industrial structure that: • facilitates the creation of decent and sustainable employment for large numbers of skilled-, semi- and un-skilled workers • is diversified in terms of capital stock and value addition • maximises linkages between sectors

5. Components of the research on Industrial Structure in Gauteng • Analysis of sectoral trends in output, investment, employment and value added. • Input-output analysis. • Value chain analysis. • Spatial and cluster analysis

6. South Africa’s Inherited Industrial Structure

7. Share of sectoral net value of output in total manufacturing 1924-1976 Source: Feinstein 2005

8. Distribution of new investment across assets in private corporate business enterprises 1990-2007Source: Quantec 2009

9. Changes in capital stock across all economic sectors in SA between 2000 and 2008Source: Quantec 2009

10. Employment output ratio in primary, secondary and tertiary sectors in SA 1990-2008 (including informal employment) Source: Quantec 2009

11. Gauteng’s industrial structure and sector composition

12. Output and gross value added in the primary, secondary and tertiary sectors in Gauteng 1995-2008 Source: Quantec 2009

13. Share of sectoral output in Gauteng 1995-2008 Source: Quantec 2009

14. Service sector rankings based on 2007 data

15. Manufacturing sector rankings based on figures for 2007

16. Input-Output analysis of Gauteng

17. Input Output Analysis and Its Use • IO analyses allows us to study the material interconnection between sectors • A sector with strong backward and forward linkages means that increased demand for that sector has potentially strong stimulating affects on output across the economy as a whole. • We can identify potentially strategic economic sectors based on the strength of their backward linkages. • Further, input-output analysis can be used to assess the impact from the expansion of a sector on economic factors other than output. E.g. employment • The calculation of employment multipliers allows us to identify sectors with the highest potential stimulatory effects on employment across the economy

18. The Multiplier Effect through Backward linkages The Impact of increase in key sector output on economy wide output thanks to a capital injection Key Sector The total backward linkage indicates the potential value of output in backwardly linked industries That would be stimulated by a unit increase in the value of final demand in that sector.

19. Total Backward Linkages, 2007 The total backward linkage figure indicates the potential value of output in backwardly linked industries that would be stimulated by a unit increase in the value of final demand in that sector. E.g. A R1million increase in demand for the transport equipment sector can potentially induce a R3.36 million increase in output for its input sectors

20. Total employment multipliers by subsector, 2007 The employment multiplier gives the number of jobs that would potentially be created in backwardly linked sectors by a R1 million increase in final demand in the downstream sector. E.g. A R1million increase in final demand for Electricity and water output can potentially generate 2.28 new jobs in Electricity and Water’s input sectors.

21. Employment Multiplier Inward shift Greater the size of employment multiplier Size of Employment multiplier Labour Intensity Backward Linkages Outward shift Smaller the size of employment multiplier

22. low employment High employment 4.5 multiplier and multiplier and strong backward strong backward linkages linkages 4 Total Backward linkage Mining 3.5 Transport equip Metals, metal products, Wood & paper; publ & Petrol products, chem, 3 machinery & equip print rubber & plastic Textiles, clothing & Electrical machinery & Food, bev & tob leather apparatus 2.5 Communication Other non - metal mineral Radio, TV, instruments, prod Transport Catering & accomm watches & clocks Electricity & water 2 Business services Furniture & other manufact Finance & insurance 1.5 Construction Govt services Wholesale & retail trade 1 High employment low employment 0.5 multiplier and weak multiplier and weak backward linkages backward linkages 0 0 2 4 6 8 Total Employment multiplier Bringing together output and employment

23. Subsectors that are possible ‘Key’ • Transport equipment • Wood & paper, publishing & printing • Textiles, clothing & leather • Food, beverages & tobacco • Other non-metal mineral • Construction • Metals, metal products, machinery & equipment* • Transport services* • Catering and accommodation* • Electrical machinery and apparatus* • Radio, TV, instruments, watches and clocks* • Furniture and other manufactures*

24. Deepening the research on identifying key sectors (1) • The research presented so far has been limited to desk research based on available quantitative data. • We have been able to identify sectors that could potentially be useful in terms of achieving an integrated and dynamic economy. • However, our purely quantitative account and does not take into account the institutional and political economy contexts. • We are currently working on a qualitative component to the understanding of supply chain dynamics in order to better understand the extent of integration across economic activities in Gauteng. • Work based on previous studies on value chains in South Africa • Stakeholder interviews • Industry associations • Government sector desks • Firms

25. Deepening the research on identifying key sectors (2) • Spatial dimension to industrial structure and policy • Spatial distribution of economic activities across the province • Spatial distribution of where people live compared with areas of high economic activity. • Spatial distribution of firms and industry. • Geographical clustering • Cross cutting issues • Employment creation • Technology, innovation and R&D • Infrastructure • Equity BEE/BBBEEE • SMEs • Green Strategy

26. Conclusions • Our main contribution to this study has been our research methodology that has been directly informed by our approach to industrial policy and the understanding of industrial structure. • We take a broad conception to industrial policy and emphasise government support to strategic sectors and industries. • These sectors must be viewed as connected with others, making up a complex and integrated whole. • Policies must therefore take into account not only the sector in question but to also identify and mitigate constraints to the development of upstream supplier industries and connected services.