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The need for structural transformation and inclusivity in South Africa is urgent, given poor economic growth, employment and equality outcomes. This article examines the role of South Africa’s main industrial finance institution – the Industrial Development Corporation (IDC) – in providing finance for structural transformation and inclusive economi...
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Context 1
... 2007 onwards, through a more targeted industrial policy (the National Industrial Policy Framework (NIPF) and its implementation plans the Industrial Policy Action Plans (IPAPs)), the IDC sought to support stronger labour-intensive and value-added manufacturing sectors. However, between 2008 and 2017, Figure 1 shows that, despite the introduction of the NIPF and IPAPs, finance provided by the IDC continued to support more established upstream industries relative to more diversified and labour-intensive downstream industries, although there was some level of diversification albeit to a limited extent. Nevertheless, between 2008 and 2017, sectors that received the most funding were mining and quarrying; machinery and metals products; electricity, gas and water supply; and chemicals and other mineral products. ...
Context 2
... data presented in Figure 1 emphasises the fact that since 2008, the IDC has focused on providing finance to sectors strongly supported in the past. Within the metals, machinery and equipment (MME) value chain, for example, the basic metals sectors received considerable support during apartheid, including through IDC investments aimed at promoting competitiveness. ...
Citations
... It is in line with this train of thought that the listed companies should evaluate and measure their executives on how quickly they pay their suppliers. This is important in the South African context, because the big businesses tend to pay their suppliers as late as after 120 days from the date of invoicing (Goga, Bosiu & Bell 2019). • Third indicator -Gender-based violence is among the top challenges facing South Africa (Mbunge 2020). ...
Orientation: Rising levels of executive compensation amidst the widening inequality, unemployment, poverty and other socio-economic challenges have raised questions among policymakers, academics and practitioners alike on the best ways to resolve this conundrum.
Research purpose: The main objective of this study was to identify a composite mix of environmental, social and governance (ESG) indicators that can be used in executive compensation plans.
Motivation for the study: Whereas the importance of incorporating the ESG in executive compensation plans is well documented, it is not known which indicators are appropriate and can be used in the South African context.
Research design, approach and method: A sequential exploratory research design was used in this study. The ESG-based indicators were identified from the literature and then subjected to three rounds of surveys in a Delphi enquiry strategy.
Main findings: An eclectic mix of nonfinancial performance measures (NFPMs) based on the ESG philosophy were identified, confirmed and validated by a diverse team of international experts.
Practical/managerial implications: In order to curb rising executive compensation and to disincentivise short-termism associated with sole reliance on profits as the only yardstick for performance, NFPMs identified in this study should be integrated into the executive compensation designs.
Contribution/value-add: On an empirical front, the study proffers novel NFPMs for executive compensation plans that are predicated on ESG philosophy. The methodological contribution lies in the use of a Delphi inquiry strategy, which has never been used in the area of executive compensation.
... In South Africa, Goga et al., (2019) argue that the critical issue of interest rates is particularly important considering that one of the challenges for SMEs growth is source and costs of funds that they can access, and the process of accessing it which ultimately determines flexibility and growth potential. Goga et al., (2019) further postulated that there was the need to allowing the Industrial Development Cooperation to consider the issue of cross-subsidization of financing activities and increasing focus on possible zero-rated interest loans in order to meet its mandate of funding for SMEs and industrialization of the economy. ...
... In South Africa, Goga et al., (2019) argue that the critical issue of interest rates is particularly important considering that one of the challenges for SMEs growth is source and costs of funds that they can access, and the process of accessing it which ultimately determines flexibility and growth potential. Goga et al., (2019) further postulated that there was the need to allowing the Industrial Development Cooperation to consider the issue of cross-subsidization of financing activities and increasing focus on possible zero-rated interest loans in order to meet its mandate of funding for SMEs and industrialization of the economy. The central critique in this instance is that IDC being a government arm, was being called for reform and financial re-engineering to create space to support the SMEs development. ...
... The IDC, through its partnership with the SEFA, has been mandated with alleviating poverty as well as facilitating economic development in South Africa by occupying a leading developmental-funding role concerning SMMEs operating in the industrial and manufacturing sectors of the South African economy (Mqoqi, 2014;Kalumba et al., 2017;Sikwela & Fuyane, 2017;Khambule & Mtapuri, 2018;Goga et al., 2019). The IDC further explains its mandate as leveraging financial investment to develop innovative and high-growth SMMEs competing in the industrial manufacturing space (Khambule & Mtapuri, 2018;Langa et al., 2018). ...
