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Home » Industry News » Manufacturing » Why is the South African manufacturing sector shrinking?

Why is the South African manufacturing sector shrinking?

Business Day reports that the manufacturing sector in South Africa is on a downward slide, with the sector battling to compete with highly subsidised imports, a weak rand and unstable labour environment failing to mitigate the effects of incoherent government policy pandering to conflicting priorities at national level.

With the manufacturing sector shrinking 4%, from representing a healthy 20% of the country’s economy in 1983 to 16% in 2013, it is necessary for policymakers and business to come together to strengthen industry if the country plans to create the jobs and economic strength it needs to by 2023.  

Tribulations

The problems faced by South African manufacturers are multi-faceted. Companies – especially in the engineering and metals sectors – cannot compete with the cheap imports flooding the market. This is not because the South African sector is not able to provide cutting edge solutions, but because of many other factors, including:

  • Unclear government policy

Government policy, while often well intentioned, is not cohesive. Without a clear goal that spans across ministries, individual initiatives just muddy the waters and add complexity.

  • Uneven playing field

Many of the Asian imports are heavily subsidised by their own governments that are primarily concerned with creating jobs for their citizens.

  • High labour costs

South Africa’s labour costs are relatively high for the same calibre of skilled and unskilled candidates elsewhere.

  • No international tariffs

South Africa has eliminated many of its tariffs that were in place to insulate local business when it could have, and should have, dropped them (from the extreme levels that were in place during the apartheid era) to World Trade Organisation-approved levels.

  • Different rules

South African manufacturers are obliged to comply with South African Bureau of Standards (SABS,) while many imports do not meet the same standards.  

Results

  • Small businesses closing

Many smaller engineering and metals companies have had to close their doors in the past few years. This has caused a drop in employment levels from 413,515 in 2007 to 374,959 in 2014.

  • Imports outstripping exports

Local manufacturers exported around 35% of its produce, while 45% imported goods propped up local markets in 2014. These figures seem positively rosy when compared to the beleaguered metals and engineering sector’s 60% imports vs. 35% exports.

  • High manufacturing costs

Manufacturing insiders report that some imports could be landed at half of what it would cost to manufacture them in their own factories.

Solution

The picture may seem bleak, but locals are still optimistic. With open communication and a concerted effort from the three main stakeholder – private sector, government and labour – the sector could become a strong contender in international markets.

The country is not lacking in innovative and elegant solutions, and with a combined effort the future should be much brighter.   


By Jenni McCann

Source

Business Day Live

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