 afternoon everybody. Thanks very much for the opportunity. From the perspective of the DTI, thanks to the sponsors USAID and UNWIDER and thanks to all the TIP staff for all the organization. They weren't obviously able to choose the weather, but you can choose your bar and I've seldom seen a bar as depressing as the bar here, which only has bottled water in it. The presentation earlier by Wolfer, for the first time I heard the term potable alcohol. Can we suggest that potable alcohol is in the venue going forward, whatever form that takes? This is a difficult session for me. I can't be perhaps as rude as Mike was. I'm employed by a government and so let me just make a few observations without attempting the probably the hopeless task of trying to summarize either what the honorable and very hardworking minister said or what I think was a very rich conference and a good balance as somebody said. Between the transversal policy issues and some of the deeper dive value chain research and issues. Having said that I just want to make one observation which is to say that obviously government's approach to regional industrial integration has to be informed by government's commitment to trade and market integration in the tripartite FTA process. Apart from the important economic imperative, I thought that the minister's point yesterday that unless Africa achieves an FTA, it might be in a position where African countries or blocks have more favorable agreements with developed and OECD countries than agreements in and between African countries. So my view would be notwithstanding the remarks made about the endless policy process. I don't think there's an option to do that and government is certainly committed to it. Although I thought that the points made by the honorable and equally hardworking Rob Davies Zimbabwe were very important and perhaps one of the gaps and I haven't been in all the sessions is a little bit of a academic interrogation of this subject. How precisely or more accurately has all the rent-seeking, the elite-packing, the vested interests, how are they impacting very, very negatively on both the policy and the practical approaches to the FTA beyond endless churn and the very important issues of regional industrial integration? As the minister then said, as government we very committed to regional industrial integration for all the reasons that he spelled out including the dependence on commodity exports, greater value addition, and so on and so forth. But as we know and as has been said here, securing an FTA is not only an incredibly difficult task in the political economy context of South Africa, but securing policy alignment for industrialization is perhaps by multiple factors more difficult. I'd make the point I think that our industrial policy action plan makes is that securing policy coherence just in the South African government is perhaps the biggest impediment to a laser focused aligned industrial strategy and I thought the biofuels example is a very good one. My colleagues, East Indian colleagues from the National Treasury know that that has been on the drawing boards in South Africa for 14 years and you know I'm not sure oh dear me sorry I'm not sure that there's any progress even as we speak. So having said that, just a couple of remarks. The first would be that clearly on the back of rising exports to Africa, in particular in mining and transport capital goods, agro-processing pulled by the expansion of South African retailers into independent, I'm sorry Africa and as well as the expansion of RCT and financing and engineering services into Africa. The first thing that from a DTI perspective, a national perspective that we are committed to doing, working very closely with South Africa's leading companies, we have to get a better understanding of the opportunity that exists in Africa and the deployment of the appropriate policy instruments and levers to support that opportunity and aligned with the imperatives of regional African integration and I was fascinated to hear Judith's input in relation to the fact that our localization requirements in our export credit offering don't align with the localization requirements in Zambia and I think that's a useful example of something that we have to work with. Secondly and more importantly in the context of this conference, the reality is that we have to and will work with SUDDIC both at the policy level and more importantly with the deep dive research in regional value chains that's required and it's SUDDIC not the DTI that has identified mineral beneficiation, agro-processing and pharmaceuticals that should form the core of that research but let me get to perhaps the heart of the point I want to make and those are that for the first time in my understanding we are now devoting considerable resources not just to deep dive examination in close coordination and a collaborative relationship with our lead companies with respect to exports but to practical applied research with respect to regional industrial integration opportunities and our research going forward will not only be very well researched in coordination with the industrial development corporation and the Development Bank of South Africa taking into account the necessity to address the constraints and align the opportunities with the realities of the energy problems, the infrastructure, the skills and so on and so forth but for the first time include academics and policy makers from the subcontinent in the research and look at this work starting with what we believe are the key sectors the mining and transport capital equipment to upstream sector autos where as you heard yesterday from former minister Irwin we are working very closely with Nigeria including with respect to the possibilities of an industrial agreement to cooperate and collaborate in the auto sector and agro processing and perhaps another important