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Davies says economy urgently needs ‘structural change’
Davies says economy urgently needs ‘structural change’

Davies says economy urgently needs ‘structural change’

ECONOMIC NEWS - Oct 15th 2014, 11:46

Trade and Industry Minister Rob Davies is blunt in his assessment that SA urgently needs "structural change in the economy". 

After briefing investors in London on new incentives for business process services (BPS), such as offshore call centre operations in SA, Mr Davies told Business Day, "The mineral product super cycle passed its peak in 2012. The prices for platinum are not what they were. There is no more commodity super cycle we should just be hoping for, planning for, and crossing our fingers. We need to be working for a different future."

The new BPS incentives will see companies that chose to locate their offshore operations in SA getting a bigger rebate from the state. The sector already accounts for just fewer than 20 000 jobs, 9 000 of which were created over the period of the last incentive programme, which ran from 2011 and has now been replaced with a five-year programme.

Under the new regime, businesses will get R124 000 over five years for a first-tier job, such as a basic call centre agent, but must employ at least 50 people. Those that employ in the second tier (more complex work) will get R184 000 per job, as well as a bonus of 20% for employing 400 to 800 staff and 30% for employing more than 800.

Seventy-five percent of investment in the BPS sector comes from companies in the UK. This is mainly because, apart from the having the necessary telecommunications infrastructure and skills, South African accents are preferred to some call centre competitors and "we’re on the same line of longitude, more or less, with one or two hours time difference".

Mr Davies, who travels to Geneva on Wednesday for a United Nations conference, met investors and new UK trade envoy Baroness Patricia Scotland to talk about strengthening trade between SA and the UK, which was worth more than £9.6bn in 2013 but nowhere near the target set in 2010 of doubling trade between the countries. Mr Davies said bilateral trade was actually only recovering to the level of 2008, before it plummeted due to the global financial crisis.

"We’re looking for investment opportunities here in the UK. We have identified BPS as one, but also there is an interest in oil and gas. We have an industrial development zone proclaimed in Saldanha Bay, which is oil and gas service sector that has attracted interest from 19 potential investors. That was launched at the end of last year so investors are beginning to shape up, some from the UK," he said.

But he stressed that the need for urgent structural change in the economy was a recurring theme.

"We cannot expect to continue, and the rest of Africa is finding this now, as producers and exporters of primarily mining commodities and importers of finished goods.

"That’s not the place we can occupy in the global division of labour, we’ve got to move up the value chain. Our industrial policy is part of this and our regional integration efforts are a very considerable part of this: we see that regional markets, large regional markets on the African continent, are what will sustain industrialisation," Mr Davies said.

A caveat to the new BPS incentives is that 80% of jobs must be given to young people, aged 18 to 35.
"We have a young demographic … a large number of young people entering the labour market every year. Youth unemployment rates are higher than the average overall," Mr Davies said.

"The reasons for this are located in where we came from as a country, and global trends, with the gold mining industry — which passed its peak in the ’70s by the way — for many decades (it) was drawing people in as low-skilled, low-paid pick and shovel workers. Those forms of employment have been disappearing and where there is employment (opportunity), it is more complex for post-secondary people. Across the board.

"One of the conclusions we’ve drawn from that is that we need to make structural changes in our economy and move up the value chain. Create opportunities that will require training and experience gathering, so that is where this programme comes in.

"We’re seeing office work being offshored from countries, including the UK. It started with call centres and has now become a more complex operation and we’re trying to position ourselves as the destination for that."
Mr Davies said that in the mining sector, Rustenburg was the subject of a feasibility study into a platinum special economic zone "to produce jewellery and catalytic converters, and we’ve done a lot of work in building partnerships for fuel cell technology to power small-scale power stations".

"That will generate new uses for the resource we have, platinum," he said.

Though the manufacturing sector had two poor consecutive quarters, Mr Davies believes that "this was the knock-on effect of the extraordinary strike in the mining sector".

"The PMI (purchasing managers’ index) is above 50, we’ve also seen a pick-up in motor sales. What I’m saying is we should not be talking gloom and doom if we have two poor quarters … anymore than we should now, (as we come) off a lower base and start seeing significant growth rates, be over exuberant."

He noted the R22bn worth of investment in motor vehicle manufacturing since 2009, signs of a turnaround in clothing and textiles and R1-trillion in spending on infrastructure in five years. "Is this enough? No, it’s not enough. We need to have manufacturing leading an invigorated growth process. It’s part of what I said about structural change."From DFM Publishers (Pty) Ltd 

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