You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App
Join our mailing list to receive top business news every weekday morning.

SA desperately needs a manufacturing revival

Focusing on local procurement can induce a ‘virtuous demand cycle’ of boosted production, employment and people buying more local products: Manufacturing Circle’s Philippa Rodseth.
A furnace strikes sparks on a red hot steel beam. Image: Waldo Swiegers/Bloomberg

Manufacturing is a key cog in the wheel of SA’s economy, especially because of the multipliers associated with it, such as the high labour absorption rate and enabling exports.

This is according to Department of Trade, Industry and Competition (dtic) chief director of industrial procurement, development and localisation Tebogo Makube, who was part of a Gauteng Growth and Development Agency (GGDA) webinar on Tuesday, titled ‘Resuscitating Gauteng’s manufacturing as a catalyst for growth’.

Makube said economic growth is key for South Africa, particularly as the country has been struggling for over a decade to achieve economic growth of at least 2% to 3%, when the National Development Plan targets 6% economic growth to allow South Africa to deal with some of the challenges in the country.

Manufacturing therefore is a key element here.

“We must accept there is no country that has developed relying on imports only,” said Makube.

“Countries must manufacture and develop. The World Bank is forecasting that the economy is going to contract by 7% in future, so what do you do?

“The state has a critical role in scaling up the economy. The state is very critical now, localisation is critical. We don’t have a choice.”

Localisation

However, Busmark group chief executive Patuxolo Nodada said the biggest challenge facing the dtic is how local content regulations are being implemented by municipalities because “when you buy an imported product, you are actually [externalising] jobs”.

Nodada said Busmark has managed to beat any imported bus products in terms of price; its bus rapid transit market share is about 80% as a result of localisation.

“If we want to create jobs in the country, read the local content legislation, understand, challenge our government in terms of implementation and monitoring of local content. That is the only way you will achieve job creation in any sector,” he said.

Anand Mehta, owner and MD of pharmaceuticals manufacturer Pharma-Q, said globalisation has become localisation because of Covid-19 and that it is essential for every country in the world to become self-reliant and self-sufficient in terms of essential services and products.

“We need to invest more into manufacturing locally. We cannot live on imported products from India, China or other countries.

“Yes, there is a cost in terms of all of these but at the end of day a small cost saving in terms of importing it cheaper from India or China in terms of pharmaceuticals leads to a bigger disaster.

“It leads to unemployment, lack of skill in this country, a balance of payment deficit because of the forex going out of the country; it leads to lesser investments that could have come into the country but now the products are being imported.

“This pandemic has taught us a lot and in the future a lot more local manufacturing facilities will [be established] to manufacture products locally, not just for South Africa but the African continent,” he said.

Mehta added that the sharp reduction in interest rates since the beginning of the year and its impact on the cost of capital has made it a lot more feasible to invest in manufacturing and for companies to “control their own destiny”.

Manufacturing revival needed

GGDA group chief executive Mosa Tshabalala said there is a need to look at how manufacturers are supported to prepare themselves to participate or benefit from the African Continental Free Trade Area (AfCFTA) when it becomes effective.

The OR Tambo Special Economic Zone, for example, is being expanded to, among other things, revive rail manufacturing.

She said the GGDA is also supporting rail manufacturers to create markets in South Africa, across the continent and the world for the various products they manufacture in South Africa.

“Using that AfCFTA, we are preparing ourselves, creating a blueprint to look at the specific sectors that we would want to target in the different trade blocs of the regions of the continent and are already working ahead to identify key locations for various component manufacturers within the rail and other sectors as well.”

Manufacturing Circle executive director Philippa Rodseth called on every South African to support manufacturers by becoming “local manufacturing advocates” and promote the reputation of locally manufactured products.

“Manufacturing also has to do with economies of scale and the more we manufacture, the more competitive we can become because we don’t want to become a wasteland of imports.

“It doesn’t necessarily make sense to manufacture every single item locally but we need to see where those pockets of advantage sit,” she said.

If government and industry work together in terms of local procurement, it will increase demand and the country will start to get to “a virtuous demand cycle” where production in factories increases, which then can employ more people who can buy more local products, she said.

AUTHOR PROFILE

COMMENTS   24

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Scrap BEE and all its rotten , corrupt brothers , get back to procurement on merit only , redo the Labour Relation Act in such a manner that it is not a hurdle to productivity , get on top of import control to ensure proper duties are paid ( just look at the cigarette smuggling etc) and have a prosecution unit with brains and teeth – unhindered by corrupt politicians. Would this not be a start ?

Dream on.

There’s no dripping roast of opportunities out there just waiting for dull business to exploit.

There are huge reasons why south Africa is fundamentally uncompetitive. High energy costs (thanks Eskom) high labour costs (thanks ANC) high cost of equity (thanks to BEE) low skill of labour (30% pass rates) high tax rates, long distance from markets – the list goes on and on.

Throw in government’s hatred and aversion to business and anti business policies (BEE, mining charter, visa requirements, xenophobia, etc) and you have an environment where only tenderpreneurs can survive. And that’s exactly what we’ve got.

