24 July 2017
Speaking at the opening of the recent Manufacturing Indaba, former trade and industry minister Alec Erwin (now of UBU Holdings) stated; “The reality is that South Africa’s industrialisation is not automatic. It needs sustained government support to grow manufacturing in our size of economy, and for that we need reliable electricity, a fast communication system and solid logistics.”
André de Ruyter of the Manufacturing Circle pointed out that the reality is that the South African manufacturing sector currently contributes around 10% to 12% of South Africa’s GDP, in comparison to the 1980s when it was 24%. “Granted, we have tripled the size of our economy in the last 24 years and the manufacturing sector has grown; but the reality is that other service sectors have grown much faster.”
The reasons for this he said are many and include:
- Increased competition from imports
- Increased labour costs
- High energy costs
- Infrastructure
- Policy and regulatory uncertainty
- Asymmetrical compliance with WTO rules
De Ruyter added that the decline in manufacturing also correlates closely with a drastic loss of jobs. Since 1989, local manufacturing has shed half a million jobs, as its share of GDP has shrunk. Manufacturing also has the highest job multiplier of any sector, so job losses have an outsized negative impact.
“Unfortunately, the reality is that the current demand from local consumers will not create impetus for growth. Creating additional demand for local goods is the key to a virtuous cycle that promotes economic growth. Without a virtuous cycle of investor and consumer confidence, supported by stable policies, South Africa will continue to deindustrialise, without the capacity to move to a services economy.”
He added that; “We need to stimulate demand for local goods via mechanisms such as preferential procurement. Investment will not take place if demand side policies do not dovetail with supply side policies. We also need to protect local industries through more assertive trade policies and support initiatives like Proudly South African”. (NOTE: sassda is currently discussing forming a strategic partnership with Proudly South African.)
He explained that if manufacturing were to have an appropriate share of GDP for South Africa’s developmental stage i.e. 28% to 32%, a theoretical 800 000 to 1.1-million jobs could be created. “Given that manufacturing presents one of the greatest avenues for much needed job-rich growth in South Africa, the Manufacturing Circle in collaboration with a number of manufacturing industry associations, is therefore undertaking an initiative which aims to create a million jobs by strengthening and growing the manufacturing sector in South Africa.” In light of this announcement, sassda is actively exploring how we can work with the Manufacturing Circle to ensure that the stainless steel sector forms a vital part of that growth.
Incubation nation
Clusters and incubators also came up frequently during the various presentations as a means to stimulate much needed growth in our economy and improve our overall global competitiveness. Government has identified key sectors for this form of economic participation around: Logistics, fabrication and construction components. the dti now also has a cluster desk which they have opened up to help with this process.
Despite this, speakers mentioned that a challenge to achieve success in this regard, is that third-party facilitators for these types of incubators are currently missing and this is something sassda is working on to provide for our industry with a potential Stainless Steel Incubator planned for the industrial heartland of Johannesburg.
All for one, and one for all
Another key theme that arose at the Indaba, was that South Africa shouldn’t just export into Africa but rather work together with other African countries and become part of regional value chains to add value to products through beneficiation prior to them being exported.
One of the speakers Isaac Nkama from Facilitation Africa was of the view that South African companies tend to invest in Africa NOT Africans and don’t do enough to develop local communities. “If you go into Africa to just sell your product, you will be seen as an infester. You must invest into African partner countries in such a way that it generates trade.”
For example, a sassda member who is a fabricator might look to invest in a JV assembly and/or distribution plant in Zambia. They could supply the high technology end from their South African operation and thereby create a valuable partnership with their Zambian partner in this endeavour. One can therefore increase trade through investment.
Another recurring theme within the presentations was the fact that the 4th Industrial Revolution is here. The old model of “invent-make-sell” is dead and manufacturers cannot survive by only hoping to sell the things they make. They need to go beyond products and be driven by creativity, connections, customisation, niche focused, service thinking, etc. They also need to embrace advanced manufacturing and technology. Speakers said the future will see man and machine working intricately together through things such as augmented reality. The 4th Industrial Revolution will also allow on-shoring of jobs versus offshoring of traditional jobs, to countries with the cheapest labour.
Other key insights to be considered by South African companies wishing to go into Africa include:
- Africa Rising – Africa is still a viable investment options with the continent expected to have 1-billion people in its workforce by 2034.
- Leapfrog Technologies – New technologies tend to gain early traction on the continent e.g. smartphones have a 50% penetration in Africa.
- Market dictates what you need to deliver – Markets are different so create to market specifics because what works in one market, may not work in another.
- Invest in sectors not products for longer-term returns – When investing, look at a specific sector like agro-processing as oppose to applying a blinkered vision and exporting a single product – look at bigger picture and how to take advantage of that.
- A partnership mentality is key! Almost every African country has an industrialisation programme – can’t look at this as competition!