Structural Transformation in South Africa: Moving Towards a Smart, Open Economy for All

Abstract

South Africa’s post-apartheid economic transformation project has not generally delivered a “better life for all” as promised at the dawn of democracy. While most middle and upper-middle income countries have continued to see industry leading overall growth, with high investment levels, one of the most striking features of South Africa’s economy is that it remains strongly oriented towards resource-based sectors. South Africa has in fact prematurely de-industrialised. While the financial sector has grown, investment levels in productive capacity and infrastructure have remained low. At the same time, concentration levels and profits have remained high. This has profound effects on the ability to generate jobs and support livelihoods. This paper unpacks the factors that have led to poor outcomes, and puts forward ideas for a reindustrialization agenda by drawing lessons from three industry studies, metals, machinery and equipment, the food and agro-processing sector and the automotive sector. In order to reindustrialise, investment in productive capacity is critical. It requires a new vision and programme for industrialisation under a political settlement which prioritises long-term investment in productive capacity, and rewards effort and creativity rather than incumbency. The vision proposed takes into account the political economy factors that shape outcomes, and puts forward priorities for a reindustrialization agenda.