Meantime the world and China have taken manufacturing to such a fine art that we could never hope to compete.

Go to China city and price any number of goods there. Then try and imagine how on earth they do it. You absolutely can’t.

40 years ago we could import a fully manufactured car door for less than the local cost of the steel. Since then the world has moved on in leaps and bounds and we have seriously regressed.

Maybe with a rand at 300 to the dollar we could get into some markets. But that wouldn’t work either because we have to import so many inputs too.

So, dream on.

Now this is the kind of thinking we need.

We even have areas where we are already competitive e.g. solar PV mounting structures can be made for less in RSA than imported.

Also due to the high unemployment we may want to look at micro manufacturing where small businesses make products- they avoid the labour legislation issues as they work for themselves on a franchise type model. (Waiting for all the negative comments on this one)

No manufacturing revival ever going to happen here, we cant even supply electricity. How many factories stand idle and can afford to operate for 3 hrs a day. Aint ever gonna happen.

New businesses after we recover from Covid should not be based on the apartheid and colonial systems according to Ramaphosa. How does that work? Businesses are based on the capitalist system, otherwise they fail.

The ANC think the hammer & sickle are modern industrial tools :

The only way to grow wealth is through manufacturing, services and mining.

Capital goes where it is protected.

Asking business to invest in local manufacture is like asking someone who is being bullied, to keep being the punching bag so that everyone else doesnt have to be. (and that’s putting it mildly)

TATA, you have explained it perfectly.

Delete BEE and fix eskom.

We will see Halley’s comet first……

Bu dumbing down the children in schools they are producing youngsters that are incapable of learning. Learning how to learn is a function. And it gets harder the farther you go in the system. So if you ill-prepare them early if affects their cognitive ability going forward. Thus keeping them on the grants and inspiring SoCialism THAT DOES NOT WORK!

They have been doing this since 1994, hence the 30 million uneducated in the rural areas that is their voting fodder.

Manufacturing has been treated as the enemy in South Africa for so long that the entire sector is a shadow of what it could have been.

Running a factory in South Africa is a fool’s game.

Labour regulations are onerous to deal with, so even if you are making a product and selling it, you want to absolutely hire as few staff as possible and automate anything that can be automated.

Chinese products cost less than the raw materials in some cases, but the government gave Mittal tariff protection from cheap chinese steel while local manufacturers have to produce with steel that costs more right from the start.

The damage that gas been done to manufacturing in SA is incalculable.

A factory is an integrated system of processes that sometimes evolves over time, where one product feeds into another. Each step needs a specialised machine and tooling. Once a factory is dead the machines often end up on the scrap heap. Tooling and dies are scattered. People that know how to make tooling become old and pass away, or leave for other countries. People that ran factories have likewise passed away or gone on to other things.

All the talk of reviving manufacturing is the usual ‘putting a plaster on an open head wound’ rhetoric.

It’s pretty obvious this can only happen if our labour market becomes more flexible. This is not supported by government who support trade unions who yield far too much power. The solution is less government control which will allow more private investment. The only way to get out of this hole is to grow, and that is the only solution.

Anyone who currently invests one ZAR into bricks and mortar in Kleptozania right now is practicing reckless and negligent trading and should be stripped of their directorships

The rand will weaken on average around 10% a year against the US dollar for at least the next 10 year. South Africa needs to change its economy from a importing economy to a manufacturing exporting economy.

The Chinese government give their steel mills around 14 Billion US dollars in subsidies a year. South African steel mills don’t get subsidies.

The US government gives their farmers over 22 Billion US dollars a year in subsidies. South African farmers don’t get subsidies.

None of the “Fundi’s” in this article have to deal with the resultant issues of ANC governance such as Labour, Power outages, shrinkage,SARS,volatile fuel prices, volatile currency, etc, etc!

Past Manufacturers have turned to importing their own finished product’s and basically becoming agents, giving them time to have a life, without worrying about their frustrating Labour force 24/7!!

Manufacturing revival, I don’t see it, risk/reward ratio not there, hope I’m wrong!

The most revealing aspect of this article is the difference between the Pollyanna perspectives of what appears to be BEE and AA beneficiaries quoted in the article and views of the responders.

With the ANC in shock and shame mode over corruption ;), maybe it can further introspect over its business-hostility and the “dis-ease of doing business” in SA.

JSE almost back at record levels, Gold and record high, the rest of the indices are absolutely dismal – what can go wrong?

V, me thinks not.

Yip, AP, frightening to think what is going to happen to these levels when a cure/immunisation for Covid is announced!! I,m no economist but clearly a lot of the stimulus funds bypassed the man in the street that needed it and went straight to the investment industry!

Either way, something totally out of sync!?

SA simply needs INVESTOR CONFIDENCE. That’s all!

(….yes, I know, it encompasses many aspects. It’s 100% govt’s role.)

….but this is beyond the ANC’s achievement level, as they have not the country’s interests at heart, only that of the party.

But even more importantly, we need to focus on making ourselves attractive to foreign investors.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: