ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

ECONOMICS NOTES

TOPIC 10: INDUSTRIAL DEVELOPMENT

GRADE: 12

YEAR: 2024

1
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

UNIT 1: INDUSTRIAL DEVELOPMENT IN SOUTH AFRICA

 Industrial development refers to the use of different policies to encourage industrial

investment and efficiency.
 Industrial development is the responsibility of the Department of Trade and Industry.

 Reasons for industrial development / Why Industrial development is important

 Use the world economy to trade and acquire knowledge, to increase industrialisation.
 Maintain macroeconomic stability by growing the economy, creating jobs, stabilising the
currency and interest rates.
 Achieve high rates of savings and investment, which can lead to growth in industries.
 Establish large-scale manufacturing, agricultural, mining and services production.
 Diversification of the economy by producing variety of products.
 Develop domestic manufacturing capacity to increase exports.
 Create sustainable job opportunities, leading to economic development.
 Develop and maintain appropriate incentives to attract investors, therefore intensifying
industrialization.
 Contribute to the industrial development of the African continent at large.

SOUTH AFRICA’S INDUSTRIAL DEVELOPMENT POLICIES

1. National Industrial Policy Framework (NIPF)
The NIPF was adopted in 2007 and it is constantly reviewed to take into account changes in
both the domestic and global economy.

The aims of the NIPF are as follows:

 To make the economy more diverse so that exports can increase
 To make industrialisation more intensive in the long run.
 To promote the development of labour-intensive industries.
 Greater participation by disadvantaged groups and development of the marginalised area
 Increase potential for large-scale production.

2. Industrial Policy Action Plan (IPAP)

 It is a government`s three-year rolling action plan which aims to address economic and
industrial growth.
 Its main objective is to increase the growth and competitiveness of the manufacturing (value-
added) sector
 IPAP allows interventions to be constantly adapted and also provides the flexibility to adapt to
change.

2
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

UNIT 3: REGIONAL DEVELOPMENT

 Refers to the provision of support and other assistance to regions/areas that are less
economically developed in order to improve them.
 An estimated 80% of South Africa’s production takes place in four industrialised
areas which are:
 Durban – Pinetown
 Johannesburg – Pretoria
 Port Elizabeth – Coega – Uitenhage
 Cape Town metropole
 This means the majority of economic activities are concentrated in a few
areas, this is referred to as the centralisation of industries.
 Regional development policy attempts to achieve decentralisation of
industries throughout South Africa

Objectives/aims of regional development

 To support economic and social conversion of areas experiencing structural
difficulties
 To reduce unequal development of economic activities within a country, to limit the
effects of centralisation of industries
 To stimulate development in poorer areas.
 To prevent new imbalances from emerging.
 To develop the poorer areas by using labour and natural resources from those areas

SOUTH AFRICA’S INITIATIVES (ENDEAVORS) IN REGIONAL DEVELOPMENT

(Possible essay)

1. Spatial Development Initiatives (SDIs)

 SDIs refer to government initiatives to stimulate industrial development in areas where
poverty and unemployment are at their highest.
 It is a link between important economic hubs and regions in a country
 The Department of Trade and Industry (DTI) is the main driver of SDIs.
 All major projects in the SDIs are partnerships between the public sector and the
private sector.
 In a Public Private Partnership, a private business may provide the capital to build the
factory and buy raw materials, and employ labour, while the government provides the
capital for the infrastructure e.g. roads and water.

Aim/objectives of SDIs
 To attract business investments to neglected areas in the country.
 To stimulate growth and employment in underdeveloped areas.
 To develop infrastructure such as roads and harbours.
3
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

List of SDIs in South Africa SDI TYPE OF INDUSTRY

Kwazulu-Natal SDI Industrial
Wild Coast SDI – Agri-tourism
Fish River SDI Industrial
West Coast Investment Initiative Industrial and agri-processing
Coast-to-Coast Corridor Transport and tourism
Platinum SDI Industrial and agri-processing
Phalaborwa SDI Industrial and agri-tourism
Lubombo SDI Agri-tourism
Richards Bay Initiative Mining and agri-processing

2. INDUSTRIAL DEVELOPMENT ZONES (IDZ’S)

2. Industrial Development Zones (IDZ)

 They are geographically designed near a harbour or airport, purpose-built industrial
sites providing services to export-orientated industries.
 They are physically enclosed and linked to an international port (harbour) or airport.
 The private sector firms develop and manage the firms inside the IDZ.

4
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

 Each IDZ offers a zero rate VAT on supplies bought within South African, government
incentive schemes, reduced taxation for some products, and access to latest
information.
 Raw materials are imported free of customs duties.
Aims/Objectives of Industrial Economic Zones
 Designed to attract new investment in export-driven industries.
 Increase exports by encouraging manufacturing and foreign trade.
 Raise the standard of living, by increasing employment

Examples of IDZ` TYPE OF INDUSTRY

Coega Steel and automotive
East London Automotive and general manufacturing
Richards Bay Metals
Saldanha Bay Steel

3. Special Economic Zones(SEZ`s)

 They are geographically demarcated areas where specific economic activities have
been identified to be developed
 These areas may enjoy incentives such as tax relief and support programmes to
promote industrial development.
 SEZs were initiated because of the shortcomings that were identified in IDZs. For
example, IDZs could only be set up next to the sea or international airport.
 This restriction excluded other regions in the country that had industrial potential.
 The products are aimed at both the export and the local markets. That is why it can
be next to a harbour/airport (export purposes) or anywhere within the country (local
market).
 This makes it different from the IDZ which focuses only on the export market.
 These areas may enjoy some tax incentives which is used to attract more
investments into the zone.