BACKGROUND: Public funding agencies are governmental funding organs tasked with supplying developmental finance to prospective and emerging entrepreneurs. These agencies focus on bridging the finance gap between investors and entrepreneurs, overcoming strict collateral and own contribution needs. Given South Africa's standing as a developing country, public funding agencies play a pivotal role in enfranchising and empowering emerging entrepreneurs from impoverished sectors of South African society PURPOSE OF THE STUDY: The study's objective was to document the experiences that incubator managers have with public small, medium and micro-enterprise financiers at a national and provincial level. DESIGN/METHODOLOGY/APPROACH: A qualitative research design was used in this study. Data were collected using semi-structured interviews that were recorded and transcribed. The sample consisted of 17 business incubator managers from separate business incubators all over South Africa. A combination of convenience, homogenous purposive and snowball sampling were employed. RESULTS/FINDINGS: Findings revealed that negative experiences between public funding agencies and business incubators were poor lead times on applications, complicated application processes, strict funding requirements, ineffective financing and ineffective staff. Furthermore, findings revealed that positive experiences between public funding agencies and business incubators were improved credibility and higher chances of funding success when applicants are under the auspices of the business incubator. MANAGERIAL RECOMMENDATIONS: Critical shortcomings in public funding agencies' funding processes were documented, and public funders have been advised to adopt a standardised list of funding requirements, improve communication with incubators and improve staff competencies JEL CLASSIFICATION: L26
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith-Jones and Ocampo, 2018). ...
This chapter traces how policies and institutions flowing from the post-apartheid political settlement in South Africa gave rise to a range of rents and rent-like transfers, which have not, however, been adequately invested to advance structural transformation. Rather, corporate and industrial restructuring has been associated with a ‘high-profit and low-investment’ economy and deindustrialization. Low investment, job losses, and limited black participation in the ‘commanding heights’ of the economy from the mid-1990s spurred the political impetus for a stronger role for the state during the 2000s. The formal introduction of industrial policy in 2007 has had some successes and helped to avert even deeper deindustrialization. However, it has been undermined by unsupportive macroeconomic policies and a weak articulation between policies to advance black ownership and structural transformation. Rising corruption and maladministration have further undermined structural transformation. Implications are drawn from South Africa’s experience for middle-income countries more generally.
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy (Bosiu et al., 2017;and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Bosiu et al., 2020;. ...
One of the key challenges of South Africa’s democratic project has been supporting the effective participation of the previously excluded black majority in the economy. The broad-based black economic empowerment (BBBEE) policy, as the primary tool employed to drive racial transformation, is assessed and found to have had a limited impact, although there has been some progress. The chapter considers the link between structural transformation and black economic empowerment in three key parts. First, relevant literature is drawn on to build the argument that inclusion matters for structural transformation. Second, is an examination of the factors that have underpinned the challenges with the implementation of BBBEE to open up the economy for broader participation, including its limited focus on key barriers to entry, and the implications for structural transformation in South Africa. Third, the chapter presents a case study based on a survey of applicants under the government’s ‘black industrialists scheme’ as a critical evolution from, and alternative to, the approach followed with BBBEE, as it is able to contribute to both racial and structural transformation of the economy. The chapter concludes with a reflection on the roles of black economic empowerment and the black industrialists scheme, barriers to entry, and structural transformation of the economy.
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith- Jones and Ocampo, 2018). ...
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Vilakazi et al., 2020). ...
Taking South Africa as an important case study of the challenges of structural transformation, the book offers a new micro-meso level framework and evidence linking country-specific and global dynamics of change, with a focus on the current challenges and opportunities faced by middle-income countries. Detailed analyses of industry groupings and interests in South Africa reveal the complex set of interlocking country-specific factors which have hampered structural transformation over several decades, but also the emerging productive areas and opportunities for structural change. The structural transformation trajectory of South Africa presents a unique country case, given its industrial structure, concentration, and highly internationalized economy, as well as the objective of black economic empowerment. The book links these micro-meso dynamics to the global forces driving economic, institutional, and social change. These include digital industrialization, global value-chain consolidation, financialization, and environmental and other sustainability challenges which are reshaping structural transformation dynamics across middle-income countries like South Africa. While these new drivers of change are disrupting existing industries and interests in some areas, in others they are reinforcing existing trends and configurations of power. The book analyses the ways in which both the domestic and global drivers of structural transformation shape—and, in some cases, are shaped by—a country’s political settlement and its evolution. By focusing on the political economy of structural transformation, the book disentangles the specific dynamics underlying the South African experience of the middle-income country conundrum. In so doing, it brings to light the broader challenges faced by similar countries in achieving structural transformation via industrial policies.
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith- Jones and Ocampo, 2018). ...
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Vilakazi et al., 2020). ...
