THE cancellation by Chinese state-owned motor company Beijing Automotive Works (BAW) of plans to assemble the Inyathi taxi in South Africa is a good example of why the interventionist industrial policy advocated by Economic Development Minister Ebrahim Patel and his ilk is doomed.
Mr Patel, who officially opened the company’s plant in Springs, Gauteng, last week and promoted the project as part of South Africa’s "reindustrialisation", is also the minister responsible for the Industrial Development Corporation (IDC), which owns a 24,5% stake in the plant and initiated the project by seeking a foreign co-investor.
Few would dispute that encouraging foreign investment is a key role of the government, but the way to achieve this is to ensure the economic and political climate is conducive to investment, not to impose the state on the private sector.
Toyota dominates the minibus taxi market in South Africa, and local assembly of the Inyathi was intended to provide increased price competition, which is a reasonable enough goal. But did it occur to the department and the IDC to consider why Toyota dominates this market?
After all, while there are any number of impediments to free market activity in South Africa’s motor industry — most a result of import tariffs, export incentives and other forms of state interference — there is no shortage of private sector competitors to Toyota. Does Mr Patel really believe his trade union background gives him a unique insight into how to beat these multinational car companies at their own game?
The reason BAW has decided not to assemble the Inyathi in South Africa is that the taxi industry is balking — it has told its members not to buy the model due to quality concerns. The IDC insists it "consulted" the taxi industry throughout the project development and investment decision-making process, but that is a typically bureaucratic approach.
The way to compete in a free market is to offer a better product at a lower price and in this it is clear the joint venture was headed for a hiding no matter how much it tried to negotiate market share.
The Manufacturing Circle’s latest bulletin shows expectations are roughly divided between "fragile" and "stable" conditions for manufacturers over the next year. Factors dragging the outlook down include the wildcat strikes in mining, transport and agriculture, soaring administered costs and the lack of appropriate skills.
These are the bottlenecks to industrial development and job creation in South Africa, and this is where Mr Patel should be focusing his efforts if he wants to "reindustrialise" South Africa.