4. Corridors
 These are tracks of land that form passageways allowing access from one area to
another.
 They offer specific advantages to mining, manufacturing, and other businesses.
 The advantages also include the presence of existing infrastructure and the
specialisation of products or services
 Example is the Maputo corridor (the N4 road) that starts in Gauteng and extends
through Mpumalanga to the Maputo port.

5
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

UNIT 5: INCENTIVES USED BY THE SA GOVERNMENT TO IMPROVE INDUSTRIAL

DEVELOPMENT

 Small Businesses Support Program – it is an incentive that provides a tax-free

cash grant for investment industries in South Africa
 Grants are given to SMMEs with total assets under R100 million.
 A variety of industries are eligible for these grants, ranging from manufacturing and
tourism to agriculture.
 Grants are given for a maximum of three years.

 Skills Support Program (SSP)

 This is the cash grant for skills development.
 The main aim is to encourage investment in training so that workers acquire new
advanced skills.

 Critical Infrastructure Facilities

 It is a grant given to entrepreneurs that are involved in businesses to improve
infrastructure
 This infrastructure typically includes roads, railways, electricity and water supply.
 Grants of up to 30% of the cost of infrastructure can be obtained.
 The goal of these types of grants is to get companies to invest in various locations
that are usually not very attractive (e.g. rural areas) so as to stimulate the area’s
economy.

 Custom Free Incentives – These incentives are given to businesses that are
established within an IDZ and SEZs.
 The aim is to encourage local and foreign entrepreneurs to establish in the IDZ and
to produce goods for export.
 The imported raw materials are exempted from paying customs duties

 Foreign Investment Incentives / Foreign investment Grant

 This is a cash grant for foreign investors who invest in new manufacturing
businesses in South Africa.
 The grant covers 15% to a maximum of R3 million of the costs of moving equipment
and machinery to South Africa.

 Strategic Investment Program

it is a cash grant that is intended for projects in the manufacturing, computer and
development fields.

 Services to Business Processes

 It aims to attract investment and create employment in South Africa through offshore
activities.
 A base incentive as a tax-exempt grant is paid over three years for each offshore job
created and maintained.

6
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

APPROPRIATENESS OF SOUTH AFRICA`S INDUSTRIAL POLICIES

Success factors
 Small business development improved, and the financing of small businesses has
been reasonably successful.
 Interventions in industries are based on good economic research and analysis.
 There was substantial progress and growth in the upgrading of the value-adding and
labour-intensive manufacturing sectors.
 Great success was achieved in combating customs fraud and targeting illegal imports
and products of inferior quality.
 An alignment of trade policy with industrial policy took place and this increased
competitiveness in international markets.

Challenges
 Unemployment is still a challenge as the implementation of the NDP has not been
able to create more jobs
 SDIs - the growth rate has been lower than hoped despite huge amounts being
spent on the improvement in infrastructure in the SDIs. Its main aim of increasing
employment has not been successful.
 IDZs` - they have been very slow because the incentives offered are often not
attractive enough.

External limitations
 Global recession – it had a negative impact on the manufacturing industry.
 An unstable exchange rate –resulted in slow economic growth and development in
the industrial sectors.

Internal limitations
 Huge increase in electricity and load shedding increased costs. As a result, smaller
businesses were forced into bankruptcy.
 Infrastructure – backlogs at all government levels.
 Uncompetitive behaviour of firms – competition needs to be strengthened to counter
high levels of industry concentration and anti-competitive behaviour.
 Poor industrial financing – insufficient financing to meet South Africa`s investment
and industrialisation challenges.

7
 ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

UNIT 6: REGIONAL DEVELOPMENT BENCHMARK CRITERIA

 Competitiveness
 Industries established as a result of regional policies should be competitive.
 Industries should not need ongoing financial assistance from the state.
 They should be self-sufficient in the long run and not depend on the state.

 Sustainability
 A region should have the capacity to support its own development.
 The natural resources and human resources should be used efficiently.
 Employment and sustainable development should be achieved.
 Development should be a long-term approach rather than for short-term profit-making
purposes.
 Good governance
 Development strategies to be managed effectively and free of corruption.
 Principles of accountability and transparency should be applied.
 Projects to be correctly programmed monitored and evaluated.
 Efficient financial control measures to be used.

 Partnership
 Regional development should be the responsibility of different stakeholders (groups).
 Partnership to be built between government, civil society, special interest groups and
the private sector.
 Provisioning of resources
 Sufficient resources should be provided in resource-poor areas, such as the
development of infrastructure.
 Provision of infrastructure should be a priority.

 Free market orientation

 Government intervention in markets should be kept to a minimum so that the forces of
supply and demand and the profit motive can allow for the efficient allocation of
resources.
 Markets to be allowed to function independently.

 Integration
 An integrated (united) approach should be followed, ensuring that benefits in one part
of a region spill over to other industries and areas.

 Investing in social capital

 Government needs to improve the quality of education and health care in a region.
 Government must build more schools in different regions.
 Education and health are basics needed for an efficient workforce.

8
ECONOMICS TOPIC 10 NOTES NKANGALA DISTRICT/2024

UNIT 7: SMALL BUSINESS DEVELOPMENT

 The Department of Trade and Industry has various programmes in place to
support SMMEs.
 The creation of employment for structurally unemployed people.
 Focus is on incentives for small businesses.
 Providing easier access to capital, information, and business advice.
 Promotion of entrepreneurial development among women and the youth.
UNIT 8: THE APPROPRIATENESS OF BLACK ECONOMIC EMPOWERMENT IN
THE SOUTH AFRICAN ECONOMY
 This strategy is in line with the empowerment of indigenous people in developing
countries.
 BBBEE policy is supported by the United Nations and World Bank development
initiative of indigenous people in a country.