sector which we haven't mentioned or certainly that I haven't heard in this forum is oil and gas I think it's the sum of the data is a little bit disputed but on the east and west coast of Africa sits somewhere in the region of 15% of global oil and gas reserves and with respect to Mozambique the liquid natural gas and South Africa's Vaterberg and Botswana's Colbert methane this is up there globally with respect to liquid natural gas and Colbert methane as well as shale gas so we think this is a very significant opportunity and it lies not only with respect to a gas-based industrialization strategy lowering the cost of energy carbon mitigation the upstream mining and transport equipment sector and the downstream petrochemicals ceramics and other sectors so our approach unequivocally now is to move into much deeper dive research to identify the opportunities that exist starting in those value chains as I've said to involve researchers institutions and policymakers from the saddock and wider African region and to hopefully break the endless churn which has been in the space of policy so in conclusion our broader research and policy development effort in that effort we are very keen to support an active industrial policy network both in South Africa and in the broader region and it's been a pleasure to participate and listen to the very important contributions and we look forward to working with you in a much closer way as we go forward thank you. I'd now like to ask Judith to come up Judith Feshai is from CCRED which is the Centre for Competition Regulation and Economic Development based it's a very long name based at University of Johannesburg she's going to share with us some of her insights from the conference. Thank you so first of all thanks to TIPS for organizing such an interesting conference I think we have seen very important presentations on sectors with the high potential for regional industrializations motor vehicles, ethanol, poultry and soybeans, mineral beneficiations and mining inputs we have seen studies across countries and subregions for the how-tank city region, Zambia, Mozambique and Malawi and we have seen a research on cross-cutting areas that are very important for supporting regional industrialization the FTAs trade facilitation energy transport regulations and the relationship with China. I would like to make just two quick points one is on the challenges of institutional capabilities in the regions and the other one is on why I think regional partnerships are very important in terms of research going forward. On the first point the region has seen very important changes in the past 10 years in terms of large investments in extractive industries infrastructure urbanization and rising demand from the middle class. Looking at the supply response I think what's coming out from all of this research is that we have seen growing relationships in terms of production investment and trade networks across borders. To a certain extent the private sector has moved ahead of policymakers in developing the regional strategies so policymakers now have to catch up in most of the countries and craft coherent industrial policies that actually take into account the regional dimension. Regional cooperation in industrial development however requires even more capable institutions at the national level not less. FDI trade facilitation infrastructure are all very important but building firm level capabilities in terms of acquiring new technologies learning new organizational and management techniques developing supply network creating a competent workforce that are all challenges in most of the region require very sophisticated and focused domestic institutions. Such institutions will have also to implement a regional agenda and to coordinate with SADEC with South Africa and with other relevant policymakers. There are different levels of institutional capabilities in the region as far as industrial policy is concerned especially on the implementation side. I think there are very important lessons to learn from South Africa from Botswana on the diamond beneficiation policy from Ethiopia for example on the leather industry however in most of the countries these type of policies in terms of design and implementation remain a challenge. This is also the case with some of the regional institutions that are supposed to support these policies at national level. This is why I think there is a lot of space for sharing experiences and South Africa should play a pivotal role in that respect even if any country at the end of the day will have to face its own specificity and design specific institutions. In terms of the research community a lot more research is needed to improve our understanding of how regional value chains are structured and what are the implications for industrial development. At UJ we are doing work on these kind of issues for example trying to understand how the strategies of lead firms impact on regional industrialization, how monopolies and carters organize that regional level affect competitiveness of downstream industries at regional level and whether there are conflicting policies such as import and export bonds and local content policies. Most importantly how will cooperation in the area of industrial development look like? How do you create win-win outcomes where both South Africa and the region see their own industrialization processes supported? There is however some level of skepticism in the region on whether a regional industrialization agenda would really deliver win-win outcome and not only for the South Africa being the powerhouse of the region and for countries I think to be receptive to any policy recommendations coming out from research on regional industrialization I think the research itself must build on a shared understanding of what regional industrialization is and what it entails and what are the priorities in terms of a shared research agenda. In this respect I agree with the previous speaker that partnerships with research institutes are absolutely critical. Thank you very much and good afternoon to everybody and it's just great to see old friends here and new friends here and I'm really thankful to be on this platform. What I want to do, it's a bit ambitious but I want to relate to some of the big issues that I think are there in development and industrialization, relate that then to regional issues and then finally I do want to say something, try and say something concrete about what I think the sort of policies that the DTI which is the lead agency might actually follow going forward both in the region and perhaps a little bit more broadly. I'm always controversial, lots of things I say people don't agree with and I'll try to limit my controversy but to be to at least be blunt and direct and then at least I think that allows for some discussion to happen. So the first thing that seems to me to be really important if we look at the issue of manufacturing and development is that we are seeing premature de-industrialization as a global phenomenon. What's clear is that countries are turning around if you look at the share of manufacturing employment in total employment it's decreasing all the time in terms of where the turnaround comes. So take an example when Germany industrialized at the peak 38% of Germans worked in industry. Now when we industrialized we've reached our peak at about 20, resort reaches peak at about 22, Mexico's reaches peak we're all seeing decline so we're all seeing if you like de-industrialization in this form and it's a global phenomenon, it's a global phenomenon. So what's happening in a sense is manufacturing's ability to absorb unskilled labor, raise the productivity and so promote development is declining. This is very important, this doesn't mean manufacturing is unimportant it means it's enormously important but we have to be careful. Our whole spring for development doesn't really can't really depend on manufacturing we've got to look also at other areas and particularly other traded areas to provide employment opportunities and productivity opportunities we must be careful to see this not as purely manufacturing led but critically some of the other areas the traded areas and I'll come to that become important. Now South Africa we've said de-industrialized prematurely so it is true we look at South Africa we've probably reached our turnaround point. It's probably in the early 1990s we had about 22% of people in manufacturing employment as I share we're now down to something like probably about 10 or 11%. So there's only one tenth of our population is working in manufacturing and that's there are some possibilities but that's likely to continue to decline. We see it declining every year. Now why? Why should South Africa have prematurely de-industrialized? And there are a number of factors but I want to just point to one. So take an interesting statistic there are now almost more people employed in private sector security than there are in the manufacturing sector that sector has grown enormously massively why? It's a function of demand. You and me and other middle-class people's incomes are rising that's what we prepare to pay for and because we prepare to pay for it that's what grows and when the security companies go to the banks and ask for money they get it because they've got good customers out there who pay. It's got nothing to do with the industrial structure of South Africa that's promoted this. It's a demand-led thing and it's not a problem of finance it's a problem of where the demand is and again if you want to say it behind the demand lies some income distribution issues. South Africa unequal distribution of income richer by more services than they do manufacturing we had a different distribution of income our turnaround would come later. So South Africa we industry is terribly important I don't want to get that wrong but don't look to industry as our sole source of development and certainly not as our sole source of employment creation other areas are going to be much more critical and we're going to probably continue to share labor. Second phenomena that I'd look at if we if we ask what's happening in the global phenomena is the enormous growth in South-South trade and investment. So here's some data if you look at sorry DC here stands for developing countries South-South so look at the import content look at the import relationship and you see how massively our imports developing country imports have grown from other developing countries. Now that's in general look at it in capital goods look at it even in high-tech in high-tech areas now admittedly there's often a very high import content in this trade but it's the trend that's important it's the trend that's important. Southern countries developing countries are trading to a much greater extent amongst each other sure a lot of that's China some of that's India but believe me some of it's Brazil and some of it's South Africa as well. Similarly on this on the growth of South-South investment we're seeing much more investment from southern countries into other southern countries in Africa in the last while if you read the world development world investment report we've seen declines in the FBI by many developed countries the UK for example has reduced this investment in Africa some of those investments have been taken up by developing country firms and it's a major area for South African outward foreign direct investment in this in this area in southern Africa particularly in areas retail finance and others. So South Africa exports to Africa and South Africa's growth of investment in Africa is part of a global phenomenon countries all over are investing developing countries all over are investing in their regions and they're trading more