AMITH SINGH: Uptick in manufacturing sector paves way for economic growth
With nearly three months of no load-shedding and improvements at Transnet due to new leadership and a recovery plan, there are positive signs for the sector
Recent data from Stats SA paints a complex yet cautiously optimistic picture of SA’s manufacturing sector. Despite a notable downturn earlier in 2024, the latest statistics from April 2024 show a 5.3% year-on-year increase in manufacturing production, with nine out of 10 manufacturing divisions reporting positive growth. This turnaround underscores the sector’s potential to rebound and play a role in the country’s economic resilience and recovery.
The manufacturing sector has long been a cornerstone of SA’s economy, yet it has faced significant headwinds over the past two decades. Since the mid-2000s the industry’s contribution to the nation’s GDP has declined substantially, with Stats SA’s February 2024 report revealing a 1.7% month-on-month drop in production, starkly contrasting the anticipated 0.4% increase.
This broad-based decline affected six out of 10 sectors, with vehicle production plummeting 13.8%. These challenges are compounded by under-investment, escalating production costs, stiff competition from imports and pervasive investor uncertainty. Other key issues include decreased local and global demand, which has affected new orders and business activity.
Furthermore, inadequate infrastructure, inefficient transportation networks, persistent energy supply constraints and logistical services have hindered manufacturing growth. However, with nearly three months of no load-shedding and improvements at Transnet due to new leadership and a recovery plan, there are positive signs for the sector’s resurgence.
The April 2024 data indicates a 5.2% month-on-month surge in manufacturing production, the largest increase since August 2021. Key sectors such as petroleum, chemical products, rubber and plastics have grown, contributing to this positive trend. In addition, the Bureau for Economic Research business confidence survey reported a rise in business confidence among manufacturers, with a notable seven point increase, reaching its highest level in two years.
The current state of the manufacturing sector presents a unique opportunity for strategic collaboration and innovation. Given its interconnections with key sectors such as logistics, banking and retail, a robust manufacturing base is essential for sustained economic growth. Expansion of manufacturing can catalyse the broader economy, boosting exports, creating employment opportunities and increasing government revenue through corporate taxes. This revenue is vital for funding essential education, housing, and healthcare services.
To realise this vision an urgent and concerted effort is needed to address the sector’s critical challenges. Policy and regulatory certainty, coupled with an improved investment and business climate, are essential. The government’s role is pivotal as there is a pressing need for structural reforms and accelerated investment in infrastructure, including energy, ports, rails and road networks.
The manufacturing sector demands a skilled workforce proficient in modern manufacturing techniques and technology. Improving educational systems to provide relevant training and technical skills can greatly improve industry growth and unlock the sector’s competitiveness. Innovation, productivity enhancement and a focus on core competencies are imperative for companies within the sector.
The trade and export opportunities presented by the African Continental Free Trade Area may enable the manufacturing sector to invest in new capacities and technologies with the aim to supply products that can compete on the global stage. Climate change adaptation and sustainable practices must also be integral to the sector’s strategy. Investing in climate resilience can mitigate risks and ensure long-term sustainability.
The challenges facing SA’s manufacturing sector are significant, but they are not insurmountable. With strategic investments, collaborative efforts and a conducive policy environment the sector can overcome current adversities and reassert itself as a cornerstone of the country’s economic revival.
SA’s manufacturing sector stands at a crossroad, facing daunting challenges and tremendous opportunities. The path forward requires vision, leadership and unwavering commitment from all stakeholders. We must act decisively to unlock the sector’s full potential and ensure it continues to be a catalyst for economic growth, job creation, and social progress.
• Singh is national manager for manufacturing at Nedbank Commercial Banking.