Chief Directorate
Chapter 4: Evaluation of the Small Medium Manufacturing Development Program
4.3. Analysis of Internal Resources
strategy, which dictates that the organisational objectives must be aligned with the objectives of its stakeholders.
These objectives adopted by the organisation provide a clear path forward, and require that the programmes implemented by the Board for Manufacturing Development raise fixed investment in manufacturing create international competitiveness, increase jobs, and encourage small to medium size manufacturing.
employment, unless the investment is technologically advanced and results in a decrease in the number of employees required. The investment may also lead to superior quality of product, and will therefore provide a competitive advantage over the organisations competitors.
The competitive advantage gained from the investment, results in increased competitiveness of the company, and increased output. Increased competitiveness will result in increased exports, or alternatively import substitution, which will protect the country's balance of payments. This in turn will lead to sustainable profitability and business growth, creating wealth in the process.
As the organisation benefits from increased competitiveness and additional output, it can provide real wage growth, and in addition plough back its profits into re-investment, thus repeating the cycle.
It follows then, that providing incentives for investment per se, will result in employment growth, and increased competitiveness. Increased exports and real wage growth are possible outcomes from the investment, employment growth and increased competitiveness.
Incentivisation of investment therefore, aids in accomplishing three of the seven roots level SMMDP objectives i.e. Wealth Creation, Employment Creation and Facilitation of International Competitiveness. The remaining four objectives (Facilitation of Entrepreneurship, Promoting Utilisation of Raw Materials, Creating Opportunities for Skills Advancement, and Ensuring Long- Term Sustainability of Projects receiving incentives) cannot directly be achieved through incentivising investment, and therefore requirements must be built into the respective incentive framework that require companies to make progress in the other four areas if they are to receive incentives for investment.
The assumption that companies will of their own accord implement measures to achieve these objectives is tested as the effects of the incentive are discussed below. Furthermore, the incentive scheme attempts to force
companies to comply with these four remaining requirements by building them into the qualifying criteria for receiving incentives.
4.3.2. SWOT Analysis
An analysis of the strengths, weaknesses, opportunities and threats of the SMMDP, will provide a basis for analysing the appropriateness of the chosen strategy.
4.3.2.1.
Strengths• The SMMDP is based on extensive experience gained from the Regional Industrial Development Programme and the Simplified Regional Industrial Development Programme.
• The SMMDP is able to reduce the cost of capital to investors and offer a greater return in the start-up phase of the project.
• The programme is available to all manufacturing sectors.
• The programme is available to all geographical regions within South Africa.
4.3.2.2.
Weaknesses• The Chief Directorate: Manufacturing Development is understaffed and displays a lack of human resources and trained personnel.
• Some manufacturing sectors are in greater need of assistance than others.
• The programme does not adequately compensate for the global pressures placed on South African manufacturers as a result of the reduction in trade barriers.
• The SMMDP is not able to create sustainable employment directly.
• The effect of the 'lifeline' to small business is limited, as borne out by the high failure rate of businesses in the sample group.
4.3.2.3.
Opportunities• Any increase in internal efficiency will have a multiplier effect on economic output. The Chief Directorate: Manufacturing Development can therefore have a greater effect by increasing
efficiency within its key functional areas, as suggested by the value chain analysis.
• Offer specialised sector specific incentives to address more specific market failures e.g. pressure on specific industries resulting from removal of trade barriers and tariffs.
4.3.2.4.
Threats• Any change in governmental objectives could result in the SMMDP chasing objectives that are not congruent with governmental policy.
The Chief Directorate: Manufacturing Development risks having its programmes made redundant in an instant by a change in government policy.
• The programme is not available to existing manufactures investing in increased capacity.
• Payments are too slow to have an impact.
4.3.3. Organisational Resources
The key resources of the Chief Directorate: Manufacturing Development are:
• Governmental funding
• Experience in industrial incentivisation
• All resources possessed by the South African economy
The Board for Manufacturing Development must harness the resources endowed upon it by South African economy (including raw materials, existing competitive advantage of South African industry, and a first world infrastructure) and channel these resources into areas that will have the greatest overall impact on the South African economy.
Individual industrialists have Capital and Entrepreneurship, and individually can make a marginal contribution to the economy, but lack total economic perspective. The Board for Manufacturing Development should impart the insight gained from a bird's eye perspective to the economy by encouraging (through incentivisation) investment in industries that will make the biggest contribution to GDP, and discouraging investment in marginal industries.
This economic decision is well illustrated in Figure 4-3, adapted from Schiller (2000). The principle is that government must allocate scarce resources into the production of various products, in this instance Guns, and Butter. The more butter is produced, the less guns can be produced. An efficient outcome must be attained, because the country needs both guns and butter.
1 2 3 6
Bu er
Figure 4-3: Guns vs. Butter Continuum Source: Adapted from Schiller, The Economy Today, 2000.
The same principle applies to the incentivisation of industry. Government must maintain a balance between industries producing various products, and favourable economic outcomes such as wealth and employment.
This argument therefore builds a case toward industry specific incentivisation, and in principle, discourages broad sweeping economic incentives. Greater growth can therefore be achieved through sector specific incentivisation, provided that the sectors are appropriately selected. This premise also leans towards a more emergent approach to development of strategy as opposed to a prescriptive approach.
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