Are there any green shoots in South Africa's manufacturing sector?
South Africa’s manufacturing
sector continues to confront challenging conditions with strong forward
thinking required if the direction for this crucial segment is to be brought
back to its glory days. Negative conditions in the mining sector, an important
client with multiple linkages into the manufacturing sector, and fierce
competition from imported goods, mainly from China and Germany are but some
factors negatively impacting South Africa’s manufacturing arena.
Data recently released by
StatsSA shows that South Africa has technically entered a recession but a
closer look at the data shows that the primary sector – that is mining and
agriculture – is recovering, growing by 15 percent last quarter. This is
because of global commodity prices improving, and the effects of the drought,
which had crippled the agricultural sector easing.
So why is South Africa not
growing in comparison with other developing economies, given the advantages
they have of a sophisticated infrastructure and business capabilities many
countries only dream of having?
Mainly because South Africa
remains locked-in to global markets as a primary commodity exporter and often
finds itself vulnerable to lower commodities demand. Which accounts for the
poor performance of economies such as Russia, Brazil, and Nigeria and of course
South Africa.
Economies that
have maintained a higher and fairer growth, and that
have proved far more resilient in
the recent global downturn, are those with
more diversified economies
and higher levels of manufacturing value added.
Whereas South Africa’s manufacturing value added as a
percentage of GDP is around 12 percent.
Yet in the high technology exports,
the substantive differences are most exposed. As a percentage of manufactured
exports, high technology goods make up only 4.5 percent in SA compared for
example to 43 percent in Malaysia, and 26 percent in both China and South
Korea. Which is attributed to government support in areas of R&D,
technology development, industrial policy, export incentives and logistics
efficiencies, and private investment in R&D and venture capital
funding.
Thus affected by mounting
consumer headwinds, including rising interest rates, depressing employment
prospects, weak global trade activity and in the face of rising input costs
which will only further repress South Africa’s manufacturing growth, the
country’s sector is falling behind some other key sectors needed to help keep
South Africa’s economic engine throbbing.
Despite manifold challenges,
the manufacturing sector continues to occupy a big share of the South African
economy. Employing 1.6 million people and endures as a critical catalyst for
stimulating growth in other sectors and is dominated by industries such as
agro-processing, automotive, chemicals, information and communication
technology, electronics, metals, textiles, clothing and footwear.
South Africa has been
de-industrialising since the Apartheid era when manufacturing was capital and
energy intensive and dominated by six large conglomerates and state-owned
enterprises, (SOE’s) This coupled with an incoherent tariff policy mean
that the economy boomed on the back of its manufacturing base. With a large
contributory factor in the eventual decline of South Africa’s
manufacturing sector having been the Apartheid government’s inability to
diversify.
Having been rooted in
infrastructure and mining mega-projects, which boosted the fortunes of
engineering and related sectors. Post-1994, but, there has been a lamentable
continuation of the countries old industrial path. The focus has remained on
commodity manufacturing and those sectors focussed on intermediate
manufacturing inputs, although the few non-commodity manufacturing successes
include the automotive sector, and the machinery and equipment
sector.
Therefore the manufacturing
sector in South Africa finds itself at an inflexion point with
a manufacturing industry that has been in a state of decline for many
years, facing challenges around productivity, costs, labour issues, skills
shortages, efficiency and new technology. So whilst there is
no specifically identifiable area that is the problem, but addressing
each of these and moving towards a more diversified manufacturing sector will
make sure that growth can continue to happen. With
strategies employed including: localisation, strategic trade policy,
an aggressive export-driven manufacturing outlook and a stronger push
by the government towards greater regional economic integration.
Given South
Africa’s proximity to the rest of Africa, this serves as
a potentially major boon for the sector. The continent
is the fastest growing region in
the world, thus South Africa
must grasp the opportunity to supply the
continent. As albeit from a low base, South Africa’s diversified
export growth to Africa has far outstripped the growth of manufacturing export
to the European Union and this can be expanded over an
extended period.
So along with these challenges,
there are huge opportunities, and if industry leaders can overcome these
hurdles and seize the initiative in the arena of technological transformation,
South Africa has the ware withal to become the manufacturing hub on the African
continent.
Yet the manufacturing sector
continues to grapple with the following challenges: low productivity, compared
to international competitors, especially China and Germany, High input
costs, labour costs and efficiency, rendering the South African
manufacturing sector uncompetitive. Plus a lack of alignment between government
and the manufacturers, particularly on how best to promote growth in the
industry, and address an acute shortage of skills at all levels in the
industry.
However, the biggest shift that
SA’s business leaders in manufacturing are contending is the move globally from
traditional manufacturing practices - which were labour intensive and required
low technology - to models embracing the latest technological – especially
digital – advances. These recent models need skill sets, which are in short
supply in domestic manufacturing.
What policy interventions does South Africa need to drive the growth of manufacturing?
South Africa’s first formal
government intervention came with the Industrial Policy Action Plan (IPAP) in
2007, which used a wide range of instruments and was aimed at stimulating
several key sectors via economy-wide policy interventions. Yet there remains a
pressing need for continuous engagement of key stakeholders in the sector
across manufacturers, labour unions, government and private sector to
create a favourable investment climate the necessary for
manufacturing growth.
Skills development programs,
benchmarked to international standards, and moving unskilled labour up the
value chain, a diversified export-driven manufacturing sector, and forward
thinking by the government with enhanced targeted planning and implementation
are also vital policy considerations.
South Africa’s industrial policy
needs to make sure that manufacturing today can sustain large-scale
industries as was initially envisaged by the Industrial Policy Action Plan
(IPAP). Whilst also creating more demand in the economy which will be another
important element of this.
The future of manufacturing in
South Africa will also have to compete on a global scale whilst leveraging
regional opportunities. Whilst automation will also be essential for creating
further capacity for effectiveness. In manufacturing economies of scale matter
as South Africa lacks the market size to sustain large-scale manufacturing
activity but with Africa as the next economic frontier and Pan-African infrastructure
projects – those related to transport – will all be pivotal for the
sector.
In sum, the government needs to
take a long-term view on its goals and objectives in the manufacturing sector.
As South Africa’s competitiveness is what will drive growth. Directing
objectives towards a more innovation-driven sector will be crucial. A much more
focused and coherent plan is needed to tackle the structural weaknesses along
with a more dynamic understanding of the manufacturing sector demanded to tackle
and allow for more coordinated interventions.
Comments
Post a Comment