Despite the consistent message from government that manufacturing is a priority growth sector, the industry continues to struggle and there is also rising pessimism about whether South Africa can truly revive the fortunes of manufacturing.
The August Barclays purchasing managers index fell 2.5 index points to 48.9 points, indicating contraction in sector activity. The Manufacturing Circle’s second quarter survey, meanwhile, found manufacturing business confidence to be muted, with disruptions in electricity supply, the volatile exchange rate, industrial action and the fall in commodity prices all weighing on the outlook.
However, two recent country-level reports have again highlighted the economic and social benefits of persisting with the bigger reindustrialisation push.
The first is the World Bank’s latest ‘South Africa Economic Update’ and the second is McKinsey & Company’s ‘South Africa’s Big Five: Bold Priorities for Inclusive Growth’, which was published last week.
The World Bank report highlights the importance of manufacturing exports to direct, but more importantly, indirect jobs. In fact, it states that the sector’s importance comes mainly through its backward links to the domestic economy.
“The indirect employment impact of manufacturing exports (jobs in industries providing inputs into manufacturing exports) is nearly 4.5 times greater than the direct employment impact.”
The bank noted, too, that, while the minerals sector generated the most direct jobs due to its dominance in the export basket and in relative labour intensity, its weak backward links to the domestic economy stifle the overall employment impact.
The opportunity-driven McKinsey report, meanwhile, argues that there is genuine potential for South Africa to grow into a globally competitive manufacturing hub, focused on high-value-added categories, such as automotive, industrial machinery and equipment, and chemicals.
“South Africa’s exports of advanced manufacturing products in 2013 were valued at more than R190-billion, or 44% of total manufactured exports. Our analysis suggests that, by 2030, exports of these products could grow to more than R700-billion. This would double the size of South Africa’s overall manufacturing exports, boost gross domestic product by R540-billion and create some 1.5-million jobs in the broader economy,” McKinsey asserts.
It is a compelling vision, but the authors warn that any manufacturing renaissance will require a concerted effort by both government and the private sector to increase the output and exports of specific competitive industries, through increasing productivity, accessing growing export markets, and increasing the level of innovation.
“To foster one key enabler of this growth, both government and business will need to invest in skills development to ensure that South Africa maintains and strengthens the productivity of its export industries in an increasingly competitive world.”
It is surely time for South Africa to persist with, rather than question, its reindus- trialisation vision.