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South Africa must modernize its manufacturing industry to mutually benefit from its partnership with China

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South Africa must modernize its manufacturing industry to mutually benefit from its partnership with China

19th September 2017

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South Africa (SA) has long endured an unequal trade partnership with China that has significantly impacted its manufacturing sector. China on the other hand has initiated plans to elevate its manufacturing industries over the coming decades by means of implementing innovative technologies to create the smart factory. Given China’s move, SA cannot afford to miss out on this opportunity to follow suit. By adopting industry 4.0 technologies, SA stands to even the playing field with China that has long been overdue.

Key points:

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  • SA needs to change its current course of trajectory of exporting its natural resources to China in order to create jobs and see its economic growth thrive.
  • The ‘Made in China 2025’ initiative outlines China’ plan to elevate its manufacturing industry by implementing innovative technologies such as the Internet of Things (IoT), big data, cloud computing, 3D printing and artificial intelligence to create the smart factory.
  • To prepare SA to compete with the likes of advanced countries, SA businesses intend to invest approximately US$ 459 million annually over the next five years to ready themselves for the impact of the fourth industrial revolution.

South Africa’s manufacturing sector is at risk given China’s monopoly of South Africa’s natural resources

For decades, China has purchased South Africa’s natural resources for its own production industry. This has led to an increase in South African exports, resulting in the commodity boom. China imports South Africa’s primary goods, but sells manufactured products to the global market. China can rapidly produce cheaper manufactured goods, given the country’s larger and cheaper labour workforce. This is one of several factors that has contributed to South Africa’s de-industrialisation and shrinking manufacturing sector, negatively impacting upon the country’s economic growth.

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However, China’s economic growth began to slow between 2007 and 2008, following the 2008 financial crisis. By then, China amassed high levels of debt arising from the misallocation of funds in infrastructure investments required to stimulate the economy in response to the crisis. To address this, President Xi Jing Ping in 2013 decided to move towards a new consumption based economic growth model. In doing so, the demand for South Africa’s commodities began to wane, while; Chinese exports of manufactured goods to South Africa continued to soar. This created a negative trade imbalance for South Africa. While China shifted towards a new economic model, it became essential also to modernise its manufacturing sector.

These changes resulted in the ‘Made in China 2025’ (MiC2025) initiative. The comprehensive MiC2025 strategy was built upon Germany’s industry 4.0 plan also referred to as the fourth industrial revolution. Given such changes in Chinese manufacturing, South Africa will have to re-assess its long-term manufacturing strategy and follow in China’s footsteps by embracing and adopting industry 4.0 technologies to reignite its manufacturing sector. This will put it on a path towards manufacturing it own value-added products and help to improve the trade imbalance between South Africa and China.

South Africa’s disproportionate trade relations with China

During the commodity boom years leading up to 2007, the partnership between South Africa- regarded as the gateway to the African continent and China; the world’s largest developing country grew rapidly. China imported raw materials from South Africa; e.g. minerals, base metals, precious and semi-precious metals, stones and wood. South Africa imported mainly manufactured products from China; e.g. cheap consumer goods, clothing, data processing machines, printing machinery, bulldozers and motor vehicles.

Due to cheaper Chinese-manufactured goods flooding the South African market, SA’s manufacturing sector suffered severely. Many SA-manufactured products which could be exported to China, are not sold to China. The SA government has tried to counter this imbalance through the Forum of China-Africa Cooperation (FOCAC), which was established to enhance Africa’s industrial and manufacturing capabilities. This was intended to enable Africa to produce value-added products, acquire the technological and skills know-how from China, and supply locally produced products for Africa’s inter-regional trade. However, 15 years since FOCAC’s inception, not much has materialised. SA has not developed a strong manufacturing sector, in fact, further decline has happened due to lack of investment.

