Industrial strategy and South Africa’s international trade position : the influence of structural change and industrial location

Abstract

The success of the South African government’s Global Economic Strategy (GES) depends to a significant extent upon the ability of the economy to export in key sectors (e.g. manufacturing), thereby enhancing the country’s international trade position and its competitiveness in the global market. However, the formulation of an Industrial Strategy which facilitates structural change in the South African economy is a prerequisite foundation for that success. The location of industry to maximize the contribution of industry to export competitiveness is also a fundamental component of success for this initiative. With these linkages in mind, it is significant that the GES contains references to the need for coherence between industrial strategy and international trade, through a number of industry cluster studies for key industries. It also points to a Regional Industrial Location Study (RILS) designed to link industrial and trade policies between regions inside and outside South Africa. Finally, GES includes a programme of attracting industries into Export Processing Zones (EPZs) and Industrial Development Zones (IDZs) where firms will be able to gain various advantages in terms of reduced tariffs on inputs and export incentives. The aim of this paper is to examine the relationship between industrial strategy and international trade. Therefore, the paper examines the linkages between trade theory and location theory and then proceeds to a review of relevant economic theory. The theoretical review covers Marshall’s agglomeration theory, Weber’s location theory and the Heckscher-Ohlin theory of international trade. Key government programmes which have a spatial component are examined in terms of their capacity for improving exports and ultimately output and employment. These programmes include the Spatial Development Initiatives (SDIs), Export Processing Zones/Industrial Development Zones (IDZs) and the Regional Industrial Location Study (RILS). Finally, conclusions are drawn regarding the potential of these programmes to enhance export-led growth in the country. It is concluded that the economic sectors identified in these programmes have not demonstrated an ability to generate exports and, in turn, output and employment.