The metals, machinery, and mining equipment industries have been at the heart of South Africa’s industrial ecosystem. Their central position is associated with the long-term importance of mining, with which there are extensive demand- and supply-side linkages. This chapter reviews key turning points in the development and restructuring of these value chains in post-apartheid South Africa, from 1994 to 2019. The overall record is of a basic steel industry that performed better in terms of value added relative to the more diversified downstream industries, despite government industrial policy targeting more labour-intensive downstream industries. The downstream machinery and equipment industry struggled to compete with imports in the 2000s and 2010s and only partially engaged with digitalization. In explaining these developments the grand bargains struck by the state with the main company producing basic steel and the use of procurement as a demand-side industrial policy are critically examined. The chapter also provides micro-level evidence of the evolving relationships between mining houses; engineering, procurement, and construction management services companies; and input suppliers along the value chain. Overall, it is argued that the relatively poor performance of this industry grouping in South Africa has been due to power asymmetries along the value chains, upstream concentration, high levels of fragmentation in the domestic ecosystem, the lack of key institutional ingredients, and poor policy design. Lessons for resource-endowed middle-income countries are discussed, and policy challenges for upgrading and diversification are presented.
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith- Jones and Ocampo, 2018). ...
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Vilakazi et al., 2020). ...
This chapter examines how economic power, understood as control over accumulation, has influenced the poor progress of structural transformation in South Africa, which, in turn, has impacted on inequality through income and wealth effects. The chapter argues that the failure to diversify and develop downstream capabilities in manufacturing in South Africa reflects, among other things, the entrenched advantages of incumbent upstream firms, as well as the lack of a policy agenda for transformation that incorporates a recognition of the economic power of these upstream firms. The inability to change the patterns of accumulation underlies the persistent inequality in income and wealth. The chapter involves an analysis of interests in the South African economy within key industry groupings (specifically the metals and plastics value chains) and how these interests have set agendas and shaped policy and regulation to set the rules of the game for the benefit of upstream firms. The analysis shows that economic structure is a source of economic power, and that the relative strength of the upstream industries means that their interests are better served than those of diversified downstream industries.
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith- Jones and Ocampo, 2018). ...
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Vilakazi et al., 2020). ...
Structural transformation is a complex, long-term historical process entailing both structural change in the sectoral composition of an economy, as well as broader societal changes in the productive organizations, institutions, and political economy of a country. With a focus on South Africa as a middle-income country, this chapter advances a holistic and integrated perspective on the nature and dynamics of structural transformation and highlights a specific set of interlocking critical factors and dimensions. These are: the processes of learning and productive capabilities development and accumulation; technological change—digitalization, specifically—and its relationship with sustainability; power dynamics along global value chains (GVCs) and their relation to inequality; and finally, the political economy of development and the role of the state. Over the course of its democratic history, since 1994, South Africa has not undergone sustained and thoroughgoing structural transformation. Despite some areas of partial success, there has been premature deindustrialization, lack of sufficient development of the local production system alongside integration into GVCs, and persistent cross-cutting challenges of inclusiveness and sustainability. Here it is argued that the holistic and integrated framework developed by the authors can help in developing a policy approach towards effective and feasible packages of industrial policies for structural transformation.
... Since the introduction of the NIPF, the IDC has raised its levels of disbursements. However, its ability to provide long-term concessional funding has been constrained by limited access to low-cost funding streams, in the face of rising costs of capital (Goga et al., 2019), that have been the lifeblood of successful development banks elsewhere in the world (Griffith- Jones and Ocampo, 2018). ...
... While there is an established network of government development finance institutions (DFIs), their activities have largely been uncoordinated and are not aligned with a central objective of driving structural transformation. In the post-apartheid period in general, the reorientation of government's industrial development initiatives have not successfully supported more diversified industrial activities (Goga et al., 2019). ...
... This has been perpetuated by a commercial banking and private equity sector whose lending and investments have been directed at private consumption, household credit, and short-term portfolio interests, rather than at productive fixed investments in the real economy and Chapter 10). Importantly, black-owned businesses in particular continue to report challenges with access to finance and a problem with DFI institutions that do not steer a proportional share of capital towards black businesses (IDC, 2003 andGoga et al., 2019;Vilakazi et al., 2020). ...
This chapter examines the evolution of the political settlement in South Africa, which is critical for understanding its structural transformation path as well as for the reconfiguration of industrial policy. The success or failure of countries to drive structural change is understood in terms of the extent to which the political settlement, or governing coalition of interests, supports the growth of diversified industrial activities with higher levels of productivity. The chapter analyses why and how, despite the developmental agenda of the ruling African National Congress (ANC), South Africa has failed to achieve its production transformation. The chapter finds that the political settlement forged around South Africa’s transition from apartheid to democracy created the conditions for a corporate restructuring of the economy characterized by high profitability, despite low investments. This has involved power entrenchment in large incumbent organizations and coalitions of rentieristic interests, which have undermined necessary industrial policy enforcement. Persistent high unemployment and inequality have fuelled dissatisfaction and contestation over the core objectives of a more developmentalist state. Industrial policies have also been undermined by the fragmentation of the state, leading to misaligned policies.
