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Business Unity South Africa keen to restore SA manufacturing

SA’s manufacturing accounted for 24% of South Africa’s GDP in 1980 but by 2017, it was 13%

Hosting its inaugural Business Economic Indaba, Business Unity South Africa (Busa) has unveiled vital areas for partnership with the government that includes equipping people with the means to earn a living, developing ideas to up research & development investment, building the right infrastructure and improving South Africa’s ease of doing business.

The indaba, which was conceived in late 2018, brought government and business together to  discuss how to build a partnership that would help drive inclusive growth and transformation. Inevitably topics under discussion included the governance challenges in state-owned entities (SOEs), the crisis confronting Eskom, deepening unemployment and inequality, rising government debt levels, and the impending wave of disruption that will be brought on by the 4th Industrial Revolution (4IR).

Dispelling ‘Ramaprogress?’

“The wheels of change are moving now and they are going to start speeding up,” remarked President Cyril Ramaphosa on 24th January 2018. A year and numerous commissions of inquiry later the wheels are still gathering speed. But there is hope. A recent PwC report predicts that SA’s economic growth could accelerate to 3% by 2022 if Ramaphosa is able to make the necessary changes and reforms.  But where does one start? With governance challenges in the state-owned entities, deepening unemployment and inequality and rising government debt levels – the list is longer than Angelo Agrizzi’s memory.

Manufacturing, quick fix. Import woes

According to various delegates at the indaba, manufacturing remains key. Once upon a time, manufacturing accounted for 24% of South Africa’s GDP (1980s), but by 2017 it was a shadow of itself at 13%. In his maiden State of the National Address on 16 February 2018, President Ramaphosa stressed the importance of manufacturing and emphasised the need for investment in the sector through the strategic use of incentives and other support measures.

Incentivisation and positive sentiment yielded some results as the United Nations Conference on Trade and Development’s (UNCTAD) latest foreign direct investment (FDI) report shows that direct foreign investment into South Africa increased by more than 440% between 2017 and 2018 to US$7.1 billion.

Exporting SA inc. is not easy in a global world. Ayanda Mngadi, Chair of the Manufacturing Circle South Africa noted that compliance with World Trade Organisation (WTO) rules, such as Most-favoured-nation (MFN), is a tricky business. “The surging imports have been big in displacing some industries like steel and aluminium and as a participant in the WTO, there are certain policies you must comply with,” she says. “These policies are good for you but at the same time, they bite.”

Her statement alludes to the WTO’s rules such as MFN which dictates that goods and services should be treated equally, and national treatment which rules that imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. Now for many developing manufacturing sectors across the world, this does create a challenge for domestic industries if they have to compete against fully fledged established Asian industries.

South Africa’s manufacturing might be down but it is not under. Manufacturing production rose slightly in November lifting by 1.6% year on year on the back of October’s 2.8% year on year increase. The good news? Quarter on quarter seasonally adjusted manufacturing production (which is used to tally GDP) was up 3.0% in November signaling a positive contribution to  2018 aggregate GDP figures.

Manufacturing growth vs ABSA PMI for November 2018 signals a mild recovery

Tough facts were laid on the table for all to see and discuss. For instance, while the World Bank notes that manufacturing is a job multiplier, in South Africa 300 000 jobs have been lost in the sector in the last 11 years. 

Despite the tough talk during the day, the business community put its best foot forward and looks set to start afresh with the public sector. “We are in conversation [with government], we are planning. But what is important is that we are crafting a way together, not just us and government but with labour organisations,” says Mngadi.

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It will never happen.
The cost of labour, as well as its unreliability will continue to hamper manufacturing.

China flood of imports play a big part as well..

You can’t compete against Chinese labour: educated, disciplined and hungry for work – the opposite of SA

“…Once upon a time, manufacturing accounted for 24% of South Africa’s GDP…”

Once upon a time:

– SA was the biggest producer of gold – bar none. It has collapsed to seventh position – in little over two decades.

– The rand was stronger than the US dollar. Since 1994 it has collapsed to less than fifteen percent of its value.

– SA’s GDP per capita could compete globally. But today, in US dollar terms (the only relevant measure), it is one third of what it was in 1978.

– SA was a major global player and by every measure the economic leader of the southern hemisphere. Indeed – eg Aus and NZ played second fiddle.

Etc. Etc.

But none of the above quite match SA’s collapse in LABOR PRODUCTIVITY.

Eg,

– On average, a Chinese worker, produces around eight times more versus SA.

– An Australian gold miner, on average, produces almost ten times the weight of gold.

– What more can be said about Eskom – overstaffed and overpaid equals the poor productivity.

Etc. Etc.

The “Indaba” (not surprisingly) missed the point completely. You can produce goods until you are every color of the rainbow – it means nothing.

YOU HAVE TO SELL STUFF! Ie the stuff you produce.

– You can produce a gazillion underwater hairdryers a day – who will buy it?

– You can produce a brazillian loafs of bread, at a thousand US dollars each, but still people will buy the two dollar fifty one.

Until SA can compete with the best, like it did ONCE UPON A TIME, it is a failed state walking.

Eg GERMANY.

– China exports around forty five percent more than Germany.

– Yet China has around seventeen times more people.

– Thus Germany’s exports per capita is almost twelve times greater.

– But most critical: Germany has a currency multiple times stronger than China. This due to the Chinese currency being perpetually deliberately weakened. This caveat – you cannot infinitely carry on doing it; ie your currency will end up like that of Zimbabwe (and so the your entire country will end up like Zim).

– Thus, the German economy is infinitely sustainable, while the Chinese economy is a ponzi scheme, that will implode (ie not sustainable). The German economy can compete globally even with a very strong currency.

– In short: Germany’s labor force can compete with anyone – without having to manipulate its currency.

INCONVENIENT FACT:

Today, South Africa cannot even compete with China, let alone with sustainable global producers.

Looking at the picture Ayanda Mngadi, Chair of the Manufacturing Circle requires a chair big enough to house an entire Chinese family. But seriously, why would anyone bother with setting up or increasing manufacturing facilities with the usual labour troubles, AA, BEE and other requirements when it is far easier to import stuff. In 1980 there were much higher protective duties than today, China was not the world’s manufacturing centre which also encouraged local manufacturing.

love the Hun’s comment about the speaker.
had similar thoughts myself.
SA manufacturing is finished and klaar.
I have been involved in a few industries and was lucky to bail with a profit , those who remained went bankrupt .
businesses cannot be built when “the tail wags the dog “. govt and labour think they run the show but they do’nt.
our labour should be paid according to work done and not time spent wasting space and oxygen. can AA ,BBEEE and replace with hire and fire policy .
but it aint gonna happen because the cabal needs votes to keep the gravy flowing

Who in their right mind would invest or start a business in South Africa with the threat of government confiscation without compensation as a government policy ? First land, then businesses . It’s only a matter of time before South Africa goes the way of Venezuela.

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