South Africa: Greater role for manufacturing

The government wants South Africa’s manufacturing industries to step up and play a greater role in the national economy by boosting employment and revenue while reducing dependence on the mining and service sectors. However, although some parts of the sector have shown a remarkable improvement in competitiveness, labour unrest and volatile export demand may limit a significant jump in growth over the short-term.

On October 11, Rob Davies, the minister of trade and industry, said it was essential to develop a strong manufacturing base to sustain job creation and reduce socioeconomic disparities.

“We need to make the transition where we move incrementally from being a producer and exporter of primary products to becoming producers of value-added products,” Davis said during an address to representatives of the South African automotive industry.

Davies said that the automotive industry was a case in point, with the emphasis being expanded to encompass increased production of parts, rather than just assembling vehicles. “We will able to create a number of opportunities for small and medium-sized enterprises working with original equipment manufacturers, as well as for entrepreneurs with real skills, real capacities and real abilities, who can play a meaningful role as industrialists in our country,” said Davies.

While the government sees the automotive industry as a driving force for private sector development, it has been the beneficiary of significant state support. As of January 2013, the industry will be assisted by the Automotive Production and Development Programme (APDP). The APDP, which is set to run until 2020, will replace the Motor Industry Development Programme (MIDP), an earlier scheme that also supported the sector but had a greater emphasis on exports.

The APDP’s new focus is to assist component manufacturers so they can provide cost-competitive products to original equipment manufacturers (OEMs) and to international markets for export. Currently, South Africa’s automotive exports account for 11.8% of total exports, while imports for the sector represent 16.7% of all inbound shipments.

However, there are signs that the labour unrest that has undermined the mining sector is now spreading to manufacturing, with workers at a Toyota-owned parts supplier outside Durban striking for the second time in the month on October 17, as part of a campaign to secure bonus payments. Other rolling strikes, particularly in the transport and logistics sectors, have impacted many manufacturing concerns across the country, cutting deliveries of supplies and forcing a reduction in production in numerous plants. Combined with increasing costs for fuel, electricity and labour, as well as shortages of some materials, the manufacturing sector may come under pressure in the latter part of 2012.

Data issued by Statistics South Africa (SSA) on October 11 showed that growth in the manufacturing sector eased to 3% year-on-year in August, well below the 6.3% recorded in the previous month. However, while down on the July figure, the August result was above what many experts were expecting, given labour and supply difficulties.

For the first eight months of 2012, manufacturing posted a 2.3% increase compared to the first eight months of 2011, though this may slide due to workplace unrest and further economic easing in some of South Africa’s export markets.

In mid-September, the SSA released the country’s latest employment figures, which have indicated that manufacturing may be losing some of its momentum. While there had been a slight increase in the total number of those employed in all sectors, up 0.5% for the second quarter, manufacturing shed 9000 positions, suggesting a slowdown in the industry, or at least a consolidation by employers.

Currently, manufacturing contributes 15% to South Africa’s GDP. In order to build on this number, the government will have to ensure its long-term investment programme for infrastructure, with particular emphasis being placed on the transport and utilities components of the scheme. For now, however, power shortages continue to disrupt production, while logistics difficulties hamper the movement of materials and finished products.