with their regions and we've seen major growth since the mid-2000s essentially not the mid-200s the mid-2000s so now about 50% of us of our manufactured exports go to Africa and even larger proportion 60% of our service exports go to Africa and of course we've seen major increases in our outward foreign direct investments going into Africa so that's kind of good news right it's a it's a good news story it's not altogether a good news story one of the reasons why we're seeing growth in our regional trade is precisely because we've got very slow growth in our domestic markets so if you're a manufacturing firm and you've got slow growth in your domestic markets you've got a bit of excess capacity the easiest place to go to to to to sell some of your goods is in the African market so not all of this is a good news story we have to differentiate the kind of opportunistic type exporting that we have from the exporting that we really want which is to establish a permanent presence and to grow exports in a substantive way so I think we need one issue we need to look at I think is to try to see how we can work with those exporters not all exporters but those exporters who could become more permanent in the in the African marketplace and I want to say something about that now the DTI has done one very excellent thing in the last while very I don't often praise the DTI but the DTI does some wonderful things and amongst the really miracles happen and amongst the really good things that the DTI has done sits very close to the back of this room there Nigel Gwyn Evans who I've worked with a lot in the Western Cape is our is the DTI point man on on on on the region and Nigel's a great guy I don't know anybody say I'm not his friend of mine but I'm not just praising him but I don't know anybody in the in the area who's done as much work with firms talking to firms and has as good a rapport and I think he will do great things I think we'll watch it all Nigel's starting point will be the IPAP right and the IPAP says gives three priorities in the region if you look at the IPAP one of the transversal things is the region and the stress as as Garth has said earlier is the three targets if you like or focuses or agro processing mineral beneficiation and pharmaceuticals I didn't realize those weren't the DTI choices it was interesting that you said that that was but those are the three that come up in the IPAP now I think we have to ask what are the criteria what are the why why why those targets I think we also need to ask what about services now as I said 60% of our service exports are now are going to Africa and there's enormous opportunity here enormous opportunity and there are things that can be affected for example recognition of education qualifications right to open up educational institutions etc there are obviously real possibilities in the service sector imagine if we allowed firms and we talked about this at lunch yesterday but imagine if we allowed firms in South Africa that were exporting services skill services to bring people in from outside South Africa twindered to an immigration policy here I am an engineering consulting firm I bring in Mr Singh from India to do some work in Zambia I pay Mr Singh 500 000 a year which I get from my export revenues from Zambia Mr Singh pays these taxes 100 000 a year government's got more money to spend there are lots of there are lots of backward linkages and possibilities that really allow for service growth and I think it's an area that really needs major attention so we must be careful I mean we slip and slide a bit but we often talk about regional industrial strategy let's talk about as a regional economic strategy for like or certainly make sure that the industrial doesn't in some way preclude or indeed even particularly privilege industrial activities lots of possibilities in the services sector so I've said that South African manufacturing exports the reason I talk about that now is not all good news there are lots of opportunistic exporters so which firms do we target what activities do we support and what sort of supports should we give so those are three questions I want to try and address okay let me address those what what happens when an exporter gets into a market if they're doing it purely opportunistically I'm making a widget for the South African market demands bad I know that there's not much growth here I'm going to send my stuff over the border to Zimbabwe or somewhere that's not an exporter is going to we're going to be able to do much with its event for surplus issue we've got to find and identify those exporters who will enter the regional markets on a more permanent basis so what we want to do in my view is we want to say to firms if you establish a permanent basis of exporting in the region we will support that activity so for example a firm that wants to set up a sale center or a repair center or a maintenance center or do a substantive market study of the region those are the kind of activities the DTI I think could support any activities that are going to make exporters not opportunistic but to establish some kind of base in those areas you don't give them all the money they need but you might say listen if you're going to build up a repair center in Zambia it's going to cost you 100 grand we'll put 30 you put 70 of your own money so really I think we are looking I think to support the the expenses that will make these firms permanent exporters this is this is the export hysteresis story that we know we've had for so long when when firms go in to an export market and they spend money they tend to stay so if you spend fixed money in an area you stay in that area you try to exploit it as much as you can increase and that's that's the kind of support I think that we can do in the regional context that's the kind of exporting the kind of activity that I think I think we could we