An Industrial Strategy for the Household Electrical Durables Sector Ted Baumann ARCHIV 113602 gy Project 'DRC.lJb. AN INDUSTRIAL STRATEGY FOR THE HOUSEHOLD ELECTRICAL DURABLES INDUSTRY Ted Baumann Industrial Strategy Project Development Policy Research Unit School of Economics University of Cape Town 1995 UCT PRESS /4f?(7 ' V YI,LoL3 - UCT Press (Pty) Ltd University of Cape Town Private Bag Rondebosch 7700 South Africa All rights are reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, withoutprior permission from the publisher. Cover illustration: taken from Gavin Young's sculpture, Hoerrikwagga, standing near Jameson Hall on the University of Cape Town campus. Typesetting: Ted Baumann CoverDesign: Karren Visser Printed and Boundby CredaPress Copyright: Industrial Strategy Project First Published 1995 ISBN: 0-7992-1578-3 EDITORIAL COMMENT This report is one of a seriesproduced by the Industrial Strategy Project. The ISP has its origins in the Economic Trends Research Group, a collective of economists and other social scientists convened by the Congress of South African Trade Unions in 1986. COSATU, under attack for its support for sanctions, initially asked these researchers to examinethe impact ofenforced isolation on the South African economy. It soon became clear that sanctions were a small aspect of the problems besetting the South African economy, and the work of the Economic Trends Research Group expanded into a full-blown analysis of SouthAfrica's economic crisis. The poor performance of South Africa's manufacturing sector loomed large in the litany of problems bedeviling the South African economy. The 1980s had been, in economic terms, something of a lost decade. The manufacturing sector was particularlyconspicuous by its inability to create jobs, and to produce commodities that satisfied the divergent requirements of the domestic and international markets. A range of factors contributedto this malaise — apartheid's impact on the skills profile of the workforce, repressive and outmoded industrial relations systems and work organisation, a highly concentrated industrial structure and a concomitantly weak and repressed SME and micro-enterprise sector, and a highly inward oriented trade regime, were the most obvious sources of the crisis in manufacturing. However, the solutions were less obvious than the problems, and in 1990, again at COSATU's initiation, the ISP was conceived. From the outset, the political environment ensuredthat the ISP would not be an ordinaryresearch project. The unbanning ofthe ANC and the certainty of the immediate accession to power of COSATU's political ally, coupled with the union federation's increasingly direct role in policy formulation, ensured that the ISP focus closely on policy, contributing to the development of the industrial policy that would address the poor performance ofSouth Africanmanufacturing. To this end, the ISP engaged a range of researchers with the purpose of undertaking detailed examinations ofthe key sub-sectors of SouthAfrican manufacturing. The fruits of the ISP are to be found in the reports, such as this one, most of which are to be published by the UCT Press. The authors of the reports were assigned, generally for a period of 14 months, to the study of a particular sector. The researchers were requiredto study the local sector and the factors promoting and restraining its development. They were required to assess its prospects in the light of the likely global trajectory of the industry. Detailed examination of local firms were complemented by international visits that enabled the researchers to consult with international experts and visit factories to enable them to situate SouthAfrican firms in a comparative perspective. In addition to the sectoral studies, the ISP also engagedresearchers to examinekey cross- cutting issues. Those selected for study were human resource developmentand industrial relations, technology development, market and ownership structures, trade performance and policies, and regional industrial strategies. Industrial policy is not a plan easily contained betweenthe covers of a single document. It is a process, a process of engagement between the key industrial stakeholders. South Africa's peculiar transition has given concrete expressionto this credo, with the tripartite National Economic Forum and the various sectoral task groups the key institutions and processes within which an evolving industrial policy is being developed. COSATU has played the leading role in this process. The ISP has, in turn, made a significant contributionto COSATU's capacities. It has done this by constant dialogue between the ISP and the COSATUleadership, and by a traineeship programme which saw a number of union leaders secondedto the ISP for its duration. In addition the researchprocess has engaged a range of key actors. Individualresearchers have engaged with union and business leaders and experts within government. The ISP was punctuated by a series of intensive workshopattended by the researchers, COSATU and ANC leaders, and other local and international experts. The work-in-progress was thoroughly discussedand critiqued at these workshops and it is appropriateto see each report as owing a great deal to the ISP collective. A number of researchers are continuing their work from within the industry task forces, the unions, and the structures of the new government. The ISP itself is moving into a second phase, taking up questions still unanswered, re-examining conclusionsof the first phase and continuing the unending process of developing industrial policy. It is in this spirit that these reports shouldbe read: they are not finalplans, but simply attemptsto start a vital process, one that will of necessity be taken forward by all of the major industry participants. The Industrial Strategy Project was funded by generous grants from the Humanistisch Instituut Voor Ontwikkelingssamenwerking (HIVOS) of The Netherlands, the International Development Research Centre (IDRC), Ottawa, Canada, and the Olof Palme International Centre of Sweden. We benefitted not only from the financial resources of these institutions, but also from the wide-ranging experience of their staff members and their deep and abiding commitment to a democratic and prosperous SouthAfrica. Avril Joffe David Kaplan David Lewis RaphaelKaplinsky ISP Co-Directors DevelopmentPolicy Research Unit University of Cape Town Foreword In the late eighties COSATU commissioned a group of economists to prepare a report analysing the impact of sanctions on the South African economy. We commissioned this work in response to criticism in the media and elsewhere that held us — throughour support for sanctions — as responsible for the sorry state of the South African economy, including the miserable conditions of our members and others whose interests and aspirations we represented. The research revealed that the crisis of the SouthAfrican economy was rooted in the policies ofthe apartheidera and our commission to the economists was transformed into a full-scale critique of the economics of apartheid. A key consequence of the failures of apartheid's social and economic policies was its unproductive manufacturing sector. It was unable to produce basic goods of a suitable quality and at an affordable price; it was unable to produce goods that successfully penetrated international markets; it relied on low-paid, poorly-trained workers, and harsh, authoritarian shop-floor supervision; above all, it proved incapable of generating desperately-needed employment. While manufacturing's contribution to the global economy escalated, South Africa relied increasingly on its natural resourcebase and the cheap labourthat mined and farmed it. Appreciation of these problems inspired COSATU to request its research collective to undertake research in support of our attempt to formulate a new industrial policy. This request flowered into the Industrial Strategy Project whose output is represented in these reports. The researchprocess has been characterised by considerable dialogue between COSATU, its affiliates and the researchers. We have learnt much from this interaction; we are confident that we have taught the researchers much. However this work is the output of an independent research collective. As is to be expected in an arms length relationship of this kind, we do not agree with every line of each report, we do not accept every recommendation. But with regard to its major findings, we do agree that there is a real potential for building an efficient manufacturing base, rooted in well-paid, productive workers. Above all we believe, and this is endorsed by the ISP, that an independent trade union movement and its interest is not actively aggressively pursuing— merely compatible withp4 rapid and sustainable industrial development it is a precondition. John Gomomo President, Congress of South African Trade Unions Table of Contents Preface A Further Note iv Executive Summary Vi Introduction 1 A. Research Area and Rationale 1 B. What is the Point of IndustrialPolicy" 3 C. Brief Background 4 D. What Follows 8 Chapter One: The Market for HEDs in South Africa 9 A. Influences on The Market for HEDs in South Africa 9 B. REDs in South Africa: A Macroeconomic Perspective 12 C. Distributionof HEDs in South Africa 25 D. Summary 40 ChapterTwo: Production of Household Electrical Durables In South Africa