Structural impediments hampering growth in the South African manufacturing sector

Abstract

South Africa has developed a sizeable manufacturing sector that was developed behind the protective tariff wall and other import barriers. At the end of the 1960s, after half a century of rapid industrialisation, South Africa had a relatively advanced and diversified manufacturing sector. The economy had moved away from primary commodities towards manufacturing. The percentage share of manufacturing to GDP increased from 6.2 percent in 1917 to 22.8 percent in 1970. Manufacturing exports became a large part of South Africa’s exports growing to 31.4 percent by 1972. However, a change to the structure of the economy, including shifting from an import substitution industrialisation to export oriented industrialisation under conditions of economic crisis was one of the reasons for the rapid decline in growth. With the collapse of the commodity price boom in the early 1980s, the export of the main sectors of the economy fell sharply. The investments into the sector declined and the economy stagnated. In the early 1990s a growing trend of scarcity of skills relative to unskilled labour emerged. South Africa’s transition to an export led industrialisation was considerably delayed by nearly thirty years compared to natural resource poor South Korea. It goes without saying that competitive, high-technology industries generate the highest income, while they are a drain on resources if they are not competitive. Other factors such as economies of scale, new technology, better infrastructure and better organisation contributes to productivity growth. The research was in the form of in-depth interviews and analysed the data to identify the factors hampering growth in the South African manufacturing sectors and targeted senior managers operating in chosen sectors within the manufacturing industry, particularly the metals sector, chemicals sector and pharmaceutical sector, together with senior government officials and trade union officials. The research topic focused on South Africa’s industry leaders, large corporates based in the Gauteng region. Results indicate that the country’s manufacturing activity is concentrated in Gauteng. On average more than 40 percent of manufacturing value-added has been generated in Gauteng, followed by the coastal regions (Fedderke and Simbanegavi 2008). The research found that while great efforts have been made to try to grow the South African manufacturing industry, there are still structural issues that need to be addressed. The South African manufacturing industry has the potential to compete on quality and technology. This can be achieved by improving investment into the industry. The industry needs to use the current strength of the rand to its advantage by investing in technology that can be imported at favourable rates. Skill in the industry remains a challenge and the research suggests that the quality of the skill-set and lack of a strong work ethic is slowing productivity. Companies are opting to replace labour with machinery in order to boost productivity and limit the regulatory burden around hiring and firing. The current SETA programmes can be utilised effectively to boost the skill base and equip the labour force with the appropriate skill set to cope with the diversified product range.