could we could work with and I want to come back to two further global issues first one's the imports of manufacturers from China now we all think of China's exports of manufacturers being bad for manufacturing in South Africa and in Africa generally but it's not all bad for employment and indeed it's not all bad for manufacturing two issues one is of course cheap Chinese goods consumer goods have major impacts on consumer welfare help the poor help consumers generally but even more significant and and really often neglected China now India presales coming not far behind are now exporting into the African context a whole range of capital equipment which is cheaper more robust more attuned to developing country context more labor intensive so we're seeing small scale tractors for small scale farmers we're seeing metal cutting machines we're seeing cheaper sewing machines lots of capital equipment that's coming in from China is actually employment creating at the lowest barriers to entry it's often labor intensive and this capital equipment is enormously important and so just to to raise the issue we should be very careful about issues of you know China being I mean there are situations of course Chinese imports of clothing into South Africa wreaked havoc here etc not just Chinese but from other countries as well but don't forget the capital good side of it and don't forget the welfare side of it very very important so be careful of any trade kind of issues which try to restrict those imports they may have unintended consequences the second issue about China which is a the last one which I'll close on maybe the most controversial is that the big story at the moment is global relocation of manufacturing investment so as we know wages are starting to rise in China clothing firms footwear firms toy firms furniture firms are looking for not for other locations cheap labor cost locations where the unit cost of labor is low these are labor intensive issues labor intensive manufacturers and where they're going they're going to countries like Cambodia and Vietnam and it's not just that wages are rising in China wages are rising in those countries as well is this an opportunity for South Africa now very critically if you look at deindustrialization in South Africa look at where we've done badly we've really done badly in the labor intensive areas 60 percent of our employment loss in manufacturing has been clothing textiles and footwear we're not competitive we just not now competition in these areas depends critically on the wage and the productivity story so let me tell you here's a here's what I'm working on Cambodia has 650,000 people in clothing 650,000 more and more firms are locating from China into Cambodia I'm asking what is the wage in Cambodia and what is the productivity of Cambodian workers relative to South Africans and lo and behold you find now that Cambodians are agitating for higher wages they're getting about nine dollars a day now that's still substantially below what our clothing wages are but think about an area like the eastern Cape think about Port Elizabeth lots of people in the eastern Cape and elsewhere in the country are going to work for public works programs because they're desperate for work and they'll work at 75 round a day now if we had factories employing people at 75 round a day we would be very compared we would be lower than Cambodia wage costs what about the productivity side well productivity side in east Asia in Cambodia people are coming from the countryside to the urban areas straight into factories our people have worked in we have many people who've worked in factories before trained in factories long urbanized not brilliantly educated education is obviously not great but by comparison with Cambodia well educated so people have worked in South Africa and in Cambodia tell you that South African workers are more productive so I think we can be more productive on a unit labor cost than Cambodia there is an opportunity there's a big opportunity here for us so the traditional trajectory which tells us that these areas etc are where we're not competitive we can be competitive of course there's a big issue about deregulating the labor market big issue but the issue about deregulating the labor market as I understand it is oppositional from the unions who concern that if you deregulate the labor market you'll have cheap labor competing with the high cost labor which they fought so long to to for the wages the decent wages that we've got we talk about decent wages and I understand that I think that's absolutely right but let's say we set up an export processing zone and it's all for exports and let's say it was successful let's say we had a hundred thousand people working in Kuche and PE exporting clothing and widgets to Japan any downward pressure on established wages no so I think there are real possibilities here I mean I think we should be possibly looking to deregulate the labor market more widely politically I don't think that that's possible maybe export processing zones a special form of sez is one thing that we need to look at but certainly we need to put on the table that what has happened in South Africa is that we we have uniquely large numbers of people who already have industrial skills our wages are not anymore that high relative to other countries and we need to make a much more consistent effort I think a substantive effort to see if we can attract some of those jobs now Justin Lin says there are 85 million jobs going in the next 10-15 years I don't believe that number but let's say it's 40 and let's say we get 0.5 of a percent of that won't resolve our unemployment problem won't resolve won't won't won't change anything on a dramatic scale but it will change not only because we all generate jobs but because we all generate exports and exports I think are really critical in this process thank you