Manufacturing Sector’s Dicey Status

Posted by on Oct 24, 2013

Manufacturing Sector’s Dicey Status

South Africa’s manufacturing sector has been facing uphill for over two decades, if not longer. A lethal cocktail of global, structural, technological, macroeconomic and industrial policy issues has, over time, undermined its growth and undermined its resilience. Whilst in the last decade of apartheid rule, the industrialisation process had reached its natural dead end, ever since 1994, the obstacles to SA’s industrial expansion have become increasingly self-imposed. The upshot has been a de-industrialisation process with deep and wide consequences for the political economy of the country.

Nowadays, the contribution of manufacturing to national income is about 15%, nearly 25% less than what it was a decade ago. At the same time the number of jobs in the sector has declined accordingly. In 1990, the sector created over 1.5 million jobs whereas today’s manufacturing employment is hovering around the one million mark- the sector has lost nearly one third of its jobs! Broadly speaking, this is an indictment on the country’s industrial policy paradigm.

This is even more so because South Africa’s inherent comparative advantages are robust and potentially conducive to a resilient and expanding manufacturing base. These include the country’s vast mineral base, the existence of scientific and research infrastructure, a competitive capital and financial market sector, and a well-established culture of manufacturing entrepreneurship integrated within the global industrial network.

For the past decade, the root causes of the structural obstacles to industrialisation have been widely known, and yet these obstacles remain in place today as binding as ever. The shortage of skills, the crumbling urban infrastructure, the inefficient and increasingly counterproductive municipal management framework, and the unreliable and unsustainable power supply continue to bedevil the development of business in general, and the performance of manufacturing in particular.

In addition to these domestic factors, the global economy ever since 2001 has been thrown into a tectonic, structural and turbulent spiral. Consequently, the financial markets have spun out of equilibrium, and have entered a dynamic process of compounding disequilibria, burdened by unsustainable private and public debt the world over. The upshot for the global foreign exchange markets has been disturbing volatility, rising uncertainly and systematic defiance of the old and established models of foreign exchange econometric modelling. The sustained over valuation of the rand, and its well-above-average volatility have been of considerable and adverse impact on the manufacturing sector- indeed the entire exporting industries.

The rise of China, with its conversion from communism into a ferocious state capitalist machinery, with a total disregard of human rights issues, labour standards, and world trade requirements, has introduced an additional political economy factor, compounding the manufacturing challenges worldwide.

Policy makers in South Africa, as in many other countries, have not risen to the challenges that these developments pose. More often than not, the reactions have been in the form of ad-hoc policy pronouncements, uncoordinated policy action plans, and largely out of sync with the urgency and enormity that the situation demands.

Macroeconomic policy makers have interpreted these developments to be of cyclical and transitory nature, hence they have, by and large, shied away from taking appropriate and effective policy stances. And, where policy positions have changed, consistency and coordination have been lacking. With regard to the structural obstacles, whilst policy analysis has been correct, implementation has not followed with commitment and vigour. It is important to note that industrial promotion takes far more than a correct industrial policy framework and/or the expression of political intent. It requires an effective implementation framework sustained over a long period of time with full operational involvement of the key stakeholders, namely the manufacturing sector and the labour organisations.