BUSINESS LIVE / 23 AUGUST 2018 - 05:06 / KHUMBULANI GUMEDE
There are worrying trends and signs of stress in manufacturing
The government has identified the manufacturing sector as one of the lynchpins of its "new dawn" initiative to grow the economy, attract domestic and foreign investment and create employment.
However, for manufacturing to be a key driver of this vision there has to be significant and continued government support through targeted fiscally sustainable incentives and policy interventions, to ensure the current decline is reversed.
This is particularly important because SA has yet to develop a world-class and competitive manufacturing sector. Manufacturing has been sheltered, particularly during the predemocracy years.
As a result there has not been significant investment in research and development or beneficiation of locally produced products. There are very few, if any, examples of manufacturers that are global success stories.
There are worrying trends and signs of stress in manufacturing, where output has hardly recovered since the last recession in 2008/2009 while the sector’s contribution to net job creation has stagnated over the past five years.
According to Statistics SA seasonally adjusted manufacturing production decreased by 1.5% in the three months ended May 2018 compared with the previous three months. Nine of the 10 manufacturing divisions reported negative growth rates over this period.
But on an annualised basis, manufacturing production increased by 2.3% in May 2018 compared with May 2017. On the domestic front many companies are struggling as a result of competition from cheaper imports. A case in point is the textile and clothing sector, where both domestic markets and jobs have been lost mostly as a result of exports to SA by Chinese manufacturers who have taken advantage of China’s entry into the World Trade Organisation in 2001, to aggressively grow their export trade in Africa and elsewhere.
SA NEEDS NEW THINKING ON HOW INDUSTRIAL BASE CAN BE DEVELOPED, AND EXPORT COMPETITIVENESS IMPROVED.
In the export market, SA’s competitiveness has been affected by a slowdown in investment in manufacturing as companies have been battling with low domestic demand and competition from cheaper imports.
It is apparent that while SA has a coherent industrial policy, its implementation has been disappointing. There also appears to be a lack of policy co-ordination, particularly where the country has several other policy plans such as the National Development Plan and the New Growth Plan. SA needs a co-ordinated approach and a synchronisation of policies supporting economic growth and job creation.
Policy consistency and collaboration across the manufacturing ecosystem can create synergies and linkages crucial to expanding the manufacturing base and improving competitiveness.
Having said this, we have seen progress being made on the automotive side of the manufacturing sector. This can be used as a great story for collaborative efforts between the government and private sector.
With an economy already lagging behind peers in a region enjoying one of the world’s fastest growth rates, SA needs new thinking on how the industrial base can be developed, export competitiveness improved, and demand created. In particular, the sub-Saharan market needs to be exploited through exports and direct foreign investment.
SA already has a model that can be used to develop the industrial base through the black industrialists’ programme being funded and supported by the department of trade & industry and Industrial Development Corporation.
Through linkages, big business’s role would be to foster enterprise development and create clusters of emerging industrialists, creating an industrial forestry that becomes the foundation for the emergence of a stronger manufacturing base from which regional and global players can emerge.
It will also be critical for SA business to continue cementing trade in the region. The continent is best positioned to gain economic growth given the population and the opportunities that exist. The bulk of our exports in the region have been concentrated in the Southern African Development Community, and accessing other parts of Africa will help grow exports.
The commitment to implement the African Continent Free Trade Area is a positive step towards achieving this, particularly now that SA has signed the agreement establishing this free trade zone.
Evidently SA cannot afford further deindustrialisation, particularly given the unemployment crisis and the low economic growth rate. It needs commitment, hard work and, more importantly, public and private sector collaboration, to ensure that the manufacturing sector becomes one of the key drivers of economic growth with a bright "new dawn".
• Gumede is chemicals, forestry, paper and pulp sector head at Absa Corporate & Investment Bank.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER