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).
“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.