China knows that the key to future economic growth entails a robust, efficient, innovative and advanced manufacturing sector. Therefore, it has adopted a comprehensive ‘Made in China 2025’ initiative in a bid to enhance and incorporate smart technologies to its production industries. If SA wants to create jobs and see its economic growth thrive, it needs to change its current course of trajectory of exporting its natural resources to China. Instead, SA needs to take full advantage of the ‘Made in China 2025’ initiative to compete with developed countries in the manufacturing arena.

‘Made in China 2025’ initiative holds great promise for SA

The ‘Made in China 2025’ initiative built upon Germany’s industry 4.0 plan , outlines China’ plan to elevate its manufacturing industry by implementing innovative technologies such as the Internet of Things (IoT), big data, cloud computing, 3D printing and artificial intelligence to create the smart factory.

 

Different smart technologies are helping to speed up the digital transformation of
manufacturing and enable a decisive move towards industry 4.0. Infographic courtesy: Deloitte. Available at: https://www2.deloitte.com/content/dam/Deloitte/za/Documents/manufacturing/za-Africa-industry-4.0-report-April14.pdf

By utilising smart technology, Chinese manufacturers can first design, modify and develop their products in a simulated environment and or virtual laboratory before placing them into the assembly line for production purposes. In so doing, China aims to improve efficiency, create quality products as well as integrate both the local and global markets within the larger supply chain production network. Key priority sectors were identified such as aerospace, aviation, automotive, machinery, automated machine tools and robotics, high-tech maritime and railway equipment, new-energy saving vehicles and medical devices in the course of upgrading its industries.

However, before China can achieve its target of moving from quantity to quality through innovative technologies by 2025, its robotic industries will have to be accelerated for general manufacturing activities. This means that China needs to increase its industrial robot shipments from 57,000 units to above 150,000 units by 2018. As their demand for smart manufacturing products increases, so will that of related components’, such as smart sensors, wireless sensor networks and radio identification chips. Local Chinese suppliers will be unable to meet such demand. China will have to look to its foreign partners for its advanced IT supply needs. Given China’s needs over the coming years and the likelihood that advanced countries such as South Korea, Japan, United States (US) and Germany will play a leading role; SA cannot afford to miss out on such a lucrative opportunity. 

Embracing industry 4.0 technologies for the purpose of mutual beneficiation with China

To prepare SA to compete, SA businesses intend to invest approximately US$ 459 million annually over the next five years to ready themselves for the impact of the fourth industrial revolution. Such an investment will focus on “digital technologies such as sensors or connectivity devices, and on software and applications like manufacturing execution systems. In addition, companies will be investing in training employees and driving organisational change”.

According to a survey conducted by PwC, 61 SA companies are at various phases in their adoption of specific industry 4.0 technologies. Those that have fully implemented the necessary technology are SA companies with ties to foreign companies. However, embracing and adopting industry 4.0 technologies will be heavily dependent upon the SA government, business and research institutions collaborating with one another to compete with developed countries pertaining to China’s needs. This will contribute to the economic growth of the country and have a desired impact at a socio-economic level.

An opportunity that cannot be missed

As the South African private sector takes the lead to prepare for the fourth industrial revolution, government cannot afford to miss out on an opportunity to partner with them to upgrade the manufacturing sector by adopting specific industry 4.0 technologies. SA stands to create a mutually beneficial trade partnership with China and contribute to its own agenda of inclusive economic growth and development.

Written by Cheryl-Anne Smith, a Senior Consultant at In On Africa and Contributing Analyst, Analyst Recruiter and Outreach Coordinator at Wikistrat. Key areas of interest include foreign policy and international relations. Her expertise includes strategic forecasting and geopolitical risk analysis. Contact Cheryl-Anne at cheryl@inonafrica.com/cheryl.anne.smith@wikistrat.com

Published on In On Africa which was formed in 2007 with the goal of becoming the global authority on African affairs. Over the past decade, IOA has positioned itself as one of the top research firms in and focused on Africa, with an increasing presence across the continent and an ever-expanding list of international clients. IOA and its team of more than 300 expert consultants combine to provide its clients with decades of experience and expertise in a wide range of research and advisory-related areas. IOA also regularly publishes various Africa-focused reports and position papers.

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