Sustaining Industrial Growth and Trade in Africa

Abstract

The use of selective industrial policy to reintegrate South Africa’s previously protected automotive industry into the global business is one of the few successful cases on the African continent in recent times. South Africa’s success provides a useful reference point for other African countries in which selective industrial policy is a key part of the national development strategy. Despite the re-integration, the automotive industry has experienced deteriorating trade defi cit since 1995, contrary to what had been envisaged. This paper uses a qualitative system Dynamics (SD) model to explain this apparent contradiction. It is found that the offer of fi scal incentives to the industry had a positive effect on industry investment and exports, but not on longterm competitiveness. The paper argues that for a replica of South Africa’s selective industry support model to sustain industrial growth and subsequent international trade, it has to be implemented in conjunction with a targeted technology acquisition strategy.