Maintaining and Building Capabilities in Capital Equipment and Related Industries in Mozambique and South Africa

Capital equipment manufacturing and related activities present an opportunity for fostering regional industrialisation and integration due to the large scope for developing productive capabilities through aftermarket services and strong complementarities between mining, construction and rail infrastructure and agriculture. Yet, capital-intensive economies such as Mozambique and South Africa have failed to diversify out of the core base within the minerals-energy complex and are experiencing de-industrialisation albeit with differing dynamics. On the one hand, Mozambique increased demand derived from capital-intensive mega projects has been met largely through imports due to weak and narrow productive, investment and technological capacities. On the other hand, South Africa's capital equipment sector, which is an example of strong backward linkages from the mining industry, is losing capabilities and competitiveness as well as market share in the region. It is within this context that through a combination of primary and secondary research, the paper examines how trade and investment linkages in capital equipment and related industries in and between South Africa and Mozambique have evolved and can be maintained and further developed. This study argues that there is potential to develop mutually beneficial industrial capabilities by leveraging South Africa's capabilities in capital equipment into Mozambican firms. This requires a collaborative approach to regional industrial development and policy that is structured not just around expanded market opportunities but fundamentally on developing local manufacturing capabilities and competitiveness across the region