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Firm-Level Capabilities: The Missing Link in South African Industrial Growth Strategy

In 2019, South Africa’s National Treasury called for reform, arguing that South Africa was “facing a slow-burn economic crisis”. The COVID-19 pandemic has accelerated the onset of this crisis. It has caused a sharp and rapid deterioration in South Africa’s growth prospects and corresponding increases in poverty, unemployment, inequality, business profitability, investment, and macroeconomic risks. The gains achieved by South Africa’s investments in reform and growth since the advent of democracy in 1994 – by successive governments, the business community, and an array of other stakeholders – are all but gone. It is time for firms, managers and policymakers alike to engage in the application of new thinking on how to achieve sustained growth and prosperity. 

Earlier this year, in partnership with CSIR2, TIPS3 and the TIA4, the BRG Institute challenged an expert audience in Pretoria to think differently about South Africa’s economic growth problems, and its industrial policy.5 By applying the dynamic capabilities framework6 to the South African context, our aspiration is to advance a new paradigm that is firm-centric, system-aware, and capabilities-led. Through a new partnership with the Gordon Institute of Business Science at the University of Pretoria, the BRG Institute intends to make practical, evidence-based contributions to the development of industrial policymaking as well as to the capabilities of managers, entrepreneurs and firms in South Africa. The goal of these contributions is to provide tools for firms and policy makers to improve innovation, productivity and competitiveness over the longer term while minimising the economic impacts of COVID-19 in the short run. This includes improved ability to take advantage of the fourth industrial revolution, to maximise the opportunities it offers while minimising its potential costs.

A critical question for South Africa is how to arrest the decline of the past decade or more and emerge from the COVID-19 crisis on a stronger and more sustainable footing. One part of the answer is to shape policy to maximize the economic contribution of South African firms, the managers who run them, and the entrepreneurs who found them? After all, firms drive sustainable economic growth over time. Innovation and entrepreneurship in firms of all sizes lies at the heart of this challenge and opportunity. Innovation is more than technological advancement – innovation is about creating new opportunities and anticipating and exploiting changing trends. And while South Africa has a long tradition of innovation and entrepreneurship, including the development of impressive new technologies, achieving the scale required to significantly increase economic growth remains elusive. South Africa’s innovation potential is not being maximised. 

By putting the capabilities of firms and managers front of mind, policy makers in South Africa can become more capabilities-aware. This will foster a focus on policies that help South African firms grow through innovation and to develop greater abilities to identify and exploit new opportunities. 

We believe targeted efforts to identify and develop dynamic capabilities in firms will contribute positively to South Africa’s economic recovery and longer-term growth. Dynamic capabilities define how firms and the managers that lead them find and exploit opportunities for competitive advantage over time. All companies do this to some extent, but some are more intent and focused on the processes that make them successful, allowing them to extend that success into new areas, cope with and respond to uncertainty more effectively, ride out disruptions and thrive in their aftermath.

To read the white paper Click here.

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